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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
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(Exact name of registrant as specified in its charter)
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TEXAS 52-1862813
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
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777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 877-0477
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of each class: on Which Registered:
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Common Shares of Beneficial Interest
par value $.01 per share New York Stock Exchange, Inc.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 25, 1997, the aggregate market value of the 112,466,292 Common
Shares held by non-affiliates of the registrant was approximately $4.1 billion,
based upon the closing price of $36 7/16 on the New York Stock Exchange.
Number of Common Shares outstanding as of March 25, 1997: 118,722,305
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 1997 Annual Meeting of Shareholders to be held in
June 1998 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PART I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters . . . . . . . . . . . . . . . . . 25
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Historical Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . 39
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
PART III.
Item 10. Trust Managers and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 71
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 72
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 72
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This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company (as defined below) believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: changes in real estate conditions (including rental rates
and competing properties) or in industries in which the Company's principal
tenants compete; changes in general economic conditions; consummation of the
proposed merger with Station Casinos, Inc. on terms other than those described
herein or the failure to consummate the merger; the ability to identify
acquisitions and investment opportunities meeting the Company's investment
strategy; timely leasing of unoccupied square footage; timely releasing of
occupied square footage upon expiration; the Company's ability to generate
revenues sufficient to meet debt service payments and other operating expenses;
the Company's inability to control the management and operation of its
residential development properties, its tenants and the businesses associated
with its investment in refrigerated warehouses; financing risks, such as the
availability of funds sufficient to service existing debt, changes in interest
rates associated with its variable rate debt, the availability of equity and
debt financing terms acceptable to the Company, the possibility that the
Company's outstanding debt (which requires so-called "balloon" payments of
principal) may be refinanced at higher interest rates or otherwise on terms less
favorable to the Company and the fact that interest rates under the Credit
Facility (as defined below) and certain of the Company's other financing
arrangements may increase; the existence of complex regulations relating to the
Company's status as a real estate investment trust and the adverse consequences
of the failure to qualify as such; and other risks detailed from time to time in
the Company's filings with the Securities and Exchange Commission. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
PART I
ITEM 1. BUSINESS
THE COMPANY
Crescent Real Estate Equities Company ("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 provides management,
leasing, and development services with respect to certain of its properties.
Crescent Equities is a Texas real estate investment trust which became the
successor to Crescent Real Estate Equities, Inc., a Maryland corporation (the
"Predecessor Corporation"), on December 31, 1996, through the merger of the
Predecessor Corporation and CRE Limited Partner, Inc., a Delaware corporation,
into Crescent Equities. The direct and indirect subsidiaries of Crescent
Equities include Crescent Real Estate Equities Limited Partnership (the
"Operating Partnership"); Crescent Real Estate Equities, Ltd. (the "General
Partner"), which is the sole general partner of the Operating Partnership; and
seven single purpose limited partnerships (formed for the purpose of obtaining
securitized debt) in which the Operating Partnership owns substantially all of
the economic interests directly or indirectly, with the remaining interests
owned indirectly by Crescent Equities through seven separate corporations, each
of which is a wholly owned subsidiary of the General Partner and a general
partner of one of the seven limited partnerships. The term "Company" includes,
unless the context otherwise requires, Crescent Equities, the Predecessor
Corporation, the Operating Partnership, the General Partner and the other direct
and indirect subsidiaries of Crescent Equities.
As of December 31, 1997, the Company directly or indirectly owned a
portfolio of real estate assets (the "Properties") located primarily in 21
metropolitan submarkets in Texas and Colorado. The Properties include 80
office properties (the "Office Properties") with an aggregate of approximately
28.6 million net rentable square feet, 90 behavioral healthcare facilities (the
"Behavioral Healthcare Facilities"), six full-service hotels with a total of
1,962 rooms and two destination health and fitness resorts (the "Hotel
Properties"), real estate mortgages and non-voting common stock representing
interests ranging from 40% to 95% in five unconsolidated residential development
corporations (the "Residential Development Corporations"), which in turn,
through joint venture or partnership arrangements, own interests in 12
residential development properties (the "Residential Development Properties"),
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and seven retail properties (the "Retail Properties") with an aggregate of
approximately .8 million net rentable square feet. In addition, the Company
owns an indirect 38% interest in each of two corporations (the "Refrigerated
Warehouse Companies") that currently own and operate approximately 80
refrigerated warehouses with an aggregate of approximately 394 million cubic
feet (the "Refrigerated Warehouse Investment"). The Company also has a 42.5%
partnership interest in a partnership whose primary holdings consist of a
364-room executive conference center and general partner interests ranging from
one to 50%, in additional office, retail, multi-family and industrial
properties.
From January 1, 1998 through March 25, 1998, the Company acquired six
additional Office Properties with an aggregate of approximately 2.2 million net
rentable square feet and one additional Hotel Property with a total of 314
rooms. In addition, the Company has entered into an agreement to acquire a
corporation (the "Pending Investment") that owns four full-service casino/hotels
and two riverboat casinos. See "Recent Developments," below.
Crescent Equities conducts all of its business directly through the
Operating Partnership and its other subsidiaries. The structure of the Company
was developed to facilitate and maintain its qualification as a REIT and to
permit persons contributing properties (or interests therein) to the Company to
defer some or all of the tax liability that they otherwise might have incurred
in connection with the formation of the Company.
See Note 1 of Item 8. "Financial Statements and Supplementary Data"
for the table which lists the principal subsidiaries of Crescent Equities and
the Properties owned by such subsidiary.
The Company's executive offices are located at 777 Main Street, Suite
2100, Fort Worth, Texas 76102, and its telephone number is (817) 877-0477.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's business objective is to maximize the total return to
its shareholders through increases in distributions and share price. From the
Company's initial public offering of common shares on May 5, 1994, through
March 25, 1998, the total return to shareholders was approximately 225.3%, with
distributions having increased by approximately 64.3% and the market price per
Common Share having increased by approximately 191.5%. From January 1, 1997
through March 25, 1998, the total return to shareholders was approximately
43.3%, with distributions having increased by approximately 24.6% and the
market price per common share having increased by approximately 38.2%.
INVESTMENT STRATEGIES
Management believes that it will be able to identify substantial
opportunities for future real estate investments from a variety of sources,
including life insurance companies and pension funds seeking to reduce their
direct real estate investments, public and private real estate companies,
corporations divesting of nonstrategic real estate assets, public and private
sellers requiring complex disposition structures and other domestic and
international sources. The Company intends to continue utilizing its extensive
network of relationships, its ability to identify underperforming assets, its
market reputation and its ready access to equity and debt capital to achieve
favorable returns on invested capital and growth in cash flow by:
o acquiring high-quality office properties at prices
below their estimated replacement cost in selected
core markets and submarkets that management expects
to experience above-average population and employment
growth; and
o employing the corporate, transactional and financial
skills of the Company's management team to structure
innovative investments in other types of real estate
assets (such as its recent Refrigerated Warehouse
Investment, its acquisition of the Behavioral
Healthcare Facilities and its Pending Investment in
casino/hotel properties).
The Company believes that its proven ability to structure innovative
transactions provides it with a unique competitive advantage in making real
estate investments and enhances its ability to execute its investment strategy.
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OPERATING AND FINANCING STRATEGIES
The Company seeks to enhance its operating performance and financial
position by:
o applying well-defined leasing strategies in order to
capture the potential rental growth in the Company's
existing portfolio of Office Properties as occupancy
and rental rates increase with the recovery of the
markets and submarkets in which the Company has
invested;
o achieving a high tenant retention rate at the
Company's Office Properties through quality service,
individualized attention to its tenants and active
preventive maintenance programs;
o empowering management and employing compensation
formulas linked directly with enhanced operating
performance of the Company and its Properties; and
o optimizing the use of debt and other sources of
financing to create a flexible and conservative
capital structure that will allow the Company to
continue its opportunistic investment strategy.
EMPLOYEES
The Company, as a fully integrated real estate company, provides
management, leasing and development services with respect to certain of its
Properties. The Company has more than 475 employees. None of the employees is
covered by collective bargaining agreements.
RECENT DEVELOPMENTS
From January 1, 1997 through March 25, 1998, the Company completed
approximately $3.05 billion in property acquisitions and other investments. The
property acquisitions include 28 Office Properties and one Retail Property
acquired on or before December 31, 1997, and six Office Properties acquired
subsequent to December 31, 1997, with an aggregate purchase price of
approximately $1.52 billion, 90 Behavioral Healthcare Facilities (and two
additional behavioral healthcare facilities which subsequently were sold) with
an aggregate purchase price of approximately $387.2 million, two Hotel
Properties acquired on or before December 31, 1997, and one Hotel Property
acquired subsequent to December 31, 1997 with an aggregate purchase price of
approximately $125.0 million, an approximately 40.375% and 88.35% interest in
two Residential Development Corporations that own two Residential Development
Properties, respectively, with an aggregate purchase price of approximately
$370.2 million, the Refrigerated Warehouse Investment with an aggregate purchase
price of approximately $417.6 million and a 42.5% partnership interest in The
Woodlands Commercial Properties Company, L.P. with an aggregate purchase price
of approximately $83.9 million.
1997 AND 1998 COMPLETED ACQUISITIONS
Greenway II. On January 17, 1997, the Company acquired Greenway II, a
7-story Class A office building containing approximately 154,000 net rentable
square feet located in the Richardson/Plano submarket of Dallas, Texas.
Constructed in 1985, the Property, including an attached three-level, 560-space
above ground parking structure, was purchased for approximately $18.2 million.
Trammell Crow Center. On February 28, 1997, the Company acquired
substantially all of the economic interest in Trammell Crow Center ("TCC"), a
50-story Class A office building. The Company acquired its interest in TCC
through the purchase of fee simple title to the Property (subject to a ground
lease and the lessee's leasehold estate regarding the building) and two
mortgage notes encumbering the leasehold interests in the land and building,
for approximately $162 million. TCC is located in the cultural and financial
district of the Central Business District ("CBD") submarket of Dallas, Texas.
Constructed in 1984, TCC contains approximately 1.1 million net rentable square
feet with a six-level underground parking structure that accommodates
1,154 cars.
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Denver Properties. On February 28, 1997, the Company acquired, in a
single transaction, for an aggregate purchase price of $42.7 million, the
following three office buildings in Denver, Colorado: 44 Cook, 55 Madison and
the AT&T Building. 44 Cook, a 10-story Class A office building constructed in
1984 and containing approximately 124,000 net rentable square feet, and 55
Madison, an eight-story Class A office building constructed in 1982 and
containing approximately 137,000 net rentable square feet, are both located in
the Cherry Creek submarket. 44 Cook and 55 Madison each have underground
parking containing 236 and 171 spaces, respectively, and the buildings also
share a four-level, 396-space above ground parking structure. Constructed in
1982, the AT&T Building, a 15-story office building, contains approximately
185,000 net rentable square feet and is located in the Denver CBD submarket. The
AT&T Building has a four-level, 207-space above ground parking structure.
Carter-Crowley Portfolio. On February 10, 1997, the Company entered into a
contract to acquire for approximately $383.3 million, substantially all of the
assets (the "Carter-Crowley Portfolio") of Carter-Crowley Properties, Inc.
("Carter-Crowley"), an unaffiliated company controlled by the family of Donald
J. Carter. At the time the contract was executed, the Carter-Crowley Portfolio
included 14 office buildings (the "Carter-Crowley Office Portfolio"), with an
aggregate of approximately 3.0 million net rentable square feet, approximately
1,216 acres of commercially zoned, undeveloped land located in the Dallas/Fort
Worth metropolitan area, two multifamily residential properties located in the
Dallas/Fort Worth metropolitan area, marketable securities, an approximately 12%
limited partner interest in the limited partnership that owns the Dallas
Mavericks NBA basketball franchise, secured and unsecured promissory notes,
certain direct non-operating working interests in various oil and gas wells, an
approximately 35% limited partner interest in two oil and gas limited
partnerships, and certain other assets (including operating businesses).
Pursuant to an agreement between Carter-Crowley and the Company, Carter-Crowley
liquidated approximately $51 million of such assets originally included in the
Carter-Crowley Portfolio, consisting primarily of the marketable securities and
the oil and gas investments, resulting in a reduction in the total purchase
price by a corresponding amount to approximately $332.3 million. On May 9, 1997,
the Company and Crescent Operating, Inc. ("COI") acquired the Carter-Crowley
Portfolio.
The Company acquired certain assets from the Carter-Crowley Portfolio, with
an aggregate purchase price of approximately $306.3 million consisting primarily
of the Carter-Crowley Office Portfolio, the two multi-family residential
properties, the approximately 1,216 acres of undeveloped land and the secured
and unsecured promissory notes relating primarily to the Dallas Mavericks. In
addition to the promissory notes relating to the Dallas Mavericks, the Company
obtained rights from the current holders of the majority interest in the Dallas
Mavericks to a contingent $10 million payment after a new arena is constructed
within a 75-mile radius of Dallas, as well as rights to participate in the
ownership and development of the new arena, certain land located adjacent to the
arena and proposed commercial properties to be developed on the adjacent land.
On December 10, 1997, the City of Dallas and the "Arena Group" (which consists
of four corporations, one of which is to be owned almost entirely by the
Company) entered into the Arena Master Agreement for the construction and
operation of a new arena located adjacent to the Dallas CBD submarket. The
taxpayers of Dallas subsequently approved a bond package that includes the
funding of the City's portion of the new arena costs. Construction of the new
arena is expected to commence prior to the end of 1998. On March 25, 1998, the
Company offered COI the opportunity to participate in the corporation in which
the Company will own the principal economic interest and in the entity that will
participate in ownership and development of the new arena, adjacent land and
commercial properties to be developed on the adjacent land. COI has accepted the
opportunity, subject to negotiation of satisfactory terms.
COI purchased the remainder of the Carter-Crowley Portfolio utilizing cash
contributions and loan proceeds provided to COI by the Company. These assets,
which have an allocated cost of approximately $26 million consisted primarily of
the approximately 12% limited partner interest in the limited partnership that
owns the Dallas Mavericks, an approximately 1% interest in a private venture
capital fund, and a 100% interest in a construction equipment sale, leasing and
services company.
On June 11, 1997, DBL Holdings, Inc. ("DBL"), a wholly owned subsidiary of
the Operating Partnership was formed. In connection with the formation of DBL,
the Operating Partnership acquired all the voting and non-voting common stock of
DBL, for an aggregate purchase price of approximately $2.5 million and loaned to
DBL approximately $10.1 million. The voting common stock which represented a 5%
effective interest in DBL, was subsequently sold to Gerald W. Haddock, the
President and Chief Executive Officer of the Company and COI, and John C. Goff,
the Vice Chairman of the Company and COI, for its aggregate original cost of
$126,000. On June 11, 1997, DBL acquired from COI, for approximately $12.6
million, the limited partner interest in the partnership that owns the Dallas
Mavericks.
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Behavioral Healthcare Facilities. On June 17, 1997, the Company
acquired substantially all of the real estate assets of the domestic hospital
provider business of Magellan Health Services, Inc. ("Magellan"), as previously
owned and operated by a wholly owned subsidiary of Magellan. The transaction
involved various components, the principal component of which was the
acquisition of the 90 Behavioral Healthcare Facilities (and two additional
behavioral healthcare facilities which subsequently were sold) for approximately
$387.2 million. The Behavioral Healthcare Facilities, which are located in 27
states, are leased to Charter Behavioral Health Systems, LLC ("CBHS"), and its
subsidiaries under a triple-net lease. See Item 2. Properties for a more
detailed discussion.
Woodlands Transaction. On July 31, 1997, the Company and certain
Morgan Stanley funds (the "Morgan Stanley Group") acquired The Woodlands
Corporation, a subsidiary of Mitchell Energy & Development Corp., for
approximately $543 million. In connection with the acquisition, the Company
and the Morgan Stanley Group made equity investments of approximately $80
million and $109 million, respectively. The remaining approximately $354
million and associated acquisition and financing costs of approximately $15
million were financed by the two limited partnerships, described below, through
which the investment was made. The Woodlands Corporation was the principal
owner, developer and operator of The Woodlands, an approximately 27,000-acre,
master-planned residential and commercial community located 27 miles north of
downtown Houston, Texas. The Woodlands which is approximately 50% developed,
includes a shopping mall, retail centers, office buildings, a hospital, club
facilities, a community college, a performance pavilion, and numerous other
amenities.
The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan
Stanley Group holds a 57.5% interest and the Company holds a 42.5% interest,
and the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a limited
partnership in which the Morgan Stanley Group holds a 57.5% interest and a
newly formed Residential Development Corporation, The Woodlands Land Company,
Inc. ("WLC"), holds a 42.5% interest. The Company owns all of the non-voting
common stock, representing a 95% economic interest in WLC and, effective
September 29, 1997, COI acquired all of the voting common stock, representing a
5% economic interest, in WLC. The Company is the managing general partner of
Woodlands-CPC and WLC is the managing general partner of Woodlands-LDC.
In connection with the acquisition, Woodlands-CPC acquired The
Woodlands Corporation's 25% general partner interest in the partnerships that
own approximately 1.2 million square feet of The Woodlands Office and Retail
Properties. The Company previously held a 75% limited partner interest in each
of these partnerships and, as a result of the acquisition, the Company's
indirect economic ownership interest in these Properties increased to
approximately 85%. The other assets acquired by Woodlands-CPC include a
364-room executive conference center, a private golf and tennis club, and
approximately 400 acres of land that will support commercial development of
more than 3.5 million square feet of office, multi-family, industrial, retail
and lodging properties. In addition, Woodlands-CPC acquired The Woodlands
Corporation's general partner interests, ranging from one to 50%, in additional
office and retail properties and in multi-family and light industrial
properties. Woodlands-LDC acquired approximately 6,400 acres of land that will
support development of more than 20,000 lots for single-family homes and
approximately 2,500 acres of land that will support more than 21.5 million net
rentable square feet of commercial development. The executive conference
center, including the golf and tennis club and golf courses, is operated and
leased by a wholly owned subsidiary of a partnership owned 42.5% by a
subsidiary of COI and 57.5% by the Morgan Stanley Group.
Desert Mountain. On August 29, 1997, the Company acquired, through a
newly formed Residential Development Corporation, Desert Mountain Development
Corporation ("DMDC"), the majority economic interest in Desert Mountain
Properties Limited Partnership ("DMPLP"), the partnership that owns Desert
Mountain, a master-planned, luxury residential and recreational community in
northern Scottsdale, Arizona. Desert Mountain is an 8,300-acre property that is
zoned for the development of approximately 4,500 residential lots, approximately
1,539 of which have been sold. Desert Mountain also includes The Desert
Mountain Club, a private golf, tennis and fitness club serving over 1,600
members. The partnership interest was acquired from a subsidiary of Mobil Land
Development Corporation for approximately $214 million. The sole limited partner
of DMPLP is Sonora Partners Limited Partnership ("Sonora") whose principal owner
is the original developer of Desert Mountain. A portion of Sonora's interest in
DMPLP is exchangeable for common shares of the Company. Sonora currently owns a
7% economic interest in DMPLP, and DMDC, which is the sole general partner of
DMPLP, owns the remaining 93% economic
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interest. The Company owns all of the non-voting common stock, representing a
95% economic interest, and, effective September 29, 1997, COI acquired all of
the voting common stock, representing a 5% economic interest, in DMDC. The
Company also holds a residential development property mortgage on Desert
Mountain.
Houston Center. On September 22, 1997, the Company acquired Houston
Center, an approximately 3.0 million square foot, mixed-use property located in
the CBD submarket of Houston, Texas. Houston Center consists of three high-
rise Class A office buildings aggregating approximately 2.8 million net
rentable square feet, the 399-room Four Seasons- Houston Hotel Property, 114
luxury apartments, approximately 191,000 net rentable square feet of retail
space and approximately 20 acres of undeveloped commercial land. Houston
Center is located on the east side of downtown Houston within walking distance
of the Houston Convention Center and is also near the site of the proposed
downtown major league baseball stadium. Built between 1974 and 1983, the three
Class A office buildings are situated on approximately 5.7 acres. The Four
Seasons-Houston, which was built in 1982, is one of the highest rated luxury
hotels in Houston, with a five-diamond rating from American Automobile
Association. The upscale, luxury Four Seasons Place apartments, which are
located atop the hotel, offer both long-term residential and short-term
corporate units at monthly rental rates ranging from approximately $2.00 to
$4.00 per leased square foot. The 20-acre tract is one of the largest
contiguous underdeveloped parcels in downtown Houston. The Houston Center was
purchased for approximately $327.6 million.
Miami Center. On September 30, 1997, the Company acquired Miami
Center, a 34-story Class A office building containing approximately 783,000 net
rentable square feet located in the CBD submarket of Miami, Florida.
Constructed in 1983, the Property, including an attached nine-level
above-ground parking structure that accommodates 893 cars, was purchased for
approximately $131.5 million.
U.S. Home Building. On October 15, 1997, the Company acquired the
U.S. Home Building, a 21-story Class A office building located in the West
Loop/Galleria suburban office submarket of Houston, Texas, for approximately
$45 million. The U.S. Home Building is located approximately five miles west
of downtown Houston and approximately 2.5 miles west of the Company's Greenway
Plaza properties. Built in 1982, the building is located on approximately 1.9
acres and contains approximately 400,000 net rentable square feet with an
attached twelve-level above-ground parking structure that accommodates 964
cars.
Bank One Center. On October 22, 1997, the Company, together with
affiliates of TrizecHahn Corporation ("Trizec"), acquired Bank One Center, a
60-story Class A office building located in the CBD submarket of Dallas, Texas,
from two unaffiliated entities. The acquisition was made through a newly
formed limited partnership in which the Company and Trizec each own a 50%
interest, for an aggregate purchase price of approximately $238 million. Of
the approximately $238 million purchase price, approximately $83 million was
funded through capital contributions of $41.5 million from each of the Company
and Trizec, and the remaining approximately $155 million was funded through two
loans to the newly formed limited partnership provided by The Travelers
Insurance Company. Construction of the office property was completed in 1987.
Bank One Center contains approximately 1.5 million net rentable square feet
with a three-level underground parking structure that accommodates
667 cars and an eight-level off site parking garage that accommodates 885 cars.
Americold Corporation and URS Logistics, Inc. On October 31, 1997,
the Company, through two newly formed subsidiaries (the "Crescent
Subsidiaries"), initially acquired a 40% interest in each of two partnerships,
one of which owns Americold Corporation ("Americold") and one of which owns URS
Logistics, Inc. ("URS"). Vornado Realty Trust ("Vornado") acquired the remaining
60% interest in the partnerships. Americold and URS are the two largest
suppliers of refrigerated warehouse space in the United States.
One of the partnerships acquired all of the common stock of Americold
through the merger of a subsidiary of Vornado into Americold, and the other
partnership acquired all of the common stock of URS through the merger of a
separate subsidiary of Vornado into URS. As a result of the acquisition, the
Americold partnership and the URS partnership became the owners and operators
of approximately 80 refrigerated warehouses, with an aggregate of approximately
394 million cubic feet, that are operated pursuant to arrangements with
national food suppliers.
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The aggregate purchase price for the acquisition of Americold and URS
was approximately $1.04 billion (including transaction costs associated with
the acquisition). Of this amount, the purchase price for the acquisition of
Americold was approximately $645 million (consisting of approximately $112
million in cash for the purchase of the equity, approximately $151 million in
cash for the repayment of certain outstanding bonds issued by Americold,
approximately $372 million in retention of debt and approximately $10 million
in transaction costs), and the purchase price for the acquisition of URS was
approximately $399 million (consisting of approximately $173 million in cash
for the purchase of the equity, approximately $211 million in retention of debt
and approximately $15 million in transaction costs.)
On December 30, 1997 and effective October 31, 1997, in order to
permit the Company to continue to satisfy certain REIT qualification
requirements, the Company sold all of the voting common stock, representing a
5% economic interest, in each of the Crescent Subsidiaries to COI. As a
result, the Company currently owns a 38% interest in each of the Americold
partnership and URS partnership, through its ownership of all of the nonvoting
common stock, representing a 95% economic interest, in each of the Crescent
Subsidiaries. See Item 2. Properties for a more detailed discussion.
Fountain Place. On November 7, 1997, the Company acquired Fountain
Place, a 60-story Class A office building located in the CBD submarket of
Dallas, Texas, approximately three blocks west of the Company's Trammell Crow
Center Office Property, for approximately $114 million. Built in 1986, the
building contains approximately 1.2 million net rentable square feet with a
three level underground parking structure that accommodates approximately 899
cars as well as surface parking that accommodates 343 cars.
Ventana Country Inn. On December 19, 1997, the Company acquired for
approximately $30 million the Ventana Country Inn, a 62-room resort Hotel
Property located in Big Sur, California. The Ventana Country Inn is situated
on a 243-acre wooded site in the foothills of the Santa Lucia Mountains
overlooking the Pacific Ocean. The purchase also included an adjacent 72-acre
parcel of undeveloped land offering the potential for single-family residential
development. A subsidiary of COI will market and operate the Ventana Country
Inn jointly with the Company's Sonoma Mission Inn & Spa Hotel Property pursuant
to a lease with the Company.
Energy Centre. On December 22, 1997, the Company acquired Energy
Centre, a 39-story Class A office building located in the CBD submarket of New
Orleans, Louisiana. Built in 1984, the building contains approximately 762,000
net rentable square feet with a six-level attached, above-ground parking
structure that accommodates approximately 520 cars. Energy Centre was acquired
for approximately $75 million.
Austin Centre. On January 23, 1998, the Company acquired Austin
Centre, a mixed-use property developed in 1986, including a Class A office
building containing approximately 344,000 net rentable square feet, the
314-room Omni Austin Hotel Property and 61 apartments. The Property is located
in the CBD submarket of Austin, Texas, four blocks from the state capitol
building and was acquired for approximately $96.4 million. A subsidiary of COI
will oversee the marketing and operations of the Omni Austin Hotel Property
pursuant to a participating triple-net lease with the Company.
Post Oak Central. On February 13, 1998, the Company acquired Post Oak
Central, a three-building Class A office complex located in the West
Loop/Galleria suburban office submarket of Houston, Texas. Built between 1974
and 1981, the three Office Properties contain approximately 1.3 million net
rentable square feet with three multi-level detached, but connected via covered
walkway or tunnel, above-ground parking structures that in total accommodate
approximately 4,400 cars. Post Oak Central was acquired for approximately
$155.3 million.
Washington Harbour. On February 25, 1998, the Company acquired
Washington Harbour, a Class A office complex, consisting of a five-story office
building and an eight-story office building (the top three stories of which
comprise 35 luxury condominiums, which were not included in the purchase),
located in the Georgetown submarket of Washington, D.C. Built in 1986, the two
Office Properties contain approximately 536,000 net rentable square feet with a
two-level attached, below ground parking structure that accommodates
613 cars. Washington Harbour was purchased for approximately $161 million.
7
<PAGE> 10
PENDING INVESTMENT
Station Casinos, Inc. On January 16, 1998, the Company entered into an
agreement and plan of merger (the "Merger Agreement") pursuant to which Station
Casinos, Inc. ("Station") will merge (the "Merger") with and into the Company.
Station is an established multi-jurisdictional casino/hotel company that owns
and operates, through wholly owned subsidiaries, six distinctly themed
casino/hotel properties, four of which are located in Las Vegas, Nevada, one of
which is located in Kansas City, Missouri and one of which is located in St.
Charles, Missouri. As a result of the Merger, the Company will acquire the
real estate and other assets of Station, except to the extent operating assets
are transferred immediately prior to the Merger, as described below.
As part of the transactions associated with the Merger, it is
currently anticipated that certain operating assets and the employees of
Station will be transferred to a limited liability company (the "Station
Lessee") immediately prior to the Merger. The Station Lessee will be owned 50%
by COI or entity designated by the Company, 24.9% by an entity owned by three
of the existing directors of Station (including its Chairman, President and
Chief Executive Officer) and 25.1% by a separate entity owned by other members
of Station management. The Station Lessee will operate the six casino/hotel
properties currently operated by Station pursuant to a lease with the Company.
The lease will have a 10-year term, with one five-year renewal option. The
lease will provide for base and percentage rent but the amount of the rent has
not yet been determined. The Station Lessee will be required to maintain the
properties in good condition at its own expense. The Company will establish
and maintain a reserve account to be used under certain circumstances for the
purchase of furniture, fixtures and equipment with respect to the properties.
The Company will also enter into a Right of First Refusal and Noncompetition
Agreement with the Station Lessee, pursuant to which each party will grant
certain rights to the other party to participate in future investment in and
operation of casino/hotel properties and will agree not to invest in or operate
any such properties without the participation or consent of the other party.
In order to effect the Merger, the Company will issue 0.466 common
shares for each share of common stock of Station (including each restricted
share) that is issued and outstanding immediately prior to the Merger. In
addition, the Company will create a new class of preferred shares which will be
exchanged, upon consummation of the Merger, for the shares of $3.50 Convertible
Preferred Stock of Station outstanding immediately prior to the Merger. The new
class of preferred shares will have equal priority with the Company's Series A
preferred shares as to rights to receive distributions and to participate in
distributions or payments upon any liquidation, dissolution or winding up of the
Company.
The total value of the Merger transaction, including the Company's
issuance of common shares and preferred shares in connection with consummation
of the Merger and the Company's assumption and/or refinancing of approximately
$919 million in existing indebtedness of Station and its subsidiaries, is
approximately $1.75 billion.
In connection with the Merger, the Company also has agreed to purchase
up to $115 million of a new class of convertible preferred stock of Station
prior to consummation of the Merger. The purchase will be made in increments,
or in a single transaction, upon call by Station subject to certain conditions,
whether or not the Merger is consummated.
Consummation of the Merger is subject to various conditions, including
Station's receipt of the approval of two-thirds of the holders of both its
common stock and its preferred stock, expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, and the
receipt by the Company and certain of its officers, trust managers and
affiliates of the approvals required under applicable gaming laws. The Company
anticipates that the Merger and the associated transactions will be consummated
in the fourth quarter of 1998, although there can be no assurances that the
Merger will be consummated on the terms described above.
8
<PAGE> 11
FINANCING ACTIVITIES
On December 19, 1997, the Company's line of credit (the "Credit
Facility") from a consortium of banks led by BankBoston, N.A. ("BankBoston")
was increased to $550 million. The Credit Facility is unsecured and expires in
June 2000.
On February 13, 1998, the Company increased the maximum borrowings
available under its bridge loan with BankBoston to $250 million. The increase
in the maximum borrowings available and the additional borrowings thereunder
were made in connection with the funding of the purchase price of Post Oak
Central. The bridge loan is unsecured and expires in March 1998. The Company
has a commitment with BankBoston to extend the term to May 31, 1998, with the
same interest rate.
TAX STATUS
The Company elected under Section 856(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), to be taxed as a REIT under the Code
beginning with its taxable year ended December 31, 1994. As a REIT for federal
income tax purposes, the Company generally is not subject to federal income tax
on income that it distributes to its shareholders. Under the Code, REITs are
subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their taxable income
currently. If the Company fails to qualify for taxation as a REIT in any
taxable year, it will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a REIT for federal
income tax purposes for four years following the year during which
qualification is lost. Even if the Company qualifies as a REIT for federal
income tax purposes, it may be subject to certain federal, state and local
taxes on its income and property and to federal income and excise tax on its
undistributed income. In addition, certain of its subsidiaries are subject to
federal, state and local income taxes.
ENVIRONMENTAL MATTERS
The Company and its properties are subject to a variety of federal and
state environmental laws, ordinances and regulations, including The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act and the Toxic Substances
Control Act. The application of these laws to a specific property owned by the
Company will be dependent on a variety of property-specific circumstances,
including the former uses to which the property was put and the building
materials used at each property. The Company believes that any environmental
liability that may be associated with its Properties does not present a material
risk to its financial condition or results of operations.
Under the environmental laws set forth above, a current or previous
owner or operator of real estate may be required to investigate and clean up
certain hazardous or toxic substances, asbestos-containing materials, or
petroleum product releases at the property, and may be held liable to a
governmental entity or the third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with the
contamination whether or not the owner or operator knew of, or was responsible
for, the contamination. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it
incurs in connection with the contamination. The presence of contamination or
the failure to remediate contaminations may adversely affect the owner's
ability to sell or lease real estate or to borrow using the real estate as
collateral. The owner or operator of a site may be liable under common law to
third parties for damages and injuries resulting from environmental
contamination emanating from the site. 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 its 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 operation. 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
9
<PAGE> 12
Company or the independent consultants preparing the assessments. There can be
no assurances, 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.
COMPETITION
The Company believes that it does not have a direct competitor with its
Office Properties considered as a group. The Company's Office Properties,
primarily Class A properties located within the Southwest, individually compete
against a wide range of property owners and developers, including property
management companies and other REITs, that offer space in similar types of
office properties (for example, Class A and Class B properties). A number of
these owners and developers may own more than one property. The number and type
of competing properties in a particular market or submarket could have a
material effect on the Company's ability to lease space or maintain or increase
occupancy at its Office Properties or at any newly acquired properties.
Management believes, however, that the quality service and individualized
attention that the Company offers its tenants, together with its active
preventive maintenance program and physical building location, within markets,
enhance the Company's ability to attract and retain tenants for its Office
Properties. In addition, the Company owns 17% and 12% of the Class A and Class B
office space, respectively, in 29 and five submarkets in which the Company owns
Class A and Class B Office Properties, respectively. Management believes that
ownership of a significant percentage of office space in a particular market
offers the Company the opportunity to reduce property operating expenses payable
by the Company and its tenants, enhancing the Company's ability to attract and
retain tenants and potentially resulting in increases in Company net revenues.
For example, during 1997, the Company successfully negotiated bulk contracts for
services such as cleaning and elevator maintenance in its core markets of
Dallas, Houston and Denver, resulting in discounts of approximately 5% to 10%
from contracts previously in place.
Each of the Behavioral Healthcare Facilities competes with other
hospitals, some of which are larger and have greater financial resources. The
Behavioral Healthcare Facilities frequently draw patients from areas outside
their immediate area and therefore may, in certain markets, compete with both
local and distant hospitals. The Behavioral Healthcare Facilities compete not
only with other psychiatric hospitals, but also with psychiatric units in
general hospitals, and outpatient services provided by the Behavioral Healthcare
Facilities may compete with private practicing mental health professionals. The
Company believes that its primary competitors are other operators that operate a
large number of psychiatric beds in multiple states, such as Behavioral
Healthcare Corp., Columbia/HCA Healthcare Corp., Universal Health Services,
Ramsey Health Care and Healthcare America.
The competitive position of a Behavioral Healthcare Facility is, to a
significant degree, dependent upon the number and quality of physicians who
practice at the hospital and who are members of its medical staff. In recent
years, an increasing percentage of the Behavioral Healthcare Facilities'
revenues have come from contracts with preferred provider organizations
("PPOs"), health maintenance organizations ("HMOs") and other managed care
programs. Such contracts normally involve a discount from the hospital's
established charges, but provide a base of patient referrals. As a result of
the increasing importance of PPOs, HMOs and other managed care programs, the
competitive position of the Behavioral Healthcare Facilities is increasingly
affected by their ability to win contracts from these organizations. The
importance of obtaining contracts with PPOs, HMOs and other managed care
companies varies from market to market, depending on the individual market
strength of the managed care companies.
Certificate of need laws in certain states regulate the Behavioral
Healthcare Facilities, and their competitors' ability to build new hospitals and
to expand existing hospital facilities and services. These laws provide some
protection from competition, as their intent is to prevent duplication of
services. In most cases, these state laws do not restrict the ability of the
Behavioral Healthcare Facilities or their competitors to offer new outpatient
services.
The Company's Hotel Properties in Denver and Albuquerque are convention
center hotels that compete against other convention center hotels, which are
owned by a variety of owners, including national hotel chains and local owners.
The Company believes, however, that its destination health and fitness resorts
are unique properties that do not have direct competitors. In addition, the
Company believes that each of the remaining Hotel Properties experiences little
to no direct competition due to its high replacement cost and unique concept or
location. The Hotel Properties do compete, although to a limited extent,
against business class hotels or middle-market resorts in their geographic areas
as well as against luxury resorts nationwide and around the world.
10
<PAGE> 13
At the time that the Company made the Refrigerated Warehouse
Investment, the Refrigerated Warehouse Companies were the two largest owners and
operators of refrigerated warehouse space in the country in terms of cubic feet
of storage space owned. Industry sources indicate that, in 1997, the
Refrigerated Warehouse Companies owned and operated an aggregate of
approximately 25% of total refrigerated warehouse space. Among other owners and
operators of refrigerated warehouse space, no other owner and operator owned or
operated more than 8% of total refrigerated warehouse space. As a result, the
Company believes that the Refrigerated Warehouse Companies do not have any
competitors of comparable size. The Refrigerated Warehouse Companies operate in
an environment in which competition is national, regional and local in nature
and in which the breadth of service, warehouse locations, customer mix,
warehouse size, service performance and price are the principal competitive
factors. Since frozen food manufacturers and distributors incur transportation
costs which typically are significantly greater than warehousing costs, breadth
of total logistics services and warehouse location are major competitive
factors. In addition, in certain locations, customers depend upon pooling
shipments, which involves combining their products with the products of others
destined for the same markets. In these cases, the mix of customers in a
warehouse can significantly influence the cost of delivering products to
markets. The size of a warehouse is important because large customers prefer
to have all of the products needed to serve a given market in a single location
to have the flexibility to increase storage in that single location during
seasonal peaks. If there are several warehouse locations which satisfy a
customer mix and size requirements, the Company believes that customers
generally will select a warehouse facility based upon the types of services
available, service performance and price.
The Company's Residential Development Properties compete against a
variety of other housing alternatives in each of their respective areas. These
alternatives include other planned developments, pre-existing single-family
detached housing, condominiums, townhouses and non-owner occupied housing, such
as luxury apartments. Management believes that The Woodlands and Desert
Mountain, representing the Company's most significant investments in Residential
Development Properties, contain certain features that provide competitive
advantages to these developments. For example, The Woodlands, which is an
approximately 27,000-acre, master-planned residential and commercial community
north of Houston, Texas, is unique among developments in the Houston area
because it functions as a self-contained community. Amenities contained in the
development, which are not contained within other local developments, include a
shopping mall, retail centers, office buildings, a hospital, a community
college, places of worship, 60 parks, two man-made lakes and a performance
pavilion. Desert Mountain, a luxury residential and recreational community in
Scottsdale, Arizona, which also offers four 18-hole golf courses and tennis
courts, does not have any significant direct competitors due in part to the
types of amenities that it offers. Substantially all of the remaining
residential lots for the four developments which traditionally have competed
with Desert Mountain were sold during 1997. As a result, these developments
have become resale communities that no longer compete with Desert Mountain in
any significant respect.
The Retail Properties compete against other commercial properties in
each of their respective areas, including shopping malls, free-standing retail
operations and convenience stores.
ITEM 2. PROPERTIES
OFFICE PROPERTIES
The Company's Office Properties are located primarily in Dallas/Fort
Worth and Houston, Texas. As of March 25, 1998, the Company's Office Properties
in Dallas/Fort Worth and Houston represent an aggregate of approximately 72% of
its office portfolio based on total net rentable square feet (40% and 32% for
Dallas/Fort Worth and Houston, respectively).
OFFICE PROPERTIES TABLES
The following table sets forth, as of December 31, 1997, certain
information about the Company's Office Properties after giving effect to the
acquisitions of Properties completed after December 31, 1997. Based on
annualized base rental revenues from office leases in place as of December 31,
1997 and after giving effect to the acquisitions of Properties completed after
December 31, 1997, no single tenant would have accounted for more than 4% of the
Company's total annualized Office Property rental revenues for 1997.
11
<PAGE> 14
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
ACQUISITION YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY SUBMARKET YEAR COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
- --------------------- --------- ---- --------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center(3) CBD 10/97 1987 1,530,957 73% $18.41
The Crescent Office Towers Uptown/Turtle Creek (2) 1985 1,210,949 96 27.06
Fountain Place CBD 11/97 1986 1,200,266 95 14.99
Trammell Crow Center(4) CBD 2/97 1984 1,128,331 87 23.28
Stemmons Place Stemmons Freeway 5/97 1983 634,381 92 13.73
Spectrum Center(5) Far North Dallas 8/95 1983 598,250 94 17.12
Waterside Commons Las Colinas 10/94 1986 458,739 98 13.68
Caltex House Las Colinas 5/94 1982 445,993 94 23.75
Reverchon Plaza Uptown/Turtle Creek 5/97 1985 374,165 99 16.73
The Aberdeen Far North Dallas 3/95 1986 320,629 100 17.31
MacArthur Center I & II Las Colinas (2) 1982/1986 294,069 99 17.35
Stanford Corporate Centre Far North Dallas 1/95 1985 265,507 100 14.80
The Amberton Central Expressway 5/97 1982 255,052 79 10.78
Concourse Office Park LBJ Freeway 5/97 1972-1986 244,879 88 12.31
12404 Park Central LBJ Freeway 5/95 1987 239,103 96 18.38
Palisades Central II Richardson/Plano 5/97 1985 237,731 100 15.68
3333 Lee Parkway Uptown/Turtle Creek 1/96 1983 233,484 77(6) 18.77
Liberty Plaza I & II Far North Dallas 7/94 1981/1986 218,813 100 12.84
The Addison Far North Dallas 5/97 1981 215,016 100 15.09
The Meridian LBJ Freeway 5/97 1984 213,915 96 14.54
Palisades Central I Richardson/Plano 5/97 1980 180,503 100 13.64
Walnut Green Central Expressway 5/97 1986 158,669 96 13.21
Greenway II Richardson/Plano 1/97 1985 154,329 100 19.38
Addison Tower Far North Dallas 5/97 1987 145,886 99 13.27
5050 Quorum Far North Dallas 5/97 1981 133,594 97 14.23
Cedar Springs Plaza Uptown/Turtle Creek 5/97 1982 110,923 91 15.08
Greenway IA Richardson/Plano 12/96 1983 94,784 100 14.31
Valley Centre Las Colinas 5/97 1985 74,861 98 13.22
Greenway I Richardson/Plano 12/96 1983 51,920 100 14.31
One Preston Park Far North Dallas 5/97 1980 40,525 87 13.55
------ ---- -----
Subtotal/Weighted Average 11,466,223 92% $17.92
---------- --- ------
FORT WORTH
Continental Plaza CBD (2) 1982 954,895 53%(6) $16.34
------- -- ------
HOUSTON
Greenway Plaza Office Richmond-Buffalo 10/96 1969-1982 4,286,277 85% $14.64
Portfolio(7) Speedway
Houston Center(8) CBD 9/97 1974-1983 2,764,418 92 17.61
Post Oak Central(8)(9) West Loop/Galleria 2/98 1974-1981 1,277,598 94 13.54
The Woodlands Office The Woodlands 7/95(11) 1980-1996 812,227 99 14.37
Properties(10) 8/96 1983 414,251 100 13.46
Three Westlake Park(12) Katy Freeway
U.S. Home Building West Loop/Galleria 10/97 1982 399,777 81 16.37
------- -- ------
Subtotal/Weighted Average 9,954,548 90% $15.32
--------- -- ------
AUSTIN
Frost Bank Plaza CBD 12/96 1984 433,024 75% $17.82
301 Congress Avenue(13) CBD 4/96 1986 418,338 96 22.86
Bank One Tower CBD 12/96 1974 389,503 95 16.76
Austin Centre(9) CBD 1/98 1986 343,665 84(6) 17.99
The Avallon Northwest 11/94 1993/1997 232,301(14) 79(6) 17.10
Barton Oaks Plaza One Southwest 6/95 1986 99,792 95 19.56
------ -- ------
Subtotal/Weighted Average 1,916,623 87% $18.84
--------- -- ------
COLORADO
DENVER
MCI Tower CBD 6/95 1982 550,807 98% $17.74
Ptarmigan Place Cherry Creek 10/95 1984 418,565 82(6) 15.52
Regency Plaza One DTC 8/94 1985 309,862 87 20.24
AT&T Building CBD 2/97 1982 184,581 97 14.89
The Citadel Cherry Creek (2) 1987 130,652 98 18.80
55 Madison Cherry Creek 2/97 1982 137,176 77 16.43
44 Cook Cherry Creek 2/97 1984 124,174 93 17.45
------- -- ------
Subtotal/Weighted Average 1,855,817 91% $17.36
--------- -- ------
COLORADO SPRINGS
Briargate Office and Colorado Springs 11/95 1988 252,857 100% $15.55
Research Center --------- --- ------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
ACQUISITION YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY SUBMARKET DATE COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
--------------------- --------- ---- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
LOUISIANA
NEW ORLEANS
Energy Centre CBD 12/97 1984 761,500 78% $14.54
1615 Poydras CBD 8/96 1984 508,741 75(6) 15.09
------- -- ------
Subtotal/Weighted Average 1,270,241 77% $14.76
--------- -- -------
FLORIDA
MIAMI
Miami Center CBD 9/97 1983 782,686 79% $22.31
------- -- ------
ARIZONA
PHOENIX
Two Renaissance Square Downtown/CBD 11/94 1990 476,373 89% $23.09
6225 North 24th Street Camelback Corridor 11/95 1981 86,451 67 21.00
------ -- ------
Subtotal/Weighted Average 562,824 85% $22.84
------- -- -------
WASHINGTON D.C.
WASHINGTON D.C.
Washington Harbour(9)(15) Georgetown 2/98 1986 536,206 95% $36.60
--------- -- ------
NEBRASKA
OMAHA
Central Park Plaza CBD 6/96 1982 409,850 100% $14.71
------- --- ------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza CBD 12/95 1990 366,236 83%(6) $18.09
------- -- ------
CALIFORNIA
SAN FRANCISCO
160 Spear Street South of Market/CBD 12/96 1984 276,420 83%(6) $22.76
------- -- ------
SAN DIEGO
Chancellor Park(16) UTC 10/96 1988 195,733 85% $20.11
------- -- ------
TOTAL WEIGHTED AVERAGE 30,801,159 88%(6) $17.46
========== == ======
</TABLE>
- ---------------------------
(1) Calculated based on base rent payable as of December 31, 1997,
without giving effect to free rent or scheduled rent increases
that would be taken into account under generally accepted
accounting principles and including adjustments for expenses
payable by or reimbursable from tenants.
(2) Property was contributed to the Operating Partnership on May
5, 1994.
(3) The Company has a 50% general partner interest in the
partnership that owns Bank One Center.
(4) The Company owns the principal economic interest in Trammell
Crow Center through its ownership of fee simple title to the
Property (subject to a ground lease and a leasehold estate
regarding the building) and two mortgage notes encumbering the
leasehold interests in the land and building.
(5) The Company owns the principal economic interest in Spectrum
Center through an interest in Spectrum Mortgage Associates
L.P., which owns both a mortgage note secured by Spectrum
Center and the ground lessor's interest in the land underlying
the office building.
(6) Leases have been executed at certain Office Properties but had
not commenced as of December 31, 1997. If such leases had
commenced as of December 31, 1997, the percent leased for
Office Properties would have been 92%. The total percent
leased for such Properties would have been as follows: 3333
Lee Parkway -- 98%; Continental Plaza -- 100%; Austin Centre
-- 98%; The Avallon -- 100%; Ptarmigan Place -- 99%; 1615
Poydras -- 80%; Albuquerque Plaza -- 96% and 160 Spear Street
-- 91%.
(7) Consists of ten Office Properties.
(8) Consists of three Office Properties.
(9) Acquired subsequent to December 31, 1997.
(10) The Company has a 75% limited partner interest and an indirect
approximately 10% general partner interest in the partnership
that owns the 12 Office Properties that comprise The Woodlands
Office Properties.
(11) Two of The Woodlands Office Properties were acquired July 31,
1996.
(12) The Company owns the principal economic interest in Three
Westlake Park through its ownership of a mortgage note secured
by Three Westlake Park.
(13) The Company has a 1% general partner and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(14) In August 1997, construction was completed on a 106,342 square
foot office property. The entire building is leased to BMC
Software, Inc., which is expected to occupy in stages over the
next 19 months.
(15) Consists of two Office Properties.
(16) The Company owns Chancellor Park through its ownership of a
mortgage note secured by the building and through its direct
and indirect interests in the partnership which owns the
building.
13
<PAGE> 16
The following table provides information, as of December 31, 1997, for
the Company's Office Properties by state, city, and submarket after giving
effect to the acquisitions of Properties completed after December 31, 1997 as if
they had been completed as of December 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
PERCENT PERCENT OFFICE COMPANY QUOTED QUOTED SERVICE
OF LEASED AT SUBMARKET SHARE OF MARKET RENTAL RENTAL
TOTAL TOTAL COMPANY PERCENT OFFICE RENTAL RATE RATE PER RATE PER
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
- ---------------------- ---------- ------- ------ ---------- ----------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 14% 84% 81% 21% $20.37 $23.18 $18.68
Uptown/Turtle Creek 4 1,929,521 6 94(6) 90 34 25.28 29.32 23.47
Far North Dallas 7 1,897,695 6 98 92 30 24.12 23.23 15.59
Las Colinas 4 1,273,662 4 97 94 18 25.95 23.28 17.94
Richardson/Plano 5 719,267 2 100 99 20 19.01 21.29 15.68
Stemmons Freeway 1 634,381 2 92 84 31 17.95 18.75 13.73
LBJ Freeway 2 453,018 1 96 95 5 22.89 22.17 16.50
--- ---------- --- ---- ---- --- -------- -------- --------
Subtotal/Weighted
Average 26 10,767,098 35% 92% 89% 20% $22.44 $23.87 $18.28
--- ---------- --- ---- ---- --- -------- -------- --------
FORT WORTH
CBD 1 954,895 3% 53%(6) 84% 23% $17.24 $17.00 $16.34
--- ---------- --- ---- ---- --- -------- -------- --------
HOUSTON
CBD 3 2,764,418 9% 92% 94% 11% $17.82 $18.76 $17.61
Richmond-Buffalo
Speedway 4 1,994,274 6 96 98 51 18.01 19.00 15.43
West Loop/Galleria(7) 4 1,677,375 5 91 94 13 19.44 19.88 14.14
The Woodlands 7 486,140 2 100 100 100 15.36 15.36 14.28
Katy Freeway 1 414,251 1 100 100 15 17.69 18.55 13.46
--- ---------- --- ---- ---- --- -------- -------- --------
Subtotal/Weighted
Average 19 7,336,458 23% 94% 95% 16% $18.07 $18.84 $15.74
--- ---------- --- ---- ---- --- -------- -------- --------
AUSTIN
CBD(7) 4 1,584,530 5% 88%(6) 93% 44% $23.02 $23.36 $19.03
Northwest 1 232,301 1 79 (6) 96 10 22.40 21.00 17.10
Southwest 1 99,792 0 95 94 6 24.87 22.00 19.56
--- ---------- --- ---- ---- --- -------- -------- --------
Subtotal/Weighted
Average 6 1,916,623 6% 87% 94% 25% $23.04 $23.01 $18.84
--- ---------- --- ---- ---- --- -------- -------- --------
COLORADO
DENVER
Cherry Creek 4 810,567 3% 86%(6) 91% 38% $19.42 $20.64 $16.59
CBD 2 735,388 2 98 94 7 18.63 18.50 17.00
DTC 1 309,862 1 87 90 7 23.21 25.00 20.24
--- ---------- --- ---- ---- --- -------- -------- --------
Subtotal/Weighted
Average 7 1,855,817 6% 91% 92% 11% $19.74 $20.52 $17.36
--- ---------- --- ---- ---- --- -------- -------- --------
COLORADO SPRINGS 1 252,857 1% 100% 96% 7% $17.69(8) $17.50 $15.55
--- ---------- --- ---- ---- --- -------- -------- --------
LOUISIANA
NEW ORLEANS
CBD 2 1,270,241 4% 77%(6) 87% 14% $15.82 $16.70 $14.76
--- ---------- --- ---- ---- --- -------- -------- --------
FLORIDA
MIAMI
CBD 1 782,686 3% 79% 89% 23% $27.39 $30.25 $22.31
--- ---------- --- ---- ---- --- -------- -------- --------
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 89% 90% 27% $21.60 $21.50 $23.09
Camelback Corridor 1 86,451 0 67 94 3 24.82 21.97 21.00
--- ---------- --- ---- ---- --- -------- -------- --------
Subtotal/Weighted
Average 2 562,824 2% 85% 93% 11% $22.09 $21.57 $22.84
--- ---------- --- ---- ---- --- -------- -------- --------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown(7) 2 536,206 2% 95% 95% 100% $40.00 $40.00 $36.60
--- ---------- --- ---- ---- --- -------- -------- --------
NEBRASKA
OMAHA
CBD 1 409,850 1% 100% 93% 32% $18.13 $18.50 $14.71
--- ---------- --- ---- ---- --- -------- -------- --------
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 83%(6) 95% 63% $18.50 $18.00 $18.09
--- ---------- --- ---- ---- --- -------- -------- --------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 1 276,420 1% 83%(6) 99% 3% $33.28 $34.00 $22.76
--- ---------- --- ---- ---- --- -------- -------- --------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
PERCENT PERCENT OFFICE COMPANY QUOTED QUOTED SERVICE
OF LEASED AT SUBMARKET SHARE OF MARKET RENTAL RENTAL
TOTAL TOTAL COMPANY PERCENT OFFICE RENTAL RATE RATE PER RATE PER
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
- ---------------------- ---------- --- --- ---------- ----------- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAN DIEGO
UTC 1 195,733 1% 85% 92% 7% $25.20 $24.36 $20.11
- ------- - -- -- - ------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 71 27,483,944 89% 89% 92% 17% $21.09 $22.01 $17.89
== ========== == == == == ====== ====== ======
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway 2 413,721 1% 86% 89% 11% $15.28 $17.73 $11.85
LBJ Freeway 1 244,879 1 88 93 2 16.94 17.50 12.31
Far North Dallas 1 40,525 0 87 90 1 17.60 17.00 13.55
- ------ - -- -- - ------ ----- -----
Subtotal/Weighted Average 4 699,125 2% 87% 91% 3% $16.00 $17.61 $12.12
- ------- - -- -- - ------ ------ ------
HOUSTON
Richmond-Buffalo Speedway 6 2,292,003 8% 76% 74% 54% $16.52 $17.00 $13.77
The Woodlands 5 326,087 1 97 97 100 14.46 14.46 14.50
- ------- - -- -- --- ------ ----- -----
Subtotal/Weighted Average 11 2,618,090 9% 78% 75% 58% $16.27 $16.69 $13.88
-- --------- - -- -- -- ------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 15 3,317,215 11% 80% 88% 12% $16.21 $16.88 $13.48
== ========= == == == == ====== ====== ======
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE 86 30,801,159 100% 88%(6) 91% 16% $20.57 $21.46 $17.46
== ========== === == == == ====== ====== ======
</TABLE>
- --------------------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the
caption "Class A Office Properties" and market information is
for Class B office space under the caption "Class B Office
Properties." Sources are Jamison Research, Inc. (for the Dallas
CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway and Central
Expressway, Fort Worth CBD and the New Orleans CBD submarkets),
Baca Landata, Inc. (for the Houston Richmond-Buffalo Speedway,
CBD and West Loop/Galleria submarkets), The Woodlands Operating
Company, L.P. (for the Houston The Woodlands submarket),
Cushman & Wakefield of Texas, Inc. (for the Houston Katy
Freeway submarket), CB Commercial (for the Austin CBD,
Northwest and Southwest submarkets), Cushman & Wakefield of
Colorado, Inc. (for the Denver Cherry Creek, CBD and DTC
submarkets), Turner Commercial Research (for the Colorado
Springs market), Grubb and Ellis Company (for the Phoenix
Downtown/CBD, Camelback Corridor and San Francisco South of
Market/CBD submarkets), Jones Lang Wootton (for the Washington
D.C. Georgetown submarket) Pacific Realty Group, Inc. (for the
Omaha CBD submarket), Building Interests, Inc. (for the
Albuquerque CBD submarket), Real Data Information Systems, Inc.
(for the Miami CBD submarket) and John Burnham & Co. (for the
San Diego UTC submarket).
(3) Represents full-service quoted market rental rates. These rates
do not necessarily represent the amounts at which available
space at the Office Properties will be leased. The weighted
average subtotals and total are based on total net rentable
square feet of Company Office Properties in the submarket.
(4) For Office Properties, represents weighted average rental rates
per square foot quoted by the Company as of December 31, 1997,
based on total net rentable square feet of Company Office
Properties in the submarket, adjusted, if necessary, based on
management estimates, to equivalent full-service quoted rental
rates to facilitate comparison to weighted average Class A or
Class B, as the case may be, quoted submarket rental rates per
square foot. For Office Properties acquired subsequent to
December 31, 1997, represents weighted average full-service
quoted market rental rates per square foot. These rates do not
necessarily represent the amounts at which available space at
the Company Office Properties will be leased.
(5) Calculated based on base rent payable for Company Office
Properties and Properties acquired subsequent to December 31,
1997 in the submarket as of December 31, 1997, without giving
effect to free rent or scheduled rent increases that would be
taken into account under generally accepted accounting
principles and including adjustments for expenses payable by
tenants, divided by total net rentable square feet of Company
Office Properties in the submarket.
(6) Leases have been executed at certain Properties in these
submarkets but had not commenced as of December 31, 1997. If
such leases had commenced as of December 31, 1997, the percent
leased for all Office Properties in the Company's submarkets
would have been 92%. The total percent leased at the Company's
Office Properties would have been as follows: Dallas
Uptown/Turtle Creek -- 98%; Fort Worth CBD -- 100%; Austin CBD
-- 92%; Austin Northwest -- 100%; Denver Cherry Creek -- 94%;
New Orleans CBD -- 79%; Albuquerque CBD -- 96%; and San
Francisco South of Market/CBD -- 91%.
(7) Includes three properties acquired in the Houston West
Loop/Galleria submarket, one property acquired in the Austin
CBD submarket, and two properties acquired in the Washington
D.C. Georgetown submarket subsequent to December 31, 1997.
(8) Represents weighted average quoted market triple-net rental
rates per square foot, adjusted based on management estimates,
to equivalent full-service quoted market rental rates.
15
<PAGE> 18
The following table sets forth, as of December 31, 1997, the principal
businesses conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants, after giving effect to the
acquisitions of Properties completed after December 31, 1997.
<TABLE>
<CAPTION>
Percent of
Industry Sector Leased Sq. Ft.
--------------- --------------
<S> <C>
Professional Services (1) 26%
Financial Services (2) 20%
Energy 15%
Telecommunications 7%
Technology 6%
Manufacturing 5%
Retail 3%
Medical 3%
Government 3%
Food Service 3%
Other (3) 9%
--------
Total Leased 100%
========
</TABLE>
- ----------------------
(1) Includes legal, accounting, engineering, architectural, and
advertising services.
(2) Includes banking, title and insurance and investment services.
(3) Includes construction, real estate, transportation and other
industries.
MARKET INFORMATION
Management believes that its Office Properties reflect the Company's
strategy to invest in premier assets within markets that have significant
potential for rental growth. The Company has analyzed demographic and economic
data to focus on markets it expects to benefit from significant internal
employment growth as well as corporate relocations. After identifying and
analyzing attractive regional markets, the Company selects submarkets which the
Company believes will be the major beneficiaries of this projected growth.
Management believes that the most attractive submarkets for office investment
are those that integrate a premier office environment with quality of life
features including: affordable residential housing; an environment generally
well protected from crime; effective transportation systems; a significant
concentration of retailing alternatives; and cultural centers, entertainment
attractions and recreational facilities. Other factors considered by the
Company in selecting the submarkets include proximity to major airports and the
relative aggressiveness of local governments providing tax and other incentives
designed to favor business.
Within these submarkets, the Company has focused on premier properties
that management believes are able to attract and retain the highest quality
tenants and command premium rents. In addition, several of the
Properties benefit from significant "over-improvement" (improvements beyond
what currently could be justified by expected economic returns) made by prior
owners or developers. These over-improvements, which should not materially
increase the future operating cost of the Properties, include various
amenities, use of expensive materials, and extensive landscaping. Such premier
properties also tend to be more stable in downward property cycles. Consistent
with its investment strategies, the Company seeks situations where it can
acquire properties that have strong economic returns based on in-place tenancy
and have a dominant position within the submarket due to quality and/or
location. Accordingly, management's investment strategy not only demands
acceptable current cash flow return on invested capital, but also considers
long-term cash flow growth prospects.
16
<PAGE> 19
The demographic conditions, economic conditions and trends (population
growth and employment growth) favoring the markets in which the Company has
invested are projected to continue to be at or above the national average, as
illustrated in the following table.
Projected Population Growth and Employment Growth for all Company Markets
<TABLE>
<CAPTION>
Population Employment
Growth Growth
Metropolitan Statistical Area (MSA) 1997-2007 1997-2007
- --------------------------------------------------------------------------------
<S> <C> <C>
Dallas/Fort Worth, TX 17.8% 16.9%
Houston, TX 11.2 12.4
Austin, TX 29.7 26.7
Denver, CO 16.6 16.2
Colorado Springs, CO 17.7 19.3
New Orleans, LA 4.4 10.0
Miami, FL 12.2 13.8
Phoenix, AZ 23.2 23.4
Washington, D.C. 17.7 18.1
Omaha, NE 11.1 14.5
Albuquerque, NM 17.2 19.3
San Francisco, CA 14.6 14.6
San Diego, CA 18.5 18.4
United States 8.6 12.6
</TABLE>
- --------------------------
Source: Cognetics, Inc.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following table sets forth a schedule of lease expirations for
leases in place as of December 31, 1997 at the Company's Office Properties,
including six Office Properties acquired subsequent to December 31, 1997, for
each of the ten years beginning with 1998, assuming that none of the tenants
exercises renewal options and excluding an aggregate 3,991,391 square feet of
unleased space.
<TABLE>
<CAPTION>
PERCENTAGE ANNUAL
OF TOTAL FULL-SERVICE
NET RENTABLE PERCENTAGE OF ANNUAL ANNUAL RENT PER
NUMBER OF AREA LEASED NET FULL- FULL-SERVICE SQUARE
TENANTS REPRESENTED RENTABLE AREA SERVICE RENT FOOT OF NET
WITH BY EXPIRING REPRESENTED BY RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES EXPIRING EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES(1) LEASES EXPIRING(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 416 2,454,569 9.2% $39,165,179 7.8% $15.96
1999 418 3,470,357 12.9 59,169,483 11.8 17.05
2000 372 3,311,919 12.4 60,340,936 12.0 18.22
2001 288 3,680,753 13.7 63,445,501 12.7 17.24
2002 277 3,407,331 12.7 66,653,848 13.3 19.56
2003 74 1,423,950 5.3 24,016,848 4.8 16.87
2004 70 2,561,029 9.6 49,035,329 9.8 19.15
2005 47 1,988,191 7.5 40,734,393 8.1 20.49
2006 20 521,177 1.9 10,096,070 2.0 19.37
2007 23 1,138,952 4.2 19,837,446 4.0 17.42
2008 and thereafter 30 2,851,334 10.6 68,926,526 13.7 24.17
</TABLE>
- --------------------------
(1) Calculated based on base rent payable as of the expiration
date of the lease for net rentable square feet expiring, without giving
effect to free rent or scheduled rent increases that would be taken into
account under generally accepted accounting principles and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
17
<PAGE> 20
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE LEASES
On June 17, 1997, the Company acquired substantially all of the real
estate assets of the domestic hospital provider business of Magellan, as
previously owned and operated by a wholly owned subsidiary of Magellan. The
transaction involved various components, the principal component of which was
the acquisition of the 90 Behavioral Healthcare Facilities (and two additional
behavioral healthcare facilities which subsequently were sold) for approximately
$387.2 million. The Behavioral Healthcare Facilities, which are located in 27
states, are leased to CBHS, and its subsidiaries under a triple-net lease. CBHS
is a Delaware limited liability company, formed to operate the Behavioral
Healthcare Facilities, owned 50% by a subsidiary of Magellan and 50% by COI.
The lease requires the payment of annual minimum rent in the amount of
approximately $41.7 million for the period ending June 16, 1998, increasing in
each subsequent year during the 12- year term at a 5% compounded annual rate.
All maintenance and capital improvement costs are the responsibility of CBHS
during the term of the lease. In addition, the obligation of CBHS, pursuant to
a franchise agreement, to pay an approximately $78.2 million franchise fee to
Magellan and one of its subsidiaries, as franchisor, is subordinated to the
obligation of CBHS to pay annual minimum rent to the Company. The franchisor
does not have the right to terminate the franchise agreement due to any
nonpayment of the franchise fee as a result of the subordination of the
franchise fee to the annual minimum rent. The lease is designed to provide the
Company with a secure, above-average return on its investment as a result of the
priority of annual minimum rent to the franchise fee and the initial amount and
annual escalation in the lease payments.
On March 5, 1998, COI entered into a definitive agreement to acquire
Magellan's 50% interest in CBHS in exchange for $30 million in common stock of
COI. In a related transaction, CBHS executed a definitive agreement to purchase
from Magellan, for approximately $280 million, certain assets and intellectual
property rights used by Magellan to supply franchise services to CBHS. The
agreement provides for the elimination of the franchise fee that is payable by
CBHS to Magellan. The transactions are subject to a number of conditions,
including customary closing conditions, a condition that CBHS obtain funds
sufficient to finance the purchase and certain regulatory conditions. The
transactions, as structured will not affect the arrangements pursuant to which
CBHS leases the Behavioral Healthcare Facilities from the Company.
BEHAVIORAL HEALTHCARE FACILITIES TABLE
The following chart sets forth the locations of the 90 Behavioral
Healthcare Facilities by state:
<TABLE>
<CAPTION>
Number of Number of
State Facilities State Facilities
----- ---------- ----- ----------
<S> <C> <C> <C>
Alabama 2 Mississippi 2
Arkansas 2 North Carolina 4
Arizona 2 New Hampshire 2
California 9 New Jersey 1
Delaware 1 Nevada 1
Florida 10 Ohio 1
Georgia 12 Pennsylvania 2
Indiana 8 South Carolina 3
Kansas 2 Tennessee 1
Kentucky 4 Texas 9
Louisiana 2 Utah 1
Maryland 1 Virginia 4
Minnesota 1 Wisconsin 2
Missouri 1 --
Total 90
==
</TABLE>
18
<PAGE> 21
The Behavioral Healthcare Facilities are located in well-populated
urban and suburban locations. Most of the Behavioral Healthcare Facilities
offer a full continuum of behavioral care in their service area, including
inpatient hospitalization, partial hospitalization, intensive outpatient
services and, in some markets, residential treatment services. The Behavioral
Healthcare Facilities provide structured and intensive treatment programs for
mental health and alcohol and drug dependency disorders in children, adolescents
and adults. A significant portion of admissions are provided by referrals from
former patients, local marketplace advertising, managed care organizations and
physicians. The Behavioral Healthcare Facilities work closely with mental
health professionals, non-psychiatric physicians, emergency rooms and community
agencies that come in contact with individuals who may need treatment for mental
illness or substance abuse.
The Behavioral Healthcare Facilities in the past have been, and in the
future may be, adversely affected by factors influencing the entire psychiatric
hospital industry. The industry is subject to governmental regulation in
various respects. Factors which may affect the operations and successful
results of operations of the Behavioral Healthcare Facilities include (i) the
imposition of more stringent length of stay and admission criteria by payers;
(ii) the failure of reimbursement rates received from certain payers that
reimburse on a per diem or other discounted basis to offset increases in the
cost of providing services; (iii) an increase in the percentage of business that
the Behavioral Healthcare Facilities derive from payers that reimburse on a per
diem or other discounted basis; (iv) a trend toward higher deductibles and
co-insurance for individual patients; and (v) pricing pressure related to
increasing rate of claims denials by third party payers. In addition to these
regulations, the recently adopted National Mental Health Parity Act of 1997
potentially benefits the industry by imposing an obligation for health insurance
issuers and group health plans to place mental health benefits on equal footing
with all other medical benefits. Title I of this Act amends the Code to impose
on an issuer or group health plan a tax equal to 25% of a health plan's premiums
received during the calendar year if the plan imposes limitations or financial
requirements on the coverage of benefits relating to certain mental health
conditions unless similar limitations or requirements also are imposed on
coverage of benefits with respect to conditions other than mental health.
INDUSTRY INFORMATION
In an era of cost-containment and the reduction of dollars available
for care, behavioral health providers have focused attention on developing
treatment approaches that respond to payers' increasing demands for shorter
stays, lower costs, and expanded access to care. Changes in the mix of
services, the prices of services, and the intensity of service are all part of
this response. These changes have also been bolstered by a rapidly expanding
science base, improved medications management, and the growing availability of
non-hospital treatment settings in more and more communities that help to make
it possible to manage complex and severe illnesses in less intensive treatment
settings. One of the effects that the behavioral healthcare industry is
experiencing is an increasing percentage of non-inpatient care. According to
the National Association of Psychiatric Health Systems 1997 Annual Survey
Report, nearly one in four admissions in 1996 was to a service other than
inpatient hospitalization, compared to just one in ten admissions in 1992.
Although non-inpatient services are rapidly growing, total inpatient admissions
have increased also. In general, inpatient and non-inpatient admissions are
increasing, but average length of stay and care costs are decreasing.
Due to these changes in the behavioral healthcare industry, a
hospital's position relative to its competitors has been affected by its
ability to obtain contracts with HMOs, PPOs and other managed care plans for
the provision of health care services. Although such contracts generally
provide for discounted services, pre-admission certification and concurrent
length of stay reviews, they also provide a strong patient referral base. The
importance of entering into contracts with HMOs, PPOs and other managed care
companies varies from market to market and depends upon the market strength of
the particular managed care company.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
1996 1995 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Admissions . . . . . . . . 476,844 447,525 399,407 325,679
Average length of stay (days) . . 11.5 11.7 10.4 16.2
</TABLE>
Source: National Association of Psychiatric Health Systems 1997 Annual Survey
Report
19
<PAGE> 22
HOTEL PROPERTIES
HOTEL LEASES
Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties directly. The Company has
leased the Hotel Properties to subsidiaries of COI (collectively, the "Hotel
Lessees") pursuant to nine separate leases. Under the leases, each having a
term of 10 years, the Hotel Lessees have assumed the rights and obligations of
the property owner under the respective management agreement with the hotel
operators, as well as the obligation to pay all property taxes and other
charges against the property. As part of each of the lease agreements for
eight of the Hotel Properties, the Company has agreed to fund all capital
expenditures relating to furniture, fixtures and equipment reserves required
under the applicable management agreements. The only exception is Canyon
Ranch-Tucson, in which the hotel lessee owns all furniture, fixtures and
equipment associated with the property and will fund all related capital
expenditures. Each of the leases provides for the payment by the lessee of the
Hotel Property of (i) base rent, with periodic rent increases, (ii) percentage
rent based on a percentage of gross hotel receipts or gross room revenues, as
applicable, above a specified amount, and (iii) a percentage of gross food and
beverage revenues above a specified amount for certain Hotel Properties.
HOTEL PROPERTIES TABLES
The following table sets forth certain information for the years ended
December 31, 1997 and 1996, about the Company's Hotel Properties, including the
Hotel Property that the Company acquired after December 31, 1997. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------
AVERAGE AVERAGE REVENUE PER
OCCUPANCY DAILY AVAILABLE
Year RATE RATE ROOM
Acq. Completed/ ---- ---- ----
Hotel Property (1) Location Date Renovated Rooms 1997 1996 1997 1996 1997 1996
- -------------- -------- ---- --------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Denver Marriott City
Center Denver, CO 6/95 1982/1994 613 80% 79% $117 $108 $ 94 $85
Four Seasons Hotel-
Houston Houston, TX 9/97 1982 399 67 65 161 142 108 93
Hyatt Regency Albuquerque, NM 12/95 1990 395 74 77 98 93 73 71
Albuquerque
Omni Austin Hotel(2) Austin, TX 1/98 1986 314 78 76 103 102 81 77
Hyatt Regency Avon, CO 1/95 1989 295 66 67 229 207 151 139
Beaver Creek
Sonoma Mission Inn
& Spa Sonoma, CA 11/96 1927/1987/1997 198(3) 87 92 210 181 183 166
Ventana Country Inn Big Sur, CA 12/97 1975/1982/1988 62 84 83 337 312 282 258
----- --- --- --- --- --- ---
TOTAL / WEIGHTED AVERAGE 2,276(3) 75% 75% $149 $136 $112 $102
===== === === ==== ==== ==== ====
Destination Health & Fitness Resorts
Canyon Ranch - Tucson Tucson, AZ 7/96 1980 250(4) 81%(5) 80%(5) $508(6) $479(6) $387(7) $366(7)
Canyon Ranch - Lenox Lenox, MA 12/96 1989 202(4) 80 (5) 81 (5) 445(6) 407(6) 347(7) 320(7)
----- --- --- --- --- --- ---
TOTAL / WEIGHTED AVERAGE 452 81% 81% $477 $446 $370 $345
===== === === ==== ==== ==== ====
</TABLE>
- ----------------------------
(1) Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties and has leased the
Hotel Properties to subsidiaries of COI pursuant to long-term leases.
(2) Acquired subsequent to December 31, 1997.
(3) Includes, for the period from July 1, 1997 through December 31, 1997,
30 additional rooms completed in July 1997.
(4) Represents available guest nights, which is the maximum number of
guests that the resort can accommodate per night.
(5) Represents the number of paying and complimentary guests for the
period, divided by the maximum number of available guest nights for
the period.
(6) Represents the average daily "all-inclusive" guest package charges for
the period, divided by the average daily number of paying guests for
the period.
(7) Represents the total "all-inclusive" guest package charges for the
period, divided by the maximum number of available guest nights for
the period.
20
<PAGE> 23
The following table sets forth average occupancy rate, average daily
rate ("ADR"), and revenue per available room ("REVPAR") for the Company's Hotel
Properties, including the Hotel Property that the Company acquired after
December 31, 1997, by full-service/luxury hotels and destination health and
fitness resorts for each of the years ended December 31, 1993 through 1997. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tuscon and Canyon Ranch-Lenox, which are destination health and
fitness resorts, that measure performance based on available guest nights and
calculate average occupancy rate, ADR and REVPAR as described in the footnotes
to the preceding table.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Average Occupancy Rate 71% 71% 74% 75% 75%
ADR $112 $119 $125 $136 $149
REVPAR $ 80 $ 85 $ 92 $102 $112
Destination Health and Fitness
Resorts
Average Occupancy Rate 78% 78% 77% 81% 81%
ADR $393 $418 $437 $446 $477
REVPAR $290 $312 $321 $345 $370
</TABLE>
HOTEL MARKET INFORMATION
The U.S. hotel industry is experiencing a resurgence in profitability
from its downturn in the early 1990's. Increased demand for luxury and
destination resort hotel rooms has been met with very limited increase in the
supply of such rooms, resulting in increasing occupancies and room rates.
According to Smith Travel Research, average occupancies for hotel rooms rose
from 62.7% in 1992 to 64.6% in 1997. Average hotel room rental rates grew
6.1%, 6.3%, and 4.9%, in 1997, 1996, and 1995, respectively. Within the
luxury and upscale segments of the industry, average occupancy increased
approximately 7.4% and 2.9%, respectively, between 1992 and 1997, while average
room rental rates increased approximately 32.0% and 25.0%, respectively, during
the same period.
Business and convention travel accounts for about two-thirds of room
demand and has risen along with the improving economy and increased corporate
profits. Domestic leisure travel has also increased, especially among the
"baby boomers" who are not only at the prime age for leisure travel but also
have a greater tendency to travel than previous generations. A healthier, more
active senior population is also contributing to the increase in travel.
With the aging of the "baby boomer" generation and the growing
interest in quality of life activities, the resort/spa industry also is
experiencing significant growth in the United States.
The average annual growth rates in REVPAR, from 1992 through 1997, for
the upscale and luxury hotel segments were 5.2% and 7.2%, respectively,
according to Smith Travel Research. This demand comes not only from the
business and convention sector, but also from the leisure traveler who
vacations increasingly at higher-end hotels.
The following table sets forth hotel REVPAR by price segment for the
years 1992 through 1997.
<TABLE>
<CAPTION>
Annual
Average
1992 1993 1994 1995 1996 1997 Growth Rate
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Luxury(1) $69.43 $73.40 $79.15 $83.93 $92.31 $98.33
% Change 5.7% 7.8% 6.0% 10.0% 6.5% 7.2%
Upscale(2) $46.70 $49.20 $51.76 $54.28 $57.42 $60.05
% Change 5.4% 5.2% 4.9% 5.8% 4.6% 5.2%
Mid-Priced $34.78 $35.71 $37.57 $39.70 $41.84 $44.20
% Change 2.7% 5.2% 5.7% 5.4% 5.6% 4.9%
Economy $25.45 $26.16 $27.27 $28.64 $29.63 $30.45
% Change 2.8% 4.2% 5.0% 3.5% 2.8% 3.7%
Budget $21.53 $21.80 $22.75 $23.77 $24.40 $25.07
% Change 1.3% 4.4% 4.5% 2.7% 2.7% 3.1%
</TABLE>
21
<PAGE> 24
- -----------------
(1) Includes destination health and fitness resorts such as the Canyon Ranch
resorts.
(2) Includes full-service and limited-service hotels.
Source: Smith Travel Research
REFRIGERATED WAREHOUSE PROPERTIES
On October 31, 1997, the Company, through the Crescent Subsidiaries,
initially acquired a 40% interest in each of two partnerships one of which owns
Americold and one of which owns URS. Vornado acquired the remaining 60% interest
in the partnerships. The Refrigerated Warehouse Companies are the two largest
suppliers of refrigerated warehouse space in the United States.
One of the partnerships acquired all of the common stock of Americold
through the merger of a subsidiary of Vornado into Americold, and the other
partnership acquired all of the common stock of URS through the merger of a
separate subsidiary of Vornado into URS. As a result of the acquisition, the
Americold partnership and the URS partnership became the owners and operators
of approximately 80 refrigerated warehouses, with an aggregate of approximately
394 million cubic feet, that are operated pursuant to arrangements with
national food suppliers.
On December 30, 1997 and effective October 31, 1997, in order to
permit the Company to continue to satisfy certain REIT qualification
requirements, the Company sold all of the voting common stock, representing a
5% economic interest, in each of the Crescent Subsidiaries to COI. As a
result, the Company currently owns a 38% interest in each of the Americold
partnership and URS partnership, through its ownership of all of the nonvoting
common stock, representing a 95% economic interest, in each of the Crescent
Subsidiaries.
Under the terms of the existing partnership agreements for each of the
partnerships, Vornado has the right to make all decisions relating to the
management and operation of the partnerships other than certain major decisions
that require the approval of both the Company and Vornado. The partnership
agreement for each of the partnerships provides for a buy-sell arrangement upon
a failure of the Company and Vornado to agree on any of the specified major
decisions which, until November 1, 2000, can be exercised only by Vornado.
Major decisions include approval of the annual capital and operating budgets
for each partnership, decisions to deviate from the budgets by 10% or more and
additional capital contributions. If the Company and Vornado fail to reach
agreement on any of the specified major decisions prior to November 1, 2000,
Vornado may purchase the Company's interest at cost (less distributions) plus a
10% per annum return. During the seven years thereafter, Vornado may set a
price for the buy-sell arrangement, and the Company then may elect either to
sell its interest to Vornado, or to purchase Vornado's interest, at the
designated price. After October 31, 2007, either the Company or Vornado may
set a price for the buy-sell arrangement, and the party who did not set the
price may elect either to sell its interest to the other party, or to purchase
the other party's interest, at the designated price. The exercise of the
buy-sell arrangement in one partnership requires the purchaser under the
arrangement to purchase the interest of the selling party in the other
partnership on the same terms.
The parties have not yet determined certain matters relating to the
future ownership structure and operations of Americold and URS, including the
identification and division of the assets that will continue to be owned by one
of the partnerships and those that may be owned by one or more other entities
formed to conduct the business operations currently conducted by Americold and
URS, and the nature and terms of any lease that may be entered into between the
operating entity and the owner of the warehouses.
SERVICES
The Refrigerated Warehouse Companies provide frozen food manufacturers
with refrigerated warehousing and transportation management services.
Refrigerated warehouses consist of production and distribution facilities.
Production facilities differ from distribution facilities in that they typically
serve one or a small number of customers located nearby. These customers store
large quantities of processed or partially processed products in the facility
until they are further processed or shipped to the next stage of production or
distribution. Distribution facilities primarily serve customers who store a
wide variety of finished products to support shipment to end-users, such as food
retailers and food service companies, in a specific geographic market.
Transportation management services offered include freight routing,
dispatching, freight rate negotiation, backhaul coordination, freight bill
auditing, network flow management, order consolidation and distribution channel
assessment. The Refrigerated Warehouse Companies' temperature-controlled
logistics expertise and access to both frozen food warehouses and distribution
channels enable its customers to respond quickly and efficiently to time-
sensitive orders from distributors and retailers.
22
<PAGE> 25
CUSTOMERS
Customers consist primarily of national, regional and local frozen
food manufacturers, distributors, retailers and food service organizations
including Con-Agra, Inc., H.J. Heinz & Co., Kraft Foods and Tyson Foods.
REFRIGERATED WAREHOUSE PROPERTIES TABLE
The following table shows the location and size of facility for each
of the Refrigerated Warehouse Properties as of December 31, 1997:
<TABLE>
<CAPTION>
Total Cubic Total Cubic
Number of Footage Number of Footage
State Properties (in millions) State Properties (in millions)
------ ---------- ------------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Alabama 6 9.9 Missouri 1 4.8
Arkansas 3 9.7 Nebraska 1 2.2
California 11 45.3 New York 1 11.8
Colorado 2 3.3 North Carolina 3 8.5
Florida 5 7.8 Oklahoma 2 2.1
Georgia 6 34.4 Oregon 6 40.4
Idaho 2 18.7 Pennsylvania 2 27.4
Illinois 1 6.0 South Carolina 1 1.6
Indiana 1 9.1 Tennessee 3 9.0
Iowa 2 12.6 Texas 1 17.7
Kansas 2 38.0 Utah 1 8.6
Maine 1 1.8 Virginia 1 1.9
Massachusetts 6 15.2 Washington 6 28.7
Minnesota 1 3.8 Wisconsin 2 14.0
-- -----
Total 80 394.3
== =====
</TABLE>
RESIDENTIAL DEVELOPMENT PROPERTIES
The Company owns economic interests in five Residential Development
Corporations through the Residential Development Property Mortgages relating to
and the non-voting common stock in these Residential Development Corporations.
The Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in the 12 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties.
23
<PAGE> 26
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table sets forth certain information as of December 31,
1997, relating to the Residential Development Properties.
<TABLE>
<CAPTION>
Residential Total Total Average
Residential Development Total Lots/Units Lots/Units Closed Range of
Residential Development Corporation's Lots/ Developed Closed Sale Price Proposed
Development Properties Type of Effective Units Since Since Per Lot/ Sale Prices
Corporation(1) (RDP) RDP(2) Location Ownership % Planned Inception Inception Unit Per Lot(3)
----------- ----- --- -------- ----------- ------- --------- --------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mira Vista Mira Vista SF Fort Worth, TX 100.00% 691 581 526 $ 94,300 $ 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 12.25% 750 219 194 140,000 55,000 - 250,000
Corp. ----- --- ---
Total Mira Vista Development Corp. 1,441 800 720
----- --- ---
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 508 227 $ 28,000 $ 16,000 - 60,000
Development Spring Lakes SF Houston, TX 100.0% 536(4) - - - 21,000 - 45,000
Corp. ----- --- ---
Total Houston Area Development Corp. 1,741 508 227
----- --- ---
Crescent One Beaver CO Avon, CO 60.0% 18 18 18 $2,181,000 $1,330,000 - 3,420,000
Development Creek CO Avon, CO 60.0% 26 26 26 896,000 356,000 - 2,161,000
Management Market Square
Corp. The Reserve at SF Frisco, CO 60.0% 134 134 78 95,000 75,000 - 169,000
Frisco
Villa Montane TH Avon, CO 30.0% 27(5) - - N/A 600,000 - 1,400,000
Townhomes
Villa Montane TS Avon, CO 30.0% 800(5) - - N/A 27,000 - 77,000
Club
Villas at TH Avon, CO 30.0% 10(5) - - N/A 1,500,000 - 2,950,000
Beaver Creek ----- --- ---
Total Crescent Development Management Corp. 1,015 178 122
------ --- ---
The Woodlands The Woodlands SF The Woodlands, 42.5% 38,313 18,508 17,268 $ 40,000 $ 13,000 - 250,000
Land Company TX ------ ------ ------
Inc.
Desert Desert SF Scottsdale, AZ 93.0% 2,573 1,797 1,539 $ 327,500 $ 150,000 - 2,500,000
Mountain Mountain ------ ----- -----
Development
Corp.
Total 45,083 21,791 19,876
====== ====== ======
</TABLE>
- -------------------
(1) The Company has an approximately 94%, 94%, 90%, 95% and 95% ownership
interest in Mira Vista Development Corp., Houston Area Development
Corp., Crescent Development Management Corp., The Woodlands Land
Company, Inc., and Desert Mountain Development Corp., respectively,
through ownership of non-voting common stock in each of these
Residential Development Corporations.
(2) SF (Single-Family); CO (Condominium); TH (Townhome); TS (Timeshare).
(3) Based on existing inventory of developed lots and lots to be
developed.
(4) The initial phase of this project (93 lots) is expected to be
completed in the second quarter of 1998.
(5) As of December 31, 1997, eight units were under contract at Villas at
Beaver Creek representing $17.9 million in sales proceeds, 14 units
were under contract at Villa Montane Townhomes representing $13.0
million in sales proceeds, and 515 contracts were pre-sold at Villa
Montane Club representing $31.0 million in sales proceeds.
24
<PAGE> 27
RETAIL PROPERTIES
The Company owns seven Retail Properties, which in the aggregate
contain approximately 771,000 net rentable square feet. Four of the Retail
Properties, The Woodlands Retail Properties, with an aggregate of approximately
356,000 net rentable square feet, are located in the Woodlands, a
master-planned development located 27 miles north of downtown Houston, Texas.
The Company has a 75% limited partner interest and an indirect approximately
10% general partner interest in the partnership that owns The Woodlands Retail
Properties. Two of the Retail Properties, Las Colinas Plaza, with
approximately 135,000 net rentable square feet, and The Crescent Atrium, with
approximately 89,000 net rentable square feet, are located in submarkets of
Dallas, Texas. The remaining Retail Property, The Park Shops at Houston
Center, with an aggregate of approximately 191,000 net rentable square feet, is
located in the CBD submarket of Houston, Texas. As of December 31, 1997, the
Retail Properties were 95% leased.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of the Properties currently is subject to
any material litigation nor, to the knowledge of the Company, is any material
litigation currently threatened against the Company or any of the Properties.
ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the Registrant's fiscal year ended December 31, 1997.
PART II
ITEM 5 . MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Shares have been traded on the New York Stock
Exchange under the symbol "CEI" since the completion of its initial public
offering at a price of $12.50 per share in May 1994. For each calendar quarter
indicated, the following table reflects the high and low sales prices for the
common shares and the distributions declared by the Company with respect to
each such quarter. All information provided in the table below has been
adjusted to reflect the two-for-one stock split effected in the form of 100%
share dividend paid by the Company on March 26, 1997 to shareholders of record
on March 20, 1997.
<TABLE>
<CAPTION>
PRICE
---------------------
HIGH LOW DISTRIBUTIONS
1996 -------- -------- -------------
<S> <C> <C> <C>
First Quarter $17 7/16 $16 1/16 $.275
Second Quarter $19 1/16 $16 11/16 $.275
Third Quarter $21 3/16 $17 1/2 $.305
Fourth Quarter $26 5/8 $20 5/16 $.305
1997
First Quarter $31 3/8 $25 1/8 $.305
Second Quarter $32 $25 1/8 $.305(1)
Third Quarter $40 1/8 $30 $ .38
Fourth Quarter $40 7/8 $30 $ .38
</TABLE>
---------------------------
(1) In addition to the regular quarterly distribution, the Company made a
one-time distribution of shares of common stock of COI, valued at $.99 per
share, which was distributed to the shareholders of the Company and the
partners of the Operating Partnership on a pro rata basis, in a spin-off
effective June 12, 1997.
25
<PAGE> 28
As of March 25, 1998, there were approximately 477 holders of record
of the common shares.
DISTRIBUTION POLICY
On September 10, 1997, the Company announced a 25% increase in the
quarterly distribution, increasing the quarterly distribution on its common
shares from $.305 per share to $.38 per share. The higher distribution rate
commenced with the Company's distribution for the third quarter of 1997, which
was paid on November 4, 1997, to shareholders of record as of October 16, 1997.
The Company's current quarterly distribution is $.38 per common share,
an indicated annualized distribution of $1.52 per common share.
Distributions on the 8,000,000 6-3/4% Series A Convertible Cumulative
Preferred Shares (the "Series A Preferred Shares") issued by the Company in
February 1998 are payable at the rate of $1.6875 per annum per Series A
Preferred Share, prior to distributions on the common shares.
The actual results of operations of the Company and the amounts
actually available for distribution will be affected by a number of factors,
including revenues received from the Properties and any additional properties
26
<PAGE> 29
acquired in the future, the operating and interest expenses of the Company, the
ability of tenants to meet their rent obligations, general leasing activity in
the markets in which the Office Properties and Retail Properties are located,
consumer preferences relating to the Hotel Properties, the general condition of
the United States economy, federal, state and local taxes payable by the
Company, capital expenditure requirements and the adequacy of reserves. In
addition, the Credit Facility limits distributions to the partners of the
Operating Partnership for any four successive quarters to an amount that will
not exceed 90% of funds from operations for such period and 100% of funds
available for distribution for such period.
Future distributions by the Company will be at the discretion of the
Board of Trust Managers. The Board of Trust Managers has indicated that it will
review the adequacy of the Company's distribution rate on a quarterly basis.
Under the Code, REITs are subject to numerous organizational and
operational requirements, including the requirement to distribute at least 95%
of taxable income. Pursuant to this requirement, the Company was required to
distribute $103.9 million and $41.8 million for 1997 and 1996, respectively.
Actual distributions by the Company were $140.8 million and $73.4 million for
1997 and 1996, respectively.
Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes generally will
be taxable to a shareholder as ordinary dividend income. Distributions in
excess of current and accumulated earnings and profits will be treated as a
nontaxable reduction of the shareholder's basis in such shareholder's common
shares, to the extent thereof, and thereafter as taxable gain. Distributions
that are treated as a reduction of the shareholder's basis in its common shares
will have the effect of deferring taxation until the sale of the shareholder's
shares. The Company has determined that, for federal income tax purposes,
38.3% of quarterly distributions made in 1996 and 25.7 % of quarterly
distributions made in 1997 represented a return of capital to shareholders.
Given the dynamic nature of the Company's acquisition strategy and the extent
to which any future acquisitions would alter this calculation, no assurances
can be given regarding what portion, if any, of distributions in 1998 or
subsequent years will constitute a return of capital for federal income tax
purposes.
27
<PAGE> 30
ITEM 6 . SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company on a consolidated historical basis and for the Rainwater Property Group
(the Company's predecessor) on a combined historical basis, which consists of
the combined financial statements of the entities that contributed properties in
exchange for units or common shares in connection with the formation of the
Company. All information relating to Common Shares has been adjusted to reflect
the two-for-one stock split effected in the form of a 100% share dividend paid
on March 26, 1997 to shareholders of record on March 20, 1997. Such information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and the
Financial Statements and Supplementary Data included in Item 8.
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED HISTORICAL FINANCIAL DATA AND
RAINWATER PROPERTY GROUP
COMBINED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY
----------------------------------------------------------------------
For the
Period
from May 5,
Year Ended December 31, 1994 to
--------------------------------------------------- December 31,
1997 1996 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Total revenue .................... $ 450,517 $ 208,861 $ 129,960 $ 50,343
Operating income (loss) .......... 114,425 44,101 30,858 10,864
Income (loss) before
minority interests
and extraordinary
Item ........................... 135,024 47,951 36,358 12,595
Basic Earnings Per Common
Share:
Income before extraordinary
Item.......................... $ 1.25 $ .72 $ .66 $ .28
Net income ................... 1.25 .70 .66 .26
Diluted Earnings Per Common Share:
Income before extraordinary
Item ......................... $ 1.20 $ .70 $ .65 $ .28
Net income ................... 1.20 .68 .65 .26
BALANCE SHEET DATA
(AT PERIOD END)
Total assets ................... $ 4,179,981 $ 1,730,922 $ 964,171 $ 538,354
Total debt ...................... 1,710,124 667,808 444,528 194,642
Total shareholders' equity ...... 2,197,318 865,160 406,531 235,262
OTHER DATA:
Funds from Operations
before minority
interests(1)................. $ 214,396 $ 87,616 $ 64,475 $ 32,723
Cash distribution declared
per Common Share .............. $ 1.37 $ 1.16 $ 1.05 $ .65
Weighted average
Common Shares and units
outstanding - basic ........... 106,835,579 64,684,842 54,182,186 44,997,716
Weighted average
Common Shares and units
outstanding - diluted ........ 110,973,459 65,865,517 54,499,690 45,039,840
Cash flow provided by
(used in)
Operating activities ......... $ 211,714 $ 77,384 $ 65,011 $ 21,642
Investing activities ......... (2,294,428) (513,038) (421,406) (260,666)
Financing activities ......... 2,123,744 444,315 343,079 265,608
</TABLE>
<TABLE>
<CAPTION>
RAINWATER PROPERTY GROUP
(PREDECESSOR)
----------------------------
For the Period
from January 1, Year Ended
1994 to May 4, December 31,
1994 1993
--------- ---------
<S> <C> <C>
OPERATING DATA:
Total revenue .................... $ 21,185 $ 57,168
Operating income (loss) .......... (1,599) (53,024)
Income (loss) before
minority interests
and extraordinary
Item ......................... (1,599) (53,024)
Basic Earnings Per Common
Share:
Income before extraordinary
Item ....................... -- --
Net income ................... -- --
Diluted Earnings Per Common Share:
Income before extraordinary
Item ....................... -- --
Net income ................... -- --
BALANCE SHEET DATA
(AT PERIOD END)
Total assets ................... -- $ 290,869
Total debt ...................... -- 278,060
Total shareholders' equity ...... -- 2,941
OTHER DATA:
Funds from Operations
before minority interests(1) -- --
Cash distribution declared per
Common Share ................ -- --
Weighted average
Common Shares and units
outstanding - basic ........... -- --
Weighted average Common Shares and
units outstanding - diluted ....
Cash flow provided by
(used in)
Operating activities ......... $ 2,455 $ 9,313
Investing activities ......... (2,379) (20,572)
Financing activities ......... (21,310) 28,861
</TABLE>
28
<PAGE> 31
NOTES:
(1) Funds from Operations ("FFO"), based on the revised definition adopted by
the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net income (loss)
(determined in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. For a more
detailed definition and description of FFO, see Item 7. Management's
Discussion and Analysis of Financial Condition and Historical Results of
Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
HISTORICAL RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Selected Financial Data" and the financial statements and notes thereto,
appearing elsewhere in this report. Historical results and percentage
relationships set forth in "Selected Financial Data", the "Financial Statements
and Supplementary Data" and this section should not be taken as indicative of
future operations of the Company.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Total revenues increased $238.5 million, or 114.2%, to $447.4 million
for the year ended December 31, 1997, as compared to $208.9 million for the year
ended December 31, 1996. The increase in Office and Retail Property revenues of
$181.1 million is primarily attributable to: a) the acquisition of 26 Office
Properties and one Retail Property during 1997, which resulted in $79.5 million
of incremental revenues; b) the fact that 23 Office Properties and four Retail
Properties acquired during 1996 contributed revenues for a full year in 1997 as
compared to a partial year in 1996, which resulted in $91.6 million of
incremental revenues; and c) an increase in Office and Retail Property revenues
of $10.0 million from the 32 Office and Retail Properties owned prior to January
1, 1996, which is primarily due to rental rate increases at these Properties.
The increase in Hotel Property revenues of $17.5 million is primarily
attributable to: a) the acquisition of two Hotel Properties during 1997, which
resulted in $2.1 million of incremental revenues; b) the fact that three Hotel
Properties acquired during 1996 contributed revenues for a full year in 1997 as
compared to a partial year in 1996, which resulted in $14.5 million of
incremental revenues; and c) an increase in Hotel Property revenues of $.9
million from the three Hotel Properties owned prior to January 1, 1996. The
increase in Behavioral Healthcare Facilities revenues of $29.8 million is
attributable to the acquisition of the facilities in June 1997. The increase in
interest and other income of $10.1 million for the year ended December 31, 1997,
is primarily attributable to: a) the $127.8 million increase in notes receivable
primarily as a result of the acquisition of certain notes included in the
Carter-Crowley Portfolio, loans to Crescent Operating, Inc. ("COI"), loans to
Desert Mountain Properties Limited Partnership ("DMPLP") and the acquisition of
a note receivable secured by a hotel property; and b) interest earned on
available cash from the April 1997 Offering (as defined below).
29
<PAGE> 32
Total expenses increased $171.3 million, or 103.9%, to $336.1 million
for the year ended December 31, 1997, as compared to $164.8 million for the year
ended December 31, 1996. The increase in rental property operating expenses of
$85.1 million is primarily attributable to: a) the acquisition of 26 Office
Properties and one Retail Property during 1997, which resulted in $38.3 million
of incremental expenses; b) the fact that 23 Office Properties and four Retail
Properties acquired during 1996 contributed expenses for a full year in 1997 as
compared to a partial year in 1996, which resulted in $40.8 million of
incremental expenses; and c) an increase in expenses of $5.5 million from the 32
Office and Retail Properties owned prior to January 1, 1996. Depreciation and
amortization expense increased $33.9 million due primarily to the acquisitions
of Office and Retail Properties, Hotel Properties and Behavioral Healthcare
Facilities. The increase in interest expense of $43.5 million is primarily
attributable to: (i) $6.9 million of interest payable under LaSalle Note III,
which was assumed in the acquisition of the Greenway Plaza Portfolio in October
1996; (ii) $.8 million of interest payable to Nomura Asset Capital Corporation
under the Nomura Funding VI Note, which was assumed in December 1996; (iii) $2.0
million of interest payable under the financing arrangement with Northwestern
Mutual Life Insurance Company, which was in place as of December 1996; (iv) $1.0
million of interest payable under LaSalle Note II secured by the Funding II
properties; (v) $10.0 million of interest payable under various short-term notes
with BankBoston, N.A. ("BankBoston") with principal amounts ranging between $150
million and $235 million, which were entered into from June through December
1997; (vi) $14.0 million of incremental interest payable due to draws under the
Credit Facility (average balance outstanding for the year ended December 31,
1997 and 1996 was $216.8 million and $64.3 million, respectively); (vii) $7.7
million of interest payable under the Notes due 2002 and Notes due 2007, which
were issued in a private offering in September 1997 (the "September 1997 Notes
Offering"); and (viii) $1.1 million of interest payable under the Chase
Manhattan Note, which was assumed in the acquisition of Fountain Place in
November 1997. All of
30
<PAGE> 33
these financing arrangements (the terms of which are described in more detail
below under "Liquidity and Capital Resources"), were used to fund acquisitions.
The increase in corporate general and administrative expense of $8.2 million is
primarily attributable to incremental costs associated with the operation of the
Company as a result of the acquisition of additional Properties and to incentive
compensation paid to the Company's executive officers.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $78.9 million, or 60.7%, to $208.9 million for
the year ended December 31, 1996, as compared to $130.0 million for the year
ended December 31, 1995. The increase in Office and Retail Property revenues of
$66.8 million is primarily attributable to: a) the acquisition of 23 Office
Properties and four Retail Properties during 1996, which resulted in $32.8
million of incremental revenues; and b) the fact that 20 Office Properties
acquired during 1995 contributed revenues for a full year in 1996 as compared to
a partial year in 1995, which resulted in $34.9 million of incremental revenue.
This increase reflects a $.9 million decrease in revenues from the Office and
Retail Properties owned as of January 1, 1995. The increase in Hotel Property
revenues of $11.7 million is primarily attributable to: a) the acquisition of
three Hotel Properties in 1996, which resulted in $2.7 million of incremental
revenues; and b) the fact that three Hotel Properties acquired during 1995
contributed revenues for a full year in 1996 as compared to a partial year in
1995, which resulted in $9.1 million of incremental revenues.
Total expenses increased $65.7 million, or 66.3%, to $164.8 million
for the year ended December 31, 1996, as compared to $99.1 million for the year
ended December 31, 1995. The increase in rental property operating expenses of
$27.9 million is primarily attributable to: a) the acquisition of 23 Office
Properties and four Retail Properties during 1996, which resulted in $13.9
million of incremental expenses; and b) the fact that 20 Office Properties
acquired during 1995 contributed expenses for a full year in 1996 as compared to
a partial year in 1995, which resulted in $14.1 million of incremental expenses.
This increase reflects a $.2 million decrease in expenses from the Office and
Retail Properties owned as of January 1, 1995. Depreciation and amortization
expense increased $12.5 million, primarily due to the acquisitions of Office,
Retail and Hotel Properties during 1996 and 1995. The increase in interest
expense of $24.1 million is primarily attributable to $27.1 million of interest
payable under the terms of the three new long-term financing arrangements
entered into from August 1995 through March 1996, proceeds of which were used to
repay the Credit Facility and to fund property acquisitions in 1995 and 1996,
and $2.1 million of interest payable under LaSalle Note III, which was assumed
in the acquisition of the Greenway Plaza Portfolio in October 1996. This
increase reflects a $5.1 million decrease in interest expense under the Credit
Facility, primarily due to a lower average outstanding balance throughout the
year. The increase in corporate general and administrative expenses of $.9
million is primarily attributable to incremental costs associated with the
operations of the Company as a result of acquisitions of additional Properties.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $66.6 million and $25.6 million at
December 31, 1997 and December 31, 1996, respectively. The increase is
attributable to $2,123.7 million and $211.7 million of cash provided by
financing and operating activities, respectively, offset by $2,294.4 million
used in investing activities. The Company's inflow of cash provided by financing
activities is primarily attributable to proceeds received from offerings of
common shares ($1,345.3 million), net borrowings under the Credit Facility
($310.0 million), net borrowings under the short-term BankBoston notes ($191.9
million) and proceeds from the September 1997 Notes Offering ($400.0 million).
The inflow of cash provided by financing activities was partially offset by the
distributions paid to shareholders and unitholders ($140.8 million) and the
distribution of COI shares to shareholders and unitholders ($11.9 million). The
inflow of cash from operating activities is primarily attributable to: (i)
Property operations, and (ii) an increase in accounts payable which is primarily
attributable to 1997 acquisitions. The inflow of cash from operating activities
was partially offset by an increase in other assets and deferred rent receivable
($52.4 million). The Company utilized $2,294.4 million of cash inflow primarily
in the following investing activities: (i) the acquisition of 26 Office
Properties, one Retail Property, two Hotel Properties and 90 Behavioral
Healthcare Facilities ($1,532.7 million); (ii) additional investments in
Residential Development Corporations ($270.2 million) primarily attributable to
Desert Mountain Development Corporation ($214.0 million) and Woodlands Land
Development Company, L.P. ($41.2 million); (iii) investments in unconsolidated
companies ($278.0 million) primarily attributable to Woodland Commercial
Properties Company, L.P. ($38.6 million),
31
<PAGE> 34
the Refrigerated Warehouse Investment ($160 million), Bank One Center ($41.5
million) and DBL Holding, Inc. ($12.6 million); (iv) notes receivable ($127.8
million) primarily attributable to loans included in the Carter-Crowley
Portfolio ($58.4 million), a loan to DMPLP ($17.6 million), loans made to COI
($42.1 million), and the acquisition of a note receivable secured by a hotel
property ($7.1 million); (v) capital expenditures for rental properties ($22.0
million), primarily attributable to building improvements for the Office and
Retail Properties, and replacement of furniture, fixtures and equipment for the
Hotel Properties; and (vi) recurring and non-recurring tenant improvement and
leasing costs for the Office and Retail Properties ($53.9 million).
On February 14, 1997, the Company filed a shelf registration (the
"February Shelf Registration Statement") with the Securities and Exchange
Commission ("SEC") for an aggregate of $1.2 billion of common shares, preferred
shares and warrants exercisable for common shares. An aggregate of $1,184.0
million of common shares have been issued under the registration statement. Net
proceeds from the offerings of these securities were used as described below.
On April 28, 1997, the Company completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'
overallotment option) at $25.375 per share under the February Shelf Registration
Statement. Net proceeds to the Company from the April 1997 Offering after
underwriting discount of $29.2 million and other offering costs of $3.0 million
were $580.6 million. On May 14, 1997, the Company completed an additional
offering of 500,000 common shares under the February Shelf Registration
Statement to several underwriters who participated in the April 1997 Offering.
The common shares were sold at $25.875 per share, with gross and net proceeds of
$12.9 million (collectively, the "Offerings").
In the second quarter of 1997, the Company used net proceeds of $593.5
million from the Offerings and $314.7 million from borrowings under the Credit
Facility and $160.0 million of short-term borrowings from BankBoston (i) to fund
$30.0 million in connection with the formation and capitalization of COI; (ii)
to repay the $150.0 million BankBoston short-term note payable; (iii) to reduce
by $131.0 million borrowings under the Credit Facility; (iv) to fund $306.3
million of the purchase price of the Carter-Crowley Portfolio acquired by the
Company; (v) to fund the $419.7 million commitment of the Company and COI
relating to the acquisition of the Behavioral Healthcare Facilities; and (vi) to
fund $31.2 million for working capital purposes.
On August 12, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland ("UBS"). In one transaction, pursuant to
which the Company obtained additional equity capital through the issuance of
common shares, the Company sold 4,700,000 common shares at $31.5625 per share to
UBS Securities, LLC for $148.3 million ($145.0 million of net proceeds) ("UBS
Offering") under the February Shelf Registration Statement. The net proceeds to
the Company from the UBS Offering were used to repay borrowings under the Credit
Facility. In the other transaction, which will permit the Company to benefit
from any increases in the market price of its common shares, the Company entered
into a forward share purchase agreement with Union Bank of Switzerland, London
Branch ("UBS-LB") which provides that the Company will purchase 4,700,000 common
shares from UBS-LB within one year. The purchase price will be determined on the
date the Company settles the agreement and will include a forward accretion
component, minus an adjustment for the Company's distribution rate. The Company
may complete, at its option, the settlement in cash or common shares.
On September 22, 1997, the Operating Partnership completed the
September 1997 Notes Offering, which was a private offering of unsecured notes
in an aggregate principal amount of $400.0 million ($394.8 million of net
proceeds), the Notes due 2002 and the Notes due 2007. The net proceeds of the
September 1997 Notes Offering were used to fund $327.6 million of the purchase
price for Houston Center, to repay $50.0 million of borrowings under the Credit
Facility, to fund $10.0 million of the purchase price of Miami Center and to
repay $7.2 million of short-term indebtedness.
In September 1997, the Company's Notes due 2002 and the Notes due 2007
were assigned a rating of Baa3 from Moody's Investors Service, Inc.
On October 8, 1997, the Company completed an offering (the "October
1997 Offering") of 10,000,000 common shares at $39.00 per share under the
February Shelf Registration Statement. Net proceeds to the Company from the
October 1997 Offering after underwriting discount of $19.9 million and other
offering costs of $1.6 million were
32
<PAGE> 35
$368.5 million. The net proceeds were used to repay $323.5 million of borrowings
under the Credit Facility and to fund $45.0 million of the purchase price of the
U.S. Home Building.
On October 29, 1997, the Company filed a shelf registration statement (the
"October Shelf Registration Statement") with the SEC for an aggregate of $1.5
billion of common shares, preferred shares and warrants exercisable for common
shares. As of March 25, 1998, the Company has issued $424.0 million of
securities under the October Shelf Registration Statement, as described below.
Any securities issued in the future under the October Shelf Registration
Statement may be offered from time to time in amounts, at prices, and on terms
to be determined at the time of the offering. Management believes the October
Shelf Registration Statement will provide the Company with more efficient and
immediate access to the capital markets at such time as it is considered
appropriate. Net proceeds from any future offering of these securities are
expected to be used for general business purposes, including the acquisition and
development of additional properties and other acquisition transactions, the
payment of certain outstanding debt and improvements to certain properties in
the Company's portfolio.
On December 12, 1997 the Company entered into two transactions with Merrill
Lynch International. In one transaction, pursuant to which the Company obtained
additional equity capital through the issuance of common shares, the Company
sold 5,375,000 common shares at $38.125 per share under the October Shelf
Registration Statement to Merrill Lynch International for $204.9 million ($199.9
million in net proceeds) (the "Merrill Lynch Offering"). The net proceeds to the
Company from the Merrill Lynch Offering were used to repay borrowings under the
Credit Facility. In the other transaction, which will permit the Company to
benefit from any increases in the market price of its common shares, the Company
entered into a swap agreement (the "Swap Agreement") with Merrill Lynch
International relating to 5,375,000 common shares (the "Settlement Shares"),
pursuant to which Merrill Lynch International will sell, as directed by the
Company on or before December 12, 1998, a sufficient number of common shares to
achieve net sales proceeds equal to the market value of the Settlement Shares on
December 12, 1997, plus a forward accretion component, minus an adjustment for
the Company's distribution rate. The precise number of common shares that will
be required to be sold pursuant to the Swap Agreement will depend primarily on
the market price of the common shares at the time of settlement. The common
shares required to be sold by Merrill Lynch International pursuant to the Swap
Agreement are expected to be the same common shares initially issued by the
Company (although Merrill Lynch International, at its option, may substitute
other common shares that it holds). If, however, as a result of a decrease in
the market price of the common shares, the number of common shares required to
be sold is greater than the number of Settlement Shares, the Company will
deliver additional common shares to Merrill Lynch International. In contrast, if
such number of common shares is less than the number of Settlement Shares, as a
result of an increase in the market price of the common shares, Merrill Lynch
International will deliver common shares or, at the option of the Company, cash
to the Company. On February 20, 1998, the Company issued an additional 525,000
common shares to Merrill Lynch International under the October Shelf
Registration Statement as a result of the decline in market price of the common
shares from the date of issuance on December 12, 1997 through February 12, 1998.
On February 19, 1998, the Company completed an offering (the "February 1998
Preferred Offering") of 8,000,000 6-3/4% Series A convertible cumulative
preferred shares (the "Series A Preferred Shares") with a liquidation preference
of $25.00 per share under the October Shelf Registration Statement. Series A
Preferred Shares are convertible at any time, in whole or in part, at the option
of the holders thereof into common shares of the Company at a conversion price
of $40.86 per common share (equivalent to a conversion rate of .6119 common
shares per Series A Preferred Share), subject to adjustment in certain
circumstances. Net proceeds to the Company from the February 1998 Preferred
Offering after underwriting discount of $8.0 million and other offering costs of
$.8 million were $191.3 million. The net proceeds from the February 1998
Preferred Offering were used to repay borrowings under the Credit Facility.
As of March 25, 1998, the Company had no commitments for material capital
expenditures.
33
<PAGE> 36
The significant terms of the Company's primary debt financing
arrangements are shown below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE OUTSTANDING
DESCRIPTION MAXIMUM AT EXPIRATION AT
BORROWINGS 12/31/97 DATE 12/31/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Secured Fixed Rate Debt:
LaSalle Note I(1) $ 239,000 7.83% August 2027 $ 239,000
LaSalle Note II(2) 161,000 7.79% March 2028 161,000
CIGNA Note (3) 63,500 7.47% December 2002 63,500
Metropolitan Life Note II (4) 45,000 6.93% December 2002 45,000
Northwestern Life Note (5) 26,000 7.66% January 2003 26,000
Metropolitan Life Note I(6)(7) 12,109 8.88% September 2001 12,109
Nomura Funding VI Note(7)(8) 8,691 10.07% July 2020 8,692
Rigney Promissory Note (9) 800 8.50% November 2012 800
---------- ---- ----------
Subtotal/Weighted Average $ 556,100 7.75% $ 556,101
========== ==== ==========
Secured Variable Rate Debt:
LaSalle Note III (7) (10) $ 115,000 8.07% July 1999 $ 115,000
Chase Manhattan Note (11) 97,123 7.44% September 2001 97,123
---------- ---- ----------
Subtotal/Weighted Average $ 212,123 7.78% $ 212,123
========== ==== ==========
Unsecured Fixed Rate Debt:
Notes due 2007 (12) $ 250,000 7.13% September 2007 $ 250,000
Notes due 2002 (12) 150,000 6.63% September 2002 150,000
---------- ---- ----------
Subtotal/Weighted Average $ 400,000 6.94% $ 400,000
========== ==== ==========
Unsecured Variable Rate Debt:
Line of Credit (13) $ 550,000 7.14% June 2000 $ 350,000
BankBoston Bridge Loan(14) 150,000 7.14% March 1998(16) 91,900
BankBoston Note II (14) 100,000 7.14% August 1998 100,000
---------- ---- ----------
Subtotal/Weighted Average $ 800,000 7.14% $ 541,900
---------- ---- ----------
TOTAL/WEIGHTED AVERAGE $1,968,223 7.37% $1,710,124
========== ==== ==========
</TABLE>
NOTES:
(1) The note has a seven-year period during which only interest is payable
(through August 2002), followed by principal amortization based on a
25-year amortization schedule through maturity. At the end of 12 years
(August 2007), the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the note
is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $220 million.
LaSalle Note I is secured by Properties owned by Funding I (See Note 1 to
Item 8. Financial Statements and Supplementary Data). The note agreement
prohibits Funding I from engaging in certain activities, including
incurring liens on the Properties securing the note, pledging the
Properties securing the note, incurring other indebtedness (except as
specifically permitted in the note agreement), canceling a material claim
or debt owed to it, entering into an affiliate transaction (except as
specifically permitted in the note agreement), distributing funds derived
from operation of the Properties securing the note (except as specifically
permitted in the note agreement), or creating easements with respect to the
Properties securing the note.
(2) The note has a seven-year period during which only interest is payable
(through March 2003), followed by principal amortization based on a 25-year
amortization schedule through maturity. At the end of 10 years (March
2006), the interest rate increases, and the Company is required to remit,
in addition to the monthly debt service payment, excess property cash flow,
as defined, to be applied first against principal until the note is paid in
full and thereafter, against accrued excess interest, as defined. It is the
Company's intention to repay the note in full at such time (March 2006) by
making a final payment of approximately $154 million. LaSalle Note II is
secured by Properties owned by Funding II (See Note 1 to Item 8. Financial
Statements and Supplementary Data). The note agreement prohibits Funding II
from engaging in certain activities, including incurring liens on the
Properties securing the note, pledging the Properties securing the note,
incurring other indebtedness (except as specifically permitted in the note
agreement), canceling a material claim or debt owed to it, entering into an
affiliate transaction (except as specifically permitted in the note
agreement), distributing funds derived from operation of the Properties
securing the note (except as specifically permitted in the note agreement),
or creating easements with respect to the Properties securing the note.
(3) The note requires payments of interest only during its term. The CIGNA Note
is secured by the MCI Tower and Denver Marriott City Center properties. The
note agreement has no negative covenants.
(4) The note requires monthly payments of principal and interest based on a
25-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Metropolitan Life
Note II is secured by Energy Centre. The note agreement requires the
Company to maintain compliance with a number of customary covenants,
including maintaining the Property that secures the note and not creating
any lien with respect to or otherwise encumbering such Property.
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<PAGE> 37
(5) The note requires payments of interest only during its term. The
Northwestern Life Note is secured by the 301 Congress Avenue Property. The
note agreement requires the Company to maintain compliance with a number of
customary covenants, including maintaining the Property that secures the
note and not creating any lien with respect to or otherwise encumbering
such Property.
(6) The note requires monthly payments of principal and interest based on
20-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Metropolitan Note I
is secured by five of The Woodlands Office Properties. The note agreement
has no negative covenants.
(7) The note was assumed in connection with an acquisition and was not
subsequently retired by the Company because of prepayment penalties.
(8) Under the terms of the note, principal and interest are payable based on a
25-year amortization schedule. In July 1998, the Company may defease the
note by purchasing Treasury obligations to pay the note without penalty.
The Nomura Funding VI Note is secured by Canyon Ranch-Lenox, the Property
owned by Funding VI (see Note 1 to Item 8. Financial Statements and
Supplementary Data). In July of 2010, the interest rate due under the note
will change to a 10-year Treasury yield plus 500 basis points or, if the
Company so elects, it may repay the note without penalty. The note
agreement requires Funding VI to maintain compliance with a number of
customary covenants, including a debt service coverage ratio for the
Property that secures the note, a restriction on the ability to transfer or
encumber the Property that secures the note, and covenants related to
maintaining its single purpose nature, including restrictions on ownership
by Funding VI of assets other than the Property that secures the note,
restrictions on the ability to incur indebtedness and make loans and
restrictions on operations.
(9) The note requires quarterly payments of principal and interest based on a
15-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Rigney Promissory
Note is secured by a parcel of land owned by the Company and located across
from an Office Property. The note agreement has no negative covenants.
(10) The note bears interest at the rate for 30-day LIBOR plus a weighted
average rate of 2.135% (subject to a rate cap of 10%), and requires
payments of interest only during its term. The LaSalle Note III is secured
by the Properties owned by Funding III, IV, and V (see Note 1 to Item 8.
Financial Statements and Supplementary Data). The note agreement prohibits
Fundings III, IV and V from engaging in certain activities, including using
the Properties securing the note in certain ways, imposing any
restrictions, agreements or covenants that run with the land upon the
Properties securing the note, incurring additional indebtedness (except as
specifically permitted in the note agreement), canceling or releasing a
material claim or debt owed to it, or distributing funds derived from
operation of the Properties securing the note (except as specifically
permitted in the note agreement).
(11) The note bears interest at the rate for 30-day LIBOR plus 175 basis points
and requires payment of interest only during its term. The Chase Manhattan
Note is secured by Fountain Place. The note agreement has no negative
covenants.
(12) The notes are unsecured and require payments of interest only during their
terms. The interest rates on the notes are subject to temporary increase by
50 basis points in the event that a registered offer to exchange the notes
for the notes of the Company with terms identical in all material respects
to the notes is not consummated or a shelf registration statement with
respect to the resale of the notes is not declared effective by the
Commission on or before March 21, 1998. The interest rates on the notes
will increase by 50 basis points temporarily, since the exchange offer was
not completed by March 21, 1998. The Company anticipates that the interest
rates will return to the original rates during the second quarter of 1998.
The interest rates on the notes also is subject to temporary or permanent
increase by 37.5 basis points in the event that, within the period from
September 22, 1997 to September 22, 1998, such notes are not assigned, or
do not retain, an investment grade rating (as defined in the notes) by
specified rating agencies. These adjustments may apply simultaneously. The
indenture requires the Company to maintain compliance with a number of
customary financial and other covenants on an ongoing basis, including
leverage ratios and debt service coverage ratios, limitations on the
incurrence of additional indebtedness and maintaining the Company's
Properties.
(13) The Credit Facility is unsecured with an interest rate of the Eurodollar
rate plus 120 basis points. The Credit Facility requires the Company to
maintain compliance with a number of customary financial and other
covenants on an ongoing basis, including leverage ratios based on book
value and debt service coverage ratios, limitations on additional secured
and total indebtedness and distributions, limitations on additional
investments and the incurrence of additional liens, restrictions on real
estate development activity and a minimum net worth requirement.
(14) The note is unsecured with an interest rate of the Eurodollar rate plus 120
basis points. The note requires payments of the interest only during its
term. The note agreement has no negative covenants.
(15) The maximum borrowings under the BankBoston Bridge Loan were increased to
$250 million subsequent to December 31, 1997.
(16) The Company has a commitment with BankBoston to extend the term to May 31,
1998 with the same interest rate.
The combined aggregate principal amounts either at maturity or in the
form of scheduled principal installments due pursuant to borrowings under the
Credit Facility and other indebtedness of the Company are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1998.................................................... $193,038
1999.................................................... 116,223
2000.................................................... 351,322
2001.................................................... 109,149
2002.................................................... 215,619
Thereafter.............................................. 724,773
</TABLE>
Based on the Company's total market capitalization of $6.9 billion at
December 31, 1997 (at a $39.375 stock price, which was the closing price of the
common stock on the NYSE on December 31, 1997, and including the full conversion
of all units of minority interest in the Operating Partnership plus total
indebtedness), the Company's debt represented 25% of its total market
capitalization. The Company intends to maintain a flexible and conservative
capital structure with total debt targeted at approximately 40% of total market
capitalization.
35
<PAGE> 38
The Company intends to maintain its qualification as a REIT under the Code.
As a REIT, the Company will generally not be subject to corporate federal income
taxes as long as it satisfies certain technical requirements of the Code,
including the requirement to distribute at least 95% of its taxable income to
its shareholders.
The Company expects to meet its short-term liquidity requirements primarily
through cash flow provided by operating activities, which the Company believes
will be adequate to fund normal recurring operating expenses, debt service
requirements, recurring capital expenditures and distributions to shareholders
and unitholders. To the extent the Company's cash flow from operating activities
is not sufficient to finance non-recurring capital expenditures or investment
property acquisition costs, the Company expects to finance such activities with
proceeds from the Credit Facility, available cash reserves and other debt and
equity financing.
The Company expects to meet its long-term liquidity requirements,
consisting primarily of maturities under the Company's fixed and variable rate
debt, through long-term secured and unsecured borrowings and the issuance of
debt securities and/or additional equity securities of the Company.
FUNDS FROM OPERATIONS
Funds from Operations ("FFO"), based on the definition adopted by the
Board of Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used herein, means net income (loss) (determined in accordance
with generally accepted accounting principles or "GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. FFO was developed by NAREIT as a relative
measure of performance and liquidity of an equity REIT in order to recognize
that income-producing real estate historically has not depreciated on the basis
determined under GAAP. The Company considers FFO an appropriate measure of
performance of an equity REIT. However, FFO (i) does not represent cash
generated from operating activities determined in accordance with GAAP (which,
unlike FFO, generally reflects all cash effects of transactions and other events
that enter into the determination of net income), (ii) is not necessarily
indicative of cash flow available to fund cash needs, and (iii) should not be
considered as an alternative to net income determined in accordance with GAAP as
an indication of the Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a measure of either
liquidity or the Company's ability to make distributions. The Company has
historically distributed an amount less than FFO, primarily due to reserves
required for capital expenditures, including leasing costs. The aggregate cash
distributions paid to shareholders and unitholders for the year ended December
31, 1997 and 1996 were $140.8 and $73.4 million, respectively. An increase in
FFO does not necessarily result in an increase in aggregate distributions
because the Company's board of trustees is not required to increase
distributions on a quarterly basis unless necessary in order to enable the
Company to maintain REIT status. However, the Company must distribute 95% of its
real estate investment trust taxable income (as defined in the Code), therefore,
a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis. Accordingly, the Company believes that in order to
facilitate a clear understanding of the consolidated historical operating
results of the Company, FFO should be considered in conjunction with the
Company's net income (loss) and cash flows as reported in the consolidated
financial statements and notes thereto. However, the Company's measure of FFO
may not be comparable to similarly titled measures of other REIT's because these
REIT's may not apply the definition of FFO in the same manner as the Company.
36
<PAGE> 39
STATEMENTS OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------
1997 1996
--------- --------
<S> <C> <C>
Income before minority interest $ 135,024 $ 47,951
Adjustments:
Depreciation and amortization of real estate assets 72,503 39,290
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies 8,303 1,857
Minority interest in joint ventures (1,434) (1,482)
--------- --------
Funds from operations $ 214,396 $ 87,616
========= ========
</TABLE>
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------
1997 1996
--------- --------
<S> <C> <C>
Funds from operations $ 214,396 $ 87,616
Depreciation and amortization of
non-real estate assets 1,235 835
Amortization of deferred financing costs 3,499 2,812
Minority interest in joint ventures
profit and depreciation and amortization 2,122 1,892
Adjustment for investments in real
estate mortgages and equity of
unconsolidated companies (8,303) (1,857)
Change in deferred rent receivable (23,371) (6,210)
Change in current assets and liabilities 34,500 (7,493)
Equity in earnings in excess of
distributions received from
unconsolidated companies (12,536) (322)
Non-cash compensation 172 111
--------- --------
Net cash provided by operating activities $ 211,714 $ 77,384
========= ========
</TABLE>
LEASING
The Company applies a well-defined leasing strategy in order to capture
the potential rental growth in the Company's existing portfolio of Office
Properties as occupancy and rental rates increase with the recovery of the
markets and the submarkets in which the Company has invested. The Company's
strategy is based in part on identifying, and then investing in, submarkets in
which weighted average full-service rental rates (representing base rent after
giving effect to free rent and scheduled rent increases that would be taken into
account under generally accepted accounting principles ("GAAP") and including
adjustments for expenses payable by or reimbursed from tenants) are
significantly less than weighted average full-service replacement cost rental
rates (the rate estimated by management to be necessary to provide a return to a
developer of a comparable, multi-tenant building sufficient to justify
construction of new buildings) in that submarket. In calculating replacement
cost rental rates, management relies on available third party data and its own
estimates of construction costs (including materials and labor in a particular
market) and assumes replacement cost rental rates are achieved at a 95%
occupancy level. The Company believes that the difference between the two rates
is a useful measure of the additional revenue that the Company may be able to
obtain from a property, because the difference should represent the amount by
which rental rates would have to increase before construction of properties that
would compete with the Company's Office Properties would cause the Company to
risk losing tenants to construction of new buildings. For the Company's Office
Properties, inclusive of acquisitions completed through March 25, 1998, the
weighted average full-service rental rate as of December 31, 1997 was $18.12 per
square foot compared to an estimated weighted average full-service replacement
cost rental rate of $28.33 per square foot. Many of the Company's submarkets
have experienced substantial rental rate growth during the past two years. For
example, Class A office rental rates in Dallas, Houston, Austin and Denver have
increased by approximately 30%, 18%, 19% and 15%, respectively, from 1995 to
1997, according to Jamison Research, Inc. in the case of Dallas;
37
<PAGE> 40
Baca Landata, Inc., The Woodlands Operating Company, LP and Cushman & Wakefield
of Texas, Inc. in the case of Houston; CB Commercial in the case of Austin; and
Cushman & Wakefield of Colorado, Inc. in the case of Denver. As a result, the
Company has been successful in renewing or re-leasing office space in these
markets at rental rates significantly above the expiring rental rates. For the
year ended December 31, 1997, leases were signed renewing or re-leasing
1,585,769 net rentable square feet of office space at a weighted average
full-service rental rate and an annual net effective rate (calculated as
weighted average full-service rental rate minus operating expenses) of $19.42
and $12.43 per square foot, respectively, compared to expiring leases with a
weighted average full-service rental rate and an annual net effective rate of
$15.96 and $8.94 per square foot, respectively. This represents increases in the
weighted average full-service rental rate and in the annual net effective rate
of 22% and 39%, respectively.
OPERATING INFORMATION
The following table presents on an aggregate basis, for the years
ended December 31, 1997 and 1996, the EBIDA and occupancy rates of the Office
and Retail Properties owned as of January 1, 1996 on a stabilized (occupancy
rate of 90% or more) and unstabilized (occupancy rate of less than 90%) basis.
<TABLE>
<CAPTION>
Net EBIDA (1)
Number Rentable (in millions) % Occupied
of Area -------------------------- --------------------
Properties (in millions) 1997 1996 1997 1996
---------- ------------- ------------ ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Stabilized(3).. 27 5.9 $ 75.4 $ 71.7 96% 96%
Unstabilized .. 6 3.1 $ 21.2 $ 19.0 72%(2) 74%
</TABLE>
(1) "EBIDA" consists of operating income plus interest, depreciation and
amortization. The Company believes that in addition to cash flows and net
income, EBIDA is a useful financial performance measurement for assessing
the operating performance of the Office and Retail Properties. Together
with net income and cash flows, EBIDA provides investors with an additional
basis to evaluate the ability of the Company to incur and service debt and
to fund acquisitions and other capital expenditures. To evaluate EBIDA and
the trends it depicts, the components of EBIDA, such as rental revenues,
rental expenses, real estate taxes and general administrative expenses,
should be considered. Excluded from EBIDA are financing costs such as
interest as well as depreciation and amortization, each of which can
significantly affect the Company's results of operations and liquidity and
should be considered in evaluating the Company's operating performance.
Further, EBIDA does not represent net income or cash flows from operating,
financing and investing activities as defined by generally accepted
accounting principals ("GAAP") and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(2) Leases have been executed at certain of "unstabilized" properties but had
not commenced as of December 31, 1997. If such leases had commenced as of
December 31, 1997, the percent leased for the "unstabilized" properties
would have been 96%.
(3) Properties owned as of January 1, 1996, with occupancies equal to 90% or
more, in 1997 and 1996.
HISTORICAL RECURRING OFFICE AND RETAIL PROPERTY
CAPITAL EXPENDITURES, TENANT IMPROVEMENT AND LEASING COSTS
The following table sets forth annual and per square foot recurring
capital expenditures (excluding those expenditures which are recoverable from
tenants) and tenant improvement and leasing costs for the years ended December
31, 1996 and 1997, attributable to signed leases, all of which have commenced or
will commence during the next twelve months (i.e., the renewal or replacement
tenant began or will begin to pay rent) for the Office Properties consolidated
in the Company's financial statements during each of the periods presented.
Tenant improvement and leasing costs for signed leases during a particular
period do not equal the cash paid for tenant improvement and leasing costs
during such period, due to timing of payments.
38
<PAGE> 41
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
CAPITAL EXPENDITURES:
Capital Expenditures (in thousands) ... $ 1,214 $ 3,310
Per square foot ....................... $ .13 $ .15
TENANT IMPROVEMENT AND LEASING COSTS:(1)
Replacement Tenant Square Feet ........ 390,945 584,116
Renewal Tenant Square Feet ............ 248,603 1,001,653
Tenant Improvement Costs (in thousands) $ 6,263 $ 10,958
Per square foot leased ................ $ 9.79 $ 6.91
Tenant Leasing Costs (in thousands) ... $ 2,877 $ 6,601
Per square foot leased ................ $ 4.50 $ 4.16
Total (in thousands) .................. $ 9,140 $ 17,559
Total per square foot ........... $ 14.29 $ 11.07
Average lease term .............. 5.3 years 6.4 years
Total per square foot per year .. $ 2.38 $ 1.73
</TABLE>
(1) Excludes leasing activity for leases that have less than a one-year term
(i.e., storage and temporary space).
Capital expenditures may fluctuate in any given period subject to the
nature, extent, and timing of improvements required to be made in the Company's
Property portfolio. The Company maintains an active preventive maintenance
program in order to minimize required capital improvements. In addition, capital
improvement costs are recoverable from tenants in many instances.
Tenant improvement and leasing costs also may fluctuate in any given
year depending upon factors such as the property, the term of the lease, the
type of lease (renewal or replacement tenant), the involvement of external
leasing agents and overall competitive market conditions. Management believes
that future recurring tenant improvements and leasing costs for the Company's
existing Office Properties will approximate on average for "renewal tenants"
$6.00 to $8.00 per square foot, or $1.20 to $1.60 per square foot per year based
on an average five-year lease term, and, on average for "replacement tenants",
$12.00 to $14.00 per square foot, or $2.40 to $2.80 per square foot per year
based on an average five-year lease term.
YEAR 2000 COMPLIANCE
The Company has reviewed its in-house computer software programs and
operating systems, which consist primarily of the accounting and property
management systems, to assess the impact of the Year 2000 on these systems.
These programs and systems are Year 2000 compliant.
Based on present information, the Company believes that it will be able
to achieve Year 2000 compliance for its property-specific computer systems, such
as energy management and security access systems, through a combination of the
modification and replacement of systems within its Office Property portfolio.
The Company anticipates that the costs associated with achieving Year 2000
compliance will not have a material impact on the Company's financial results.
The implementation will take place over the next 12 to 18 months with the
assistance of full-time employees and independent contractors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This Item is inapplicable to the Company because its market
capitalization was less than $2.5 billion on January 28, 1997.
39
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants ....................................... 41
Consolidated Balance Sheets of Crescent Real Estate Equities Company (successor
to Crescent Real Estate Equities, Inc.) at December 31, 1997 and 1996 .......... 42
Consolidated Statements of Operations of Crescent Real Estate Equities Company
(successor to Crescent Real Estate Equities, Inc.) for the years ended December
31, 1997, 1996 and 1995 ........................................................ 43
Consolidated Statements of Shareholders' Equity of Crescent Real Estate Equities
Company (successor to Crescent Real Estate Equities, Inc.) for the years ended
December 31, 1997, 1996 and 1995 ............................................... 44
Consolidated Statements of Cash Flows of Crescent Real Estate Equities Company
(successor to Crescent Real Estate Equities, Inc.) for the years ended December
31, 1997, 1996 and 1995 ........................................................ 45
Notes to Financial Statements .................................................. 46
Schedule III Consolidated Real Estate Investments and Accumulated Depreciation . 68
</TABLE>
40
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trust Managers of Crescent Real Estate Equities Company:
We have audited the accompanying consolidated balance sheets of Crescent Real
Estate Equities Company as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and this schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crescent Real Estate Equities
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 23, 1998
41
<PAGE> 44
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 448,328 $ 146,036
Building and improvements 2,923,097 1,561,639
Furniture, fixtures and equipment 51,705 24,951
Less - accumulated depreciation (278,194) (208,808)
----------- -----------
Net investment in real estate 3,144,936 1,523,818
Cash and cash equivalents 66,622 25,592
Restricted cash and cash equivalents 41,528 36,882
Accounts receivable, net 30,179 15,329
Deferred rent receivable 39,588 16,217
Investments in real estate mortgages and equity
of unconsolidated companies 601,770 41,059
Notes receivable, net 156,676 28,890
Other assets, net 98,681 43,135
----------- -----------
Total assets $ 4,179,980 $ 1,730,922
=========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 350,000 $ 40,000
Notes payable 1,360,124 627,808
Accounts payable, accrued expenses and other liabilities 127,258 48,462
----------- -----------
Total liabilities 1,837,382 716,270
----------- -----------
MINORITY INTERESTS:
Operating partnership, 6,397,072 and 6,640,336 units,
respectively 117,103 120,227
Investment joint ventures 28,178 29,265
----------- -----------
Total minority interests 145,281 149,492
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 250,000,000 shares, 117,977,907 and
72,292,760 shares issued and outstanding
at December 31, 1997 and 1996, respectively 1,179 361
Additional paid-in capital 2,253,928 905,724
Deferred compensation on restricted shares (283) (364)
Retained deficit (57,507) (40,561)
----------- -----------
Total shareholders' equity 2,197,317 865,160
----------- -----------
Total liabilities and shareholders' equity $ 4,179,980 $ 1,730,922
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
42
<PAGE> 45
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Office and retail properties $ 363,324 $ 182,198 $ 115,382
Hotel properties 37,270 19,805 8,107
Behavioral healthcare properties 29,789 -- --
Interest and other income 16,990 6,858 6,471
--------- --------- ---------
Total revenues 447,373 208,861 129,960
--------- --------- ---------
EXPENSES:
Real estate taxes 44,154 20,606 12,494
Repairs and maintenance 27,783 12,292 7,787
Other rental property operating 86,931 40,915 25,668
Corporate general and administrative 12,858 4,674 3,812
Interest expense 86,441 42,926 18,781
Amortization of deferred financing costs 3,499 2,812 2,500
Depreciation and amortization 74,426 40,535 28,060
--------- --------- ---------
Total expenses 336,092 164,760 99,102
--------- --------- ---------
Operating income 111,281 44,101 30,858
OTHER INCOME:
Equity in net income of unconsolidated
companies 23,743 3,850 5,500
--------- --------- ---------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 135,024 47,951 36,358
Minority interests (17,683) (9,510) (8,963)
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 117,341 38,441 27,395
Extraordinary item -- (1,306) --
--------- --------- ---------
NET INCOME $ 117,341 $ 37,135 $ 27,395
========= ========= =========
BASIC EARNINGS PER SHARE DATA:
Income before extraordinary item $ 1.25 $ 0.72 $ 0.66
Extraordinary item -- (0.02) --
--------- --------- ---------
Net income $ 1.25 $ 0.70 $ 0.66
========= ========= =========
DILUTED EARNINGS PER SHARE DATA:
Income before extraordinary item $ 1.20 $ 0.70 $ 0.65
Extraordinary item -- (0.02) --
--------- --------- ---------
Net income $ 1.20 $ 0.68 $ 0.65
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these financial statements
43
<PAGE> 46
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DOLLARS IN THOUSANDS)
(NOTES 1, 2 AND 10)
<TABLE>
<CAPTION>
Deferred
Common Stock Additional Compensation Retained
------------------------ Paid-in on Restricted Earnings
Shares Par Value Capital Shares (Deficit) Total
----------- --------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1994 16,047,392 $ 161 $ 239,480 $ -- $ (4,379) $ 235,262
Common Share Offerings 5,175,000 51 136,322 -- -- 136,373
Issuance of Restricted Shares 15,105 1 454 (455) -- --
Issuance of Common Shares in Exchange for
Operating Partnership Units 2,286,050 23 47,274 -- -- 47,297
Dividends Paid -- -- -- -- (39,796) (39,796)
Net Income -- -- -- -- 27,395 27,395
----------- ------ ----------- ----- --------- -----------
SHAREHOLDERS' EQUITY, December 31, 1995 23,523,547 236 423,530 (455) (16,780) 406,531
Common Share Offerings 11,950,000 119 456,214 -- -- 456,333
Issuance of Common Shares 599,794 6 25,014 -- -- 25,020
Issuance of Common Shares in Exchange for
Operating Partnership Units 53,789 -- 856 -- -- 856
Exercise of Common Share Options 19,250 -- 110 -- -- 110
Amortization of Deferred Compensation -- -- -- 91 -- 91
Dividends Paid -- -- -- -- (60,916) (60,916)
Net Income -- -- -- -- 37,135 37,135
----------- ------ ----------- ----- --------- -----------
SHAREHOLDERS' EQUITY, December 31, 1996 36,146,380 361 905,724 (364) (40,561) 865,160
Common Share Offerings 45,076,185 451 1,317,873 -- -- 1,318,324
Issuance of Common Shares 341,112 3 28,245 -- -- 28,248
Issuance of Restricted Shares 181 -- 10 (10) -- --
Common Share Dividend - 2 for 1 Split 36,162,095 362 (362) -- -- --
Issuance of Common Shares in Exchange for
Operating Partnership Units 133,412 1 1,017 -- -- 1,018
Exercise of Common Share Options 118,542 1 1,421 -- -- 1,422
Amortization of Deferred Compensation -- -- -- 91 -- 91
Crescent Operating, Inc. share -- -- -- -- (10,474) (10,474)
distribution
Dividends Paid -- -- -- -- (123,813) (123,813)
Net Income -- -- -- -- 117,341 117,341
----------- ------ ----------- ----- --------- -----------
SHAREHOLDERS' EQUITY, December 31, 1997 117,977,907 $1,179 $ 2,253,928 $(283) $ (57,507) $ 2,197,317
=========== ====== =========== ===== ========= ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements
44
<PAGE> 47
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 117,341 $ 37,135 $ 27,395
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 77,925 43,347 30,560
Extraordinary item -- 1,306 --
Minority interests 17,683 9,510 8,963
Non-cash compensation 172 111 --
Equity in earnings in excess of distributions
received from unconsolidated companies (12,536) (322) --
Increase in accounts receivable (14,850) (8,324) (5,043)
Increase in deferred rent receivable (23,371) (6,210) (875)
Increase in other assets (29,029) (388) (7,737)
Increase in restricted cash and cash equivalents (417) (15,537) (4,700)
Increase in accounts payable, accrued expenses
and other liabilities 78,796 16,756 16,448
----------- --------- ---------
Net cash provided by operating activities 211,714 77,384 65,011
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties (1,532,747) (460,113) (420,284)
Capital expenditures - rental properties (22,005) (2,380) (1,148)
Tenant improvement and leasing costs - rental properties (53,886) (20,052) (13,911)
(Increase) decrease in restricted cash and cash equivalents-
capital reserves (4,229) 842 (5,413)
Investment in unconsolidated companies (278,001) (3,900) --
Investment in residential development corporations (270,174) (16,657) (8,654)
Increase in notes receivable (127,786) (10,918) (12,832)
Increase (decrease) in escrow deposits - acquisition of
investment properties (5,600) 140 40,836
----------- --------- ---------
Net cash used in investing activities (2,294,428) (513,038) (421,406)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (12,132) (7,081) (8,342)
Borrowings under Credit Facility 1,171,000 191,500 217,450
Payments under Credit Facility (861,000) (171,500) (392,092)
Debt proceeds 1,127,596 152,755 411,862
Debt payments (493,203) (92,254) (66)
Capital distributions - joint venture partner (2,522) (14,505) --
Capital contributions - joint venture partner -- 750 125
Net proceeds from common share offerings 1,345,291 456,333 166,926
Proceeds from exercise of common share options 1,422 110 --
Issuance of Operating Partnership units -- 1,574 --
Distribution of Crescent Operating, Inc. shares to
unitholders of Operating Partnership and shareholders
of Crescent Equities (11,907) -- --
Distributions to shareholders and unitholders (140,801) (73,367) (52,784)
----------- --------- ---------
Net cash provided by financing activities 2,123,744 444,315 343,079
----------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 41,030 8,661 (13,316)
CASH AND CASH EQUIVALENTS,
Beginning of period 25,592 16,931 30,247
----------- --------- ---------
CASH AND CASH EQUIVALENTS,
End of period $ 66,622 $ 25,592 $ 16,931
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these financial statements
45
<PAGE> 48
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("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 provides management,
leasing, and development services with respect to certain of its properties.
Crescent Equities is a Texas real estate investment trust which became the
successor to Crescent Real Estate Equities, Inc., a Maryland corporation (the
"Predecessor Corporation"), on December 31, 1996, through the merger of the
Predecessor Corporation and CRE Limited Partner, Inc., a Delaware corporation,
into Crescent Equities. The direct and indirect subsidiaries of Crescent
Equities include Crescent Real Estate Equities Limited Partnership (the
"Operating Partnership"); Crescent Real Estate Equities, Ltd. (the "General
Partner"), which is the sole general partner of the Operating Partnership; seven
single purpose limited partnerships (formed for the purpose of obtaining
securitized debt) in which the Operating Partnership owns substantially all of
the economic interests directly or indirectly, with the remaining interests
owned indirectly by Crescent Equities through seven separate corporations, each
of which is a wholly owned subsidiary of the General Partner and a general
partner of one of the seven limited partnerships. The term "Company" includes,
unless the context otherwise requires, Crescent Equities, the Predecessor
Corporation, the Operating Partnership, the General Partner and the other direct
and indirect subsidiaries of Crescent Equities.
As of December 31, 1997, the Company directly or indirectly owned a
portfolio of real estate assets (the "Properties") located primarily in 21
metropolitan submarkets in Texas and Colorado. The Properties include 80 office
properties (the "Office Properties") with an aggregate of approximately 28.6
million net rentable square feet, 90 behavioral healthcare facilities (the
"Behavioral Healthcare Facilities"), six full-service hotels with a total of
1,962 rooms and two destination health and fitness resorts (the "Hotel
Properties"), real estate mortgages and non-voting common stock representing
interests ranging from 40% to 95% in five unconsolidated residential
development corporations (the "Residential Development Corporations"), which in
turn, through joint venture or partnership arrangements, own interests in 12
residential development properties (the "Residential Development Properties"),
and seven retail properties (the "Retail Properties") with an aggregate of
approximately .8 million net rentable square feet. In addition, the Company
owns an indirect 38% interest in each of two corporations that currently own
and operate approximately 80 refrigerated warehouses with an aggregate of
approximately 394 million cubic feet (the "Refrigerated Warehouse Investment").
The Company also has a 42.5% partnership interest in a partnership whose
primary holdings consist of a 364-room executive conference center and general
partner interests ranging from one to 50%, in additional office, retail,
multi-family and industrial properties.
Crescent Equities owns its assets and carries on its operations and
other activities through the Operating Partnership and its other subsidiaries.
The following table sets forth, by subsidiary, the Properties owned by
such subsidiary as of December 31, 1997:
Operating Partnership: 53 Office Properties, five Hotel Properties and five
Retail Properties
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel,
Funding I, L.P.: Continental Plaza, The Crescent Atrium, The Crescent
("Funding I") Office Towers, Regency Plaza One, and Waterside
Commons
46
<PAGE> 49
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.: Office and Research Center, Hyatt Regency
("Funding II") Albuquerque, Hyatt Regency Beaver Creek, Las Colinas
Plaza, Liberty Plaza I & II, MacArthur Center I & II,
Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square, and 12404 Park Central
Crescent Real Estate Greenway Plaza Portfolio(1)
Funding III, IV, and
V, L.P.:
("Funding III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate Behavioral Healthcare Facilities
Funding VII, L.P.:
("Funding VII")
- -----------------------
(1) Funding III owns the Greenway Plaza Portfolio, except for the central heated
and chilled water plant building and Coastal Tower Office property, both
located within Greenway Plaza, which are owned by Funding IV and Funding V,
respectively.
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company
include all direct and indirect subsidiary entities. The equity interests in
those direct and indirect subsidiaries not owned by the Company are reflected as
minority interests. All significant intercompany balances and transactions have
been eliminated.
Certain amounts in prior year financial statements have been
reclassified to conform with current year presentation.
All information relating to Common Shares has been adjusted to reflect
the two-for-one stock split effected in the form of a 100% share dividend paid
on March 26, 1997 to shareholders of record on March 20, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVESTMENTS IN REAL ESTATE
Real estate is carried at cost, net of accumulated depreciation.
Betterments, major renovations, and certain costs directly related to the
acquisition, improvement and leasing of real estate are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings and Improvements 5 to 49 years
Tenant Improvements Terms of leases
Furniture, Fixtures and Equipment 3 to 10 years
</TABLE>
An impairment loss is recognized, on a property by property basis, when
expected undiscounted cash flows are less than the carrying value of the asset.
In cases where the Company does not expect to recover its carrying costs, the
Company reduces its carrying costs to fair value. No such reductions have
occurred to date.
CONCENTRATION OF REAL ESTATE INVESTMENTS
The majority of the Company's Office and Retail Properties are in the
Dallas/Fort Worth, Texas and Houston, Texas metropolitan areas. As of December
31, 1997, these Office and Retail Properties together represented approximately
43% and 31%, respectively, of the Company's total net rentable square feet and
accounted for approximately 44% and 27%, respectively, of the Company's office
rental revenues for the year ended December 31, 1997. As a result of the
geographic concentration, the operations of these properties could be adversely
affected by a recession or general economic downturn in the areas where these
properties are located.
47
<PAGE> 50
RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash includes escrows established pursuant to certain
mortgage financing arrangements for real estate taxes, insurance, security
deposits, ground lease expenditures, capital expenditures, and monthly interest
carrying costs paid in arrears.
OTHER ASSETS
Other assets consist principally of leasing costs and deferred
financing costs. Leasing costs are amortized on a straight-line basis over the
terms of the respective leases and unamortized lease costs are written off upon
early termination of lease agreements. Deferred financing costs are amortized on
a straight-line basis over the terms of the respective loans.
DEFERRED COMPENSATION ON RESTRICTED SHARES
Deferred compensation on restricted shares relates to the issuance of
restricted shares to employees of the Company. Such restricted shares are
amortized to expense over the applicable vesting period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has entered into a forward share purchase agreement with
Union Bank of Switzerland and a swap agreement with Merrill Lynch International
("derivative transactions") as further discussed in Note 10.
At December 31, 1997, no common shares were required to be
delivered pursuant to these derivative transactions.
The carrying values of cash and cash equivalents, and short-term
investments are reasonable estimates of their fair values because of the short
maturities of these instruments. The fair value of notes receivable, which
approximates carrying value, is estimated based on year-end interest rates for
receivables of comparable maturity. Notes payable and borrowings under Credit
Facility have aggregate carrying values which approximate their estimated fair
values based upon the current interest rates for debt with similar terms and
remaining maturities, without considering the adequacy of the underlying
collateral. Disclosure about fair value of financial instruments is based on
pertinent information available to management as of December 31, 1997 and 1996.
REVENUE RECOGNITION
Office & Retail Properties
The Company, as a lessor, has retained substantially all of the risks
and benefits of ownership of the Office and Retail Properties and accounts for
its leases as operating leases. Income on leases which include scheduled
increases in rental rates over the lease term and/or abated rent payments for
various periods following the tenant's lease commencement date is recognized on
a straight-line basis. Deferred rent receivable represents the excess of rental
revenue recognized on a straight-line basis over cash received under the
applicable lease provisions.
Hotel Properties
The Company cannot, consistent with its status as a REIT for federal
income tax purposes, operate the Hotel Properties directly. It has leased these
Hotel Properties to subsidiaries of Crescent Operating, Inc. ("COI")
48
<PAGE> 51
pursuant to eight separate leases. The leases provide for the payment by the
lessee of the Hotel Property of (i) base rent, with periodic rent increases,
(ii) percentage rent based on a percentage of gross receipts or gross room
revenues, as applicable, above a specified amount, and (iii) a percentage of
gross food and beverage revenues above a specified amount for certain Hotel
Properties. Base rental income under these leases is recognized on a
straight-line basis over the terms of the respective leases.
Behavioral Healthcare Facilities
The Company has leased the Behavioral Healthcare Facilities to Charter
Behavioral Health Systems, LLC ("CBHS") under a triple-net lease. The lease
requires the payment of annual minimum rent in the amount of approximately
$41,700 for the period ending June 16, 1998, increasing in each subsequent year
during the 12-year term at a 5% compounded annual rate. The Company recognizes
the rent on a straight-line basis.
INCOME TAXES
The ongoing operations of the Properties generally will not be subject
to federal income taxes as long as the Company maintains its REIT status. A REIT
will generally not be subject to federal income taxation on that portion of its
income that qualifies as REIT taxable income to the extent that it distributes
such taxable income to its shareholders and complies with certain requirements
(including distribution of at least 95% of its taxable income). As a REIT, the
Company is allowed to reduce taxable income by all or a portion of its
distributions to shareholders. As distributions have exceeded taxable income, no
federal income tax provision (benefit) has been reflected in the accompanying
consolidated financial statements. State income taxes are not significant.
EARNINGS PER SHARE
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share" ("EPS") which supersedes APB No. 15 for periods ending
after December 15, 1997. SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share. Primary EPS and Fully Diluted
EPS are replaced by Basic EPS and Diluted EPS, respectively. Basic EPS, unlike
Primary EPS, excludes all dilution while Diluted EPS, like Fully Diluted EPS,
reflected the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted into common shares.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ---------------------------------- ---------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
--------- ---------- ----------- --------- ---------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS --
Net income available $117,341 93,709 $ 1.25 $ 37,135 53,282 $ 0.70 $ 27,395 41,743 $ 0.66
to common ======== ======== ========
shareholders
Effect of Dilutive
Securities:
Share and Unit 4,138 1,181 318
Options
Diluted EPS --
Net income available
to common $117,341 97,847 $ 1.20 $ 37,135 54,463 $ 0.68 $ 27,395 42,061 $ 0.65
shareholders ======== ======== ========
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, all highly liquid
investments purchased with an original maturity of 90 days or less are included
in cash and cash equivalents.
49
<PAGE> 52
SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 78,980 $ 42,488 $ 18,224
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Mortgage notes assumed in property acquisitions $ 97,923 $142,799 $ 12,732
Minority interest - joint venture capital -- 31,985 8,994
Conversion of operating partnership units to common
shares with resulting reduction in minority interest
and increases in common share and additional
paid-in capital 1,018 856 47,297
Issuance of operating partnership units in conjunction
with property acquisitions -- 52,236 --
Issuance of common shares in conjunction with
property acquisitions 1,200 25,000 --
Issuance of restricted common shares 10 -- 455
Two-for-one common share dividend 362 -- --
</TABLE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In January 1996, the Company adopted SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation," which requires disclosures based on the
fair values of share options at the date of grant. There was no cumulative
effect nor any impact on the Company's financial position as a result of the
adoption. The Company will continue to measure compensation costs associated
with the issue of share options using the guidance provided by the Accounting
Principles Board's Opinion No. 25 ("APB No. 25"). Under APB No. 25, compensation
costs related to share options issued pursuant to compensatory plans are
measured based on the difference between the quoted market price of the shares
at the measurement date (originally the date of grant) and the grant price and
should be charged to expense over the periods during which the grantee performs
the related services. All share options issued to date by the Company have grant
prices equal to the market price of the shares at the dates of grant (See Note
8).
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components. This statement requires a separate statement to
report the components of comprehensive income for each period reported. The
provisions of this statement are effective for fiscal years beginning after
December 15, 1997. Management believes that the Company historically and
currently does not have items that would require presentation in a separate
statement of comprehensive income.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and require that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This statement is effective for financial
statements for periods beginning after December 15, 1997. The Company will
implement SFAS No. 131 for fiscal year ended December 31, 1998.
50
<PAGE> 53
3. INVESTMENT IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES:
The Company reports its share of income and losses based on its
ownership interest in the respective equity investments. The following
summarized information for all unconsolidated companies has been presented on an
aggregated basis and classified under the captions "Residential Development
Corporations" and "Refrigerated Warehouses and Other," as applicable, as of
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
BALANCE SHEET AT DECEMBER 31, 1997: RESIDENTIAL REFRIGERATED
DEVELOPMENT WAREHOUSES
CORPORATIONS AND OTHER
------------ ------------
<S> <C> <C>
Real estate, net.......................... $190,778 $1,617,340
Cash...................................... 44,263 36,818
Other assets.............................. 182,846 384,025
-------- ----------
Total Assets.......................... $417,887 $2,038,183
======== ==========
Notes payable............................. $229,744 $902,449
Other liabilities......................... 62,483 464,677
Equity.................................... 125,660 671,057
-------- ----------
Total Liabilities and Equity......... $417,887 $2,038,183
======== ==========
Company's Investment in real estate mortgages
and equity of unconsolidated
companies............................. $317,950 $ 283,820
======== ==========
</TABLE>
<TABLE>
<CAPTION>
SUMMARY STATEMENTS OF OPERATIONS: FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT WAREHOUSES AND
CORPORATIONS OTHER
------------ --------------
<S> <C> <C>
Total revenue............................. $173,764 $103,796
Total expenses............................ 151,090 90,995
-------- --------
Net Income................................ $ 22,674 $ 12,801
======== ========
Company's equity in net income of
unconsolidated companies.............. $ 18,771 $ 4,972
======== ========
</TABLE>
51
<PAGE> 54
4. OTHER ASSETS, NET:
Other assets, net consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
Leasing Costs .......................... $ 56,740 $ 39,483
Deferred financing costs ............... 26,088 13,956
Escrow deposits ........................ 5,810 210
Prepaid expenses ....................... 3,451 1,329
Other .................................. 36,453 9,549
--------- ---------
128,542 64,527
Less - Accumulated Amortization ........ (29,861) (21,392)
--------- ---------
$ 98,681 $ 43,135
========= =========
</TABLE>
5. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
<TABLE>
<CAPTION>
Following is a summary of the Company's debt financing: December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
SECURED DEBT
LaSalle Note I bears interest at 7.83% with an initial seven-year interest-only
term (through August 2002), followed by principal amortization based on a
25-year amortization schedule through maturity in August 2027(1),
secured by the Funding I properties with a combined book value of $305,163 .......... $239,000 $239,000
LaSalle Note II bears interest at 7.79% with an initial seven-year interest-only
term (through March 2003), followed by principal amortization based on a 25-year
amortization schedule through maturity in March 2028(2),
secured by the Funding II properties with a combined book value of $305,761 ......... 161,000 161,000
LaSalle Note III due July 1999, bears interest at 30-day LIBOR plus a weighted
average rate of 2.135% (at December 31, 1997 the rate was 8.07% subject to a
rate cap of 10%) with a five-year interest-only term, secured by the Funding
III, IV and V properties with a combined book value of $225,723...................... 115,000 115,000
Chase Manhattan Note due September 2001, bears interest at 30-day LIBOR plus 175
basis points (at December 31, 1997 the rate was 7.44%), and requires payments of
interest only during its term, secured by Fountain Place Office
Property with a book value of $113,146 .............................................. 97,123 --
CIGNA Note due December 2002, bears interest at 7.47% with a seven-year
interest-only term, secured by the MCI Tower Office Property and Denver
Marriott City Center Hotel Property with a combined book value of $101,375 .......... 63,500 63,500
Metropolitan Life Note II due December 2002, bears interest at 6.93% with monthly
principal and interest payments, secured by Energy Centre Office Property with a
book value of $75,204 ............................................................... 45,000 --
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Northwestern Note due January 2003, bears interest at 7.66% with a seven-year
interest-only term, secured by the 301 Congress Avenue Office Property with a
book value of $45,350 ............................................................... 26,000 26,000
Metropolitan Life Note due September 2001, bears interest at 8.88% with monthly
principal and interest payments, secured by five of The Woodlands Office
Properties with a combined book value of $15,771 ................................... 12,109 12,411
Nomura Funding VI Note bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through July 2020(3),
secured by the Funding VI property with a book value of $30,294 ..................... 8,692 8,780
Short-term construction loan due September 1997, beared interest at LIBOR plus
1.7%, secured by land and improvements that relate to the construction of The
Avallon - Phase II (Building 5) ..................................................... -- 2,117
Rigney Note due November 2012, bears interest at 8.50% with quarterly principal
and interest payments, secured by a parcel of land owned by the Company located
across from an Office Property with a book value of $16,872 ........................ 800 --
UNSECURED DEBT
Line of Credit with BankBoston, N.A. ("BankBoston") ("Credit Facility") (see
description of Credit Facility below) ............................................... 350,000 40,000
Short-term BankBoston Note II due August 1998, bears interest at Eurodollar rate
plus 120 basis points (at December 31, 1997, the rate was 7.14%) .................... 100,000 --
Short-term BankBoston Note due March 1998(4), bears interest at Eurodollar rate
plus 120 basis points (at December 31, 1997, the rate was 7.14%) .................... 91,900 --
2007 Notes bear interest at a fixed rate of 7.13% with a ten-year interest-only
term, due September 2007 (see "Notes Offering" below for a description of
changes in the interest rate under specified circumstances) ......................... 250,000 --
2002 Notes bear interest at a fixed rate of 6.63% with a five-year interest-only
term, due September 2002 (see "Notes Offering" below for a
description of changes in the interest rate under specified circumstances) .......... 150,000 --
---------- ----------
Total Notes Payable ................................................................. $1,710,124 $ 667,808
========== ==========
</TABLE>
- -----------
(1) In August 2007, the interest rate increases, and the Company is
required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Company's intention to
repay the note in full at such time (August 2007) by making a final
payment of approximately $220,000.
(2) In March 2006, the interest rate increases, and the Company is required
to remit, in addition to the monthly debt service payment, excess
property cash flow, as defined, to be applied first against principal
until the note is paid in full and thereafter, against accrued excess
interest, as defined. It is the Company's intention to repay the note
in full at such time (March 2006) by making a final payment of
approximately $154,000.
53
<PAGE> 56
(3) In July 1998, the Company may defease the note by purchasing Treasury
obligations to pay the note without penalty. In July 2010, the interest
rate due under the note will change to a 10-year Treasury yield plus
500 basis points or, if the Company so elects, it may repay the note
without penalty.
(4) The Company has a commitment with BankBoston to extend the term to May
31, 1998 with the same interest rate.
Combined aggregate principal maturities of notes payable and borrowings under
the Credit Facility are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998............................. $ 193,038
1999............................. 116,223
2000............................. 351,322
2001............................. 109,149
2002............................. 215,619
Thereafter........................... 724,773
-----------
$ 1,710,124
===========
</TABLE>
CREDIT FACILITY
On September 22, 1997, the Credit Facility was increased to $450,000,
and subsequently increased to $550,000 on December 19, 1997, to enhance the
Company's financial flexibility in making new real estate investments.
Concurrently with the September increase, the interest rate on advances under
the Credit Facility was decreased from the Eurodollar rate plus 137.5 basis
points to the Eurodollar rate plus 120 basis points. The Credit Facility is
unsecured and expires in June 2000. The Credit Facility requires the Company to
maintain compliance with a number of customary financial and other covenants on
an ongoing basis, including leverage ratios based on book value and debt service
coverage ratios, limitations on additional secured and total indebtedness and
distributions, and a minimum net worth requirement. As of December 31, 1997, the
Company was in compliance with all covenants. As of December 31, 1997, the
interest rate was 7.14% and $200,000 was available under the Credit Facility.
NOTES OFFERING
On September 22, 1997, the Operating Partnership completed a private
offering of senior unsecured notes in an aggregate principal amount of $400,000
(the "Notes"). The Notes were issued in two series, the 6-5/8%, $150,000 notes
with maturity on September 15, 2002, yielding a 6.73% effective rate (the "2002
Notes") and the 7-1/8%, $250,000 notes with maturity on September 15, 2007,
yielding a 7.151% effective rate (the "2007 Notes"). The Notes pay interest
semi-annually in arrears. The interest rates on the Notes are subject to
temporary increase by 50 basis points in the event that a registered offer to
exchange the Notes for notes of the Operating Partnership with terms identical
in all material respects to the Notes is not consummated or a shelf registration
statement with respect to the resale of the Notes is not declared effective by
the Securities and Exchange Commission (the "SEC") on or before March 21, 1998.
The interest rates on the Notes were temporarily increased by 50 basis points,
since the exchange offer was not completed by March 21, 1998. The Company
anticipates that the interest rates will return to the original rates during the
second quarter of 1998. The interest rate on the Notes also is subject to
temporary or permanent increase by 37.5 basis points in the event that, within
the period from the date of original issuance of the Notes to the first
anniversary of original issuance, the Notes are assigned a rating that is not an
investment grade rating (as defined in the Notes) or are not assigned, or do not
retain, a rating by specified rating agencies. These adjustments may apply
simultaneously.
The Notes are redeemable, in whole or in part, at the option of the
Operating Partnership upon payment of principal, accrued and unpaid interest,
and the premium specified in the Notes. The Notes also contain certain
covenants, including limitations on the ability of the Operating Partnership and
its subsidiaries to incur additional debt, other than certain intercompany debt
that is subordinate to payment of the Notes, unless certain asset and income
tests are satisfied.
54
<PAGE> 57
The net proceeds of the Notes offering were used to fund the
approximately $327,600 purchase price of Houston Center, to repay approximately
$50,000 of borrowings under the Credit Facility, to fund approximately $10,000
of the purchase price of Miami Center, and to repay approximately $7,200 of
short term indebtedness.
6. RENTALS UNDER OPERATING LEASES:
The Company receives rental income from the leasing of Office Property,
Retail Property, Hotel Property and Behavioral Healthcare Facility space under
operating leases. Future minimum rentals (base rents) under noncancelable
operating leases over the next five years (excluding tenant reimbursements of
operating expenses for Office and Retail Properties) as of December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
Office and Behavioral
Retail Healthcare Hotel Combined
Properties Facilities Properties Properties
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998....................... $359,587 $42,763 $31,636 $433,986
1999....................... 329,240 44,901 32,937 407,078
2000....................... 281,150 47,146 33,636 361,932
2001....................... 243,094 49,504 33,836 326,434
2002....................... 193,323 51,979 34,036 279,338
Thereafter................. 668,892 406,910 127,893 1,203,695
-----------------------------------------------------------------------
$2,075,286 $643,203 $293,974 $3,012,463
=======================================================================
</TABLE>
Generally, the office and retail leases also require that tenants
reimburse the Company for increases in operating expenses above operating
expenses during the base year of the tenants lease. These amounts totaled
$42,385, $20,859 and $8,267 for the years ended December 31, 1997, 1996 and
1995, respectively. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences adjusted
at year end based upon actual expenses.
The Company recognized percentage lease revenue from the Hotel
Properties of approximately $9,678, $4,493 and $1,797 for the years ended
December 31, 1997, 1996, and 1995, respectively.
COI currently is the largest single lessee of the Company in terms of
revenues under its leases. In 1997, total rental revenues from COI and previous
Hotel Properties lessees, who were acquired by COI in July 1997, represented
14.9% of the Company's total revenues. Subsidiaries of COI are the lessees of
each of the Hotel Properties and COI owns a 50% interest in CBHS, which is the
lessee of the Behavioral Healthcare Facilities, the Company's largest tenant in
terms of base rental revenues. (See Note 13 for a further discussion of the
Behavioral Healthcare Facilities)
55
<PAGE> 58
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company has twelve properties located on land that is subject to
long-term ground leases which expire between 2001 and 2079. Ground lease
expense during each of the three years ended December 31, 1997, 1996, and 1995
was $1,247, $681, and $442, respectively. Future minimum lease payments due
under such ground leases as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Ground Leases
-------------
<S> <C>
1998 .......... $ 1,372
1999 .......... 1,378
2000 .......... 1,391
2001 .......... 1,407
2002 .......... 1,365
Thereafter .... 92,056
-------
$98,969
=======
</TABLE>
CONTINGENCIES
The Company currently is not subject to any material legal proceedings
or claims nor, to management's knowledge, are any material legal proceedings or
claims currently threatened.
ENVIRONMENTAL MATTERS
All of the Properties have been subjected to Phase I environmental
audits. Such audits have not revealed, nor is management aware of, any
environmental liability that management believes would have a material adverse
impact on the financial position or results of operations of the Company.
8. STOCK AND UNIT BASED COMPENSATION PLANS:
STOCK OPTION PLANS
The Company has two stock incentive plans, the 1995 Stock Incentive
Plan ( the "1995 Plan") and the 1994 Stock Incentive Plan (the "1994 Plan"). In
June 1996, the shareholders amended the 1995 Plan, which increased the maximum
number of options and/or restricted shares that the Company may grant to
2,850,000 shares. The maximum aggregate number of shares of the 1995 Plan shall
increase automatically on January 1 of each year by an amount equal to 8.5% of
the increase in the number of common shares and units outstanding since January
1 of the preceding year, subject to certain adjustment provisions. As of January
1, 1998, the number of shares the Company may grant under the 1995 Plan is
9,066,177. Under the 1995 Plan, the Company had granted, net of forfeitures,
options and restricted shares of 2,601,240 and 30,572, respectively, through
December 31, 1997. Due to the approval of the 1995 Plan, additional options and
restricted shares will no longer be granted under the 1994 Plan. Under the 1994
Plan, the Company had granted, net of forfeitures, 2,514,800 options and no
restricted shares. Under both Plans, options are granted at a price not less
than the market value of the shares on the date of grant, and expire ten years
from the date of grant. The 1995 Plan options vest over five years with the
exception of 500,000 options that vest over two years. The 1994 Plan options
vest over periods ranging from one to five years.
56
<PAGE> 59
A summary of the status of the Company's 1994 and 1995 Plans as of
December 31, 1997, 1996, and 1995 and changes during the years then ended is
presented in the table below:
STOCK OPTIONS PLANS
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- ------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding as of January 1, 4,681 $ 15 3,050 $ 13 2,442 $ 13
Granted 485 28 1,760 18 616 15
Exercised (134) 14 (39) 13 -- --
Forfeited (89) 21 (90) 16 (8) 13
Expired -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Outstanding/Wtd. Avg. as of December 31, 4,943 $ 16 4,681 $ 15 3,050 $ 13
------ ------ ------ ------ ------ ------
Exercisable/Wtd. Avg. as of December 31, 3,285 $ 14 2,258 $ 13 1,630 $ 13
</TABLE>
The following table summarizes information about the options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ------------------------------
Range of Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg.
Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Prices 12/31/97 Contractual Life Price 12/31/97 Price
- ---------- -------------- ---------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
$12 to 18 3,851,398 7.0 years $ 14 3,160,286 $ 13
$21 to 27 1,004,450 9.1 24 125,000 22
$30 to 38 88,000 9.7 32 -- --
--------- --------- ----- ---------- ------
$12 to 38 4,943,848 7.5 years $ 16 3,285,286 $ 14
========= ========= ===== ========== ======
</TABLE>
UNIT PLANS
The Operating Partnership has two unit incentive plans, the 1995 Unit
Incentive Plan (the "1995 Unit Plan") and the 1996 Unit Incentive Plan (the
"1996 Unit Plan"). The 1995 Unit Plan is designed to reward persons who are not
trust managers, officers or 10% shareholders of the Company. An aggregate of
100,000 common shares are reserved for issuance upon the exchange of 50,000
units available for issuance to employees and advisors under the 1995 Unit Plan.
As of December 31, 1997, an aggregate of 7,610 units had been distributed under
the 1995 Unit Plan. The 1995 Unit Plan does not provide for the grant of
options. The 1996 Unit Plan provides for the grant of options to acquire up to
2,000,000 units, all of which were granted to the Chief Executive Officer and
Vice Chairman of the Board of the Company in July 1996. The unit options were
priced at fair market value on the date of grant, vesting over seven years, with
a ten year term (pursuant to the terms of the unit options; because the fair
market value of the Company's common shares equaled or exceeded $25 for each of
ten consecutive trading days, the vesting of 500,000 units was accelerated and
such units became immediately exercisable in 1996). Under the 1996 Unit Plan,
each unit that may be purchased is exchangeable as a result of shareholder
approval in June 1997, for two common shares.
57
<PAGE> 60
A summary of the status of the Company's 1996 Unit Plan as of December
31, 1997 and 1996, and changes during the years then ended is presented in the
table below (assumes each unit is exchanged for two common shares):
1996 UNIT INCENTIVE OPTION PLAN
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
Wtd. Avg. Wtd. Avg.
Shares Exercise Shares Exercise
(000) Price (000) Price
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding as of January 1 4,000 $ 18 -- $ --
Granted -- -- 4,000 18
Exercised -- -- -- --
Forfeited -- -- -- --
Expired -- -- -- --
----- ----- ----- -----
Outstanding/Wtd. Avg. as of December 31 4,000 $ 18 4,000 $ 18
----- ----- ----- -----
Exercisable/Wtd. Avg. as of December 31 1,429 $ 18 1,000 $ 18
</TABLE>
STOCK OPTION AND UNIT PLANS
The Company applies APB No. 25 in accounting for options granted pursuant
to the 1995 Plan, 1994 Plan, and 1996 Unit Plan (collectively, the "Plans").
Accordingly, no compensation cost has been recognized for the Plans. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates for awards under the Plans consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
As reported Pro forma As reported Pro forma As reported Pro forma
----------- --------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 117,341 $ 114,694 $ 37,135 $ 33,577 $ 27,395 $ 26,928
Earnings per share $ 1.25 $ 1.22 $ .70 $ .63 $ .66 $ .65
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting program compensation cost may not be
representative of what is to be expected in future years.
At December 31, 1997, 1996 and 1995, the weighted average fair value of
options granted was $6.52, $4.59, and $3.39, respectively. The fair value of
each option is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1997, 1996 and 1995, respectively: risk free interest rates of 6.7%,
6.8% and 6.7%; expected dividend yields of 4.0%, 6.2% and 6.8%; expected lives
of 10 years; expected volatility of 19.3%, 17.0% and 18.6%.
9. MINORITY INTEREST:
Minority interest represents (i) the limited partnership interests
owned by limited partners in the Operating Partnership and (ii) joint venture
interests held by third parties. Due to the March 26, 1997 two-for-one common
share dividend, the exchange factor has been adjusted in accordance with the
Operating Partnership's limited partnership agreement and each unit may be
exchanged for either two common shares or, at the election of the Company, cash
equal to the fair market value of two common shares at the time of the
exchange. When a unitholder exchanges a unit, the Company's investment in the
Operating Partnership will be increased. During 1997 and 1996, 66,706 and
53,789 units, respectively, were exchanged for common shares of the Company.
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10. SHAREHOLDERS' EQUITY:
COMMON SHARE OFFERINGS
On October 2, 1996, the Company completed a public offering (the
"October 1996 Offering") of 23,000,000 common shares (including the
underwriters' overallotment option) at $20.1875 per share. Net proceeds from the
October 1996 Offering to the Company after underwriting discount of $24,380 and
other offering costs of approximately $2,500 were approximately $437,433. The
Company used a portion of these net proceeds to repay $16,000 of short-term
borrowings from BankBoston and $151,500 of borrowings under the Credit Facility.
The remaining net proceeds of $269,933 were used to fund subsequent
acquisitions. On October 9, 1996, the Company completed an additional offering
of 900,000 common shares to several underwriters who participated in the October
1996 Offering. The shares of common stock were sold at $21 per share. The gross
proceeds of $18,900 from the additional offering were used to fund fourth
quarter 1996 acquisitions.
On April 28, 1997, the Company completed an offering (the "April 1997
Offering") of 24,150,000 common shares (including the underwriters'
overallotment option) at $25.375 per share. Net proceeds from the April 1997
Offering to the Company after underwriting discount of $29,222 and other
offering costs of $3,000 were $580,584. On May 14, 1997, the Company completed
an additional offering of 500,000 common shares to several underwriters who
participated in the April 1997 Offering. The common shares were sold at $25.875
per share, totaling gross proceeds of approximately $12,938 (collectively, the
"Offerings").
In the second quarter of 1997, the Company used net proceeds of
$593,522 from the Offerings and $314,700 from borrowings under the Credit
Facility and $160,000 of short-term borrowings from BankBoston (i) to fund
$30,000 in connection with the formation and capitalization of COI; (ii) to
repay the $150,000 BankBoston short-term note payable; (iii) to reduce by
$131,000 borrowings under the Credit Facility; (iv) to fund $306,300 of the
purchase price of the Carter-Crowley Portfolio (as defined in Note 13) acquired
by the Company; (v) to fund the $419.7 million commitment of the Company and COI
relating to the acquisition of the Behavioral Healthcare Facilities and (vi) to
fund $31,222 for working capital purposes.
On August 12, 1997, the Company entered into two transactions with
affiliates of Union Bank of Switzerland ("UBS"). In one transaction, pursuant to
which the Company obtained additional equity capital through the issuance of
common shares, the Company sold 4,700,000 common shares at $31.5625 per share to
UBS Securities, LLC for $148,300 ($145,000 of net proceeds) ("UBS Offering").
The net proceeds to the Company from the UBS Offering were used to repay
borrowings under the Credit Facility. In the other transaction, which will
permit the Company to benefit from any increases in the market price of its
common shares, the Company entered into a forward share purchase agreement with
Union Bank of Switzerland, London Branch ("UBS-LB") which provides that the
Company will purchase 4,700,000 common shares from UBS-LB within one year. The
purchase price will be determined on the date the Company settles the agreement
and will include a forward accretion component, minus an adjustment for the
Company's distribution rate. The Company may complete, at its option, the
settlement in cash or common shares.
On October 8, 1997, the Company completed an offering ("October 1997
Offering") of 10,000,000 common shares at $39.00 per share. Net proceeds to the
Company from the October 1997 Offering after underwriting discount of $19,900
and other offering costs of $1,600 were $368,500. The net proceeds were used to
repay approximately $323,500 of borrowings under the Credit Facility and to fund
approximately $45,000 of the purchase price of the U.S. Home Building.
On December 12, 1997, the Company entered into two transactions with
Merrill Lynch International. In one transaction, pursuant to which the Company
obtained additional equity capital through the issuance of common shares, the
Company sold 5,375,000 common shares at $38.125 per share to Merrill Lynch
International for $204,900 ($199,900 in net proceeds) (the "Merrill Lynch
Offering"). The net proceeds to the Company from the Merrill Lynch Offering were
used to repay borrowings under the Credit Facility. In the other transaction,
which will permit the Company to benefit from any increases in the market price
of its common shares, the Company entered into a swap agreement (the "Swap
Agreement") with Merrill Lynch International relating to 5,375,000 common shares
(the "Settlement Shares"), pursuant to which Merrill Lynch International will
sell, as directed by the Company on or before December 12, 1998, a sufficient
number of common shares to achieve net sales proceeds equal to the market value
of the Settlement Shares on December 12, 1997, plus a forward accretion
component, minus an adjustment for the Company's distribution rate. The precise
number of
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common shares that will be required to be sold pursuant to the Swap Agreement
will depend primarily on the market price of the common shares at the time of
settlement. The common shares required to be sold by Merrill Lynch International
pursuant to the Swap Agreement are expected to be the same common shares
initially issued by the Company (although Merrill Lynch International, at its
option, may substitute other common shares that it holds). If, however, as a
result of a decrease in the market price of the common shares, the number of
common shares required to be sold is greater than the number of Settlement
Shares, the Company will deliver additional common shares to Merrill Lynch
International. In contrast, if such number of common shares is less than the
number of Settlement Shares as a result of an increase in the market price of
the common shares, Merrill Lynch International will deliver common shares or, at
the option of the Company, cash to the Company. On February 20, 1998, the
Company issued an additional 525,000 common shares to Merrill Lynch
International as a result of the decline in market price of the common share
price from the date of issuance on December 12, 1997 through February 12, 1998.
DISTRIBUTIONS
The distribution to shareholders and unitholders paid during the year
ended December 31, 1996, was $73,367 or $1.13 per share.
The distribution to shareholders and unitholders paid during the year
ended December 31, 1997, was $140,801 or $1.295 per share.
Following is the income tax status of dividends paid during the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Ordinary income 74.3% 61.7%
Return on capital 25.7% 38.3%
</TABLE>
11. FORMATION AND CAPITALIZATION OF COI
In April 1997, the Company established a new Delaware corporation, COI.
All of the outstanding common stock of COI, valued at $.99 per share, was
distributed, effective June 12, 1997, to those persons who were limited
partners of the Operating Partnership or shareholders of the Company on May 30,
1997, in a spin-off.
COI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the Intercompany Agreement between COI
and the Company, pursuant to which each has agreed to provide the other with
rights to participate in certain transactions. As a result of the formation of
COI and the execution of the Intercompany Agreement, persons who own equity
interests in both COI and the Company have the opportunity to participate in the
benefits of both the real estate investments of the Company (including ownership
of real estate assets) and the lease of certain of such assets and the ownership
of other non-real estate assets by COI. The certificate of incorporation, as
amended and restated, of COI generally prohibits COI for so long as the
Intercompany Agreement remains in effect, from engaging in activities or making
investments that a REIT could make, unless the Company was first given the
opportunity but elected not to pursue such activities or investments.
In connection with the formation and capitalization of COI, the Company
provided to COI approximately $50,000 in the form of cash contributions and
loans to be used by COI to acquire certain assets described in Note 13. The
Company also made available to COI a line of credit in the amount of $20,400 to
be used by COI to fulfill certain ongoing obligations associated with these
assets. As of December 31, 1997, COI had $13,725 and $25,980 outstanding under
the line of credit and term loan, respectively, with the Company.
12. EXTRAORDINARY ITEMS:
In April 1996, the Company canceled its $150,000 credit facility led
by BankBoston. At that time the Company had no outstanding borrowings under the
credit facility. In connection with the cancellation of the credit facility, the
Company recognized an extraordinary loss of $1,306, net of minority interests,
resulting from the write-off of unamortized deferred financing costs.
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13. ACQUISITIONS:
During 1997, the Company acquired the following Properties from
unrelated third parties (certain of the Properties are owned in fee simple or
pursuant to a lessee's interest under a ground lease). The Company funded these
acquisitions through cash proceeds from the offerings of common shares, the
Notes Offering, borrowings under the Credit Facility, debt assumption, and
issuance of common shares.
<TABLE>
<CAPTION>
NET
COMPANY'S RENTABLE
EFFECTIVE ACQ. AREA
PROPERTY NAME ACQ. DATE CITY, STATE OWNERSHIP % PRICE ROOMS (In Sq Ft.)
- -------------------------- --------- ----------- ----------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Greenway II 1/15/97 Dallas, TX 100 $ 18,225 -- 154,329
Denver Properties 2/28/97 Denver, CO 100 42,675 -- 445,931
Trammell Crow Center 2/28/97 Dallas, TX 100 162,000 -- 1,128,331
Carter Crowley Office Portfolio 5/9/97 Dallas, TX 100 192,286 -- 3,020,100
Houston Center Office and Retail 9/22/97 Houston, TX 100 250,100 -- 2,764,418
Four Seasons Hotel 9/22/97 Houston, TX 100 50,000 399 --
Miami Center 9/30/97 Miami, FL 100 131,450 -- 782,686
U.S. Home Building 10/15/97 Houston, TX 100 45,000 -- 399,777
Bank One Center 10/22/97 Dallas, TX 50 119,000 -- 1,530,957
Fountain Place 11/7/97 Dallas, TX 100 114,000 -- 1,200,266
Ventana Country Inn 12/19/97 Big Sur, CA 100 30,000 62 --
Energy Centre 12/22/97 New Orleans,LA 100 75,000 -- 761,500
</TABLE>
In addition to property acquisitions, the following represents transactions
closed in 1997.
Carter-Crowley Portfolio. On February 10, 1997, the Company entered
into a contract to acquire for approximately $383,300, substantially all of the
assets (the "Carter-Crowley Portfolio") of Carter-Crowley Properties, Inc.
("Carter-Crowley"), an unaffiliated company controlled by the family of Donald
J. Carter. At the time the contract was executed, the Carter-Crowley Portfolio
included 14 office buildings (the "Carter-Crowley Office Portfolio"), with an
aggregate of approximately 3.0 million net rentable square feet, approximately
1,216 acres of commercially zoned, undeveloped land located in the Dallas/Fort
Worth metropolitan area, two multifamily residential properties located in the
Dallas/Fort Worth metropolitan area, marketable securities, an approximately
12% limited partner interest in the limited partnership that owns the Dallas
Mavericks NBA basketball franchise, secured and unsecured promissory notes,
certain direct non-operating working interests in various oil and gas wells, an
approximately 35% limited partner interest in two oil and gas limited
partnerships, and certain other assets (including operating businesses).
Pursuant to an agreement between Carter-Crowley and the Company, Carter-Crowley
liquidated approximately $51,000 of such assets originally included in the
Carter-Crowley Portfolio, consisting primarily of the marketable securities and
the oil and gas investments, resulting in a reduction in the total purchase
price by a corresponding amount to approximately $332,300. On May 9, 1997, the
Company and COI acquired the Carter-Crowley Portfolio.
The Company acquired certain assets from the Carter-Crowley Portfolio,
with an aggregate purchase price of approximately $306,300, consisting primarily
of the Carter-Crowley Office Portfolio, the two multifamily residential
properties, the approximately 1,216 acres of undeveloped land and the secured
and unsecured promissory notes relating primarily to the Dallas Mavericks. In
addition to the promissory notes relating to the Dallas Mavericks, the Company
obtained rights from the current holders of the majority interest in the Dallas
Mavericks to a contingent $10,000 payment after a new arena is constructed
within a 75-mile radius of Dallas, as well as rights to participate in the
ownership and development of the new arena, certain land located adjacent to the
arena and
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proposed commercial properties to be developed on the adjacent land. On
December 10, 1997, the City of Dallas and the "Arena Group" (which consists of
four corporations, one of which is to be owned almost entirely by the Company)
entered into the Arena Master Agreement for the construction and operation of a
new arena located adjacent to the Dallas CBD submarket. The taxpayers of
Dallas have subsequently approved a bond package which included the funding of
the City's portion of the new arena costs. Construction of the new arena is
expected to commence prior to the end of 1998.
COI purchased the remainder of the Carter-Crowley Portfolio utilizing
cash contributions and loan proceeds provided to COI by the Company. These
assets, which have an allocated cost of approximately $26,000, consisted
primarily of the approximately 12% limited partner interest in the limited
partnership that owns the Dallas Mavericks, an approximately 1% interest in a
private venture capital fund, and a 100% interest in a construction equipment
sale, leasing and services company.
On June 11, 1997, DBL Holdings, Inc. ("DBL"), a wholly owned subsidiary
of the Operating Partnership was formed. In connection with the formation of
DBL, the Operating Partnership acquired all the voting and non-voting common
stock of DBL, for an aggregate purchase price of approximately $2,500 and loaned
to DBL approximately $10,100. The voting common stock which represented a 5%
effective interest in DBL, was subsequently sold to Gerald W. Haddock, the
President and Chief Executive Officer of the Company and COI, and John C. Goff,
the Vice Chairman of the Company and COI, for its aggregate original cost of
$126. On June 11, 1997, DBL acquired from COI for approximately $12,550, the
limited partner interest in the partnership that owns the Dallas Mavericks.
Woodlands Transaction. On July 31, 1997, the Company and certain Morgan
Stanley funds (the "Morgan Stanley Group") acquired The Woodlands Corporation, a
subsidiary of Mitchell Energy & Development Corp., for approximately $543,000.
In connection with the acquisition, the Company and the Morgan Stanley Group
made equity investments of approximately $80,000 and $109,000, respectively. The
Company's contribution was funded through a $235,000 short-term loan from
BankBoston. The remaining approximately $354,000 and associated acquisition and
financing costs of approximately $15,000 were financed by the two limited
partnerships, described below, through which the investment was made. The
Woodlands Corporation was the principal owner, developer and operator of The
Woodlands, an approximately 27,000-acre, master-planned residential and
commercial community located 27 miles north of downtown Houston, Texas. The
Woodlands, which is approximately 50% developed, includes a shopping mall,
retail centers, office buildings, a hospital, club facilities, a community
college, a performance pavilion, and numerous other amenities.
The acquisition was made through The Woodlands Commercial Properties
Company, L.P. ("Woodlands-CPC"), a limited partnership in which the Morgan
Stanley Group holds a 57.5% interest and the Company holds a 42.5% interest, and
the Woodlands Land Development Company, L.P. ("Woodlands-LDC"), a limited
partnership in which the Morgan Stanley Group holds a 57.5% interest and a newly
formed Residential Development Corporation, The Woodlands Land Company, Inc.
("WLC"), holds a 42.5% interest. The Company owns all of the non-voting common
stock, representing a 95% economic interest in WLC and, effective September 29,
1997, COI acquired all of the voting common stock, representing a 5% economic
interest, in WLC. The Company is the managing general partner of Woodlands-CPC
and WLC is the managing general partner of Woodlands-LDC.
In connection with the acquisition, Woodlands-CPC acquired The Woodlands
Corporation's 25% general partner interest in the partnerships that own
approximately 1.2 million square feet of The Woodlands Office and Retail
Properties. The Company previously held a 75% limited partner interest in each
of these partnerships and, as a result of the acquisition, the Company's
indirect economic interest in these Properties increased to approximately 85%.
The other assets acquired by Woodlands-CPC include a 364-room executive
conference center, a private golf and tennis club, and approximately 400 acres
of land that will support commercial development of more than 3.5 million square
feet of office, multi-family, industrial, retail and lodging properties. In
addition, Woodlands-CPC acquired The Woodlands Corporation's general partner
interests, ranging from one to 50%, in additional office and retail properties
and in multi-family and light industrial properties. Woodlands-LDC acquired
approximately 6,400 acres of land that will support development of more than
20,000 lots for single-family homes and approximately 2,500 acres of land that
will support more than 21.5 million net rentable square feet of commercial
development. The executive conference center, including the golf and tennis club
and golf courses, is operated and leased by a wholly owned subsidiary of a
partnership owned 42.5% by a subsidiary of COI and 57.5% by the Morgan Stanley
Group.
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Desert Mountain. On August 29, 1997, the Company acquired, through a newly
formed Residential Development Corporation, Desert Mountain Development
Corporation ("DMDC"), the majority economic interest in Desert Mountain
Properties Limited Partnership ("DMPLP"), the partnership that owns Desert
Mountain, a master-planned, luxury residential and recreational community in
northern Scottsdale, Arizona. Desert Mountain is an 8,300-acre property that is
zoned for the development of approximately 4,500 residential lots, approximately
1,539 of which have been sold. Desert Mountain also includes The Desert Mountain
Club, a private golf, tennis and fitness club serving over 1,600 members. The
partnership interest was acquired from a subsidiary of Mobil Land Development
Corporation for approximately $214,000, which was funded through a $200,000 loan
from BankBoston and a draw under the Credit Facility. The sole limited partner
of DMPLP is Sonora Partners Limited Partnership ("Sonora") whose principal owner
is the original developer of Desert Mountain. A portion of Sonora's interest in
DMPLP is exchangeable for common shares of the Company. Sonora currently owns a
7% economic interest in DMPLP, and DMDC, which is the sole general partner of
DMPLP, owns the remaining 93% economic interest. The Company owns all of the
non-voting common stock, representing a 95% economic interest, and, effective
September 29, 1997, COI acquired all of the voting common stock, representing a
5% economic interest, in DMDC. The Company also holds a residential development
property mortgage on Desert Mountain, which is accounted for as an acquisition,
development and construction loan. This loan is treated as an investment and is
included in the balance sheet caption of "Investments in real estate mortgages
and equity of unconsolidated companies."
Americold Corporation and URS Logistics, Inc. On October 31, 1997, the
Company, through two newly formed subsidiaries (the "Crescent Subsidiaries"),
initially acquired a 40% interest in each of two partnerships, one of which owns
Americold Corporation ("Americold") and one of which owns URS Logistics, Inc.
("URS"). Vornado Realty Trust ("Vornado") acquired the remaining 60% interest in
the partnerships. Americold and URS are the two largest suppliers of
refrigerated warehouse space in the United States.
One of the partnerships acquired all of the common stock of Americold
through the merger of a subsidiary of Vornado into Americold, and the other
partnership acquired all of the common stock of URS through the merger of a
separate subsidiary of Vornado into URS. As a result of the acquisition, the
Americold partnership and the URS partnership became the owners and operators of
approximately 80 refrigerated warehouses, with an aggregate of approximately 394
million cubic feet, that are operated pursuant to arrangements with national
food suppliers.
The aggregate purchase price for the acquisition of Americold and URS was
approximately $1,044,000 (including transaction costs associated with the
acquisition). Of this amount, the purchase price for the acquisition of
Americold was approximately $645,000 (consisting of approximately $112,000 in
cash for the purchase of the equity, approximately $151,000 in cash for the
repayment of certain outstanding bonds issued by Americold, approximately
$372,000 in retention of debt and approximately $10,000 in transaction costs),
and the purchase price for the acquisition of URS was approximately $399,000
(consisting of approximately $173,000 in cash for the purchase of the equity,
approximately $211,000 in retention of debt and approximately $15,000 in
transaction costs.)
On December 30, 1997 and effective October 31, 1997, in order to permit
the Company to continue to satisfy certain REIT qualification requirements, the
Company sold all of the voting common stock, representing a 5% economic
interest, in each of the Crescent Subsidiaries to COI. As a result, the Company
currently owns a 38% interest in each of the Americold partnership and URS
partnership, through its ownership of all of the nonvoting common stock,
representing a 95% economic interest, in each of the Crescent Subsidiaries.
Under the terms of the existing partnership agreements for each of the
partnerships, Vornado has the right to make all decisions relating to the
management and operation of the partnerships other than certain major decisions
that require the approval of both the Company and Vornado. The partnership
agreement for each of the partnerships provides for a buy-sell arrangement upon
a failure of the Company and Vornado to agree on any of the specified major
decisions which, until November 1, 2000, can be exercised only by Vornado.
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The parties have not yet determined certain matters relating to the future
ownership structure and operations of Americold and URS, including the
identification and division of the assets that will continue to be owned by one
of the partnerships and those that may be owned by one or more other entities
formed to conduct the business operations currently conducted by Americold and
URS, and the nature and terms of any lease that may be entered into between the
operating entity and the owner of the warehouses.
SIGNIFICANT TRANSACTIONS
Behavioral Healthcare Facilities. On June 17, 1997, the Company acquired
substantially all of the real estate assets of the domestic hospital provider
business of Magellan Health Services, Inc. ("Magellan"), as previously owned and
operated by a wholly owned subsidiary of Magellan. The transaction involved
various components, certain of which related to the Company and certain of which
related to COI.
The total purchase price of the assets acquired in the Magellan
transaction was approximately $419,700. Of this amount, the Company paid
approximately $387,200 for the acquisition of the 90 Behavioral Healthcare
Facilities (and two additional behavioral healthcare facilities, which
subsequently were sold) and $12,500 for the acquisition of warrants to purchase
1,283,311 shares of common stock of Magellan. COI paid $5,000 for its interest
in CBHS, $12,500 for the acquisition of warrants to purchase 1,283,311 shares
of common stock of Magellan and $2,500 to CBHS after the closing in satisfaction
of certain obligations to make additional capital contributions. CBHS is owned
50% by COI and 50% by a wholly owned subsidiary of Magellan, subject to
potential dilution of each by up to 5% in connection with future incentive
compensation of management of CBHS.
The principal component of the transaction was the Company's acquisition
of the Behavioral Healthcare Facilities, which are leased to CBHS, and the
subsidiaries of CBHS, under a triple-net lease. The lease requires the payment
of annual minimum rent in the amount of $41,700, increasing in each subsequent
year during the 12-year term at a 5% compounded annual rate. The lease provides
for four, five-year renewal options. All maintenance and capital improvement
costs are the responsibility of CBHS during the term of the lease. In addition,
CBHS is required to pay annually an additional $20,000 under the lease, at least
$10,000 of which must be used, as directed by CBHS, for capital expenditures
each year and up to $10,000 of which may be used, if requested by CBHS, to cover
capital expenditures, property taxes, insurance premiums, and franchise fees.
CBHS' failure to pay the additional rent is not a default under the lease unless
the Company has incurred unreimbursed capital expenditures, property taxes,
insurance premiums or franchise fees.
PRO FORMA OPERATING RESULTS
The pro forma financial information for the years ended December 31, 1997
and 1996 assumes completion, in each case as of January 1, 1996, of (i) the 1996
and 1997 common share Offerings; (ii) the September 1997 Notes Offering; (iii)
the 1996, 1997 and 1998 acquisitions and pending investment (see Note 14); and
(iv) the February 1998 Preferred Offering (defined in Note 14).
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<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Total revenue ....................... $787,606 $716,717
Operating income .................... 143,852 90,705
Income before minority interest
and extraordinary item ........... 175,042 104,725
Net income available to common
shareholders ...................... 137,655 72,570
Basic Earnings Per Common Share:
Income before extraordinary item $ 1.03 $ .55
Net income ...................... 1.03 .54
Diluted Earnings Per Common
Share:
Income before extraordinary item $ .99 $ .53
Net income ........................ .99 .52
</TABLE>
The pro forma and operating results combine the Company's historical
operating results with the historical incremental rental income and operating
expenses including an adjustment for depreciation based on the acquisition
price associated with the Office and Retail Property acquisitions. Pro forma
adjustments primarily represent the following: (i) rental income to the Company
from the hotels acquired during 1996, 1997, and 1998 based on the lease
payments (base rent and percentage rent, if applicable) from the hotel lessees
by applying the rent provisions, (as set forth in the lease agreements) to
historical revenues of the hotel property; (ii) rental income based on the
lease payment from CBHS to the Company by applying the base rent provisions as
set forth in the lease agreement; (iii) calculated an estimated lease payment
using the historical operating results of the casino/hotel properties (the
historical operations do not represent stabilized casino/hotel operations, as
two casino/hotel properties commenced operations in 1997), (iv) adjustment for
depreciation expense for Hotel Properties, Behavioral Healthcare Facilities and
casino/hotel properties; (v) adjustment for equity in net income for the
Woodlands, Desert Mountain and Refrigerated Warehouse transactions; (vi)
interest income for the notes acquired in the Carter-Crowley transaction, the
loans to COI and loans to DMPLP; and (vii) interest costs assuming the
borrowings to finance acquisitions and assumption of debt for investments.
These pro forma amounts are not necessarily indicative of what the
actual financial position of the Company would have been assuming the above
property acquisitions had been consummated as of the beginning of the period,
nor do they purport to represent the future financial position of the Company.
14. SUBSEQUENT EVENTS (THROUGH MARCH 25, 1998, UNAUDITED):
Pending Investment - Station Casinos, Inc. On January 16, 1998, the
Company entered into an agreement and plan of merger (the "Merger Agreement")
pursuant to which Station Casinos, Inc. ("Station") will merge (the "Merger")
with and into the Company. Station is an established multi-jurisdictional
casino/hotel company that owns and operates, through wholly owned subsidiaries,
six distinctly themed casino/hotel properties, four of which are located in Las
Vegas, Nevada, one of which is located in Kansas City, Missouri and one of which
is located in St. Charles, Missouri. As a result of the Merger, the Company will
acquire the real estate and other assets of Station, except to the extent
operating assets are transferred immediately prior to the Merger, as described
below.
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<PAGE> 68
As part of the transactions associated with the Merger, it is
currently anticipated that certain operating assets and the employees of
Station will be transferred to a limited liability company (the "Station
Lessee") immediately prior to the Merger. The Station Lessee will be owned 50%
by COI or another entity designated established by the Company, 24.9% by an
entity owned by three of the existing directors of Station (including its
Chairman, President and Chief Executive Officer) and 25.1% by a separate entity
owned by other members of Station management. The Station Lessee will operate
the six casino/hotel properties currently operated by Station pursuant to a
lease with the Company. The lease will have a 10-year term, with one five-year
renewal option. The lease will provide for base and percentage rent but the
amount of the rent has not yet been determined. The Station Lessee will be
required to maintain the properties in good condition at its own expense. The
Company will establish and maintain a reserve account to be used under certain
circumstances for the purchase of furniture, fixtures and equipment with
respect to the properties. The Company will also enter into a Right of First
Refusal and Noncompetition Agreement with the Station Lessee, pursuant to which
each party will grant certain rights to the other party to participate in
future investment in and operation of casino/hotel properties and will agree
not to invest in or operate any such properties without the participation or
consent of the other party.
In order to effect the Merger, the Company will issue 0.466 common
shares of the Company for each share of common stock of Station (including each
restricted share) that is issued and outstanding immediately prior to the
Merger. In addition, the Company will create a new class of preferred shares
which will be exchanged, upon consummation of the Merger, for the shares of
$3.50 Convertible Preferred Stock of Station outstanding immediately prior to
the Merger. The new class of preferred shares will have equal priority with the
Company's Series A preferred shares as to rights to receive distributions and to
participate in distributions or payments upon any liquidation, dissolution or
winding up of the Company.
The total value of the Merger transaction, including the Company's
issuance of common shares and preferred shares in connection with consummation
of the Merger and the Company's assumption and/or refinancing of approximately
$919,000 in existing indebtedness of Station and its subsidiaries, is
approximately $1,750,000.
In connection with the Merger, the Company also has agreed to purchase
up to $115,000 of a new class of convertible preferred stock of Station prior to
consummation of the Merger. The purchase will be made in increments, or in a
single transaction, upon call by Station subject to certain conditions, whether
or not the Merger is consummated.
Consummation of the Merger is subject to various conditions, including
Station's receipt of the approval of two-thirds of the holders of both its
common stock and its preferred stock, expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, and the
receipt by the Company and certain of its officers, trust managers and
affiliates of the approvals required under applicable gaming laws. The Company
anticipates that the Merger and the associated transactions will be consummated
in the fourth quarter of 1998, although there can be no assurances that the
Merger will be consummated on the terms described above.
Austin Centre. On January 23, 1998, the Company acquired Austin Centre,
a mixed-use property including a Class A office building containing
approximately 344,000 net rentable square feet and the Omni Austin Hotel
Property consisting of 314 rooms and 61 apartments, located in the CBD submarket
of Austin, Texas. The purchase price was approximately $96,400 which was funded
through a draw under the Credit Facility. A subsidiary of COI will oversee the
marketing and operations of the Omni Austin Hotel Property pursuant to a
participating triple-net lease with the Company.
Post Oak Central. On February 13, 1998 the Company acquired Post Oak
Central, a three-building Class A office complex containing approximately
1,278,000 net rentable square feet, located in the West Loop/Galleria suburban
office submarket of Houston, Texas. The purchase price was approximately
$155,250, of which $100,000 was funded through borrowings under the Company's
$250,000 short-term loan provided by BankBoston and $55,250 through a draw under
the Credit Facility.
Preferred Offering. On February 19, 1998, the Company completed an
offering (the "February 1998 Preferred Offering") of 8,000,000 shares of 6-3/4%
Series A convertible cumulative preferred shares (the "Series A Preferred
Shares") with a liquidation preference of $25 per share. Series A Preferred
Shares are convertible at any time, in whole or in part, at the option of the
holders thereof into common shares of the Company at a conversion price of
66
<PAGE> 69
$40.86 per common share (equivalent to a conversion rate of .6119 common shares
per Series A Preferred Share), subject to adjustment in certain circumstances.
Net proceeds to the Company from the February 1998 Preferred Offering after
underwriting discounts of $8,000 and other offering costs of $750 were
approximately $191,250. The net proceeds from the February 1998 Preferred
Offering were used to repay borrowings under the Credit Facility.
Washington Harbour. On February 25, 1998, the Company acquired
Washington Harbour, a Class A office complex, consisting of a five-story and
an eight-story office building (the top three stories of which contain 35
luxury condominiums, which were not included in the purchase), located in the
Georgetown submarket of Washington, D.C. The two Office Properties contain
approximately 536,000 net rentable square feet. The purchase price was
approximately $161,000, which was funded through a draw under the Credit
Facility.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
March 31, June 30, September 30, December 31,
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 84,074 $ 99,129 $ 120,057 $ 147,257
Income before minority interests and extraordinary
item ........................................... 20,245 29,186 34,835 50,758
Minority interests ............................... (3,494) (4,092) (4,432) (5,665)
Extraordinary item ............................... -- -- -- --
Net income ....................................... 16,751 25,094 30,403 45,093
Per share data:
Basic Earnings Per Common Share ............... .23 .28 .30 .40
Diluted Earnings Per Common Share ............. .22 .27 .29 .38
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
March 31, June 30, September 30, December 31,
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 43,060 $ 44,999 $ 49,368 $ 71,434
Income before minority interests and extraordinary
item ........................................ 8,563 9,655 8,517 21,216
Minority interests ............................... (1,583) (2,036) (2,239) (3,652)
Extraordinary item ............................... -- (1,306) -- --
Net income ....................................... 6,980 6,313 6,278 17,564
Basic Earnings Per Common Share data:
Income before extraordinary item ............ .15 .16 .13 .25
Net income .................................. .15 .13 .13 .25
Diluted Earnings Per Common Share data:
Income before extraordinary item ............ .15 .16 .13 .24
Net income .................................. .15 .13 .13 .24
</TABLE>
67
<PAGE> 70
SCHEDULE III
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Costs Acquisition Carried at Close of Period
----------------------------------------- --------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment Total
- ------------------------------------------- --------- -------------- ---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Crescent, Dallas, TX $6,723 $153,383 $73,244 $6,723 $226,627 $233,350
Continental Plaza, Fort Worth, TX 1,375 66,649 18,271 1,375 84,920 86,295
The Citadel, Denver, CO 1,803 17,259 3,645 1,803 20,904 22,707
MacArthur Center I & II, Irving, TX 704 17,247 2,454 880 19,525 20,405
Las Colinas Plaza, Irving, TX 2,576 7,125 1,589 2,582 8,708 11,290
Caltex House, Irving, TX 2,200 48,744 926 2,200 49,670 51,870
Liberty Plaza I & II, Dallas, TX 1,650 15,956 120 1,650 16,076 17,726
Regency Plaza One, Denver, CO 950 31,797 606 950 32,403 33,353
Waterside Commons, Irving, TX 3,650 20,135 1,940 3,650 22,075 25,725
The Avallon, Austin, TX 1,577 11,207 (1,048) 475 11,261 11,736
Two Renaissance Square, Phoenix, AZ - 54,412 4,527 - 58,939 58,939
Stanford Corporate Centre, Dallas, TX - 16,493 1,091 - 17,584 17,584
Hyatt Regency Beaver Creek, Avon, CO 10,882 40,789 1,452 10,882 42,241 53,123
The Aberdeen, Dallas, TX 850 25,895 22 850 25,917 26,767
Barton Oaks Plaza One, Austin, TX 900 8,207 1,113 900 9,320 10,220
12404 Park Central, Dallas, TX 1,604 14,504 57 1,604 14,561 16,165
MCI Tower, Denver, CO - 56,593 213 - 56,806 56,806
Denver Marriott City Center, Denver, CO - 50,364 1,723 - 52,087 52,087
The Woodlands Office Properties, Houston, TX 12,007 35,865 2,158 12,073 37,957 50,030
Spectrum Center, Dallas, TX 2,000 41,096 3,540 2,000 44,636 46,636
Ptarmigan Place, Denver, CO 3,145 28,815 2,980 3,145 31,795 34,940
6225 North 24th Street, Phoenix, AZ 719 6,566 1,869 719 8,435 9,154
Briargate Office and Research
Center, Colorado Springs, CO 2,000 18,044 511 2,000 18,555 20,555
Albuquerque Plaza, Albuquerque, NM - 36,667 1,237 - 37,904 37,904
Hyatt Regency Albuquerque, Albuquerque, NM - 32,241 1,586 - 33,827 33,827
3333 Lee Parkway, Dallas, TX 1,450 13,177 2,631 1,468 15,790 17,258
301 Congress Avenue, Austin, TX 2,000 41,735 3,584 2,000 45,319 47,319
Central Park Plaza, Omaha, NE 2,514 23,236 103 2,514 23,339 25,853
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Depreciation Construction Date Computed
- ------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
The Crescent, Dallas, TX $ (135,377) 1985 - (1)
Continental Plaza, Fort Worth, TX (32,383) 1982 1990 (1)
The Citadel, Denver, CO (12,369) 1987 1987 (1)
MacArthur Center I & II, Irving, TX (4,409) 1982/1986 1993 (1)
Las Colinas Plaza, Irving, TX (2,900) 1989 1989 (1)
Caltex House, Irving, TX (4,725) 1982 1994 (1)
Liberty Plaza I & II, Dallas, TX (1,422) 1981/1986 1994 (1)
Regency Plaza One, Denver, CO (2,867) 1985 1994 (1)
Waterside Commons, Irving, TX (2,220) 1986 1994 (1)
The Avallon, Austin, TX (893) 1986 1994 (1)
Two Renaissance Square, Phoenix, AZ (5,124) 1990 1994 (1)
Stanford Corporate Centre, Dallas, TX (1,659) 1985 1995 (1)
Hyatt Regency Beaver Creek, Avon, CO (2,803) 1989 1995 (1)
The Aberdeen, Dallas, TX (2,178) 1986 1995 (1)
Barton Oaks Plaza One, Austin, TX (757) 1986 1995 (1)
12404 Park Central, Dallas, TX (964) 1987 1995 (1)
MCI Tower, Denver, CO (3,540) 1982 1995 (1)
Denver Marriott City Center, Denver, CO (3,978) 1982 1995 (1)
The Woodlands Office Properties, Houston, TX (4,945) 1980-1993 1995 (1)
Spectrum Center, Dallas, TX (2,850) 1983 1995 (1)
Ptarmigan Place, Denver, CO (1,746) 1984 1995 (1)
6225 North 24th Street, Phoenix, AZ (383) 1981 1995 (1)
Briargate Office and Research
Center, Colorado Springs, CO (978) 1988 1995 (1)
Albuquerque Plaza, Albuquerque, NM (1,897) 1990 1995 (1)
Hyatt Regency Albuquerque, Albuquerque, NM (2,059) 1990 1995 (1)
3333 Lee Parkway, Dallas, TX (683) 1983 1996 (1)
301 Congress Avenue, Austin, TX (1,989) 1986 1996 (1)
Central Park Plaza, Omaha, NE (1,124) 1982 1996 (1)
</TABLE>
68
<PAGE> 71
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Costs Acquisition Carried at Close of Period
----------------------------------------- --------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment Total
- ------------------------------------------- --------- -------------- ---------------- ------------ ----------- -----------
Canyon Ranch, Tuscon, AZ 14,500 43,038 69 14,500 43,107 57,607
The Woodlands Office Properties, Houston, TX 2,393 8,523 - 2,393 8,523 10,916
Three Westlake Park, Houston, TX 2,920 26,512 253 2,920 26,765 29,685
1615 Poydras, New Orleans, LA - 37,087 1,401 1,104 37,384 38,488
Greenway Plaza, Houston, TX 27,204 184,765 22,901 27,204 207,666 234,870
Chancellor Park, San Diego, CA 8,028 23,430 (6,035) 2,328 23,095 25,423
The Woodlands Retail Properties, Houston, TX 11,340 18,948 294 11,340 19,242 30,582
Sonoma Mission Inn & Spa, Sonoma, CA 10,000 44,922 10,367 10,000 55,289 65,289
Canyon Ranch, Lenox, MA 4,200 25,218 2,567 4,200 27,785 31,985
160 Spear Street, San Francisco, CA - 35,656 1,897 - 37,553 37,553
Greenway I & IA, Richardson, TX 1,701 15,312 98 1,701 15,410 17,111
Bank One Tower, Austin, TX 3,879 35,431 674 3,879 36,105 39,984
Frost Bank Plaza, Austin, TX - 36,019 1,244 - 37,263 37,263
Greenway II, Richardson, TX 1,823 16,421 33 1,823 16,454 18,277
55 Madison, Denver, CO 1,451 13,253 25 1,451 13,278 14,729
44 Cook, Denver, CO 1,451 13,253 283 1,451 13,536 14,987
AT&T Building, Denver, CO 1,366 12,471 786 1,366 13,257 14,623
Trammell Crow Center, Dallas, TX 25,029 137,320 2,180 25,029 139,500 164,529
Carter Crowley Office Portfolio, Dallas, TX 15,599 180,487 2,172 15,599 182,659 198,258
Carter Crowley Land/Multi-Family, Dallas, TX 46,900 3,600 57 46,900 3,657 50,557
Behavioral Healthcare Facilities 89,000 301,269 (4,969) 87,804 297,496 385,300
Houston Center, Houston, TX 52,504 224,041 3,453 52,504 227,494 279,998
Four Seasons Hotel, Houston, TX 5,569 45,138 - 5,569 45,138 50,707
Miami Center, Miami, FL 13,145 118,763 278 13,145 119,041 132,186
US Home Building, Houston, TX 4,165 40,857 78 4,165 40,935 45,100
Fountain Place, Dallas, TX 10,364 103,212 127 10,364 103,339 113,703
Energy Centre, New Orleans, LA 7,500 67,704 - 7,500 67,704 75,204
Ventana Country Inn, Big Sur, CA 2,782 26,744 - 2,782 26,744 29,526
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Depreciation Construction Date Computed
- ------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Canyon Ranch, Tuscon, AZ (1,602) 1980 1996 (1)
The Woodlands Office Properties, Houston, TX (588) 1995-1996 1996 (1)
Three Westlake Park, Houston, TX (884) 1983 1996 (1)
1615 Poydras, New Orleans, LA (1,273) 1984 1996 (1)
Greenway Plaza, Houston, TX (7,143) 1969-1982 1996 (1)
Chancellor Park, San Diego, CA (662) 1988 1996 (1)
The Woodlands Retail Properties, Houston, TX (1,205) 1984 1996 (1)
Sonoma Mission Inn & Spa, Sonoma, CA (1,846) 1927 1996 (1)
Canyon Ranch, Lenox, MA (1,396) 1989 1996 (1)
160 Spear Street, San Francisco, CA (915) 1984 1996 (1)
Greenway I & IA, Richardson, TX (416) 1983 1996 (1)
Bank One Tower, Austin, TX (946) 1974 1996 (1)
Frost Bank Plaza, Austin, TX (984) 1984 1996 (1)
Greenway II, Richardson, TX (410) 1985 1997 (1)
55 Madison, Denver, CO (307) 1982 1997 (1)
44 Cook, Denver, CO (315) 1984 1997 (1)
AT&T Building, Denver, CO (288) 1982 1997 (1)
Trammell Crow Center, Dallas, TX (2,862) 1984 1997 (1)
Carter Crowley Office Portfolio, Dallas, TX (2,703) 1980/1986 1997 (1)
Carter Crowley Land/Multi-Family, Dallas, TX (64) - 1997 (1)
Behavioral Healthcare Facilities (7,833) 1850-1992 1997 (1)
Houston Center, Houston, TX (1,559) 1974-1983 1997 (1)
Four Seasons Hotel, Houston, TX (342) 1983 1997 (1)
Miami Center, Miami, FL (495) 1983 1997 (1)
US Home Building, Houston, TX (216) 1982 1997 (1)
Fountain Place, Dallas, TX (430) 1986 1997 (1)
Energy Centre, New Orleans, LA - 1984 1997 (1)
Ventana Country Inn, Big Sur, CA - 1975-1988 1997 (1)
</TABLE>
69
<PAGE> 72
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Costs Acquisition Carried at Close of Period
----------------------------------------- --------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment Total
- ------------------------------------------- --------- -------------- ---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Avallon Phase II, Building V, Austin, TX 1,178 10,157 - 1,178 10,157 11,335
Crescent Real Estate Equities L.P. - - 3,665 - 3,542 3,542
Other 23,270 2,874 8,045 25,686 8,503 34,189
-------------------------------------------------------------------------------
Total $452,540 $2,786,626 $184,087 $448,328 $2,974,802 $3,423,130
========= ============== ================ ============ =========== ===========
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Depreciation Construction Date Computed
- ------------------------------------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Avallon Phase II, Building V, Austin, TX - 1997 - (1)
Crescent Real Estate Equities L.P. (1,122) - - (1)
Other (166) - - (1)
------------
Total $ (278,194)
============
</TABLE>
70
<PAGE> 73
(1) Depreciation of the real estate assets is calculated over the following
estimated useful lives using the straight-line method:
<TABLE>
<S> <C>
Building and improvements 5 to 49 years
Tenant improvements Terms of leases
Furniture, fixtures, and equipment 3 to 10 years
</TABLE>
A summary of combined real estate investments and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Real estate investments:
Balance, beginning of year .................... $ 1,732,626 $ 1,006,706 $ 557,675
Acquisitions ................................ 1,643,587 680,148 420,284
Improvements ................................ 58,634 13,787 7,455
Disposition ................................. (11,717) -- --
Consolidation of Joint Venture .............. -- 31,985 21,292
----------- ----------- -----------
Balance, end of year .......................... $ 3,423,130 $ 1,732,626 $ 1,006,706
=========== =========== ===========
Accumulated depreciation:
Balance, beginning of year .................... 208,808 $ 172,267 $ 146,930
Depreciation ................................ 69,457 36,541 25,337
Disposition ................................. (71) -- --
----------- ----------- -----------
Balance, end of year .......................... $ 278,194 $ 208,808 $ 172,267
=========== =========== ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Certain information required by Part III is omitted from the Report.
The Registrant will file a definitive proxy statement with the Securities
and Exchange Commission (the "Commission") pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information to be included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.
ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1998.
71
<PAGE> 74
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
Report of Independent Public Accountants
Crescent Real Estate Equities Company Consolidated Balance Sheets at
December 31, 1997 and 1996.
Crescent Real Estate Equities Company Consolidated Statements of
Operations for the years ended December 31, 1997, 1996 and 1995.
Crescent Real Estate Equities Company Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1997, 1996 and
1995.
Crescent Real Estate Equities Company Consolidated Statements of Cash
Flows for the years ended December 31, 1997, 1996 and 1995.
Crescent Real Estate Equities Company Notes to Financial Statements.
(b) Financial Statement Schedules
Schedule III - Crescent Real Estate Equities Company Consolidated Real
Estate Investments and Accumulated Depreciation at December 31, 1997.
All other schedules have been omitted either because they are not
applicable or because the required information has been disclosed in
the Financial Statements and related notes included in the consolidated
and combined statements.
(c) Reports on Form 8-K
Form 8-K dated September 30, 1997 and filed October 1, 1997, for the
purpose of (i) announcing, under Item 5 - Other Events, the Company's
underwritten public offering of 8,500,000 common shares and (ii)
filing, under Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits, the Pro Forma Consolidated Balance Sheet of
the Company as of June 30, 1997 (unaudited) and notes thereto, and the
Pro Forma Consolidated Statements of Operations of the Company for the
six months ended June 30, 1997 and the year ended December 31, 1996
(unaudited) and notes thereto.
Form 8-K/A filed October 1, 1997, to the Form 8-Ks dated June 20, 1997
and filed September 30, 1997, dated September 22, 1997 and filed
September 30, 1997, and dated and filed September 30, 1997, for the
purpose of including in such reports, under Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits, the Pro Forma
Consolidated Balance Sheet of the Company as of June 30, 1997
(unaudited) and notes thereto, and the Pro Forma Consolidated
Statements of Operation of the Company for the six months ended June
30, 1997 and the year ended December 31, 1996 (unaudited) and notes
thereto.
Form 8-K/A filed October 9, 1997, to the Form 8-K dated September 30,
1997 and filed October 1, 1997, for the purpose of (i) reflecting,
under Item 5 - Other Events, changes in the amount and price of the
Company's underwritten public offering of 10,000,000 common shares and
(ii) filing, under Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits, a revised Pro Forma Consolidated Balance
Sheet of the Company as of June 30, 1997 (unaudited) and notes thereto,
and a revised Pro Forma Consolidated Statements of Operations of the
Company for the six months ended June 30, 1997 and the year ended
December 31, 1996 (unaudited) and notes thereto.
72
<PAGE> 75
Form 8-K dated October 8, 1997 and filed October 14, 1997, for the
purpose of filing, under Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits, certain exhibits in connection with
the Company's underwritten public offering of 10,000,000 common shares.
Form 8-K dated September 28, 1997 and filed October 27, 1997, for the
purpose of announcing, under Item 5 - Other Events, the Company's
Refrigerated Warehouse Investment.
Form 8-K dated October 22, 1997 and files October 28, 1997, for the
purpose of (i) announcing, under Item 5 - Other Events, the Company's
acquisition of Bank One Center, and (ii) filing, under Item 7 -
Financial Statements, Pro Forma Financial Information and Exhibits, the
Report of Independent Public Accountants, with respect to Bank One
Center, the Statements of Excess of Revenues Over Specific Operating
Expenses for the year ended December 31, 1996 and the eight month
period ended August 31, 1997 and notes thereto, the Pro Forma
Consolidated Balance Sheet as of June 30, 1997 (unaudited) and notes
thereto, and the Pro Forma Consolidated Statements of Operation for the
six months ended June 30, 1997 and the year ended December 31, 1996
(unaudited) and notes thereto.
Form 8-K/A filed November 25, 1997, to the Form 8-K dated September 28,
1997 and filed October 27, 1997, updating, under Item 5 - Other Events,
certain information relating to the Company's Refrigerated Warehouse
Investment.
Form 8-K dated December 12, 1997 and filed December 18, 1997, for the
purpose of filing, under Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits, certain exhibits in connection with
the Company's public offering of 5,375,000 common shares to Merrill
Lynch International.
Form 8-K/A filed December 19, 1997, to the Form 8-K dated December 12,
1997 and filed December 18, 1997, for the purpose of filing, under Item
7 - Financial Statements, Pro Forma Financial Information and Exhibits,
certain revised exhibits in connection with the Company's public
offering of 5,375,000 common shares to Merrill Lynch International.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of January 16, 1998, as
amended, by and between Crescent Real Estate Equities Company
and Station Casinos, Inc. (filed herewith without certain
schedules; the Registrant agrees to furnish supplementally to
the Commission a copy of any omitted schedule upon request)
3.03 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.04 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 4.02 to the
Registrant's Current Report on Form 8-K dated October 8, 1997
and filed October 14, 1997 and incorporated herein by reference)
4.02 Registration Rights Agreement, dated February 16, 1996, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.02 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")
and incorporated herein by reference)
4.03 Registration Rights Agreement, dated January 20, 1997, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.03 to the 1996 10-K and incorporated herein by
reference)
4.04 Form of Registration Agreement relating to the acquisition of
the Greenway Plaza Portfolio (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated and filed
September 27, 1996 (the "1996 8-K") and incorporated herein by
reference)
4.05 Registration Rights Agreement, dated as of June 26, 1996,
relating to Canyon Ranch-Tucson (filed as Exhibit No. 4.02 to
the 1996 8-K and incorporated herein by reference)
</TABLE>
73
<PAGE> 76
<TABLE>
<S> <C>
4.06 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.07 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed herewith)
4.08 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit 4 to the Registrant's Registration Statement on Form
8-A/A filed on February 18, 1998 and incorporated by reference)
4.09 Indenture, dated as of September 22, 1997, between Crescent Real
Estate Equities Limited Partnership and State Street Bank and
Trust Company, of Missouri, N.A. (filed as Exhibit 4.01 to the
Registration Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership (the "Form
S-4") and incorporated herein by reference)
4.10 Form of 6-5/8% Note due 2002 (filed as Exhibit 4.04 to the Form
S-4 and incorporated herein by reference)
4.11 Form of 7-1/8% Note due 2007 (filed as Exhibit 4.05 to the Form
S-4 and incorporated herein by reference)
4.12 Registration Rights Agreement, dated as of September 22, 1997,
among Crescent Real Estate Equities Limited Partnership, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc. (filed as Exhibit 4.06 to the Form S-4
and incorporated herein by reference)
4.13 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit 4.01 to the Registrant's Current Report on
Form 8-K dated August 11, 1997 and filed August 13, 1997 and
incorporated herein by reference)
4.13 Purchase Agreement, effective as of December 12, 1997, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership, Merrill Lynch International and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as
Exhibit 1.01 to the Registrant's Current Report on Form 8-K/A
dated December 12, 1997 and filed December 19, 1997 and
incorporated herein by reference)
</TABLE>
74
<PAGE> 77
<TABLE>
<S> <C>
4.14 Swap Agreement, effective as of December 12, 1997, between
Crescent Real Estate Equities Company and Merrill Lynch
International (filed as Exhibit 1.02 to the Registrant's Current
Report on Form 8-K dated December 12, 1997 and filed December
18, 1997 and incorporated herein by reference)
4.15 Registration Rights Agreement, dated as of March 2, 1998, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership and certain limited partners of
Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 4.05 to the Registrant's Registration Statement on Form
S-3 (File No. 333-47563) and incorporated herein by reference).
10.01 Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of
November 1, 1997, as amended (filed as Exhibit No. 4.06 to the
Registrant's Registration Statement on Form S-3 (File No.
333-41049) and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.05 Employment Agreement of John C. Goff, as assigned to Crescent
Real Estate Equities Limited Partnership on May 5, 1994, and as
further amended (filed herewith)
10.06 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994,
and as further amended (filed herewith)
10.07 Form of Registration Rights, Lock-Up and Pledge Agreement (filed
as Exhibit No. 10.05 to the 1994 S-11 and incorporated herein by
reference)
10.08 Form of Officers' and Trust Managers' Indemnification Agreement
as entered into between the Registrant and each of its executive
officers and trust managers (filed as Exhibit No. 10.07 to the
Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan
(filed as Exhibit No. 10.07 to the 1994 S-11 and incorporated
herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan (filed herewith)
</TABLE>
75
<PAGE> 78
<TABLE>
<S> <C>
10.11 Agreement, dated as of August 15, 1996, relating to the
acquisition of the Greenway Plaza Portfolio (filed as Exhibit
No. 10.02 to the 1996 8-K and previously incorporated by
reference but no longer incorporated herein by reference)
10.12 Form of Amended and Restated Lease Agreement, dated January 1,
1996, among Crescent Real Estate Equities Limited Partnership,
Mogul Management, LLC and RoseStar Management, LLC, relating to
the Hyatt Regency Beaver Creek (filed as Exhibit No. 10.12 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 10-K") and previously
incorporated by reference but no longer incorporated herein by
reference)
10.13 Real Estate Purchase and Sale Agreement, dated as of January 29,
1997, between Crescent Real Estate Equities Limited Partnership,
as purchaser, and Magellan Health Services, Inc., as seller,
relating to the acquisition of 92 behavioral healthcare
facilities (the "Behavioral Healthcare Facilities"), as amended
effective February 28, 1997 and May 29, 1997 (filed as Exhibit
No. 10.13 to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference)
10.15 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the Form
S-4 and incorporated herein by reference)
10.16 Lease Agreement, dated December 19, 1995 between Crescent Real
Estate Equities Limited Partnership and RoseStar Management,
LLC, relating to the Hyatt Regency Albuquerque (filed as Exhibit
No. 10.16 to the 1995 10-K and previously incorporated by
reference but no longer incorporated herein by reference)
10.17 Amended and Restated Lease Agreement, dated June 30, 1995
between Crescent Real Estate Equities Limited Partnership and
RoseStar Management, LLC, relating to the Denver Marriott (filed
as Exhibit No. 10.17 to the 1995 10-K and previously
incorporated by reference but no longer incorporated herein by
reference)
10.18 Loan Agreement, dated August 24, 1995, including Form of Deed of
Trust, Assignment of Rents, Security Agreement and Fixture
Filing, and Amendment to Loan Agreement, dated October 19, 1995,
between Crescent Real Estate Funding I, L.P. and Nomura Asset
Capital Corporation (filed as Exhibit 10.15 to the 1995 10-K and
previously incorporated by reference but no longer incorporated
herein by reference)
</TABLE>
76
<PAGE> 79
<TABLE>
<S> <C>
10.19 Loan Agreement, dated August 24, 1995, including Form of Deed of
Trust, Assignment of Rents, Security Agreement and Fixture
Filing, between Crescent Real Estate Funding II, L.P. and Nomura
Asset Capital Corporation (filed as Exhibit 10.19 to the 1995
10-K and previously incorporated by reference but no longer
incorporated herein by reference)
10.20 Mortgage Loan Application and Agreement, dated October 3, 1995,
as amended by letter agreements dated October 10, 1995 and
October 30, 1995, between Crescent Real Estate Equities Limited
Partnership and CIGNA Investments, Inc., and Secured Promissory
Note dated December 11, 1995 (filed as Exhibit 10.20 to the 1995
10-K and previously incorporated herein by reference but no
longer incorporated herein by reference)
10.21 Fourth Amended and Restated Revolving Credit Facility, dated
December 19, 1997, among Crescent Real Estate Equities Limited
Partnership, BankBoston, N.A. and the other banks named therein
(filed as Exhibit 10.25 to the Form S-4 and incorporated herein
by reference)
10.22 1995 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's
Registration Statement on Form S-8 (File No. 333-3452) and
incorporated herein by reference)
10.23 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 10.01 to the 1996 8-K and
incorporated herein by reference)
10.24 Lease Agreement, dated July 26, 1996, between Canyon Ranch, Inc,
and Canyon Ranch Leasing, L.L.C., assigned by Canyon Ranch, Inc.
to Crescent Real Estate Equities Limited Partnership pursuant to
the Assignment and Assumption Agreement of Master Lease, dated
July 26, 1996 (filed as Exhibit 10.24 to the 1997 10-Q and
previously incorporated by reference but no longer incorporated
herein by reference)
10.25 Lease Agreement, dated November 18, 1996, between Crescent Real
Estate Equities Limited Partnership and Wine Country Hotel,
L.L.C. (filed as Exhibit 10.25 to the 1996 10-K and previously
incorporated by reference but no longer incorporated herein by
reference)
10.26 Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
L.L.C., as assigned by Canyon Ranch-Bellefontaine Associates,
L.P. to Crescent Real Estate Funding VI, L.P. pursuant to the
Assignment and Assumption Agreement of Master Lease, dated
December 11, 1996 (filed as Exhibit 10.26 to the 1997 10-Q and
previously incorporated by reference but no longer incorporated
herein by reference)
</TABLE>
77
<PAGE> 80
<TABLE>
<S> <C>
10.27 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral
Health Systems, LLC and its subsidiaries, relating to the
Behavioral Healthcare Facilities (filed herewith)
10.28 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating,
Inc. (filed as Exhibit 10.2 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
12.01 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges and Preferred Shares Dividends (filed herewith)
21.01 List of Subsidiaries (filed herewith)
23.01 Consent of Arthur Andersen LLP (filed herewith)
27.01 Financial Data Schedule (filed herewith)
27.02 Restated Financial Data Schedule for the three months ended
March 31, 1996 reflecting the effect of FASB #128, Earnings Per
Share (filed herewith)
27.03 Restated Financial Data Schedule for the six months ended June
30, 1996 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.04 Restated Financial Data Schedule for the nine months ended
September 30, 1996 reflecting the effect of FASB #128, Earnings
Per Share (filed herewith)
27.05 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.06 Restated Financial Data Schedule for the three months ended March
31, 1997 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.07 Restated Financial Data Schedule for the six months ended June
30, 1997 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.08 Restated Financial Data Schedule for the nine months ended
September 30, 1997 reflecting the effect of FASB #128, Earnings
Per Share (filed herewith)
</TABLE>
78
<PAGE> 81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1998.
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ Gerald W. Haddock
-------------------------------------
Gerald W. Haddock
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard E. Rainwater Trust Manager and Chairman of the Board 3/27/98
---------------------------------
Richard E. Rainwater
/s/ John C. Goff Trust Manager and Vice Chairman of the Board 3/27/98
---------------------------------
John C. Goff
/s/ Gerald W. Haddock Trust Manager, President and Chief 3/27/98
--------------------------------- Executive Officer (Principal Executive Officer)
Gerald W. Haddock
/s/ Dallas E. Lucas Senior Vice President and Chief 3/27/98
--------------------------------- Financial Officer
Dallas E. Lucas (Principal Financial and Accounting Officer)
/s/ Anthony M. Frank Trust Manager 3/27/98
---------------------------------
Anthony M. Frank
/s/ Morton H. Meyerson Trust Manager 3/27/98
---------------------------------
Morton H. Meyerson
/s/ William F. Quinn Trust Manager 3/27/98
---------------------------------
William F. Quinn
/s/ Paul E. Rowsey, III Trust Manager 3/27/98
---------------------------------
Paul E. Rowsey, III
/s/ Melvin Zuckerman Trust Manager 3/27/98
---------------------------------
Melvin Zuckerman
</TABLE>
79
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of January 16, 1998, as
amended, by and between Crescent Real Estate Equities Company
and Station Casinos, Inc. (filed herewith without certain
schedules; the Registrant agrees to furnish supplementally to
the Commission a copy of any omitted schedule upon request)
3.03 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.04 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 4.02 to the
Registrant's Current Report on Form 8-K dated October 8, 1997
and filed October 14, 1997 and incorporated herein by reference)
4.02 Registration Rights Agreement, dated February 16, 1996, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.02 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "1996 10-K")
and incorporated herein by reference)
4.03 Registration Rights Agreement, dated January 20, 1997, by and
among the Registrant, Crescent Real Estate Equities Limited
Partnership and certain of the limited partners of Crescent Real
Estate Equities Limited Partnership named therein (filed as
Exhibit No. 4.03 to the 1996 10-K and incorporated herein by
reference)
4.04 Form of Registration Agreement relating to the acquisition of
the Greenway Plaza Portfolio (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated and filed
September 27, 1996 (the "1996 8-K") and incorporated herein by
reference)
4.05 Registration Rights Agreement, dated as of June 26, 1996,
relating to Canyon Ranch-Tucson (filed as Exhibit No. 4.02 to
the 1996 8-K and incorporated herein by reference)
</TABLE>
<PAGE> 83
<TABLE>
<S> <C>
4.06 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.07 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed herewith)
4.08 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company (filed
as Exhibit 4 to the Registrant's Registration Statement on Form
8-A/A filed on February 18, 1998 and incorporated by reference)
4.09 Indenture, dated as of September 22, 1997, between Crescent Real
Estate Equities Limited Partnership and State Street Bank and
Trust Company, of Missouri, N.A. (filed as Exhibit 4.01 to the
Registration Statement on Form S-4 (File No. 333-42293) of
Crescent Real Estate Equities Limited Partnership (the "Form
S-4") and incorporated herein by reference)
4.10 Form of 6-5/8% Note due 2002 (filed as Exhibit 4.04 to the Form
S-4 and incorporated herein by reference)
4.11 Form of 7-1/8% Note due 2007 (filed as Exhibit 4.05 to the Form
S-4 and incorporated herein by reference)
4.12 Registration Rights Agreement, dated as of September 22, 1997,
among Crescent Real Estate Equities Limited Partnership, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc. (filed as Exhibit 4.06 to the Form S-4
and incorporated herein by reference)
4.13 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit 4.01 to the Registrant's Current Report on
Form 8-K dated August 11, 1997 and filed August 13, 1997 and
incorporated herein by reference)
4.13 Purchase Agreement, effective as of December 12, 1997, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership, Merrill Lynch International and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (filed as
Exhibit 1.01 to the Registrant's Current Report on Form 8-K/A
dated December 12, 1997 and filed December 19, 1997 and
incorporated herein by reference)
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
4.14 Swap Agreement, effective as of December 12, 1997, between
Crescent Real Estate Equities Company and Merrill Lynch
International (filed as Exhibit 1.02 to the Registrant's Current
Report on Form 8-K dated December 12, 1997 and filed December
18, 1997 and incorporated herein by reference)
4.15 Registration Rights Agreement, dated as of March 2, 1998, among
Crescent Real Estate Equities Company, Crescent Real Estate
Equities Limited Partnership and certain limited partners of
Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 4.05 to the Registrant's Registration Statement on Form
S-3 (File No. 333-47563) and incorporated herein by reference).
10.01 Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of
November 1, 1997, as amended (filed as Exhibit No. 4.06 to the
Registrant's Registration Statement on Form S-3 (File No.
333-41049) and incorporated herein by reference)
10.02 Noncompetition Agreement of Richard E. Rainwater as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994
(filed herewith)
10.05 Employment Agreement of John C. Goff, as assigned to Crescent
Real Estate Equities Limited Partnership on May 5, 1994, and as
further amended (filed herewith)
10.06 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5, 1994,
and as further amended (filed herewith)
10.07 Form of Registration Rights, Lock-Up and Pledge Agreement (filed
as Exhibit No. 10.05 to the 1994 S-11 and incorporated herein by
reference)
10.08 Form of Officers' and Trust Managers' Indemnification Agreement
as entered into between the Registrant and each of its executive
officers and trust managers (filed as Exhibit No. 10.07 to the
Form S-4 and incorporated herein by reference)
10.09 Crescent Real Estate Equities Company 1994 Stock Incentive Plan
(filed as Exhibit No. 10.07 to the 1994 S-11 and incorporated
herein by reference)
10.10 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan (filed herewith)
</TABLE>
<PAGE> 85
<TABLE>
<S> <C>
10.11 Agreement, dated as of August 15, 1996, relating to the
acquisition of the Greenway Plaza Portfolio (filed as Exhibit
No. 10.02 to the 1996 8-K and previously incorporated by
reference but no longer incorporated herein by reference)
10.12 Form of Amended and Restated Lease Agreement, dated January 1,
1996, among Crescent Real Estate Equities Limited Partnership,
Mogul Management, LLC and RoseStar Management, LLC, relating to
the Hyatt Regency Beaver Creek (filed as Exhibit No. 10.12 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 10-K") and previously
incorporated by reference but no longer incorporated herein by
reference)
10.13 Real Estate Purchase and Sale Agreement, dated as of January 29,
1997, between Crescent Real Estate Equities Limited Partnership,
as purchaser, and Magellan Health Services, Inc., as seller,
relating to the acquisition of 92 behavioral healthcare
facilities (the "Behavioral Healthcare Facilities"), as amended
effective February 28, 1997 and May 29, 1997 (filed as Exhibit
No. 10.13 to the Company's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1997 (the "1997 10-Q") and
incorporated herein by reference)
10.15 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the Form
S-4 and incorporated herein by reference)
10.16 Lease Agreement, dated December 19, 1995 between Crescent Real
Estate Equities Limited Partnership and RoseStar Management,
LLC, relating to the Hyatt Regency Albuquerque (filed as Exhibit
No. 10.16 to the 1995 10-K and previously incorporated by
reference but no longer incorporated herein by reference)
10.17 Amended and Restated Lease Agreement, dated June 30, 1995
between Crescent Real Estate Equities Limited Partnership and
RoseStar Management, LLC, relating to the Denver Marriott (filed
as Exhibit No. 10.17 to the 1995 10-K and previously
incorporated by reference but no longer incorporated herein by
reference)
10.18 Loan Agreement, dated August 24, 1995, including Form of Deed of
Trust, Assignment of Rents, Security Agreement and Fixture
Filing, and Amendment to Loan Agreement, dated October 19, 1995,
between Crescent Real Estate Funding I, L.P. and Nomura Asset
Capital Corporation (filed as Exhibit 10.15 to the 1995 10-K and
previously incorporated by reference but no longer incorporated
herein by reference)
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
10.19 Loan Agreement, dated August 24, 1995, including Form of Deed of
Trust, Assignment of Rents, Security Agreement and Fixture
Filing, between Crescent Real Estate Funding II, L.P. and Nomura
Asset Capital Corporation (filed as Exhibit 10.19 to the 1995
10-K and previously incorporated by reference but no longer
incorporated herein by reference)
10.20 Mortgage Loan Application and Agreement, dated October 3, 1995,
as amended by letter agreements dated October 10, 1995 and
October 30, 1995, between Crescent Real Estate Equities Limited
Partnership and CIGNA Investments, Inc., and Secured Promissory
Note dated December 11, 1995 (filed as Exhibit 10.20 to the 1995
10-K and previously incorporated herein by reference but no
longer incorporated herein by reference)
10.21 Fourth Amended and Restated Revolving Credit Facility, dated
December 19, 1997, among Crescent Real Estate Equities Limited
Partnership, BankBoston, N.A. and the other banks named therein
(filed as Exhibit 10.25 to the Form S-4 and incorporated herein
by reference)
10.22 1995 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's
Registration Statement on Form S-8 (File No. 333-3452) and
incorporated herein by reference)
10.23 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit No. 10.01 to the 1996 8-K and
incorporated herein by reference)
10.24 Lease Agreement, dated July 26, 1996, between Canyon Ranch, Inc,
and Canyon Ranch Leasing, L.L.C., assigned by Canyon Ranch, Inc.
to Crescent Real Estate Equities Limited Partnership pursuant to
the Assignment and Assumption Agreement of Master Lease, dated
July 26, 1996 (filed as Exhibit 10.24 to the 1997 10-Q and
previously incorporated by reference but no longer incorporated
herein by reference)
10.25 Lease Agreement, dated November 18, 1996, between Crescent Real
Estate Equities Limited Partnership and Wine Country Hotel,
L.L.C. (filed as Exhibit 10.25 to the 1996 10-K and previously
incorporated by reference but no longer incorporated herein by
reference)
10.26 Lease Agreement, dated December 11, 1996, between Canyon
Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
L.L.C., as assigned by Canyon Ranch-Bellefontaine Associates,
L.P. to Crescent Real Estate Funding VI, L.P. pursuant to the
Assignment and Assumption Agreement of Master Lease, dated
December 11, 1996 (filed as Exhibit 10.26 to the 1997 10-Q and
previously incorporated by reference but no longer incorporated
herein by reference)
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
10.27 Master Lease Agreement, dated June 16, 1997, as amended, between
Crescent Real Estate Funding VII, L.P. and Charter Behavioral
Health Systems, LLC and its subsidiaries, relating to the
Behavioral Healthcare Facilities (filed herewith)
10.28 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating,
Inc. (filed as Exhibit 10.2 to the Registration Statement on
Form S-1 (File No. 333-25223) of Crescent Operating, Inc. and
incorporated herein by reference)
12.01 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges and Preferred Shares Dividends (filed herewith)
21.01 List of Subsidiaries (filed herewith)
23.01 Consent of Arthur Andersen LLP (filed herewith)
27.01 Financial Data Schedule (filed herewith)
27.02 Restated Financial Data Schedule for the three months ended
March 31, 1996 reflecting the effect of FASB #128, Earnings Per
Share (filed herewith)
27.03 Restated Financial Data Schedule for the six months ended June
30, 1996 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.04 Restated Financial Data Schedule for the nine months ended
September 30, 1996 reflecting the effect of FASB #128, Earnings
Per Share (filed herewith)
27.05 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.06 Restated Financial Data Schedule for the three months ended March
31, 1997 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.07 Restated Financial Data Schedule for the six months ended June
30, 1997 reflecting the effect of FASB #128, Earnings Per Share
(filed herewith)
27.08 Restated Financial Data Schedule for the nine months ended
September 30, 1997 reflecting the effect of FASB #128, Earnings
Per Share (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 2.01
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of January 16, 1998 (this
"Agreement"), is entered into by and among Crescent Real Estate Equities
Company, a Texas real estate investment trust ("Crescent") and Station Casinos,
Inc., a Nevada corporation (the "Company") (Crescent and the Company being
hereinafter collectively referred to as the "Constituent Entities").
WITNESSETH:
WHEREAS, Crescent and the Company contemplate the merger of the Company
with and into Crescent (the "Merger"), upon the terms and subject to the
conditions set forth herein, whereby each issued and outstanding share of Common
Stock, $.01 par value, of the Company ("Company Common Stock"), not owned by
Crescent, the Company or their respective wholly owned subsidiaries will be
converted into common shares of beneficial interest, par value $.01 per share,
of Crescent ("Common Shares");
WHEREAS, the Board of Trust Managers of Crescent and the Board of
Directors of the Company each has determined that the Merger is in furtherance
of and consistent with their respective long-term business strategies and is
fair to and in the best interest of their respective shareholders or
stockholders, as the case may be; and
WHEREAS, the parties to this Agreement intend that the Merger shall be
treated as a nontaxable merger of the Company with and into Crescent;
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows.
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Nevada Revised Statutes chapters 78 and 92A,
collectively known as the Nevada General Corporation Law, as amended (the
"NGCL") and Sections 23.10 through 23.60 of the Texas Real Estate Investment
Trust Act, as amended (the "REIT Act"), the Company shall be merged with and
into Crescent as of the Effective Time (as defined in Section 1.2). Following
the Merger, the separate corporate existence of the Company shall cease and
Crescent shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations of
the Company in accordance with the NGCL and the REIT Act.
To facilitate the combination of the businesses of the Company and
Crescent, the parties to this Agreement will (i) reincorporate the Company in
any other state that would permit the merger of the Company with and into
Crescent and, at the request of either party
<PAGE> 2
to this Agreement, each of the reincorporation of the Company and the merger of
the Company with and into Crescent will be authorized by separate vote of the
Company's stockholders with respect to each of such reincorporation and the
merger, or (ii) merge the Company with and into a wholly owned subsidiary of
Crescent.
Section 1.2 Effective Time. As soon as practicable after all of the
conditions set forth in Article VI have been satisfied or waived, but not more
than 30 days prior to the contemplated date of Closing (as hereinafter defined)
pursuant to Section 1.15, Articles of Merger (the "Articles of Merger") shall be
duly prepared and executed by Crescent and the Company and delivered to the
Secretary of State of the State of Nevada and the County Clerk of Tarrant
County, Texas, for filing. The Merger shall become effective when the Articles
of Merger, executed in accordance with the relevant provisions of the NGCL and
the REIT Act, are filed with the Secretary of State of the State of Nevada and
the County Clerk of Tarrant County, Texas; provided, however, that, upon mutual
consent of the Constituent Entities, the Articles of Merger may provide for a
later date of effectiveness of the Merger not more than 30 days after the date
the Articles of Merger are filed. When used in this Agreement, the term
"Effective Time" shall mean the later of the date and time at which the Articles
of Merger are accepted for record in Nevada and in Texas or such later time
established by the Articles of Merger.
Section 1.3 Effects of the Merger. The Merger shall have the effects
set forth in Section 92A.250 of the NGCL and in Section 23.60 of the REIT Act.
Section 1.4 Declaration of Trust and Bylaws; Trust Managers.
(a) At the Effective Time, the Declaration of Trust of Crescent, as in
effect immediately prior to the Effective Time, shall be the Declaration of
Trust of the Surviving Entity until thereafter changed or amended as provided
therein or by applicable law. At the Effective Time, the Bylaws of Crescent, as
in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Entity until thereafter changed or amended as provided therein or in
the Declaration of Trust.
(b) The trust managers of Crescent at the Effective Time shall be the
trust managers of the Surviving Entity until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
(c) Crescent shall use all reasonable efforts to cause the Board of
Trust Managers of Crescent to be increased in size, effective at the Effective
Time, by two members, with such new members being Mr. Frank J. Fertitta III and
Mr. Lorenzo J. Fertitta.
Section 1.5 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of Crescent, the Company
or the holders of any securities of the Constituent Entities:
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(a) (i) Subject to the provisions of Sections 1.8 and 1.10 hereof,
each share of Company Common Stock (including restricted shares of
Company Common Stock issued under the Company Plans (as defined below))
issued and outstanding immediately prior to the Effective Time (other
than shares to be canceled in accordance with Section 1.5(d)) together
with the associated Right shall as of the Effective Time be converted
into the right to receive the number of validly issued, fully paid and
nonassessable Common Shares equal to the Exchange Ratio (as defined
below). All such shares of Company Common Stock (and the associated
Rights), when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist and each
holder of a certificate representing any such shares (and the
associated Rights) shall cease to have any rights with respect thereto,
except the right to receive (A) any dividends and other distributions
in accordance with Section 1.7, (B) certificates representing the
Common Shares into which such shares (and the associated Rights) are
converted and (C) any cash, without interest, in lieu of fractional
Common Shares to be issued or paid in consideration therefor upon the
surrender of such Certificate in accordance with Sections 1.6 and 1.8.
(ii) The Exchange Ratio shall be .466.
(b) Subject to the provisions of Sections 1.8 and 1.10 hereof,
each share of the Company's $3.50 Convertible Preferred Stock (the
"Convertible Preferred Stock") issued and outstanding immediately prior
to the Effective Time shall as of the Effective Time be converted into
the right to receive one validly issued, fully paid and nonassessable
$3.50 Convertible Preferred Share of Crescent (the "Crescent
Convertible Preferred Shares") having the terms required in Section
7(h) of the Certificate of Resolutions Establishing Designation,
Preferences and Rights of $3.50 Convertible Preferred Stock of the
Company dated March 25, 1996 (the "Certificate of Designation"). All
such shares of Convertible Preferred Stock, when so converted into
Crescent Convertible Preferred Shares, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist and each holder of a certificate representing any such shares of
Convertible Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive (A) any dividends and other
distributions in accordance with Section 1.7 and (B) certificates
representing the Crescent Convertible Preferred Shares into which such
shares of Convertible Preferred Stock are converted to be issued in
consideration therefor upon the surrender of such Certificate in
accordance with Section 1.6.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof,
each share of the Company's Redeemable Preferred Stock (as hereinafter
defined) issued and outstanding immediately prior to the Effective Time
shall as of the Effective Time be canceled and no cash, capital stock
of Crescent or other consideration shall be delivered in exchange
therefor.
(d) All shares of Company Common Stock that are held in the
treasury of the Company and shares of Company Common Stock owned by
Crescent (together, in
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each case, with the associated Right (as defined in Section 3.2))
shall be canceled and no cash, capital stock of Crescent or other
consideration shall be delivered in exchange therefor. All shares of
Company Common Stock that are held by any wholly owned Subsidiary (as
defined in Section 2.1) of the Company or Crescent (together, in each
case, with the associated Right (as defined in Section 3.2)) shall be
converted into validly issued, fully paid and nonassessable Common
Shares, par value $.01 per share, of the Surviving Entity.
Section 1.6 Crescent to Make Certificates Available.
(a) Exchange of Certificates. Crescent shall authorize BankBoston, N.A.
(or such other person or persons as shall be acceptable to Crescent and the
Company) to act as the Exchange Agent hereunder (the "Exchange Agent"). As soon
as practicable after the Effective Time, Crescent shall deposit with the
Exchange Agent, in trust for the holders of shares of Company Common Stock and
Convertible Preferred Stock converted in the Merger, certificates representing
the Common Shares or Crescent Convertible Preferred Shares, as the case may be,
issuable in exchange for outstanding shares of Company Common Stock or
Convertible Preferred Stock, as the case may be, cash required to make payments
in lieu of any fractional shares pursuant to Section 1.8 and cash or other
property to pay or make any dividends or distributions pursuant to Section 1.7
(such cash and Common Shares or Crescent Convertible Preferred Shares, as the
case may be, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Crescent, on a
daily basis. Any interest or other income resulting from such investments shall
be paid to Crescent. The Exchange Agent shall deliver the Common Shares and the
Crescent Convertible Preferred Shares contemplated to be issued and cash or
other property distributable pursuant to Section 1.7 out of the Exchange Fund.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each record holder of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock or Convertible Preferred Stock, as
the case may be, converted in the Merger (the "Certificates"), a letter of
transmittal in form reasonably acceptable to the Company (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon actual delivery of the Certificates to the Exchange Agent,
and shall contain instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing Common Shares or Crescent
Convertible Preferred Shares, as the case may be, and cash or other property
distributable pursuant to Sections 1.7 and 1.8). Upon surrender for cancellation
to the Exchange Agent of a Certificate, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of whole
Common Shares or Crescent Convertible Preferred Shares and cash into which the
Company Common Stock (and the associated Rights) or the Convertible Preferred
Stock, as the case may be, represented by the surrendered Certificate shall have
been converted at the Effective Time pursuant to this Article I, cash in lieu of
any fractional Common Shares in accordance with Section 1.8 and any dividends or
other
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distributions in accordance with Section 1.7, and any Certificate so
surrendered shall forthwith be canceled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No dividends or
other distributions that are declared on or after the Effective Time on the
Common Shares or Crescent Convertible Preferred Shares, as the case may be, or
are payable to the holders of record thereof on or after the Effective Time,
will be paid to any person entitled by reason of the Merger to receive a
certificate representing Common Shares or Crescent Convertible Preferred Shares,
as the case may be, until such person surrenders the related Certificate or
Certificates, as provided in Section 1.6, and no cash payment pursuant to
Section 1.8 will be paid to any such person until such person shall so surrender
the related Certificate or Certificates. Subject to the effect of applicable
law, there shall be paid to each record holder of a new certificate representing
such Common Shares or Crescent Convertible Preferred Shares, as the case may be:
(i) at the time of such surrender or as promptly as practicable thereafter, the
amount, if any, of any dividends or other distributions theretofore paid with
respect to the Common Shares or Crescent Convertible Preferred Shares, as the
case may be, represented by such new certificate and having a record date on or
after the Effective Time and a payment date prior to such surrender; (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount,
if any, of any dividends or other distributions payable with respect to such
Common Shares or Crescent Convertible Preferred Shares, as the case may be, and
having a record date on or after the Effective Time but prior to such surrender
and a payment date on or subsequent to such surrender; and (iii) at the time of
such surrender or as promptly as practicable thereafter, the amount of any cash
payable pursuant to Section 1.8 to which such holder is entitled pursuant to
Section 1.8. In no event shall the person entitled to receive such dividends or
other distributions or cash be entitled to receive interest on such dividends or
other distributions or cash. If any certificate representing Common Shares or
Crescent Convertible Preferred Shares, as the case may be, or cash or other
property is to be issued or delivered in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such Common Shares
or Crescent Convertible Preferred Shares, as the case may be, in a name other
than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. Crescent or the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of shares of Company Common Stock or Convertible Preferred Stock,
as the case may be, such amounts as Crescent or the Exchange Agent is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or under any provision
of state, local or foreign tax law. To the extent that amounts are so withheld
by Crescent or the Exchange Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the shares
of Company Common Stock or Convertible Preferred Stock, as the case may be, in
respect of which such deduction and withholding was made by Crescent or the
Exchange Agent.
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Section 1.8 No Fractional Securities. No certificates or scrip
representing fractional Common Shares shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Crescent dividend or
other distribution or stock split shall relate to any fractional share, and no
fractional share shall entitle the owner thereof to vote or to any other rights
of a security holder of Crescent. In lieu of any such fractional share, each
holder of Company Common Stock who would otherwise have been entitled to a
fraction of a Common Share upon surrender of Certificates for exchange pursuant
to this Article I will be paid an amount of cash (without interest), rounded to
the nearest cent, determined by multiplying (i) the Market Price of a Common
Share on the second NYSE trading day prior to the Company Stockholder Meeting
(as defined in Section 5.1) by (ii) the fractional interest to which such holder
would otherwise be entitled. The "Market Price" of a Common Share or a share of
Company Common Stock, as applicable, on any date means the average of the daily
closing prices per Common Share (or share of Company Common Stock, as
applicable) as reported on the NYSE Composite Transactions reporting system (as
published in The Wall Street Journal or, if not published therein, in another
authoritative source mutually selected by the Company and Crescent) for the 20
consecutive NYSE trading days (the "Averaging Period") immediately preceding
such date. As promptly as practicable after the determination of the amount of
cash to be paid to holders of fractional share interests, the Exchange Agent
shall so notify Crescent, and Crescent shall deposit such amount with the
Exchange Agent and shall cause the Exchange Agent to forward payments to such
holders of fractional share interests subject to and in accordance with the
terms of Section 1.6, Section 1.7 and this Section 1.8. For purposes of paying
such cash in lieu of fractional shares, all Certificates surrendered for
exchange by a Company stockholder shall be aggregated, and no such Company
stockholder will receive cash in lieu of fractional shares in an amount equal to
or greater than the value of one full Common Share with respect to such
Certificates surrendered.
Section 1.9 Return of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of the Company for one
year after the Effective Time shall be delivered to Crescent and any such former
stockholders who have not theretofore complied with this Article I shall
thereafter look only to Crescent for payment of their claim for Common Shares,
any cash payable pursuant to Section 1.8 and any dividends or distributions with
respect to Common Shares. Crescent shall not be liable to any former holder of
Company Common Stock for any such Common Shares, cash and dividends and
distributions held in the Exchange Fund which is delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 1.10 Adjustment of Exchange Ratio. In the event that, prior to
the Effective Time, Crescent effects any reclassification, stock split or stock
dividend or other distribution of rights, assets or securities with respect to
Common Shares, any change or conversion of Common Shares into other securities
or any other dividend or distribution with respect to the Common Shares, other
than:
(a) any extraordinary dividend paid or to be paid by Crescent which
Crescent reasonably determines is or are in the aggregate sufficient, when
considered together with all
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<PAGE> 7
dividends anticipated to be paid within the tax year including the Effective
Time, to equal all anticipated current and accumulated earnings and profits for
such tax year of the Company and Crescent, in which case, Crescent shall give
prior written notice to the Company which shall contain the basis for, and
computations and calculations of, the extraordinary dividend; or
(b) distributions in the aggregate not to exceed the greater of (i) the
amount of any quarterly dividend that may be paid by Crescent in the ordinary
course, including customary increases thereof, and (ii) distributions of "real
estate investment taxable income" (as such term is defined for purposes of the
Code) without regard to any net capital gains or the deduction for dividends
paid,
then appropriate and proportionate adjustments, if any, shall be made to the
Exchange Ratio, and all references to the Exchange Ratio in this Agreement shall
be deemed to be to the Exchange Ratio as so adjusted.
Section 1.11 No Further Ownership Rights in Company Capital Stock. All
Common Shares or Crescent Convertible Preferred Shares, as the case may be, and
cash issued or paid upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or other property paid
pursuant to Section 1.8) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Company Common Stock (and
associated Rights) or Convertible Preferred Stock, as the case may be,
represented by such Certificates subject, however, to the Surviving Entity's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by the
Company on such shares of Company Common Stock or Convertible Preferred Stock,
as the case may be, prior to the date of this Agreement and which remain unpaid
at the Effective Time.
Section 1.12 Closing of Company Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock shall thereafter be made on the records of the
Company. If, after the Effective Time, Certificates are presented to the
Exchange Agent or Crescent, such Certificates shall be canceled and exchanged as
provided in this Article I.
Section 1.13 Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Crescent or the Exchange Agent, the posting by such person of a bond
in such reasonable amount as Crescent or the Exchange Agent may direct (but
consistent with the practices Crescent applies to its own shareholders) as
indemnity against any claim that may be made against them with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the Common Shares, any cash payable pursuant to Section
1.8 to which the holders thereof are entitled and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section 1.7.
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Section 1.14 Further Assurances. Each party hereto will, prior to the
Effective Time, execute such further deeds, bills of sale, assignments or
assurances or any other acts or things as are reasonably requested by the other
to consummate the Merger, to vest the Surviving Entity with full title to all
assets, properties, privileges, rights, approvals and franchises of either of
the Constituent Entities or to effect the other purposes of this Agreement. If
at any time after the Effective Time the Surviving Entity shall consider or be
advised that any deeds, bills of sale, assignments or assurances or any other
acts or things are necessary, desirable or proper (a) to vest, perfect or
confirm, of record or otherwise, in the Surviving Entity its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of either of the Constituent Entities, or (b) otherwise to
carry out the purposes of this Agreement, the Surviving Entity and its proper
officers or trustees or their designees shall be authorized to execute and
deliver, in the name and on behalf of either of the Constituent Entities, all
such deeds, bills of sale, assignments and assurances and to do, in the name and
on behalf of either Constituent Entity, all such other acts and things as may be
necessary, desirable or proper to vest, perfect or confirm the Surviving
Entity's right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of such Constituent Entity and
otherwise to carry out the purposes of this Agreement.
Section 1.15 Closing. The closing of the Merger (the "Closing") and all
actions contemplated by this Agreement to occur at the Closing shall take place
at the offices of Shaw Pittman Potts & Trowbridge, 2300 N Street N.W.,
Washington, D.C. 20037, at 10:00 a.m., local time, on a date to be specified by
the parties, which (subject to fulfillment or waiver of the conditions set forth
in Article VI) shall be within the first 15 days of the calendar quarter
following the calendar quarter in which the last of the conditions set forth in
Article VI shall have been fulfilled or waived, or at such other time and place
as Crescent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CRESCENT
Crescent represents and warrants to the Company as follows:
Section 2.1 Organization, Standing and Power. Crescent has been formed
as a real estate investment trust under the laws of the State of Texas in
accordance with the REIT Act. The County Clerk of Tarrant County, Texas, has
certified in writing that the Restated Declaration of Trust of the Company (the
"Declaration of Trust") is recorded in Volume 12645, beginning at Page 1811, in
the records of the County Clerk. The Declaration of Trust is in effect, and no
dissolution, revocation or forfeiture proceedings regarding the Company have
been commenced. The Company has power and authority under its Declaration of
Trust, Amended and Restated Bylaws, as amended (the "Crescent Bylaws") and the
REIT Act to own, lease and operate its properties and to conduct the business in
which it is engaged. Each Subsidiary of Crescent is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate (in the case of a Subsidiary that is a
corporation) or other power and authority to carry on its business as now
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being conducted, except where the failure to be so organized, existing or in
good standing or to have such power or authority, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect (as hereinafter defined) on Crescent. Crescent and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on Crescent.
For all purposes of this Agreement, any reference to any state of
facts, event, change or effect having a "Material Adverse Effect" on or with
respect to Crescent or the Company, as the case may be, means such state of
facts, event, change or effect which has had, or would reasonably be expected to
have, a material adverse effect on the business, properties, results of
operations or financial condition of Crescent and its Subsidiaries, taken as a
whole, or the Company and its Subsidiaries, taken as a whole, as the case may
be; provided, however that a "Material Adverse Effect" shall not include any
state of facts, event, change or effect (i) disclosed on or prior to the date of
this Agreement in (a) any of the Company SEC Documents (as hereinafter defined)
or the Crescent SEC Documents (as hereinafter defined), other than as disclosed
in any forward looking statement disclaimer or general or economic risk factors
contained in such Crescent SEC Documents or Company SEC Documents, (b) in this
Agreement, or (c) in any schedule, exhibit or related document furnished to the
other party in connection herewith, (ii) generally affecting companies in the
industries in which the Company or Crescent operates or (iii) relating to
Missouri gaming laws, regulations and licenses to the extent that they affect
the Company's property or operations in Kansas City, Missouri. For all purposes
of this Agreement, "Subsidiary" means any corporation, partnership, limited
liability company, joint venture or other legal entity of which Crescent or the
Company, as the case may be (either alone or through or together with any other
Subsidiary), (i) owns, directly or indirectly, more than 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation, partnership, limited liability company, joint venture or other
legal entity or (ii) is a general partner, trustee or other entity performing
similar functions. Any reference in this Agreement to disclosure letters shall
be deemed to include matters described in the Crescent SEC Documents or the
Company SEC Documents, provided, however, that Crescent and the Company shall
use their reasonable best efforts to include in any disclosure letter relevant
matters described in the Crescent SEC Documents or the Company SEC Documents,
respectively.
Section 2.2 Capital Structure. At the date hereof, the authorized
capital stock of Crescent solely consists of 250,000,000 Common Shares,
250,000,000 excess shares issuable in exchange for Common Shares ("Excess Common
Shares"), 100,000,000 preferred shares of beneficial interest, par value $.01
per share (the "Preferred Shares"), and 100,000,000 excess shares issuable in
exchange for Preferred Shares ("Excess Preferred Shares"). At the close of
business on January 16, 1998, 118,151,909 Common Shares were issued and
outstanding. At the close of business on January 16, 1998, Crescent had no
shares reserved for issuance, except (i) 12,620,870 Common Shares reserved for
issuance upon the exchange of 6,310,435 units of
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ownership interest (the "Units") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Operating Partnership"), (ii)
15,704,163 Common Shares reserved for issuance pursuant to the 1994 Crescent
Real Estate Equities, Inc. Stock Incentive Plan, the Second Amended and Restated
1995 Crescent Real Estate Equities Company Stock Incentive Plan, the 1995
Crescent Real Estate Equities Limited Partnership Unit Incentive Plan and the
1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan
(collectively with the Crescent Real Estate Equities, Ltd. 401(k) Plan, as
amended, the "Crescent Stock Plans"), (iii) the possible issuance of up to
664,294 Common Shares upon the exchange of a portion of a partnership interest
in Desert Mountain Properties Limited Partnership, and (iv) an outstanding
option to acquire 217,530 Common Shares. Except as set forth above, at the close
of business on January 16, 1998, no shares of capital stock or other voting
securities of Crescent were issued, reserved for issuance or outstanding. All
the outstanding Common Shares are validly issued, fully paid and nonassessable
and free of preemptive rights. All Common Shares issuable in exchange for
Company Common Stock at the Effective Time in accordance with this Agreement
will be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights. As of the date of this Agreement,
except as identified in this paragraph and except for (a) this Agreement, (b)
stock options issued and unexercised pursuant to the Crescent Stock Plans
covering not in excess of 8,938,000 Common Shares (collectively, the "Crescent
Stock Options"), (c) 12,620,870 Common Shares issuable upon the exchange of
6,310,435 Units, (d) Common Shares issuable pursuant to the Forward Stock
Purchase Contract agreement dated as of August 12, 1997 (the "UBS Forward
Purchase Contract") with an affiliate of Union Bank of Switzerland, and (e)
Common Shares issuable pursuant to the Swap Agreement dated as of December 12,
1997 (the "Merrill Lynch Swap Agreement") with an affiliate of Merrill Lynch &
Co., Inc., there are no options, warrants, calls, rights or agreements to which
Crescent or any of its Subsidiaries is a party or by which any of them is bound
obligating Crescent or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Crescent or any of its Subsidiaries or obligating Crescent or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right or agreement. Each outstanding share of capital stock of each Subsidiary
of Crescent that is a corporation is duly authorized, validly issued, fully paid
and nonassessable and, except as disclosed in the Crescent SEC Documents (as
defined in Section 2.5) filed prior to the date of this Agreement, each such
share that is owned by Crescent or another Subsidiary of Crescent, is owned free
and clear of all security interests, liens, claims, pledges, mortgages, options,
rights of first refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever (each, a "Lien"). As of the date of
this Agreement, none of Crescent or any Subsidiary has outstanding any bonds,
debentures, notes or other indebtedness of Crescent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Crescent may vote. As of the date of this
Agreement, there are no outstanding contractual obligations of Crescent or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Crescent or any of its Subsidiaries, except those pursuant to
the UBS Forward Purchase Agreement and the Merrill Lynch Swap Agreement. Exhibit
21 to the Annual Report on Form 10-K of Crescent for the year ended December 31,
1996 (the "Crescent Annual Report"), as filed with the Securities and Exchange
Commission (the "SEC"), is a true, accurate and correct statement
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in all material respects of all the information that was required to be set
forth therein by the rules and regulations of the SEC.
Section 2.3 Authority. The Board of Trust Managers of Crescent has
approved and adopted this Agreement, and (i) has authorized the filing of a
registration statement on Form S-4 with the SEC by Crescent under the Securities
Act of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "Securities Act"), for the purpose of registering the Common
Shares to be issued in connection with the Merger as contemplated by this
Agreement (together with any amendments or supplements thereto, whether prior to
or after the effective date thereof, the "Registration Statement"), and (ii) has
authorized the purchase of Redeemable Preferred Stock of the Company in an
amount not to exceed $115,000,000. Crescent has all requisite power and
authority to enter into this Agreement and, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Crescent
and the consummation by Crescent of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of Crescent. This
Agreement has been duly executed and delivered by Crescent and (assuming the
valid authorization, execution and delivery of this Agreement by the Company and
the validity and binding effect of this Agreement on the Company) constitutes
the valid and binding obligation of Crescent enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar law
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations described in this Section
2.4 have been made, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default or loss of a
material benefit (with or without notice or lapse of time, or both) under, or
give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any lien upon any of the
properties, assets or operations of Crescent or any of its Subsidiaries under,
any provision of (i) the Declaration of Trust or Crescent Bylaws, as applicable,
(ii) any provision of the comparable charter or organizational documents of any
Subsidiary of Crescent, (iii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Crescent or any of its Subsidiaries or (iv)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Crescent or any of its Subsidiaries or any of their respective
properties, assets or operations, other than, in the case of clauses (ii), (iii)
or (iv), any such violations, defaults, losses, rights or liens that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Crescent, materially impair the ability of Crescent
to perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal or state), foreign
or supranational court, commission, governmental body, regulatory agency,
authority or
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tribunal (a "Governmental Entity") is required by or with respect to Crescent or
any of its Subsidiaries in connection with the execution and delivery of this
Agreement by Crescent or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except (i) in connection, or
in compliance, with the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act and the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), including, but not
limited to, the filing of any registration statements on Forms S-4 and S-8, (ii)
the filing of the Articles of Merger with the Secretary of State of the State of
Nevada and with the County Clerk of Tarrant County, Texas and appropriate
documents with the relevant authorities of other states in which Crescent or any
of its Subsidiaries are qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or public or work
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions contemplated by this
Agreement, (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) applicable requirements, if any, of, or filings
with, state securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (vi)
as may be required under foreign laws, (vii) filings with and approvals by any
regulatory authority with jurisdiction over the Company's gaming operations
required under any federal, state, local or foreign statute, ordinance, rule,
regulation, permit, consent, approval, license, judgment, order, decree,
injunction or other authorization governing or relating to the current or
contemplated casino and gaming and/or liquor activities and operations of the
Company, including the Nevada Gaming Control Act and the rules and regulations
promulgated thereunder, the Missouri Gaming Law and the Missouri Riverboat
Gambling Act and the respective rules and regulations promulgated thereunder,
and the Louisiana Video Draw Poker Devices Control Act and the rules and
regulations promulgated thereunder (collectively, the "Gaming Laws"), (viii)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the laws of any foreign
country in which the Company or any of its subsidiaries conducts any business or
owns any property or assets, and (ix) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Crescent, materially impair the
ability of Crescent to perform its respective obligations hereunder or prevent
the consummation of any of the transactions contemplated hereby.
Section 2.5 SEC Documents and Other Reports. Crescent has filed all
required documents with the SEC since January 1, 1996 (together with all other
filings by Crescent with the SEC since January 1, 1996, the "Crescent SEC
Documents"). As of their respective dates, the Crescent SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Crescent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of Crescent included in the
Crescent SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with
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respect thereto as of their respective dates of filing, were prepared in
accordance with generally accepted accounting principles (except, in the case of
the unaudited statements, as permitted by Regulation S-X of the SEC) applied on
a consistent basis during the period involved (except as may be indicated
therein or in the notes thereto) and fairly presented the consolidated financial
position of Crescent and its consolidated Subsidiaries as of the respective
dates thereof and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Crescent SEC
Documents or as required by generally accepted accounting principles, Crescent
has not, since December 31, 1996, made any change in the accounting practices or
policies applied in the preparation of its financial statements.
Section 2.6 Registration Statement and Proxy Statement. None of the
information to be supplied by Crescent for inclusion or incorporation by
reference in the Registration Statement or the proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Proxy Statement") relating to the Company Stockholder Meeting (as defined in
Section 5.1) will (i) in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading or (ii) in
the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement and at the time of the Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Crescent, its officers and
trust managers or any of its Subsidiaries shall occur that is required to be
described in the Proxy Statement or the Registration Statement, such event shall
be so described, and an appropriate amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the stockholders of
the Company.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed
in the Crescent SEC Documents filed prior to the date of this Agreement, since
December 31, 1996, (a) Crescent and its Subsidiaries have not sustained any loss
or interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that,
individually or in the aggregate, has had, or would reasonably be expected to
have, a Material Adverse Effect on Crescent, (b) there have not been any events,
changes or developments that, individually or in the aggregate, have had or
would reasonably be expected to have, a Material Adverse Effect on Crescent and
(c) there has not been any split, combination or reclassification of any of the
capital stock of Crescent or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of such capital stock, except as contemplated by this Agreement.
Section 2.8 Permits and Compliance. Each of Crescent and its respective
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any
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Governmental Entity necessary for Crescent or any of its Subsidiaries to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Crescent Permits"), except where the failure to have any of the
Crescent Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on Crescent, and, as
of the date of this Agreement, no suspension or cancellation of any of the
Crescent Permits is pending or, to the Knowledge of Crescent (as hereinafter
defined), threatened, except where the suspension or cancellation of any of the
Crescent Permits, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on Crescent. None of
Crescent or any of its Subsidiaries is in violation of (A) its respective
declaration of trust, charter, by-laws or other organizational documents, (B)
any applicable law, ordinance, administrative or governmental rule or regulation
or (C) any order, decree or judgment of any Governmental Entity having
jurisdiction over Crescent or any of its Subsidiaries, except, in the case of
clauses (A), (B) and (C), for any violations that, individually or in the
aggregate, have not had, and would not reasonably be expected to have a Material
Adverse Effect on Crescent. Except as disclosed in the Crescent SEC Documents
filed prior to the date of this Agreement, as of the date hereof, there is no
contract or agreement that is material to the business, properties, results of
operations or financial condition of Crescent and its Subsidiaries, taken as a
whole. Except as set forth in the Crescent SEC Documents, prior to the date of
this Agreement, no event of default or event that, but for the giving of notice
or the lapse of time or both, would constitute an event of default exists or,
upon the consummation by Crescent of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any agreement
or instrument for borrowed money or any lease, license or other agreement or
instrument to which Crescent or any of its Subsidiaries is a party or by which
Crescent or any such Subsidiary is bound or to which any of the properties,
assets or operations of Crescent or any such Subsidiary is subject, other than
any defaults that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect on Crescent. For
purposes of this Agreement, the term "Knowledge" when used with respect to
Crescent means the actual knowledge as of the date hereof and as of the
Effective Time of the individuals identified in Schedule 2.8.
Section 2.9 Tax Matters. Except as otherwise set forth in a disclosure
letter making reference to this section, (i) Crescent and each of its
Subsidiaries have timely filed all federal, state, local, foreign and provincial
income and Franchise Tax Returns and all other material Tax Returns required to
have been filed or appropriate extensions therefor have been properly obtained,
and such Tax Returns are, true, correct and complete, except to the extent that
any failure to so file or any failure to be true, correct and complete,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on Crescent; (ii) all Taxes required
to have been paid by Crescent and each of its Subsidiaries have been timely paid
or extensions for payment have been property obtained, except to the extent that
any failure to pay any such Taxes or to properly obtain an extension for such
payment, individually or in the aggregate, has not held, and would not
reasonably be expected to have, a Material Adverse Effect on Crescent; (iii)
Crescent and each of its Subsidiaries have complied in all material respects
with all rules and regulations relating to the
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withholding of Taxes except to the extent that any failure to comply with such
rules and regulations, individually or in the aggregate, has not had, and would
not reasonably be expected to have, a Material Adverse Effect on Crescent; (iv)
none of Crescent or any of its Subsidiaries has waived in writing any statute of
limitations in respect of its federal, state, local, foreign or provincial
income or franchise Taxes and no deficiency with respect to any Taxes has been
proposed, asserted or assessed against Crescent or any of its Subsidiaries,
except to the extent that any such waiver or deficiency, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect on Crescent; (v) all Federal income Tax Returns referred to in
clause (i) for all years through 1993 have been examined by and settled with the
Internal Revenue Service or the period for assessment of Taxes in respect of
which such Tax returns were required to be filed has expired; (vi) as of the
date hereof and at the Effective Time, no material issues that have been raised
in writing by the relevant taxing authority in connection with the examination
of the Tax Returns referred to in clause (i) are currently pending; (vii) all
material deficiencies asserted or material assessments made as a result of any
examination of any Tax Returns referred to in clause (i) by any taxing authority
have been paid in full; (viii) the most recent financial statements contained in
the Crescent SEC Documents reflect an adequate reserve for all Taxes payable by
Crescent and its Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements; and (ix) there are no material
liens for Taxes (other than for current Taxes not yet due and payable) on the
assets of Crescent or any of its Subsidiaries. For purposes of this Agreement:
(i) "Taxes" means any federal, state, local, foreign or provincial income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add on minimum, ad valorem, value-added, transfer or
excise tax, or other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty imposed by any Governmental Entity, and (ii) "Tax Return" means any
return, report or similar statement (including the attached schedules) required
to be filed with respect to any Tax, including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
Section 2.10 Actions and Proceedings. Except as set forth in the
Crescent SEC Documents filed prior to the date of this Agreement, there are no
outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving Crescent or any of its Subsidiaries, or
against or involving any of the trust managers, directors, officers or employees
of Crescent or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any of the Crescent Stock Plans that, individually or in
the aggregate, have had, or would reasonably be expected to have, a Material
Adverse Effect on Crescent. As of the date of this Agreement, there are no
actions, suits or claims or legal, administrative or arbitrative proceedings or
investigations pending or, to the Knowledge of Crescent, threatened against or
involving Crescent or any of its Subsidiaries or any of its or their trust
managers, directors, officers or employees, as such, or any of its or their
properties, assets or business or any Crescent Stock Plan that, individually or
in the aggregate, have had, or would reasonably be expected to have, a Material
Adverse Effect on Crescent. As of the date hereof, there are no actions, suits,
labor disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of Crescent, threatened
against or affecting Crescent or any of its Subsidiaries or any of its or
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their trust managers, directors, officers or employees, as such, or any of its
or their properties, assets or business relating to the transactions
contemplated by this Agreement.
Section 2.11 Compliance with Worker Safety and Environmental Laws.
(a) Except as otherwise set forth in a disclosure letter making
reference to this section, (i) the properties, assets and operations of Crescent
and its Subsidiaries are in compliance with all applicable federal, state,
local, regional and foreign laws, rules and regulations, orders, decrees, common
law judgments, permits and licenses relating to public and worker health and
safety (collectively, "Worker Safety Laws") and the protection, regulation and
clean-up of the indoor and outdoor environment and activities or conditions
related thereto, including, without limitation, those relating to the
generation, handling, disposal, transportation or release of hazardous or toxic
materials, substances, wastes, pollutants and contaminants including, without
limitation, asbestos, petroleum, radon and polychlorinated biphenyls
(collectively, "Environmental Laws"), except for any violation that,
individually or in the aggregate, has not had, or would not reasonably be
expected to have, a Material Adverse Effect on Crescent; and (ii) with respect
to such properties, assets and operations, including any previously owned,
leased or operated properties, assets or operations, as of the date hereof and
at the Effective Time, there are no past, present or reasonably anticipated
future events, conditions, circumstances, activities, practices, incidents,
actions or plans of Crescent or any of its Subsidiaries that may interfere with
or prevent compliance or continued compliance with applicable Worker Safety Laws
and Environmental Laws, other than any such interference or prevention that,
individually or in the aggregate, has not had, or would not reasonably be
expected to have, a Material Adverse Effect on Crescent.
(b) (i) Crescent and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset or
operation, to use generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer or process hazardous or toxic materials, substances,
wastes, pollutants or contaminants, except in material compliance with all
Environmental Laws and Worker Safety Laws, other than any such activity that,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on Crescent; (ii) Crescent and its
Subsidiaries have not reported to any Governmental Entity any material violation
of an Environmental Law or any release, discharge or emission of any hazardous
or toxic materials, substances, wastes, pollutants or contaminants, other than
any such violation, release, discharge or emission that, individually or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse Effect on Crescent, and (iii) as of the date hereof and at the Effective
Time, Crescent has no Knowledge of any pending, threatened or anticipated claims
or liabilities under CERCLA, 42 U.S.C. sec. 9601 et seq., RCRA, 42 U.S.C. sec.
6901 et seq., or equivalent state law provisions and no Knowledge that any
current or former property, asset or operation is identified or currently
proposed for the National Priorities List at 40 CFR sec. 300, Appendix B, or the
CERCLIS or equivalent state lists or hazardous substances release sites, other
than with respect to Crescent's Poydras property.
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<PAGE> 17
Section 2.12 Liabilities. Except as set forth in the Crescent SEC
Documents filed prior to the date hereof, Crescent and its Subsidiaries have no
liabilities, absolute or contingent, other than liabilities that, individually
or in the aggregate, have not had, and would not reasonably be expected to have,
a Material Adverse Effect on Crescent.
Section 2.13 Intellectual Property. Crescent and its Subsidiaries own
or have the right to use all patents, patent rights, trademarks, trade names,
service marks, trade secrets, copyrights and other proprietary intellectual
property rights (collectively, "Intellectual Property Rights") as are necessary
in connection with the business of Crescent and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on Crescent. Neither Crescent nor
any of its Subsidiaries has infringed any Intellectual Property Rights of any
third party other than any infringements that, individually or in the aggregate,
have not had, and would not reasonably be expected to have, a Material Adverse
Effect on Crescent.
Section 2.14 No Required Vote of Crescent Shareholders. No vote of the
shareholders of Crescent is required by law, the organizational documents of
Crescent or otherwise in order for Crescent to consummate the Merger and the
transactions contemplated hereby.
Section 2.15 REIT Status. Crescent is a "real estate investment trust"
for federal income tax purposes. The consummation of the transactions
contemplated by this Agreement will not cause Crescent to cease to qualify as a
"real estate investment trust" for federal income tax purposes.
Section 2.16 Brokers. No broker, investment banker or other person is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Crescent.
Section 2.17 ERISA.
(a) Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Crescent, nor any of its ERISA
Affiliates (as hereinafter defined) has withdrawn from any Company Multiemployer
Plan (as hereinafter defined) at any time within the past six years or
instituted, or is currently considering taking, any action to do so.
(b) There has been no failure to make any contribution or pay any
amount due to any Crescent Plan as required by Section 412 of the Code, Section
302 of ERISA, or the terms of any such Plan, and no Crescent Plan, nor any trust
created thereunder, has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived.
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<PAGE> 18
(c) As of the date hereof and at the Effective Time, neither Crescent
nor any of its ERISA Affiliates has been notified by any Crescent Multiemployer
Plan that such Crescent Multiemployer Plan is currently in reorganization or
insolvency under and within the meaning of Section 4241 or 4245 of ERISA or that
such Crescent Multiemployer Plan intends to terminate or has been terminated
under Section 4041A of ERISA. As of the date hereof and at the Effective Time,
neither the Company nor any of its ERISA Affiliates has any liability or
obligation under any welfare plan to provide life insurance or medical benefits
after termination of employment to any employee or dependent other than as
required by (i) Part 6 of Title I of ERISA or (ii) the laws of a jurisdiction
outside the United States.
(d) As used herein, (i) "Crescent Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Crescent Multiemployer Plan)), a
"welfare plan" (as defined in Section 3(1) of ERISA), or any material bonus,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, vacation, severance, death benefit,
insurance or other plan, arrangement or understanding, in each case established
or maintained or contributed to by Crescent or any of its ERISA Affiliates or as
to which Crescent or any of its ERISA Affiliates otherwise may have any
liability, (ii) "Crescent Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Crescent or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Crescent as follows:
Section 3.1 Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has the requisite corporate power and authority to
carry on its business as now being conducted. Each Subsidiary of the Company is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power or authority,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. The Company and each
of its Subsidiaries are duly qualified to do business, and are in good standing,
in each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Company.
Section 3.2 Capital Structure. At the date hereof, the authorized
capital stock of the Company consists of 90,000,000 shares of Company Common
Stock, and 5,000,000 shares of Preferred Stock, $.01 par value per share
("Company Preferred Stock"). At the close of
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business on January 16, 1998, (i) 35,306,657 shares of Company Common Stock (and
associated Rights) were issued and outstanding, (ii) 2,070,000 shares of
Convertible Preferred Stock were issued and outstanding, (iii) no shares of
Company Common Stock were held in the treasury of the Company or by its
Subsidiaries, (iv) 6,307,000 shares of Company Common Stock were reserved for
issuance pursuant to the Company Stock Compensation Program, as amended, options
to purchase 5,485,743 shares of Company Common Stock had been issued and were
outstanding pursuant to such Stock Compensation Program, (v) 1,000,000 shares of
Company Common Stock were reserved for issuance pursuant to the Company's 401(k)
Plan, dated as of October 14, 1993, as amended, and as of December 31, 1997, no
shares of Company Common Stock had been issued and were outstanding pursuant to
such 401(k) Plan, (vi) 6,742,671 shares of Company Common Stock were reserved
for issuance pursuant to the Certificate of Designation, and (vi) no shares of
Company Common Stock were reserved in connection with the Rights Agreement dated
October 6, 1997 (the "Rights Agreement") between the Company and Continental
Stock Transfer & Trust Company pursuant to which the Company declared a dividend
on October 6, 1997 of one preferred share purchase right (a "Right") for each
outstanding share of Company Common Stock. Except as set forth above, at the
close of business on January 16, 1998, no shares of capital stock or other
voting securities of the Company were issued, reserved for issuance or
outstanding. All the outstanding shares of Company Common Stock were validly
issued, fully paid and nonassessable and free of preemptive rights. Except as
otherwise set forth in a disclosure letter making reference to this section,
there are no options, warrants, calls, rights or agreements to which the Company
or any of its Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue, deliver, or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right or agreement. Except as otherwise set forth in a disclosure letter making
reference to this section, each outstanding share of capital stock of each
Subsidiary of the Company that is a corporation is duly authorized, validly
issued, fully paid and nonassessable and, except as disclosed in the Company SEC
Documents (as defined in Section 3.5) filed prior to the date of this Agreement,
each such share that is owned by the Company or another Subsidiary of the
Company, is owned free and clear of all Liens. As of the date of this Agreement,
the Company does not have outstanding any bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as otherwise set forth in a
disclosure letter making reference to this section, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries. Exhibit 21 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1997, as filed with the SEC (the "Company Annual Report"),
is a true, accurate and correct statement in all material respects of all the
information required to be set forth therein by the rules and regulations of the
SEC.
Section 3.3 Authority. The Board of Directors of the Company (i) has
unanimously approved and adopted this Agreement, (ii) has resolved to recommend
the approval of this Agreement by the Company's stockholders and has directed
that this
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Agreement be submitted to the Company's stockholders for approval, (iii) has
adopted amendments to the Company's Stock Compensation Program providing that a
Company employee's options shall not terminate if, in connection with the
Merger, the employee becomes employed by an entity other than the Company, (iv)
has approved the modification of the vesting schedule for the options granted
under the Company's Stock Compensation Program on September 29, 1997 to provide
that such options will vest in equal installment amounts over five years; and
(v) has directed the filing of the Proxy Statement with the SEC. The Company has
all requisite corporate power and authority to enter into this Agreement and,
subject to approval by the stockholders of the Company of this Agreement, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to approval of this
Agreement by the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and (assuming the valid authorization,
execution and delivery of this Agreement by Crescent and the validity and
binding effect of this Agreement on Crescent) constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar law affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 or set forth in a disclosure letter making reference to this section, have
been obtained and all filings and obligations described in this Section 3.4 have
been made, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default or the loss
of a material benefit (with or without notice or lapse of time, or both) under,
or give to others a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien, upon any of the
properties, assets or operations of the Company or any of its Subsidiaries under
any provision of (i) the Amended and Restated Articles of Incorporation of the
Company (the "Articles of Incorporation"), or the Restated Bylaws of the
Company, as amended (the "Company Bylaws"), (ii) any provision of the comparable
charter or organization documents of any Subsidiary of the Company, (iii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
the Company or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its Subsidiaries or any of their respective properties, assets or operations,
other than, in the case of clauses (ii), (iii) or (iv), any such violations,
defaults, losses, rights or liens that, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby. Except as set forth in a disclosure letter making reference to this
section, no filing or registration with, or authorization, consent or approval
of, any
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Governmental Entity or any other person is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and delivery
of this Agreement by the Company or is necessary for the consummation of the
Merger and the other transactions contemplated by this Agreement, except (i) in
connection, or in compliance, with the provisions of the HSR Act, the Securities
Act and the Exchange Act, (ii) in connection, or in compliance, with the
provisions of the Articles of Merger with the Secretary of State of the State of
Nevada and with the County Clerk of Tarrant County, Texas and appropriate
documents with the relevant authorities of other states in which the Company or
any of its Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or public or worker
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or by the transactions contemplated by this
Agreement, (iv) such filings as may be required in connection with the taxes
described in Section 5.11, (v) applicable requirements, if any, of Blue Sky Laws
and the NYSE, (vi) as may be required under foreign laws, (vii) filings with and
approvals, consents, findings of suitability, registrations, licenses, permits,
orders and authorizations in respect of the Gaming Laws, (viii) for the
requisite approval by the vote of the holders of the Company Common Stock and
Convertible Preferred Stock in accordance with applicable law and the Articles
of Incorporation and Bylaws of the Company, and (viii) such other consents,
orders, authorizations, registrations, declarations and filings the failure of
which to be obtained or made, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 3.5 SEC Documents and Other Reports. The Company has filed all
required documents with the SEC since March 31, 1996 (together with all other
filings by the Company with the SEC since March 31, 1996, the "Company SEC
Document"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the
Company SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles (except, in
the case of the unaudited statements, as permitted by Regulation S-X of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of operations and their
consolidated cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Except as disclosed in the Company SEC Documents
or as required by generally
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accepted accounting principles, the Company has not, since March 31, 1997, made
any change in the accounting practices or policies applied in the preparation of
its financial statements.
Section 3.6 Registration Statement and Proxy Statement. Except as
contemplated by the next sentence, none of the information to be supplied by the
Company for inclusion or incorporation by reference in the Registration
Statement or the Proxy Statement will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Proxy Statement, at the time
of the mailing of the Proxy Statement and at the time of the Company Stockholder
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its Subsidiaries shall occur
that is required to be described in the Proxy Statement or the Registration
Statement, such event shall be so described, and an appropriate amendment or
supplement shall be promptly filed with the SEC and, as required by law.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
this Agreement, as set forth in a disclosure letter making reference to this
section or in the Company SEC Documents filed prior to the date of this
Agreement, since March 31, 1997, (a) the Company and its Subsidiaries have not
sustained any loss or interference with their business or properties from fire,
flood, windstorm, accident or other calamity (whether or not covered by
insurance) that, individually or in the aggregate, has had, or would reasonably
be expected to have, a Material Adverse Effect on the Company and (b)(i) there
has been no change in the capital stock of the Company (except for the issuance
of shares of the Company Common Stock pursuant to Company Plans) and no dividend
or distribution of any kind declared, paid or made by the Company on any class
of its stock (except for dividends declared and paid on the Convertible
Preferred Stock or the Redeemable Preferred Stock in the ordinary course of
business and consistent with past practice) and (ii) there have not been any
events, changes or developments that, individually or in the aggregate, have had
or would reasonably be expected to have a Material Adverse Effect on the
Company. The aggregate amount of indebtedness of the Company and its
Subsidiaries as of September 30, 1997, is set forth in Schedule 3.7.
Section 3.8 Permits and Compliance. Except as set forth in a disclosure
letter making reference to this section, each of the Company and its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
of its Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where the
failure to have any of the Company Permits, individually or in the aggregate,
has not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Company, and, as of the date of this Agreement, no suspension or
cancellation of any of the Company Permits is pending or, to the Knowledge of
the Company (as hereinafter defined), threatened, except
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where the suspension or cancellation of any of the Company Permits, individually
or in the aggregate, has not had, and would not reasonably be expected to have,
a Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries is in violation of (A) its charter, by-laws or other organizational
documents, (B) any applicable law, ordinance, administrative or governmental
rule or regulation or (C) any order, decree or judgment of any Governmental
Entity having jurisdiction over the Company or any of its Subsidiaries, except,
in the case of clauses (A), (B) and (C), for any violations that, individually
or in the aggregate, has not had, and would not reasonably be expected to have,
a Material Adverse Effect on the Company. Except as disclosed in the Company SEC
Documents filed prior to the date of this Agreement or as set forth in a
disclosure letter making reference to this section, as of the date hereof, there
is no contract or agreement that is material to the business, properties,
results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole. Except as set forth in the Company SEC Documents
or in a disclosure letter making reference to this section, prior to the date of
this Agreement, no event of default or event that, but for the giving of notice
or the lapse of time or both, would constitute an event of default exists or,
upon the consummation by the Company of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any agreement
or instrument for borrowed money or any lease, license or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any such Subsidiary is bound or to which any of the
properties, assets or operations of the Company or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, have
not had, and would not reasonably be expected to have, a Material Adverse Effect
on the Company. For purposes of this Agreement, the term "Knowledge" when used
with respect to the Company means the actual knowledge as of the date hereof and
at the Effective Time of the individuals identified in Schedule 3.8.
Section 3.9 Tax Matters. Except as otherwise set forth in a disclosure
letter making reference to this section, (i) the Company and each of its
Subsidiaries have timely filed all federal, state, local, foreign and provincial
income and franchise Tax Returns and all other material Tax Returns required to
have been filed or appropriate extensions therefor have been properly obtained,
and such Tax Returns are true, correct and complete, except to the extent that
any failure to so file or any failure to be true, correct and complete,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (ii) all Taxes
required to have been paid by the Company and each of its Subsidiaries have been
timely paid or extensions for payment have been properly obtained, except to the
extent that any failure to pay any such Taxes or to properly obtain an extension
for such payment, individually or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company; (iii)
the Company and each of its Subsidiaries have complied in all material respects
with all rules and regulations relating to the withholding of Taxes except to
the extent that any failure to comply with such rules and regulations,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (iv) neither the
Company nor any of its Subsidiaries has waived in writing any statute of
limitations in respect of its federal, state, local, foreign or provincial
income or franchise Taxes and no deficiency with respect to
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<PAGE> 24
any Taxes has been proposed, asserted or assessed against the Company or any of
its Subsidiaries, except the extent that any such waiver or deficiency,
individually or in the aggregate has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (v) all federal
income Tax Returns referred to in clause (i) for all years through May 31, 1993
have been examined by and settled with the Internal Revenue Service or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (vi) as of the date hereof and at the
Effective Time, no material issues that have been raised in writing by the
relevant taxing authority in connection with the examination of the Tax Returns
referred to in clause (i) are currently pending; and (vii) all material
deficiencies asserted or material assessments made as a result of any
examination of any Tax Returns referred to in clause (i) by any taxing authority
have been paid in full; (viii) the most recent financial statements contained in
the Company SEC Documents reflect an adequate reserve for all Taxes payable by
the Company and its Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements; and (ix) there are no material
liens for Taxes (other than for current Taxes not yet due and payable) on the
assets of the Company or any of its Subsidiaries.
Section 3.10 Actions and Proceedings. Except as set forth in the Company
SEC Documents filed prior to the date of this Agreement or as set forth in a
disclosure letter making reference to this section, there are no outstanding
orders, judgments, injunctions, awards or decrees of any Governmental Entity
against or involving the Company or any of its Subsidiaries, or against or
involving any of the directors, officers or employees of the Company or any of
its Subsidiaries, as such, any of its or their properties, assets for business
or any Company Plan (as hereinafter defined) that, individually or in the
aggregate, have had, or would reasonably be expected to have, a Material Adverse
Effect on the Company. Except as otherwise set forth in a disclosure letter
making reference to this section, as of the date of this Agreement, there are no
actions, suits, labor disputes or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of the Company,
threatened against or involving the Company or any of its Subsidiaries or any of
its or their directors, officers or employees as such, or any of its or their
properties, assets or business or any Company Plan that, individually or in the
aggregate, have had, or would reasonably be expected to have, a Material Adverse
Effect on the Company. Except as otherwise set forth in a disclosure letter
making reference to this section, as of the date hereof, there are no actions,
suits, labor disputes or other litigation, legal or administrative proceedings
or governmental investigations pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
its or their officers, directors or employees, as such, or any of its or their
properties, assets or business relating to the transactions contemplated by this
Agreement.
Section 3.11 Certain Agreements. Except as otherwise set forth in a
disclosure letter making reference to this section, neither the Company nor any
of its Subsidiaries is a party to any oral or written agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of
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which will be calculated on the basis of any of the transactions contemplated by
this Agreement. Subject to Section 5.8 and except as set forth in a disclosure
letter making reference to this section, no holder of any option to purchase
shares of Company Common Stock or Company Preferred Stock, or shares of Company
Common Stock or Company Preferred Stock granted in connection with the
performance of services for the Company or its Subsidiaries, is or will be
entitled to receive cash from the Company or any Subsidiary in lieu of or in
exchange for such option or shares as a result of the transactions contemplated
by this Agreement.
Section 3.12 ERISA.
(a) Schedule 3.12(a) contains a list of each Company Plan (as hereinafter
defined) maintained by the Company and each material Company Plan maintained by
a Subsidiary of the Company. To the extent applicable, with respect to each
Company Plan, the Company has made, or will as soon as practicable after the
date hereof, make available to Crescent a true and correct copy of (i) the most
recent annual report (Form 5500) filed with the IRS, (ii) such Company Plan and
all amendments thereto, (iii) each trust agreement, insurance contract or
administration agreement relating to such Company Plan, (iv) the most recent
summary plan description for each Company Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation
relating to a Company Plan subject to Title IV of ERISA, (vi) the most recent
determination letter, if any, issued by the IRS with respect to any Company Plan
intended to be qualified under section 401(a) of the Code, (vii) any request for
a determination currently pending before the IRS and (viii) all correspondence
with the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation relating to any outstanding controversy. Except as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, (i) each Company Plan complies with ERISA, the
Code and all other applicable statutes and governmental rules and regulations,
(ii) no "reportable event" (within the meaning of Section 4043 of ERISA) has
occurred within the past three years with respect to any Company Plan which is
likely to result in liability to the Company, (iii) neither the Company nor any
of its ERISA Affiliates (as hereinafter defined) has withdrawn from any Company
Multiemployer Plan (as hereinafter defined) at any time within the past six
years or instituted, or is currently considering taking, any action to do so,
and (iv) no action has been taken, or is currently being considered, to
terminate any Company Plan subject to Title IV of ERISA.
(b) There has been no failure to make any contribution or pay any amount
due to any Company Plan as required by Section 412 of the Code, Section 302 of
ERISA, or the terms of any such Plan, and no Company Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived.
(c) As of the date hereof and at the Effective Time, with respect to the
Company Plans, no event has occurred and, to the Knowledge of the Company, there
exists no
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condition or set of circumstances in connection with which the Company or any
ERISA Affiliate would be subject to any liability under the terms of such
Company Plans, ERISA, the Code or any other applicable law which has had, or
would reasonably be expected to have, a Material Adverse Effect on the Company.
All Company Plans that are intended to be qualified under Section 401(a) of the
Code have been determined by the IRS to be so qualified, or a timely application
for such determination is now pending or will be filed on a timely basis and, to
the Knowledge of the Company, there is no reason why any Company Plan is not so
qualified in operation. As of the date hereof and at the Effective Time, neither
the Company nor any of its ERISA Affiliates has been notified by any Company
Multiemployer Plan that such Company Multiemployer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241 or
4245 of ERISA or that such Company Multiemployer Plan intends to terminate or
has been terminated under Section 4041A of ERISA. As of the date hereof and at
the Effective Time, neither the Company nor any of its ERISA Affiliates has any
liability or obligation under any welfare plan to provide life insurance or
medical benefits after termination of employment to any employee or dependent
other than as required by (i) Part 6 of Title I of ERISA or (ii) the laws of a
jurisdiction outside the United States.
(d) As used herein, (i) "Company Plan" means a "pension plan" (as defined
in Section 3(2) of ERISA (other than a Company Multiemployer Plan)), a "welfare
plan" (as defined in Section 3(1) of ERISA), or any material bonus, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, vacation, severance, death benefit,
insurance or other plan, arrangement or understanding, in each case established
or maintained or contributed to by the Company or any of its ERISA Affiliates or
as to which the Company or any of its ERISA Affiliates otherwise may have any
liability, (ii) "Company Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which the Company or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability, and (iii) with respect to any person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common control or
would be considered a single employer with such person pursuant to Section
414(b), (c), (m) or (o) of the Code and the regulations promulgated under those
sections or pursuant to Section 4001(b) of ERISA and the regulations promulgated
thereunder.
(e) Schedule 3.12(e) contains a list, as of the date of this Agreement, of
all (i) severance and employment agreements with officers of the Company and
each ERISA Affiliate, (ii) severance programs and related formal policies of the
Company with or relating to its employees and (iii) plans, programs, agreements
and other arrangements of the Company with or relating to its employees which
contain change of control or similar provisions, in each case involving a
severance or employment agreement or arrangement with an individual officer or
employee, only to the extent such agreement or arrangement provides for minimum
annual payments in excess of $150,000. The Company has provided to Crescent a
true and complete copy of each of the foregoing.
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(f) Except as otherwise set forth in a disclosure letter making reference
to this section, all compensation issued pursuant to the Stock Plans is
"qualified performance based compensation" and is deductible under section
162(m) of the Code.
Section 3.13 Compliance with Worker Safety and Environmental Laws.
(a) Except as otherwise set forth in a disclosure letter making reference
to this section, (i) the properties, assets and operations of the Company and
its Subsidiaries are in compliance with all applicable federal, state, local,
regional and foreign laws, rules and regulations, orders, decrees, common law,
judgments, permits and licenses relating to public and worker health and safety
(collectively, "Worker Safety Laws") and the protection, regulation and clean-up
of the indoor and outdoor environment and activities or conditions related
thereto, including, without limitation, those relating to the generation,
handling, disposal, transportation or release of hazardous or toxic materials,
substances, wastes, pollutants and contaminants including, without limitation,
asbestos, petroleum, radon and polychlorinated biphenyls (collectively,
"Environmental Laws"), except for any violations that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company; and (ii) with respect to such
properties, assets and operations, including any previously owned, leased or
operated properties, assets or operations, as of the date hereof and at the
Effective Time, there are no past, present or reasonably anticipated future
events, conditions, circumstances, activities, practices, incidents, actions or
plans of the Company or any of its Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Worker Safety Laws
and Environmental Laws, other than any such interference or prevention that,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company.
(b) Except as set forth in a disclosure letter making reference to this
section, (i) the Company and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset or
operation, to use, generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer or process hazardous or toxic materials, substances,
wastes, pollutants or contaminants, except in material compliance with all
Environmental Laws and Worker Safety Laws, other than any such activity that,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company; (ii) the Company and
its Subsidiaries have not reported to any Governmental Entity any material
violation of an Environmental Law or any release, discharge or emission of any
hazardous or toxic materials, substances, wastes, pollutants or contaminants,
other than any such violation, release, discharge or emission that, individually
or in the aggregate, has not had, and would not reasonably be expected to have,
a Material Adverse Effect on the Company, and (iii) as of the date hereof and at
the Effective Time, the Company has no knowledge of any pending, threatened or
anticipated claims or liabilities under CERCLA, 42 U.S.C. sec. 9601 et seq.,
RCRA, 42 U.S.C. sec. 6901 et seq., or equivalent state law provisions and no
knowledge that any current or former property, asset or operation is identified
or currently proposed for the National Priorities List at 40 CFR sec. 300,
appendix B, or the CERCLIS or equivalent state lists or hazardous substances
release sites.
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Section 3.14 Liabilities. Except as otherwise set forth in a disclosure
letter making reference to this section or reserved against in the balance sheet
of the Company set forth in its Annual Report on Form 10-K for the fiscal year
ended March 31, 1997, as of the date hereof and as of the Effective Time, the
Company and its Subsidiaries have no liabilities, absolute or contingent, other
than liabilities that, individually or in the aggregate, have not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Company.
Section 3.15 Intellectual Property. Except as set forth in a disclosure
letter making reference to this section, the Company and its Subsidiaries own or
have the right to use all Intellectual Property Rights as are necessary in
connection with the business of the Company and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries has infringed any Intellectual Property Rights of
any third party other than any infringements that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company. The Company has provided to Crescent in
a disclosure letter making reference to this section a list of all of its
Intellectual Property Rights material to the conduct of its business.
Section 3.16 Rights Agreement. The Company has taken all necessary action
to (i) render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement and (ii) ensure that (y) neither Crescent nor any
of its affiliates is an Acquiring Person (as defined in the Rights Agreement)
and (z) a Distribution Date (as defined in the Rights Agreement) does not occur
by reason of the announcement or consummation of the Merger or the consummation
of any of the other transactions contemplated by this Agreement.
Section 3.17 Parachute Payments to Disqualified Individuals. Except as set
forth in a disclosure letter making reference to this section, there will be no
"excess parachute payments" (as such term is defined in Section 280G(a) of the
Code) payable to employees of the Company and its Subsidiaries who are
"disqualified individuals" under Section 280G of the Code, whether or not such
employee's employment is terminated in connection with the transactions
contemplated under this Agreement.
Section 3.18 State Takeover Statutes. The Board of Directors of the Company
has, to the extent such statutes are applicable, taken (or, with respect to
Sections 78.378 to 78.3793 and Sections 78.411 to 78.444 of the NGCL, will take
prior to the Effective Time) all action necessary to exempt Crescent, its
Subsidiaries and affiliates, the Merger, this Agreement and the transactions
contemplated hereby from Sections 78.378 to 78.3793 and Sections 78.411 to
78.444 of the NGCL, or to satisfy the requirements thereof. To the Knowledge of
the Company, no other state takeover statutes are applicable to the Merger, this
Agreement or the transactions contemplated hereby.
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Section 3.19 Required Vote of Company Stockholders. The affirmative vote of
the holders of 66 2/3% of the outstanding shares of Company Common Stock and 66
2/3% of the outstanding shares of Company Preferred Stock is required to approve
this Agreement. No other vote of the stockholders of the Company is required by
law, the Articles of Incorporation or the Company Bylaws or otherwise in order
for the Company to consummate the Merger and the transactions contemplated
hereby.
Section 3.20 Brokers. No broker, investment banker or other person, other
than Salomon Smith Barney, the fees and expenses of which will be paid by the
Company (as reflected in agreements between such firms and the Company, copies
of which have been furnished to Crescent), is entitled to any broker's finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
Section 3.21 Labor Matters.
(a) As of the date hereof and at the Effective Time, neither the Company
nor any of its Subsidiaries is a party to or otherwise bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is the Company or any of its Subsidiaries the
subject of any material proceeding asserting that the Company or any of its
Subsidiaries has committed an unfair labor practice or seeking to compel it to
bargain with any labor union or labor organization.
(b) As of the date hereof and at the Effective Time, there are no pending
or, to the Knowledge of the Company, threatened, nor has there been for the past
five years, any labor strike, dispute, walk-out, work stoppage, slow-down or
lockout involving the Company or any of its Subsidiaries that, individually or
in the aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on the Company.
Section 3.22 Title. The Company and its Subsidiaries have good and valid
title to or, in the case of leased properties, a good and valid leasehold
interest in, all of the assets which they purports to own or lease, including
all assets (real, personal or mixed, tangible or intangible) reflected in the
September 30, 1997 consolidated financial statements of the Company, or acquired
by the Company thereafter, except those assets disposed of in the ordinary
course of business after September 30, 1997, and the title to each such property
and asset is free and clear of any title defects, objections, liens, mortgages,
security interests, pledges, charges and encumbrances, adverse claims, equities
or other adverse interests of any kind including without limitation, leases,
chattel mortgages, conditional sales contracts, collateral security arrangements
and other title or interest retention arrangements (collectively,
"Encumbrances"), except (i) any lien for taxes or other governmental charges not
yet delinquent, or the validity of which is being contested in good faith by
appropriate proceedings and as to which adequate reserves have been established
by the Company, (ii) any Encumbrances reflected on the financial statements
contained in the Company SEC Documents, with such changes in the amount thereof
as may have occurred since September 30, 1997 in the ordinary course of business
and which changes will not materially reduce the
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aggregate value of the property and assets held by the Company or its
Subsidiaries, (iii) such other imperfections of title or Encumbrances which, as
of the Effective Time, will not materially reduce the aggregate value of the
property and assets of the Company or its Subsidiaries, and (iv) any
Encumbrances or other matters identified in a disclosure letter delivered to
Crescent pursuant to this Agreement.
Section 3.23 Leases. All leases of real or personal property having a term
of one year or more and with aggregate remaining lease payments due of $50,000
or more to which the Company and/or its Subsidiaries are a party are in good
standing, valid and effective in accordance with their respective terms, and
there is not under any of such leases any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default and in respect of which the Company has not taken adequate steps to
prevent a default from occurring) that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company,
materially impair the ability of the Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except
as contemplated by Section 6.3, during the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause each of its
Subsidiaries to, carry on its business in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all reasonable efforts to keep available the services
of its current officers and employees and preserve its relationships with
customers, suppliers, licensors, lessors and others having business dealings
with it to the end that its goodwill and ongoing business shall be unimpaired at
the Effective Time; provided, however, that the Company shall be permitted to
terminate or modify the business and operations of the Company's hotel/casino
facility located in Kansas City, Missouri in the event that an order, judgment,
injunction, award or decree of any Governmental Entity against the Company or
its Subsidiaries is granted or issued which results in the suspension,
termination or revocation of the gaming licenses for such hotel/casino facility.
Except as otherwise expressly permitted by this Agreement, the Company shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of Crescent:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than dividends declared and paid on the Company
Preferred Stock or the Redeemable Preferred Stock in the ordinary course
of business and customary with past practice, and dividends and other
distributions by direct or indirect wholly owned Subsidiaries), (ii) other
than in the case of any direct or indirect wholly owned Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in
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respect of, in lieu of or in substitution for shares of its capital stock
or (iii) purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any of its Subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(b) except as set forth in Section 5.17, issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of its capital stock, any
other voting securities or equity equivalent or any securities convertible
into, or any rights, warrants or options to acquire any such shares,
voting securities, equity equivalent or convertible securities, other than
(i) the issuance of shares of Company Common Stock (and associated Rights)
upon the exercise of employee stock options pursuant to the Company Plans
outstanding on the date of this Agreement in accordance with their current
terms and (ii) the issuance of Company Common Stock upon the conversion of
shares of Company Preferred Stock or Redeemable Preferred Stock;
(c) amend its articles or certificate of incorporation or by-laws or
other comparable organizational documents;
(d) except as set forth in Section 5.23, acquire or agree to acquire
(i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or (ii) any assets that are, individually
or in the aggregate material to the Company and its Subsidiaries taken as
a whole, other than transactions that are in the ordinary course of
business consistent with past practice and not material to the Company and
its Subsidiaries taken as a whole;
(e) except as set forth in a disclosure letter making reference to this
section, sell, lease, license, mortgage, grant an interest in or easement
in, or otherwise encumber or subject to any Lien or otherwise dispose of,
or agree to sell, lease, license, mortgage, grant an interest in or
easement in, or otherwise encumber or subject to any Lien or otherwise
dispose of, any of its assets, other than transactions that are in the
ordinary course of business consistent with past practice and not material
to the Company and its Subsidiaries taken as whole;
(f) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities or warrants or other
rights to acquire any debt securities, guarantee any debt securities or
make any loans, advances or capital contributions to, or other investments
in, any other person, or enter into any arrangement having the economic
effect of any of the foregoing, other than (i) indebtedness incurred in
the ordinary course of business consistent with past practice and (ii)
indebtedness, loans, advances, capital contributions and investments
between the Company and any of its wholly owned Subsidiaries or between
any of such wholly owned Subsidiaries;
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(g) except as set forth in Section 5.23, alter (through merger,
liquidation, reorganization, restructuring or in any other fashion) the
corporate structure or ownership of the Company or any Subsidiary;
(h) except as provided in Sections 5.8 and 5.18, enter into or adopt
any new, or amend any existing severance plan, agreement or arrangement or
enter into any new compensation or other welfare arrangement or plan, or
amend any existing Company Plan or employment or consulting agreement,
other than as required by law, except that the Company or its Subsidiaries
may enter into (a) employment agreements if such agreements (i) are no
longer than one year in duration (ii) provide for an annual base salary of
less than $150,000, and (iii) provide, in the aggregate, for annual base
salaries of less than $1,000,000, and (b) consulting agreements in the
ordinary course of business that are terminable on no more than 90 days'
notice without penalty;
(i) except (1) as permitted under Section 4.1(h), or (2) to the extent
required by written employment agreements existing on the date of this
Agreement, increase the compensation payable or to become payable to its
officers or employees, except for (i) increases in the ordinary course of
business consistent with past practice in salaries or wages of non-officer
employees of the Company or any of its Subsidiaries and (ii) except to the
extent required under the terms of any applicable incentive plan;
(j) grant or award any stock options, restricted stock, performance
shares, stock appreciation rights or other equity-based incentive awards;
(k) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles);
(l) except as set forth in a disclosure letter making reference to this
section, make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $1,000,000 or which, in the
aggregate, are in excess of $10,000,000;
(m) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary course
of business (i) consistent with past practice, of liabilities reflected or
reserved against in, or contemplated by, (a) the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company SEC Documents or (b) the condensed consolidated balance sheets of
the Company and its Subsidiaries as set forth in a disclosure letter
making reference to this section, or (ii) incurred in the ordinary course
of business consistent with past practice;
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(n) settle or compromise any material federal, state, local or foreign
tax liability; or
(o) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.2 Conduct of Business by Crescent Pending the Merger. Except as
contemplated by Section 6.3, during the period from the date of this Agreement
to the Effective Time, Crescent shall, and shall cause each of its Subsidiaries
to, carry on its or their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use all reasonable efforts to keep available
the services of its or their respective current officers and employees and
preserve their respective relationships with customers, suppliers, licensors,
lessors and others having business dealings with them to the end that their
goodwill and ongoing business shall be unimpaired at the Effective Time. Except
as otherwise expressly permitted by this Agreement, Crescent shall not, and
shall not permit any of its Subsidiaries to, without the prior written consent
of the Company:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders or
stockholders, as applicable, in their capacity as such (other than (A) any
extraordinary dividend paid or to be paid by Crescent which Crescent
reasonably determines is sufficient, when considered together with all
dividends anticipated to be paid within the tax year including the
Effective Time, to equal all anticipated current and accumulated earnings
and profits for such tax year of the Company and Crescent, (B)
distributions in the aggregate not to exceed the greater of (i) the amount
of any quarterly dividend that may be paid by Crescent in the ordinary
course and (ii) distributions of "real estate investment taxable income"
(as such term is defined for purposes of the Code) without regard to any
net capital gains or the deduction for dividends paid (provided that this
Section 4.2(a) shall not be deemed to restrict any increases in the
dividend rate of Crescent in the ordinary course consistent with past
practice) and (C) dividends and other distributions by direct, indirect or
wholly owned Subsidiaries) or (ii) other than in the case of any
Subsidiary, split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for Common Shares;
(b) in the case of Crescent only, amend its Declaration of Trust;
(c) take or omit any action that would reasonably be expected to cause
Crescent to cease to qualify as a "real estate investment trust" for
federal income tax purposes; or
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(d) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 4.3 No Solicitation.
(a) Except as may be required pursuant to this Agreement, the Company shall
not, nor shall it permit any of its Subsidiaries to, nor shall it authorize or
permit any officer, director or employee of or any investment banker, attorney,
accountant, agent or other advisor or representative of the Company or any of
its Subsidiaries to, (i) solicit, initiate, or encourage the submission of, any
takeover proposal, (ii) except to the extent permitted by paragraph (b), enter
into any agreement with respect to any takeover proposal or (iii) participate in
any discussions or negotiations regarding or furnish to any person any
information with respect to the Company's business, properties or assets, or
take any other action to facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any takeover
proposal; provided, however, that if prior to the Company Stockholder Meeting
(as defined in Section 5.1), the Company shall have received an unsolicited
written takeover proposal from a reputable buyer which offer, in the written
opinion of Salomon Smith Barney, as the Company's financial advisors, appears to
be a "superior proposal" (as defined below) and which, in the written opinion of
legal counsel to the Company reasonably acceptable to Crescent, the Company's
Board of Directors is legally obligated to consider by principles of fiduciary
duty to stockholders under the NGCL, the foregoing restrictions shall not apply
to such proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of or any investment banker, attorney, accountant,
agent or other advisor or representative of the Company or any of its
Subsidiaries, whether or not such person is purporting to act on behalf of the
Company or otherwise, shall be deemed to be a breach of this paragraph by the
Company. For all purposes of this Agreement, "takeover proposal" means any
proposal, other than a proposal by Crescent or an affiliate of Crescent for a
merger, consolidation, share exchange, business combination or other similar
transaction involving the Company or any of its Significant Subsidiaries or any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of the Company), other than a proposal or offer by Crescent or an
affiliate of Crescent (i) to acquire in any manner, directly or indirectly, an
equity interest in or any voting securities of, the Company or any of its
Significant Subsidiaries or (ii) to acquire or lease in any manner, directly or
indirectly, any property, business or other assets that, individually or in the
aggregate, would satisfy any of the tests for a "significant subsidiary" within
the meaning of Rule 1-02 of Regulation S-X of the SEC. The Company immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any persons conducted heretofore with respect to, or that could reasonably
be expected to lead to, any takeover proposal. As used herein, a "Significant
Subsidiary" means any Subsidiary that would constitute a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Crescent,
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the approval or recommendation by the Board of Directors of the Company or any
such committee of this Agreement, any of the transactions contemplated by this
Agreement, or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any takeover proposal, or (iii) take action to render the Rights
inapplicable to any takeover proposal. Notwithstanding the foregoing, the Board
of Directors of the Company, to the extent required by the fiduciary obligations
thereof, as determined by and set forth in the written opinion of legal counsel
to the Company reasonably acceptable to Crescent, may approve or recommend (and,
in connection therewith, withdraw or modify its approval or recommendation of
this Agreement or the Merger) a Superior Proposal (as defined below), subject to
the terms set forth in this Section 4.3(b). Prior to approving or recommending a
Superior Proposal, entering into a binding written agreement with respect to the
transaction contemplated by any such Superior Proposal or withdrawing or
modifying its approval or recommendation of this Agreement, the Company (i)
shall notify Crescent in writing that it intends to accept a Superior Proposal
and enter into such a binding, written agreement with respect to the transaction
contemplated thereby, and (ii) attach the most current version of such agreement
to such notice. Crescent shall have the opportunity, within ten business days of
receipt of the Company's written notification of its intention to enter into a
binding agreement for a Superior Proposal, to make an offer that the Board of
Directors of the Company determines, in good faith after consultation with its
financial advisors, is at least as favorable, from a financial point of view, to
the shareholders of the Company as the Superior Proposal. The Company agrees
that it will not enter into a binding agreement referred to in clause (i) above
until at least the eleventh business day after it has provided the notice to
Crescent required thereby and to notify Crescent promptly if its intention to
enter into a written agreement referred to in its notification shall change at
any time after giving such notification. For all purposes of this Agreement,
"superior proposal" means a bona fide written proposal made by a third party to
acquire the Company pursuant to a tender or exchange offer, a merger, a share
exchange, a sale of all or substantially all its assets or otherwise on terms
which, in the written opinion of Salomon Smith Barney, are financially superior
to those provided for in the Merger, and for which financing, to the extent
required, is then fully committed or which, in the good faith judgment of
Salomon Smith Barney is reasonably capable of being financed by such third
party. If, to the extent permitted by this Section 4.3(b), the Board of
Directors of the Company approves or recommends a superior proposal, the Company
may take appropriate action to render the Rights inapplicable to such superior
proposal.
(c) Each of Frank J. Fertitta III, Lorenzo J. Fertitta III and Blake L.
Sartini, by such individual's execution of this Agreement, agrees to vote the
shares of capital stock of the Company owned by such individual that have the
power to vote in favor of the Merger; provided that such individuals shall be
free to vote their shares in their sole discretion if the Board of Directors of
the Company terminates this Agreement in accordance with Section 7.1(g) hereof.
(d) The Company promptly shall immediately advise Crescent orally and in
writing of any takeover proposal or any inquiry with respect to or which could
reasonably be expected to lead to any takeover proposal, the material terms and
conditions of such takeover
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proposal or inquiry and the identity of the person making any such takeover
proposal or inquiry. The Company will keep Crescent fully informed of the status
and details of any such takeover proposal or inquiry.
Section 4.4 Third Party Standstill Agreements. Except to the extent
reasonably required in connection with the Company's obligations under this
Agreement, during the period from the date of this Agreement through the
Effective Time, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill or similar agreement to which the
Company or any of its Subsidiaries is a party (other than any involving
Crescent) unless, in the written opinion of counsel to the Company reasonably
acceptable to Crescent, failure to take such action would violate the fiduciary
obligations of the Board of Directors of the Company, under applicable law.
During such period, the Company agrees to enforce, to the fullest extent
permitted under applicable law, the provisions of any such agreements,
including, but not limited to, obtaining injunctions to prevent any breaches of
such agreements and to enforce specifically the terms and provisions thereof in
any court of the United States or any state thereof having jurisdiction.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholders Meeting. The Company shall, as soon as
practicable following the date of this Agreement, duly call, give notice
of, convene and hold, a meeting of its stockholders, (the "Company Stockholder
Meeting") for the purpose of considering the approval of this Agreement. The
Company will, through its Board of Directors, recommend to its stockholders,
approval of such matters and shall not withdraw such recommendation except to
the extent that the Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of this Agreement of the Merger as
permitted by Section 4.3(b). Without limiting the generality of the foregoing,
the Company agrees that its obligations pursuant to the first sentence of this
Section 5.1 shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any takeover proposal. The Company
and Crescent shall coordinate and cooperate with respect to the timing of such
meeting.
Section 5.2 Filings; Other Actions.
(a) The Company and Crescent shall promptly prepare and file with the SEC
the Proxy Statement and Crescent shall prepare and file with the SEC the
Registration Statement, in which the Proxy Statement will be included as a
prospectus. Each of Crescent and the Company shall use all reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, the Company shall mail the
Proxy Statement to its stockholders. Crescent shall also take any action (other
than qualifying to do business in any jurisdiction in which they are currently
not so qualified) required to be taken under any applicable state securities
laws in connection with the issuance
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of Common Shares and Crescent Convertible Preferred Shares in the Merger and
upon the exercise of the Substitute Options (as defined in Section 5.8), and the
Company shall furnish all information concerning the Company and the holders of
Company Common Stock as may be reasonably requested in connection with any such
action, including information relating to the number of Common Shares and
Crescent Convertible Preferred Shares required to be registered.
(b) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from, or delivered by any of the
foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby; provided, however, that neither party shall be required to
provide the other with copies of individuals' gaming applications and other
information provided to gaming regulators with respect thereto.
(c) Each of the Company and Crescent will promptly, and in any event within
twenty business days after execution and delivery of this Agreement, make all
filings or submissions as are required under the HSR Act. Each of the Company
and Crescent will promptly furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submissions necessary under the HSR Act. Without
limiting the generality of the foregoing, each of the Company and Crescent will
promptly notify the other of the receipt and content of any inquiries or
requests for additional information made by any Governmental Entity in
connection therewith and will promptly (i) comply with any such inquiry or
request and (ii) provide the other with a description of the information
provided to any Governmental Entity with respect to any such inquiry or request.
In addition, each of the Company and Crescent will keep the other apprised of
the status of any such inquiry or request.
Section 5.3 Comfort Letters.
(a) The Company shall use all reasonable efforts to cause to be delivered
to Crescent "comfort" letters of Arthur Andersen LLP, the Company's independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, and addressed to Crescent and the
Company, in form and substance reasonably satisfactory to Crescent and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
(b) Crescent shall use all reasonable efforts to cause to be delivered to
the Company "comfort" letters of Arthur Andersen LLP, Crescent's independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, and addressed to the Company and
Crescent, in form and substance reasonably
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satisfactory to the Company and reasonably customary in scope and substance
for letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement.
Section 5.4 Access to Information. Subject to currently existing
contractual and legal restrictions applicable to Crescent or to the Company or
any of its Subsidiaries, each of Crescent and the Company shall, and shall cause
each of its Subsidiaries to, afford to the accountants, counsel, financial
advisors and other representatives of the other party hereto reasonable access
to, and permit them to make such inspections as they may reasonably require,
during normal business hours during the period from the date of this Agreement
through the Effective Time, all their respective properties, books, tax returns,
contracts, commitments and records (including, without limitation, the work
papers of independent accountants, if available and subject to the consent of
such independent accountants) and, during such period, each of Crescent and the
Company shall, and each shall cause each of its Subsidiaries to, furnish
promptly to the other (i) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities laws and (ii) all other information
concerning its business, properties and personnel as the other may reasonably
request. No investigation pursuant to this Section 5.4 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 5.5 Compliance with the Securities Act. Within 30 days following
the date of this Agreement, the Company shall cause to be prepared and delivered
to Crescent a list (reasonably satisfactory to counsel for Crescent) identifying
all persons who, at the time of the Company Stockholder Meeting, in the
Company's reasonable judgment may be deemed "affiliates" of the Company as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). The Company shall use all reasonable efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to deliver to
Crescent on or prior to the Effective Time a written agreement in substantially
the form of Schedule 5.5 hereto, executed by such person.
Section 5.6 Stock Exchange Listings. Crescent shall use all reasonable
efforts to list on the NYSE, upon official notice of issuance, the Common Shares
and the Crescent Convertible Preferred Shares to be issued in connection with
the Merger.
Section 5.7 Fees and Expenses.
(a) Except as provided in Section 5.7(b) and (c), whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including the fees and
disbursements of counsel, financial advisors and accountants, shall be paid by
the party incurring such costs and expenses, except that expenses incurred in
connection with printing and mailing the Proxy Statement and the Registration
Statement shall be borne equally by Crescent and the Company.
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(b) Provided that Crescent is not in material breach of its
representations, warranties and agreements under this Agreement, (i) if this
Agreement is terminated by either Crescent or the Board of Directors of the
Company pursuant to Section 7.1(e), (ii) if this Agreement is terminated by
Crescent pursuant to Section 7.1(f), or (iii) if this Agreement is terminated by
the Board of Directors of the Company pursuant to Section 7.1(g), then the
Company shall pay to Crescent $54,000,000 (the "Crescent Termination Fee") in
same-day funds, plus (notwithstanding paragraph (a) of this Section 5.7) all the
expenses (as defined below), on the date of such termination or if Crescent
elects, over a two-year period beginning on the date of termination with payment
amounts and dates to be determined by Crescent. For purposes of this Section
5.7, the "transaction value" shall mean the aggregate value of the consideration
to be paid by Crescent for the Company's equity securities, plus aggregate
liabilities of the Company as shown on its most recent financial statement.
(c) If this Agreement is terminated and, as a result of such termination,
Crescent is entitled to the Crescent Termination Fee as provided in Section
5.7(b) above, then the Company shall (notwithstanding paragraph (a) of this
Section 5.7), on the date of such termination, pay to Crescent the cash amount
necessary to permit Crescent fully to reimburse itself and its affiliates for
all out-of-pocket fees and expenses incurred at any time prior to such
termination by any of them or on their behalf in connection with the Merger, the
preparation of this Agreement and the transactions contemplated by this
Agreement (including any currency or interest rate hedging activities in
connection with the transactions contemplated hereby), including (x) all fees
and expenses of counsel, investment banking firms, financial advisors
(regardless of whether such financial advisors are affiliates of Crescent),
accountants, experts and consultants to Crescent or any of their affiliates and
(y) all fees and expenses payable to banks, investment banking firms and other
financial institutions and their respective counsel, accountants and agents in
connection with arranging or providing financing) (fees and expenses under
clause (y) collectively, "Financing Fees," and the fees and expenses
contemplated by this paragraph (c), collectively, the "Expenses").
(d) The parties acknowledges that the agreements contained in paragraphs
(b) and (c) of this Section 5.7 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, neither
would enter into this Agreement; accordingly, if any person fails to pay
promptly any amount due pursuant to this Section 5.7 and, in order to obtain
such payment, another party commences a suit that results in a judgment for any
such amount, the party against whom the judgment is rendered shall pay to the
complaining party its cost and expenses (including attorneys' fees) in
connection with such suit together with interest on the amount of the fee at the
prime or base rate of Citibank, N.A. from the date such payment was due under
this Agreement.
Section 5.8 Stock Options.
(a) As of the Effective Time, each Company Stock Option that is outstanding
immediately prior to the Effective Time pursuant to the stock option plans that
are part of the Company's Stock Compensation Program (and excluding any "stock
purchase plan" within the meaning of Section 423 of the Code) in effect on the
date hereof (the "Stock Plans") shall
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be assumed by Crescent and become and represent a fully exercisable option to
purchase the number of Common Shares (a "Substitute Option") (decreased to the
nearest full share) determined by multiplying (i) the number of shares of
Company Common Stock subject to such Company Stock Option immediately prior to
the Effective Time by (ii) the Exchange Ratio, at an exercise price per Common
Share (rounded up to the nearest tenth of a percent) equal to the exercise price
per share of Company Common Stock immediately prior to the Effective Time.
Crescent shall pay cash to holders of Company Stock Options in lieu of issuing
fractional Common Shares upon the exercise of Substitute Options. As of the
Effective Time, each Substitute Option shall be subject to the same terms and
conditions as were applicable immediately prior to the Effective Time under the
related Company Stock Option and Stock Plan under which it was granted,
including those providing for the accelerated exercisability and other special
rights arising upon an "Acceleration Event" in accordance with the terms of such
Stock Plan. The Company agrees to use all reasonable efforts to obtain any
necessary consents of holders of Company Stock Options and take such other
actions as may be necessary to effect this Section 5.8. The accelerated lapse of
restrictions and other special rights with respect to any shares of restricted
Company Common Stock issued under the Stock Plans shall also be preserved
following the Effective Time in accordance with the terms of the Stock Plans.
(b) In respect of each Company Stock Option as converted into a Substitute
Option pursuant to Section 5.8(a) and assumed by Crescent, and the Common Shares
underlying such option, Crescent shall file and keep current a registration
statement on Form S-8 (or a post-effective amendment to a Registration Statement
on Form S-8) or other appropriate form for as long as such options remain
outstanding and shall reserve sufficient Common Shares for issuance upon
exercise of such Substitute Options.
(c) The provisions of this Section 5.8 are intended to be for the benefit
of, and shall be enforceable by, each person who is or has been an employee of
the Company or any of its Subsidiaries and is a holder of Company Stock Options
under the Stock Plans, and such employee's heirs and personal representatives
and shall be binding on all successors and assigns of Crescent.
Section 5.9 Reasonable Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including, but not limited to: (i) obtaining all necessary actions or
non-actions, waivers, consents and approvals from all Governmental Entities and
making all necessary applications, registrations and filings (including filings
with Governmental Entities) and taking all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Entity (including those in connection with the HSR Act, state
takeover statutes and Gaming Laws), (ii) obtaining all necessary consents,
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approvals or waivers from third parties, (iii) defending any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity with respect to the Merger or this Agreement vacated
or reversed, (iv) taking any and all actions necessary to satisfy all of the
conditions applicable to such party as set forth in Article VI of this
Agreement, and (v) executing and delivering any additional instruments necessary
to consummate the transactions contemplated by this Agreement.
(b) Each of the Company and Crescent shall use all reasonable efforts not
to take any action that, in any such case, might reasonably be expected to (i)
cause any of the representations or warranties made by it in this Agreement that
is qualified as to materiality to be untrue, (ii) cause any of the
representations or warranties made by it contained in this Agreement that is not
so qualified to be untrue in any material respect, (iii) result in a breach of
any covenant made by it in this Agreement, (iv) result directly or indirectly in
any of the conditions to the Merger set forth in Article VI not being satisfied
or (v) impair the ability of the parties to consummate the Merger at the
earliest practicable time (regardless of whether such action would otherwise be
permitted or not prohibited hereunder).
(c) The Company shall use its reasonable best efforts to restructure its
existing leases prior to the Effective Time so that the terms thereof shall
conform to the provisions of Section 22.3 of the Master Lease Agreement (as
hereinafter defined).
Section 5.10 Public Announcements. Crescent and the Company will not issue
any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions (i) prior to ten business days from the date hereof, unless
otherwise agreed, and (ii) without prior consultation with each other party,
except as may be required by applicable law.
Section 5.11 Transfer and Gains Tax. Crescent will pay any federal, state,
local, foreign or provincial tax which is attributable to the transfer of the
beneficial ownership of the Company's or its Subsidiaries' real and personal
property, if any (collectively, the "Gains Taxes"), any penalties or interest
with respect to the Gains Taxes, payable in connection with the consummation of
the Merger (except as otherwise provided in Section 1.7), any federal, state,
local, foreign or provincial tax which is attributable to the transfer of
Company Common Stock or Common Shares pursuant to the terms of this Agreement
(collectively, "Stock Transfer Taxes") and any penalties or interest with
respect to any such Stock Transfer Taxes. The Company and Crescent agree to
cooperate with the other in the filing of any returns with respect to the Gains
Taxes, including supplying in a timely manner a complete list of all real
property interests held by the Company and its Subsidiaries and any information
with respect to such property that is reasonably necessary to complete such
returns. The portion of the consideration allocable to the real property of the
Company and its Subsidiaries shall be agreed to between Crescent and the
Company. The stockholders of the Company shall be deemed to have agreed to be
bound by the allocation established pursuant to this Section 5.11 in the
preparation of any return with respect to the Gains Taxes.
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Section 5.12 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Crescent and the Company and their respective Boards of Trust Managers or
Directors, as the case may be, shall use all reasonable efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and shall otherwise act to minimize the effects of any such
statute or regulation on the transactions contemplated hereby.
Section 5.13 Indemnification; Directors and Officers Insurance.
(a) Crescent agrees that all rights to indemnification and exculpation from
liabilities for acts or omissions occurring prior to the Effective Time now
existing in favor of the current or former directors or officers of the Company
and its Subsidiaries as provided in their respective articles or certificates of
incorporation or by-laws (or comparable organizational documents) and any
indemnification agreements of the Company shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a period of
not less than five years from the Effective Time and the obligations of the
Company in connection therewith shall be assumed by Crescent. Crescent shall
provide, or shall cause the Surviving Entity to provide, the Company's current
directors and officers an insurance and indemnification policy (including any
fiduciary liability policy) that provides coverage with respect to any claims
made during the five-year period following the Effective Time for events
occurring prior to the Effective Time (the "D&O Insurance") that is
substantially similar to the Company's existing policies or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided, however, that the Surviving Entity shall not be required to pay an
annual premium for the D&O insurance in excess of 120 percent of the last annual
premium paid prior to the date hereof (which premium the Company represents and
warrants to be approximately $540,000 in the aggregate), but if such annual
premium would but for this proviso exceed such amount, then Crescent shall
purchase as much coverage as possible for such amount.
(b) The provisions of this Section 5.13 are intended to be for the benefit
of, and shall be enforceable by, each person who is or has been a director or
officer of the Company or a subsidiary of the Company, and such director's or
officer's heirs and personal representatives and shall be binding on all
successors and assigns of Crescent.
Section 5.14 Notification of Certain Matters. Crescent shall use all
reasonable efforts to give prompt notice to the Company, and the Company shall
use all reasonable efforts to give prompt notice to Crescent, of: (i) the
occurrence, or nonoccurrence, of any event the occurrence, or nonoccurrence, of
which it is aware and which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects, (ii) any failure of either Crescent or the Company, as the case may
be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder
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or (iii) any event, change or development that, individually or in the
aggregate, has had, or would reasonably be expected to have, a Material Adverse
Effect on Crescent or the Company, as the case may be; provided, however, that
the delivery of any notice pursuant to this Section 5.14 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.15 Rights Agreement. The Board of Directors of the Company shall
take all further action (in addition to that referred to in Section 3.16)
requested in writing by Crescent (including redeeming the Rights immediately
prior to the Effective Time of the Merger or amending the Rights Agreement) in
order to render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement. Except as requested in writing by Crescent,
prior to the Company Stockholder Meeting, the Board of Directors of the Company
shall not (i) amend the Rights Agreement or (ii) take any action with respect
to, or make any determination under, the Rights Agreement (including a
redemption of the Rights).
Section 5.16 Schedules, Exhibits and Disclosure Letters. Whenever, in this
Agreement, reference is made to a schedule, exhibit or disclosure letter (or
other similar provision for information to be made available), such schedule,
exhibit or disclosure letter (or other similar provision of information) must be
provided in writing and by the appropriate party on the date of execution of
this Agreement, and actually received by the other parties hereto, and no such
schedule, exhibit or disclosure letter (or other similar provision of
information) shall be effective if provided after such date.
Section 5.17 Preferred Stock Investment. At the option of the Company,
Crescent agrees to purchase from the Company up to an aggregate of 115,000
shares of a new series of preferred stock of the Company with the designations,
rights, preferences and other terms set forth in the Certificate of Resolution
attached hereto as Schedule 5.17 (the "Redeemable Preferred Stock"). Each share
of Redeemable Preferred Stock shall be purchased at a price of $1,000 per share
(plus accrued dividends from the previous regular quarterly dividend payment
date or, if there has not yet been a regular quarterly dividend payment date,
then as of the date hereof, based on a 365-day year) in cash in increments of
5,000 shares. Subject to the conditions below, Crescent must fund the purchase
price for the purchase of shares on the 10th business day following the date of
a notice from the Company to Crescent (a "Draw Notice") stating the number of
shares of Redeemable Preferred Stock to be sold to Crescent on such 10th
business day and the aggregate amount to be paid for such shares; provided that
for purchases of 25,000 shares or more, the date of such purchase shall be the
20th business day following the date of such Draw Notice. Notwithstanding the
foregoing, Crescent shall not be required to purchase shares of Redeemable
Preferred Stock (i) more than two times in any 30-day period (ii) unless, on the
purchase date set forth in a Draw Notice (A) the representations and warranties
of the Company set forth in Article II are true and correct in all material
respects and (B) the Company has not breached any of its covenants set forth in
this Agreement in any material respect, and (iii) unless the number of shares
to be purchased, plus the aggregate number of shares then outstanding, does
not exceed 115,000. Unless written consent is received from Crescent, the
Company agrees to use the net proceeds from sales of
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shares of Redeemable Preferred Stock to repay indebtedness under the Company's
Amended and Restated Reducing Revolving Loan Agreement dated as of March 19,
1996, as amended, borrowings under which were used for acquisitions and
master-planned expansions. The parties agree that the provisions of this Section
5.17 shall survive any termination of this Agreement. Crescent agrees to vote
all shares of the Company's equity securities held by Crescent in favor of the
Merger, and any transferee of the Redeemable Preferred Stock shall be subject to
such agreement to vote in favor of the Merger.
Section 5.18 Joint Venture. The parties anticipate that Crescent Operating,
Inc. ("COI") will serve as one of the parties to an Agreement of Limited
Partnership by and among (i) COI and certain of its affiliates and (ii) entities
owned by certain members of the Company's existing management (the "Operating
Joint Venture"). Pursuant to the obligation of Crescent Real Estate Equities
Limited Partnership ("Crescent OP") to offer the opportunity to participate in
the Operating Joint Venture to COI under that certain Intercompany Agreement to
which they are parties, promptly following the date of this Agreement, Crescent
will cause Crescent OP to make such offer. In the event that COI does not accept
the offer to become a party to the Operating Joint Venture, Crescent shall
promptly take all necessary action to provide another entity to serve in that
capacity at the Effective Time (COI or the entity serving in such capacity being
referred to herein as the "JV Parent"). Frank J. Fertitta III, Lorenzo J.
Fertitta and Blake L. Sartini (the "Ownership Group") shall form an entity (the
"Company JV Parent") and cause such entity to enter into the Agreement of
Limited Partnership, and the Company shall cause an additional entity (i) to be
formed by other members of its management and (ii) to enter into the Agreement
of Limited Partnership. A form of the Agreement of Limited Partnership is
attached hereto as Schedule 5.18(i).
The Company shall sell, assign, transfer and convey, prior to the
Effective Time, to the Operating Joint Venture, as directed by Crescent and with
Crescent's approval, certain of the Company's non-real estate assets pursuant to
the Bill of Sale attached hereto as Schedule 5.18(ii).
At the Effective Time, Crescent shall enter into, through Crescent OP,
and shall cause the JV Parent and the Ownership Group shall cause the Company JV
Parent to enter into, on behalf of the Operating Joint Venture, one or more
master lease agreements, in the form of Schedule 5.18(iii) attached hereto (the
"Master Lease Agreement"), with the Operating Joint Venture; provided, however,
that (i) Crescent shall have the option (on a lease-by-lease basis), prior to
the Effective Date, to include a provision in the Master Lease Agreement that,
as to any sublease that does not conform to the requirements of the Master Lease
Agreement as to subleases, the percentage rent provided for in the Master Lease
Agreement will be computed to exclude any revenues from such sublease, and (ii)
the parties shall make such revisions to the definition of "Gross Revenues" and
"Gross Winnings" contained in the Master Lease Agreement as shall be necessary
to comply with the provisions of Section 856 of the Code relating to rents from
real property not based on profits.. The parties acknowledge that Crescent and
the Ownership Group have entered into a letter agreement of even date herewith
regarding the terms upon which the Master Lease Agreement will be executed.
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At or prior to the Effective Time, the Company shall assign, and
Crescent , the Company and the Ownership Group shall cause the Operating Joint
Venture to assume the employment agreements (the "Employment Agreements") of
each of Frank J. Fertitta III, Glenn C. Christenson, Blake L. Sartini, Scott M.
Nielson, and William W. Warner (the "Key Executives") and the other management
employees listed on Schedule 5.18(iv) hereto (the "Management Employees") and
the Company Plans other than the Stock Plans. At such time, Crescent shall cause
the JV Parent to guarantee, in the form of Schedule 5.18(v), the performance by
the Operating Joint Venture of its obligations under such Employment Agreements
and Company Plans (the "JV Parent Guarantee"); provided that the JV Parent
Guarantee shall be subordinate to all obligations of the JV Parent to Crescent.
In addition, Crescent shall unconditionally guarantee, in the form of Schedule
5.18(vi), the performance by the JV Parent of its obligations under the JV
Parent Guarantee with respect only to the Key Executives (the "Crescent
Guarantee"), without regard to any such subordination. The obligations of the JV
Parent to execute the JV Parent Guarantee and Crescent to execute the Crescent
Guarantee as to any person shall be conditioned on such person accepting
employment with the Operating Joint Venture. The Company shall use its best
efforts to cause each of the Management Employees and the Key Executives to
consent to the assignment of such employee's employment agreement to the
Operating Joint Venture. The rights and benefits of the Management Employees and
the Key Executives under the employment agreements after the assignment to the
Operating Joint Venture shall be at least as favorable to such persons as they
were immediately prior to such assignment: with the only changes being: (i) the
substitution of the Operating Joint Venture as the employer; (ii) the
substitution of the Operating Joint Venture as the primary obligor under such
Company Plans and (iii) an amendment to the Employment Agreement of Frank J.
Fertitta III to include a non-competition provision identical to that included
in the other Employment Agreements in the form of Schedule 5.18(vii). Any such
assignment and acceptance of employment shall not be deemed to imply in any way
that the change-of-control provisions of such agreements and plans have not been
triggered with respect to changes-of-control payments or terminations after a
change-of-control. In addition, the parties agree that all securities issuable,
or any compensation based on the market value of specified securities, under any
of the Company Plans other than the Stock Plans shall be issued in the form of,
and shall be based on the market value of, the common stock of the JV Parent.
Section 5.19 Intentionally omitted.
Section 5.20 Third Party Beneficiary. Crescent's obligations under (i)
Section 5.18 with respect to the employment of the Key Executives, (ii) Section
6.2(i) with respect to the appointment of Frank J. Fertitta III and Lorenzo J.
Fertitta to the Board of Trust Managers of Crescent, and (iii) Section 5.22 with
respect to the Registration Rights and Lock-Up Agreements shall be deemed to be
for the benefit of each of those individuals, and the Ownership Group,
respectively, as well as the Company, and each of those individuals,
respectively, shall have a direct right of action, as a third party beneficiary
or otherwise, against Crescent for any breach thereof. Neither the Company nor
Crescent shall amend, modify or waive any of the aforementioned provisions,
without the express written consent of each of the aforementioned individuals
affected thereby.
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Section 5.21 Liability of Crescent under Company Plans and Employment
Agreements. Except for the Stock Plans referred to in Section 5.8 and the
obligations of Crescent described in Section 5.18, Crescent shall not have, and
the Company shall take all steps within its control to assure that Crescent
shall not have, any obligation or liability under any of the Company Plans or
any employment agreement to which the Company is a party that is now or
hereafter in effect.
Section 5.22 Agreement with Management. Crescent and each member of the
Ownership Group shall enter into Registration Rights and Lock-Up Agreements in
the form of Schedule 5.22 attached hereto.
Section 5.23 ARTICLE V.23 Corporate Restructuring. The Company shall merge
all of its Subsidiaries with and into itself, such that on the Closing Date the
Company shall have no Subsidiaries.
Section 5.24 REIT-Related Transactions. The Company shall take such further
actions and engage in such further transactions as determined by Crescent to be
reasonably necessary, in the opinion of counsel to Crescent, to preserve
Crescent's status as a "real estate investment trust" under the Code, so long as
such actions have no adverse economic effect on the Company and its stockholders
in the event the Merger is not consummated.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger shall be subject to
the fulfillment (or waiver by such party) at or prior to the Effective Time of
the following conditions:
(a) Stockholder Approval. At or prior to the Effective Time, this Agreement
shall have been duly approved by the requisite vote of holders of the Company
Common Stock and Convertible Preferred Stock in accordance with applicable law
and the Articles of Incorporation and Bylaws of the Company.
(b) Stock Exchange Listings. The Common Shares and the Crescent Convertible
Preferred Shares issuable in the Merger and pursuant to the Substitute Options
shall have been authorized for listing on the NYSE, subject to official notice
of issuance.
(c) HSR and Other Approvals.
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(i) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been earlier
terminated.
(ii) All consents, approvals, orders or authorizations of or
registrations, declarations or filings with any Governmental Entity, which the
failure to obtain, make or occur would reasonably be expected to have a Material
Adverse Effect on the Company (assuming the Merger had taken place), shall have
been obtained, shall have been made or shall have occurred, and shall be in full
force and effect.
(iii) All consents, approvals, findings of suitability, licenses,
permits, orders or authorizations of and registrations, declarations or filings
with any Governmental Entity with jurisdiction in respect of Gaming Laws, in
each case, required or necessary in connection with the Merger and this
Agreement and the transactions contemplated by this Agreement (including, but
not limited to, approval, licensing or registration of (i) Crescent and its
officers, trust managers and shareholders, as necessary and (ii) the Operating
Joint Venture and any of its subsidiaries) shall have been obtained and made and
shall be in full force and effect.
(d) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purposes shall have been initiated
or, to the knowledge of Crescent or the Company, threatened by the SEC. All
necessary state securities or blue sky authorizations shall have been received.
(e) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Crescent, or any of its respective Subsidiaries, shall
(after the date of this Agreement) have enacted, issued, promulgated, enforced
or entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the Merger or any of the transactions
contemplated hereby illegal; provided, however, that each of the parties shall
have used all reasonable efforts to prevent and to appeal as promptly as
possible any such law, rule, regulation, executive order, decree, injunction or
other order.
(f) Change in Tax Laws.
(i) There shall not have been any federal legislative or regulatory
change that would cause Crescent to cease to qualify as a "real estate
investment trust" for federal income tax purposes.
(ii) There shall not have been any federal legislative or regulatory
change that would cause the Merger to be taxable to any of Crescent, the
Company, the shareholders of Crescent or the stockholders of the Company.
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(g) Agreements with Management. The Operating Joint Venture, the Company JV
Parent and the Ownership Group shall have entered into a Right of First Refusal
and Non-Competition Agreement in the form of Schedule 6.1(g).
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment (or waiver by the Company) at or prior to the Effective Time of the
following additional conditions:
(a) Performance of Obligations; Representations and Warranties. Crescent
shall have performed each of its agreements contained in this Agreement required
to be performed at or prior to the Effective Time, each of the representations
and warranties of Crescent contained in this Agreement that is qualified as to
materiality shall be true and correct at and as of the Effective Time as if made
at and as of such time (other than representations and warranties which address
matters only as of a certain date, which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects at and as of the
Effective Time as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date, which shall be true
and correct in all material respects as of such certain date), in each case
except as contemplated or permitted by this Agreement, and the Company shall
have received certificates signed on behalf of each of Crescent by its Vice
Chairman, President and Chief Executive Officer or Senior Vice President, Law
and Secretary and its Senior Vice President, Chief Financial and Accounting
Officer to such effect.
(b) Consents Under Agreements. Crescent shall have obtained the consent or
approval of each person that is not a Governmental Entity whose consent or
approval shall be required in connection with the transactions contemplated
hereby under any loan or credit agreement, note, mortgage, indenture, lease,
hotel management agreement, joint venture agreement or other agreement or
instrument to which Crescent or a Subsidiary is a party, except as to which the
failure to obtain such consents and approvals, individually or in the aggregate,
would not be expected, in the reasonable opinion of Company, to have a Material
Adverse Effect on the Crescent or upon the consummation of the transactions
contemplated in this Agreement.
(c) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or before
any court or governmental authority, agency or tribunal, domestic or foreign, in
each case that has a significant likelihood of success challenging the
acquisition by Crescent of any shares of Company Common Stock, seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or seeking to obtain from Crescent
any damages that are material in relation to the Company, Crescent and its
Subsidiaries taken as a whole.
(d) Tax Opinion. On the Closing Date, the opinion of Shaw, Pittman, Potts &
Trowbridge, counsel to Crescent, shall have been delivered to the Company in
form and substance reasonably satisfactory to the Company stating (i) that
Crescent is a "real estate
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investment trust" for federal income tax purposes, (ii) that consummation of the
transactions contemplated by this Agreement will not cause Crescent to cease to
qualify as a "real estate investment trust" for federal income tax purposes, and
(iii) that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code, and that each
of Crescent and the Company will be a party to that reorganization within the
meaning of section 368(b) of the Code. Such counsel shall not unreasonably
refuse to deliver such opinion, and issues relating to the subsequent transfer
of the assets from Crescent to the Crescent OP shall not constitute a reasonable
basis for refusal to render such opinion. In rendering such opinion, such
counsel shall be entitled to rely upon representations made in this Agreement or
requested by such counsel and made by Crescent and the Crescent OP, and on
representations requested by such counsel and made by the Company.
(e) Legal Opinion. The Company shall have received an opinion of Shaw,
Pittman, Potts & Trowbridge, counsel to Crescent, dated the Closing Date,
substantially in the form attached as Schedule 6.2(e).
(f) Comfort Letter. The Company shall have received, in form and substance
reasonably satisfactory to the Company, from Arthur Anderson LLP, Crescent's
independent public accountants, the "comfort" letter described in Section
5.3(b).
(g) Preferred Stock Investment. Crescent shall have performed all of its
obligations, if any, pursuant to Section 5.17 hereof, in all material respects.
(h) Company Plans. The Operating Joint Venture shall have assumed all
obligations under and adopted the Company Plans (other than the Stock Plans
referred to in Section 5.8), without regard to materiality. The Operating Joint
Venture shall have agreed to honor without modification or contest, and to make
required payments when due under, all Company Plans (as defined herein, but
without regard to materiality) in accordance with their terms as of the date of
this Agreement (as modified to the extent permitted by this Agreement). The
Operating Joint Venture shall have agreed to employ at their current locations
each person who is an employee of the Company immediately prior to the Effective
Time (the "Affected Employees") on terms no less favorable in the aggregate
(including with respect to position, duties, responsibilities, compensation,
incentives and location) than those provided on the date hereof to the Affected
Employees. The Operating Joint Venture shall have agreed to provide each
Affected Employee with benefits that are at least equivalent in the aggregate to
the benefits provided to each such Affected Employee immediately prior to the
Effective Time. Crescent agrees that, for purposes of all employee benefit plans
(including, but not limited to, all "employee benefit plans" within the meaning
of Section 3(3) of ERISA, and all policies and employee fringe benefit programs,
including vacation policies) of the Operating Joint Venture (such plans,
programs, policies and arrangements, the "Buyer Plans") in which the Affected
Employees may participate following the Effective Time under which an employee's
eligibility or benefits depends, in whole or in part, on length of service,
credit will be given to the Affected Employees for service previously credited
with the Company or any affiliates of the Company prior to the Effective Time,
provided, that such crediting of
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service does not result in duplication of benefits, and provided that such
crediting of service shall not be given for benefit accrual purposes under any
Buyer Plan that is a defined benefit plan. Affected Employees shall also be
given credit for any deductible or co-payment amounts paid in respect of the
plan year in which the Effective Time occurs, to the extent that, following the
Effective Time, they participate in any Buyer Plan for which deductibles or
co-payments are required. The Operating Joint Venture shall have caused each
Buyer Plan to waive (i) any preexisting condition restriction or (ii) waiting
period limitation which would otherwise be applicable to an Affected Employee on
or after the Effective Time. On or prior to the Effective Time, the Operating
Joint Venture shall have assumed all liabilities and obligations whatsoever for
all accrued benefits under the Company 401(k) Plan in respect of the Affected
Employees and Crescent shall be relieved of all such liabilities and
obligations. Crescent and the Company shall cooperate in the filing of documents
required, if any, by the transfer of assets and liabilities described herein.
(i) Additional Directors. Frank J. Fertitta III and Lorenzo J. Fertitta
shall have become members of the Boards of Trust Managers of Crescent and the
Board of Directors of the JV Parent.
Section 6.3 Conditions to Obligations of Crescent to Effect the Merger. The
obligations of Crescent to effect the Merger shall be subject to the fulfillment
(or waiver by Crescent) at or prior to the Effective Time of the following
additional conditions:
(a) Performance of Obligations; Representations and Warranties. The Company
shall have performed each of its agreements contained in this Agreement required
to be performed at or prior to the Effective Time, each of the representations
and warranties of the Company contained in this Agreement that is qualified as
to materiality shall be true and correct at and as of the Effective Time as if
made at and as of such time (other than representations and warranties which
address matters only as of a certain date, which shall be true and correct as of
such certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects at and as of the
Effective Time as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date, which shall be true
and correct in all material respects as of such certain date), in each case
except as contemplated or permitted by this Agreement, and Crescent shall have
received a certificate signed on behalf of the Company by its Chief Executive
Officer and its Chief Financial Officer to such effect.
(b) Consents Under Agreements. The Company shall have obtained any
amendments, waivers, consents or approvals with respect to the agreements and
documents listed on Schedule 6.3(b) attached hereto, as Crescent shall
reasonably request.
(c) Letters from Company Affiliates. Crescent shall have received from each
person named in the list referred to in Section 5.5 an executed copy of an
agreement substantially in the form of Schedule 6.3(c) hereto.
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(d) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person that has a
significant likelihood of success (i) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement or seeking to obtain from the Company any damages that are material in
relation to the Company, Crescent and their respective Subsidiaries taken as a
whole, (ii) seeking to prohibit or limit the ownership or operation by the
Company, Crescent or any of its respective Subsidiaries of any material portion
of the combined business or assets of the Company, Crescent and their respective
Subsidiaries, or to compel the Company, Crescent or their respective
Subsidiaries to dispose of or hold separate any material portion of the combined
business or assets of the Company, Crescent and their respective Subsidiaries,
as a result of the Merger or any of the other transactions contemplated by this
Agreement, (iii) seeking to impose limitations on the ability of Crescent to
acquire or hold, or exercise full rights of ownership of, any shares of Company
Common Stock or Convertible Preferred Stock, including, without limitation, the
right to vote any Company Common Stock or Convertible Preferred Stock purchased
by it on all matters properly presented to the stockholders of the Company, (iv)
except as set forth in the Company SEC Documents, seeking to prohibit Crescent
or any of its Subsidiaries from effectively controlling in any material respect
the business or operations of the Company or its Subsidiaries or (v) which
otherwise would reasonably be expected to have a Material Adverse Effect on the
Company; other than any suit, action or proceedings against the Company or its
Subsidiaries seeking to revoke any gaming licenses or require any modification
of the Company's hotel/casino facility located in Kansas City, Missouri.
(e) Rights Agreement. The Rights shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the Rights
Agreement.
(f) Tax Opinion. On the Closing Date, the opinion of Shaw, Pittman, Potts &
Trowbridge, counsel to Crescent, shall have been delivered to Crescent in form
and substance reasonably satisfactory to Crescent stating (i) that Crescent is a
"real estate investment trust" for federal income tax purposes, (ii) that
consummation of the transactions contemplated by this Agreement will not cause
Crescent to cease to qualify as a "real estate investment trust" for federal
income tax purposes, and (iii) that the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of section 368(a) of
the Code, and that each of Crescent and the Company will be a party to that
reorganization within the meaning of section 368(b) of the Code. Also on the
Closing Date, the opinion of Shaw, Pittman, Potts & Trowbridge shall have been
delivered to Crescent in form and substance reasonably satisfactory to Crescent
stating that, except as disclosed in this Agreement or in the SEC Documents, (i)
the transactions contemplated by Section 5.18 shall have complied in all
respects with applicable law, (ii) to the extent applicable, such transactions
shall have been effective to transfer the full and complete interest in and
rights with respect to the disposed assets and (iii) such transactions are not
the subject of any pending or threatened claim or challenge by any person. Such
counsel shall not unreasonably refuse to deliver such opinions, and issues
relating to the subsequent transfer of the assets from Crescent to Crescent OP
shall not constitute a reasonable basis for refusal to render the opinions. In
rendering such
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<PAGE> 52
opinions, such counsel shall be entitled to rely upon representations requested
by such counsel and made by Crescent.
(g) Resignations. Crescent shall have received the resignations of each
officer and director of the Company and each of its Subsidiaries.
(h) Comfort Letter. Crescent shall have received, in form and substance
reasonably satisfactory to Crescent, from Arthur Anderson LLP, the Company's
independent public accountants, the "comfort" letter described in Section
5.3(a).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of any matters presented
in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of Crescent and the Company;
(b) by either Crescent or the Company if there has been a material breach
of the representations, warranties, covenants and agreements on the part of the
other set forth in this Agreement, which breach has not been cured within ten
business days following receipt by the breaching party of notice of such breach
from the nonbreaching party;
(c) by either Crescent or the Company if any permanent order, decree,
ruling or other action of a court or other competent authority restraining,
enjoining or otherwise preventing the consummation of the Merger shall have
become final and non-appealable;
(d) by either Crescent or the Company if the Merger shall not have been
consummated before January 31, 1999, unless the failure to consummate the Merger
is the result of a material breach of this Agreement by the party seeking to
terminate this Agreement; provided, however, that the passage of such period
shall be tolled for any part thereof during which any party shall be subject to
a nonfinal order, decree, ruling or other action restraining, enjoining or
otherwise preventing the consummation of Merger;
(e) by either Crescent or the Board of Directors of the Company if any
required approval of the Merger by the holders of each class of capital stock of
the Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of such stockholders or at
any adjournment thereof;
(f) by Crescent if the Board of Directors of the Company shall or shall
resolve to (i) not recommend, or withdraw its approval or recommendation of,
the Merger, this Agreement or any of the transactions contemplated hereby, (ii)
modify such approval or recommendation
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in a manner adverse to Crescent or (iii) approve or recommend a superior
proposal pursuant to Section 4.3(b); or
(g) by the Board of Directors of the Company if (i) to the extent permitted
by Section 4.3(b), the Board of Directors of the Company authorizes the Company
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company provides notification to
Crescent in accordance with Section 4.3(b), and (ii) Crescent does not make,
within ten business days of receipt of the Company's written notification of its
intention to enter into a binding agreement for a Superior Proposal, an offer
that the Board of Directors of the Company determines, in good faith after
consultation with its financial advisors, is at least as favorable, from a
financial point of view, to the shareholders of the Company as the Superior
Proposal, and (iii) the Company, prior to such termination has paid to Crescent
an amount in cash equal to the sum of the Crescent Termination Fee plus all
Expenses as provided by Section 5.7.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Crescent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Crescent or their respective officers, directors or
trust managers (except for Sections 2.16, 3.20 and 5.7, this Section 7.2 and
Article VIII, which shall survive the termination); provided, however, that
nothing contained in this Section 7.2 shall relieve any party hereto from any
liability for any breach of this Agreement and the obligations under Section
5.17 shall survive the termination.
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors or Trust
Managers, as the case may be, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of the
Company, but, after any such approval, no amendment shall be made which by law
requires further approval by such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing duly
executed by each of the parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the Agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing duly executed by such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
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<PAGE> 54
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall terminate at the Effective Time.
Section 8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to a nationally recognized overnight courier or when telecopied
(with a confirmatory copy sent by such overnight courier) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Crescent, to
Crescent Real Estate Equities Company
777 Main Street
Suite 2100
Fort Worth, TX 76102
Attention: Gerald W. Haddock
President and Chief Executive Officer
Facsimile No.: (817) 878-0429
with copies to:
Crescent Real Estate Equities Company
777 Main Street
Suite 2100
Fort Worth, TX 76102
Attention: David M. Dean
Senior Vice President, Law
Facsimile No.: (817) 878-0429
Robert B. Robbins
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Facsimile No.: (202) 663-8007
(b) if to the Company, to
Station Casinos, Inc.
2411 W. Sahara Avenue
Las Vegas, NV 89120
Attention: Scott M Nielson
Facsimile No.: (702) 367-2424
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<PAGE> 55
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, CA 90017
Attention: Kenneth J. Baronsky
Eric H. Schunk
Facsimile No.: (213) 629-5063
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section or Article, such reference shall be to a Section or Article of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except that the confidentiality and standstill agreement
between the parties shall remain in full force and effect, provided, further,
however, that the Company agrees that such agreement shall not prohibit
Crescent's purchases of the Convertible Preferred Stock. Any shares so purchased
shall be voted in favor of the Merger and any subsequent transferee from
Crescent of the Convertible Preferred Stock shall be bound by the foregoing
voting agreement. Except as set forth in Section 5.20, this Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
Section 8.6 Governing Law. Except to the extent that the laws of the States
of Nevada, Missouri and Louisiana are mandatorily applicable to the Merger,
including, without limitation, the Gaming Laws, this Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other
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<PAGE> 56
terms, conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic and legal substance of the
transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually accepted manner in order that
the transactions contemplated by this Agreement may be consummated as originally
contemplated to the fullest extent possible.
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to obtain specific performance of the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such remedy being
in addition to any other remedy to which any party is entitled at law or in
equity. In any arbitration, suit or other proceeding that may be initiated to
enforce any of the rights or obligations created hereunder, the prevailing party
shall be entitled to the award of its costs and expenses, including attorneys'
fees in connection with such arbitration, suit or other proceeding, together
with interest on any damages or other amounts awarded, from the dates on which
such damages, costs or expenses were incurred and until paid, at the prime or
base rate of Citibank, N.A.
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<PAGE> 57
Section 8.10 Limited Liability of Shareholders. All persons dealing with
Crescent must look solely to Crescent's property for the enforcement of any
claims against Crescent, as the trust managers, officers, agents and
shareholders of Crescent assume no personal obligations of Crescent, and their
respective properties shall not be subject to claims of any person relating to
such obligation.
IN WITNESS WHEREOF, Crescent and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, and the
members of the Ownership Group have signed this Agreement, all as of the
date first written above.
CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ DAVID M. DEAN
------------------------------------
Name: David M. Dean
Title: SVP, Law
STATION CASINOS, INC.
By: /s/ FRANK J. FERTITTA III
------------------------------------
Name: Frank J. Fertitta III
Title: Chairman of the Board
and President
SOLELY FOR PURPOSES OF SECTIONS 4.3(c)
AND 5.18:
/s/ FRANK J. FERTITTA III
--------------------------------
Frank J. Fertitta III
/s/ LORENZO J. FERTITTA
--------------------------------
Lorenzo J. Fertitta
/s/ BLAKE L. SARTINI
--------------------------------
Blake L. Sartini
<PAGE> 58
LIST OF SCHEDULES TO AGREEMENT AND PLAN OF MERGER
Included Schedules:
Schedule 5.22 -- Form of Registration Rights and Lock-Up Agreement
Omitted Schedules:
Schedule 2.8 -- Crescent persons with "Knowledge"
Schedule 3.7 -- Aggregate Indebtedness of Station
Schedule 3.8 -- Station persons with "Knowledge"
Schedule 3.12(a) -- Company Plans
Schedule 3.12(e) -- Material Severance and Employment Agreements and
other Plans
Schedule 5.5 -- Letter from Company Affiliates
Schedule 5.17 -- Form of Certificate of Resolution of Redeemable
Preferred Stock
Schedule 5.18(i) -- Form of Agreement of Limited Partnership
Schedule 5.18(ii) -- Form of Bill of Sale
Schedule 5.18(iii) -- Form of Master Lease Agreement
Schedule 5.18(iv) -- Employment Agreements assumed by the Operating
Joint Venture
Schedule 5.18(v) -- Form of JV Parent Guarantee
Schedule 5.18(vi) -- Form of Crescent Guarantee
Schedule 5.18(vii) -- Amendment to Fertitta Employment Agreement
Schedule 6.1(g) -- Form of Right of First Refusal and Non-Competition
Agreement
Schedule 6.2(e) -- Form of Legal Opinion of Counsel to Crescent
Schedule 6.3(b) -- Required Consents
Schedule 6.3(c) -- Letter from Company Affiliates (same as Schedule 5.5)
Disclosure Letter
The Registrant agrees to furnish supplementally to the Commission a copy
of any omitted schedule upon request.
<PAGE> 59
SCHEDULE 5.22
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
This Registration Rights and Lock-Up Agreement (the "Agreement") is entered
into as of __________, 1998 by and among Crescent Real Estate Equities Company,
a Texas real estate investment trust (the "Company"), _________________, a
Delaware limited partnership (the "Operating Joint Venture") and Blake Sartini,
Lorenzo J. Fertitta, and Frank J. Fertitta III (each, individually, a
"Shareholder" and collectively, the "Shareholders").
WHEREAS, each of the Shareholders currently owns shares of Common Stock,
par value $.01 per share (the "Station Common Stock"), of Station Casinos, Inc.,
a Nevada corporation ("Station"), options to acquire shares of Common Stock of
Station, and also currently owns or may in the future own shares of the $3.50
Convertible Preferred Stock of Station (the "Station Preferred Stock");
WHEREAS, each of the Shareholders is to receive, in exchange for shares of
Station Common Stock currently owned by such Shareholders, common shares of
beneficial interest of the Company, $.01 par value per share (the "Common
Shares"), which shares are to be issued under the Securities Act of 1933, as
amended (the "Securities Act"), in connection with the merger of Station, with
and into the Company (the "Merger");
WHEREAS, each of the Shareholders is to receive, in exchange for options to
acquire Station Common Stock, options to purchase Common Shares in connection
with the Merger;
WHEREAS, each or certain of the Shareholders are to receive or may receive,
in exchange for shares of Station Preferred Stock, shares of beneficial interest
in the form of $3.50 Convertible Preferred Shares (the "Preferred Shares")
issued under the Securities Act in connection with the Merger;
WHEREAS, in order to induce the Company to enter into the Agreement and
Plan of Merger (the "Merger Agreement"), dated as of January 16, 1998, by and
between the Company and Station, the Shareholders have agreed to the lock-up set
forth in Section 2 hereof;
WHEREAS, in order to induce the Shareholders to consummate certain
transactions relating to the Merger, the Company has agreed to provide the
Shareholders with the registration rights set forth in Section 3 hereof;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises and
agreements set forth herein, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
<PAGE> 60
1. Certain Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Agreement" shall have the meaning set forth above in the recitals hereto.
"Common Shares" shall have the meaning set forth above in the recitals
hereto and, in addition, shall include any equity securities of the Company or
any corporate successor of the Company into or for which Common Shares are
converted or exchanged.
"Company" shall have the meaning set forth above in the recitals hereto.
"Merger" shall have the meaning set forth above in the recitals hereto.
"Merger Agreement" shall have the meaning set forth above in the recitals
hereto.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Operating Joint Venture" shall have the meaning set forth above in the
recitals hereto.
"Person" shall mean an individual, partnership, corporation, trust, or
incorporated organization, or a government agency or political subdivision
thereof.
"Preferred Shares" shall mean the $3.50 Convertible Preferred Shares of the
Company or any corporate successor of the Company.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Shares covered by such Registration Statement, and by
all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"Registrable Shares" shall mean the Shares, excluding (i) Shares that
previously were, but no longer are, outstanding, (ii) Shares for which a
Registration Statement relating to the sale thereof shall have become effective
under the Securities Act and which have been disposed of under such Registration
Statement, (iii) Shares sold pursuant to Rule 144 under the Securities Act, (iv)
Shares eligible for sale pursuant to Rule 144(k) under the Securities Act, and
(v) Shares for which sale under a Registration Statement is no longer required
under the Securities Act; provided, however, that in no event shall the
Registrable Shares exceed the number of Shares having a Value (measured at the
time of the first sale of a Share pursuant to a Registration Statement) of $30
million (a Value of $10 million per Shareholder, including for this purpose all
transferees of such Shareholder).
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<PAGE> 61
"Registration Expenses" shall mean any and all expenses incident to the
performance of or compliance with this Agreement, including, without limitation:
(i) all SEC, stock exchange or NASD registration and filing fees; (ii) all fees
and expenses incurred in connection with state securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualification of any of the Registrable Shares and the preparation of a
Blue Sky Memorandum) and compliance with the rules of the NASD; (iii) all
expenses of any Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
certificates and other documents relating to the performance of and compliance
with this Agreement; (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Shares on any securities exchange or
exchanges pursuant to Section 3(c) hereof; and (v) the fees and disbursements of
counsel for the Company and of the independent public accountants of the
Company, including the expenses of any "cold comfort" letters required by or
incident to such performance and compliance. Registration Expenses shall
specifically exclude any brokerage or underwriting discounts and commissions
relating to the sale or disposition of Registrable Shares by any selling
Shareholder, the fees and disbursements of counsel representing a selling
Shareholder, and transfer taxes, if any, relating to the sale or disposition of
Registrable Shares by a selling Shareholder, all of which shall be borne by such
Shareholder in all cases.
"Registration Statement" shall mean any registration statement of the
Company and any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act which
covers any of the Registrable Shares, on an appropriate form, and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all materials incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall have the meaning set forth above in the recitals
hereto.
"Shareholder(s)" shall mean (i) each of the Persons identified as
Shareholders in the recitals hereto and (ii) any Person identified in Section 2
(A) to whom any of the Persons identified in the recitals hereto makes a
Transfer of Shares and (B) who executes a counterpart of this Agreement agreeing
to be bound by its terms and provisions.
"Shares" shall mean (i) the shares of Station Common Stock beneficially
owned (as such term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) by each of the Shareholders as of the
close of business on the date hereof, (ii) the shares of Station Common Stock
or, as the case may be, the Common Shares which are acquired during the term
hereof as a result of the exercise of options to purchase shares of Station
Common Stock or Common Shares, (iii) the shares of Station Common Stock which
are acquired during the term hereof as a result of the conversion of shares of
Station Preferred Stock that are beneficially owned by each of the Shareholders,
(iv) the Common Shares which are acquired during the term hereof as a result of
the conversion of Preferred Shares that are beneficially owned by each of the
Shareholders as of the close of business on the date hereof,
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<PAGE> 62
and (v) any shares of Station Common Stock, Station Preferred Stock, Common
Shares or Preferred Shares acquired by, or underlying options, warrants, or
similar securities granted to, any of the Shareholders subsequent to the date
hereof.
"Station" shall have the meaning set forth above in the recitals hereto.
"Station Common Stock" shall have the meaning set forth above in the
recitals hereto and, in addition, shall include any equity securities of Station
or any corporate successor of the Company into or for which shares of Station
Common Stock are converted or exchanged.
"Station Preferred Stock" shall mean the shares of $3.50 Convertible
Preferred Stock of Station or any corporate successor of Station.
"Value" shall mean, with respect to any shares of Station Common Stock or
any Common Shares, the average of the "closing price" of such shares or Common
Shares for the ten consecutive trading days immediately preceding the date of a
sale of Shares. The "closing price" for a trading day means (i) the last sale
price, regular way, on such trading day or, if no such sale takes place on that
day the average of the closing bid and asked prices on that day, 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 (ii) if the shares of Station Common Stock or the Common
Shares being sold pursuant to Section 2 are 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
on which such shares or Common Shares are listed or admitted to trading or (iii)
if the shares of Station Common Stock or the Common Shares are not so listed or
admitted to trading, the last quoted price or, if not quoted, the average of the
high and low bid and asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or (iv) if such system is no longer in use, the principal automated quotation
system then in use or (v) if the shares of Station Common Stock or the Common
Shares are not so quoted by any such system, as determined in good faith by the
board of directors of Station for shares of Station Common Stock and by the
board of directors of the Company for Common Shares.
2. Lock-Up Agreement
(a) Each Shareholder hereby agrees that, except as set forth in Section
2(b) or 2(c) below, from the date hereof until 18 months following such date
(the "Lock-Up Period"), such Shareholder will not offer, pledge, sell, contract
to sell, transfer by gift, grant any options for the sale of or otherwise
transfer, distribute or dispose of, directly or indirectly (collectively, for
purposes of this Section 2, a "Transfer"), any Shares (the "Lock-Up").
(b) Notwithstanding the provisions of (a), after the expiration of 12
months from the date hereof, each Shareholder (including for this purpose the
transferees of such Shareholder) may Transfer Shares with a Value of $10 million
or less, provided, however, that
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<PAGE> 63
the Shareholders (including for this purpose all transferees of the
Shareholders) may not Transfer Shares with an aggregate Value in excess of $30
million pursuant to this exception.
(c) The following Transfers of Shares shall not be subject to the
Lock-Up set forth in Section 2(a):
(i) a Shareholder may Transfer Shares to his spouse, siblings,
parents or any natural or adopted children or other descendants or to any
personal trust in which such family member or such Shareholder retains the
entire beneficial interest;
(ii) a Shareholder may Transfer Shares on his death to such
Shareholder's estate, executor, administrator or personal representative or to
such Shareholder's beneficiaries pursuant to a devise or bequest or by laws of
descent and distribution;
(iii) a Shareholder may Transfer Shares pursuant to a pledge, grant
of security interest or other encumbrance effected in a bona fide transaction
with an unrelated and unaffiliated pledgee if such pledgee agrees that, upon any
foreclosure of such pledge, the Shares so acquired shall remain subject to all
of the terms and provisions of this Agreement.
provided , however, that in the case of any Transfer of Shares, the transferor
shall, at the Company's request, provide evidence (which may include, without
limitation, an opinion of counsel satisfactory in form, scope and substance to
the Company in its sole discretion as the issuer thereof) satisfactory to the
Company that the transfer is exempt from the registration requirements of the
Securities Act.
In the event any Shareholder Transfers Shares described in this Section
2(c), such Shares shall remain subject to this Agreement, and any Transfer or
purported Transfer of Shares by a Shareholder to a Person who does not execute a
counterpart of this Agreement shall be void ab initio and of no force or effect.
If the transferee executes and delivers a counterpart of this Agreement, such
transferee shall be deemed to be a Shareholder for all purposes of this
Agreement.
3. Registration.
(a) Filing of Registration Statements. Subject to the conditions set
forth in this Agreement, the Company (i) shall file a Registration Statement
with the SEC covering all of the Registrable Shares, (ii) shall use reasonable
best efforts to cause such Registration Statement to be declared effective on or
before the effective date of the Merger, and (iii) agrees to use reasonable
efforts to keep such Registration Statement continuously effective until the
date on which the Shareholders no longer hold any Registrable Shares.
(b) Notice of Effectiveness. The Company shall notify each Shareholder
of the effectiveness of the Registration Statement and shall furnish to each
Shareholder such number of copies of the Registration Statement (including any
amendments, supplements and
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<PAGE> 64
exhibits), the Prospectus contained therein (including each preliminary
prospectus and all related amendments and supplements), and any documents
incorporated by reference in such Registration Statement or such other documents
as the Shareholder may reasonably request in order to facilitate its sale of the
Registrable Shares covered thereby in the manner described in the Registration
Statement.
(c) Amendments and Supplements to Registration Statement; Listing. The
Company shall prepare and file with the SEC from time to time such amendments
and supplements to each Registration Statement and prospectus used in connection
therewith as may be necessary to keep the Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all the Shares covered by the Registration Statement until such
time as all of such Registrable Shares have been disposed of in accordance with
the intended methods of disposition by the Shareholders as set forth in the
Registration Statement. Upon five business days' notice, the Company shall file
any supplement or post-effective amendment to the applicable Registration
Statement with respect to the plan of distribution of such Shareholder's
ownership interests in Registrable Shares that is necessary to permit the sale
of the Shareholder's Registrable Shares pursuant to the Registration Statement,
including supplements or post-effective amendments required to give effect to
the designation of any underwriter or underwriting syndicate specified by such
Shareholder. The Company shall file any necessary listing applications or
amendments to the existing applications to cause the Shares registered under any
Registration Statement to be then listed or quoted on the primary exchange or
quotation system on which the Common Shares are then listed or quoted.
(d) SEC Requests. The Company shall promptly notify each Shareholder
of, and confirm in writing, any request by the SEC for amendments or supplements
to any Registration Statement or the Prospectus related thereto or for
additional information. In addition, the Company shall promptly notify each
Shareholder of, and confirm in writing, the filing of the Registration Statement
or any Prospectus, amendment or supplement related thereto or any post-effective
amendment to the Registration Statement and the effectiveness of any
post-effective amendment.
(e) Prospectus Delivery. At any time when a Prospectus relating to a
Registration Statement is required to be delivered under the Securities Act, the
Company shall immediately notify each Shareholder of the happening of any event
as a result of which (i) the Prospectus included in the Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) an amendment or supplement to the Registration
Statement is a requirement (an "Event Notice"). In such event, the Company shall
promptly prepare and furnish to each Shareholder a reasonable number of copies
of a supplement to such Prospectus (or, after declaration of effectiveness by
the SEC, of any amendment to the Prospectus required to be filed as an amendment
to the Registration Statement) as may be necessary so that, as thereafter
delivered to the purchasers of Shares covered by the Registration Statement,
such prospectus shall not include an untrue statement of a material fact or omit
to state a
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<PAGE> 65
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Company will, if necessary, amend the Registration Statement of
which such Prospectus is a part to reflect such amendment or supplement and use
its best efforts promptly to obtain an effectiveness order for such amendment
from the SEC. From and after the date of any Event Notice, no Shareholder shall
offer or sell any Shares covered by the Registration Statement until such time
as the Company delivers any such Prospectus supplement or amendment to the
Shareholder.
(f) State Securities Laws. Subject to the conditions set forth in this
Agreement, the Company shall, in connection with the filing of any Registration
Statement hereunder, file such documents as may be necessary to register or
qualify the Shares covered by the Registration Statement under the securities or
"Blue Sky" laws of such states as any Shareholder may reasonably request, and
the Company shall use its best efforts to cause such filings to become
effective; provided, however, that the Company shall not be obligated to qualify
as a foreign corporation to do business under the laws of any such state in
which it is not then qualified or to file any general consent to service of
process in any such state, provided that the Company shall file a Uniform
Consent to Service of Process on Form U-2 or its successor in any state that
requires such a filing in connection with the offering of the Shares covered by
the Registration Statement and in which the Shareholder proposes to offer such
Shares. Once effective, the Company shall use its best efforts to keep such
filings effective until the earliest of such time as (i) the Shareholders no
longer hold any Registrable Shares, or (ii) in the case of a particular state, a
Shareholder has notified the Company that it no longer requires an effective
filing in such state in accordance with its original request for filing. The
Company shall promptly notify each Shareholder of, and confirm in writing, the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Shares for sale under the securities or "Blue
Sky" laws of any jurisdiction or the initiation or threat of any proceeding for
such purpose.
(g) Expenses. The Company shall bear all Registration Expenses incurred
in connection with the registration of the Registrable Shares pursuant to this
Agreement. Each Shareholder shall bear its pro rata share of all other expenses
resulting from any disposition, sale or transfer of such Registrable Shares by
such Shareholder.
(h) Cooperation. Each Shareholder hereby agrees (i) to cooperate with
the Company and to furnish to the Company in a timely manner all information
that the Company may reasonably request in connection with the preparation of
any Registration Statement and any filings with any state securities commissions
concerning its plan of distribution and ownership interests with respect to such
Shareholder's Registrable Shares and any other information and (ii) to deliver
or cause delivery of the Prospectus contained in the Registration Statement to
any purchaser of the shares covered by the Registration Statement from the
Shareholder except to the extent provided to the contrary in Section 3(e) above.
(i) Suspension of Registration Requirement. The Company shall promptly
notify each Shareholder of, and confirm in writing, the issuance by the SEC of
any stop order
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<PAGE> 66
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose. Each Shareholder agrees not to effect any
sales from the date of such notice until the Company obtains the withdrawal of
any such order suspending the effectiveness of the applicable Registration
Statement. The Company shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement and shall
notify each Shareholder of such withdrawal within two business days thereafter.
Each Shareholder whose Registrable Shares are covered by a Registration
Statement filed pursuant to Section 3 (a) hereof agrees, if requested by the
Company in the case of a Company-initiated non-underwritten offering or if
requested by the managing underwriter or underwriters in a Company-initiated
underwritten offering, not to effect any public sale or distribution of any of
the securities of the Company of any class included in such Registration
Statement (or any security the value of which is determined with reference to
the value of such securities), including a sale pursuant to Rule 144A or Rule
144 under the Securities Act (except as part of such Company-initiated
registration), during the 15-day period prior to, and during the 90-day period
beginning on the date of effectiveness of each Company-initiated offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; provided, however, that
such 90-day period shall be extended by the number of days from (and including)
the date of the giving of any notice pursuant to Section 3(d) or (e) hereof to
(and including) the date when each seller of Registrable Shares covered by such
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) hereof.
(j) Additional Shares. The Company, at its option, may register,
under any Registration Statement and any filings with any state securities
commissions filed pursuant to this Agreement, any number of unissued Common
Shares of the Company or any Common Shares of the Company owned by any other
shareholder or shareholders of the Company unless the underwriter or
underwriters specified by the Shareholder asserts in writing that such
additional shares will, in its opinion, have a significant adverse effect on the
marketing of the Shareholder's Shares covered by the Registration Statement.
4. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Shareholder as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto) pursuant to which the Registrable Shares were registered
under the Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (or any amendment or supplement
thereto), including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material
8
<PAGE> 67
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (i) or (ii)
above;
provided, however, that the indemnity provided pursuant to this Section 4 does
not apply to any Shareholder with respect to any loss, liability, claim, damage
or expense to the extent arising out of (1) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Shareholder expressly
for use in the Registration Statement (or any amendment thereto) or the
Prospectus (or any amendment or supplement thereto) or (2) such Shareholder's
failure to deliver an amended or supplemental Prospectus if such loss,
liability, claim, damage or expense would not have arisen had such delivery
occurred.
(b) Indemnification by Shareholders. Each Shareholder severally agrees
to indemnify and hold harmless the Company and the other selling Shareholders,
and each Person, if any, who controls the Company (including each officer and
director of the Company who signed the Registration Statement) within the
meaning of Section 15 of the Securities Act, to the same extent as the indemnity
contained in Section 4(a) hereof (except that any settlement described in
Section 4 (a)(ii) shall be effected with the written consent of such
Shareholder), but only insofar as such loss, claim, damage or expense arises out
of or is based upon (1) any untrue statements or omissions made in the
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Shareholder expressly for use in
such Registration Statement (or any amendment thereto) or such Prospectus (or
any amendment or supplement thereto) or (2) such Shareholder's failure to
deliver an amended or supplemental Prospectus if such loss, liability, claim,
damage or expense would not have arisen had such delivery occurred.
(c) Conduct of Indemnification Proceedings. The indemnified party shall
give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure so
9
<PAGE> 68
to notify the indemnifying party (1) shall not relieve it from any liability
which it may have under the indemnity agreement provided in paragraphs (a) or
(b) of this Section 4, unless and to the extent it did not otherwise learn of
such action and the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and defenses and (2)
shall not, in any event, relieve the indemnifying party from any obligations to
the indemnified party other than the indemnification obligation provided under
paragraphs (a) or (b) of this Section 4. If the indemnifying party so elects
within a reasonable time after receipt of such notice, the indemnifying party
may assume the defense of such action or proceeding at such indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that, if the indemnified party reasonably determines that a conflict of
interest exists where it is advisable for the indemnified party to be
represented by separate counsel or that, upon advice of counsel, there may be
legal defenses available to it which are different from or in addition to those
available to the indemnifying party, then the indemnifying party shall not be
entitled to assume such defense, and the indemnified party shall be entitled to
separate counsel at the indemnifying party's expense. If the indemnifying party
is not entitled to assume the defense of such action or proceeding as a result
of the provisions of the preceding sentence, the indemnifying party's counsel
shall be entitled to conduct the indemnifying party's defense and counsel for
the indemnified party shall be entitled to conduct the defense of the
indemnified party, it being understood that both such counsel will cooperate
with each other to conduct the defense of such action or proceeding as
efficiently as possible. If the indemnifying party is not so entitled to assume
the defense of such action or does not assume such defense, after having
received the notice referred to in the first sentence of this paragraph, the
indemnifying party will pay the reasonable fees and expenses of counsel for the
indemnified party. In such event, however, the indemnifying party will not be
liable for any settlement effected without the written consent of the
indemnifying party, with such consent not to be unreasonably withheld. If an
indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
party incurred thereafter in connection with such action or proceeding, subject
to the proviso set forth in the second sentence of this paragraph (c).
5. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in Section 4 is
for any reason held to be unenforceable although applicable in accordance with
its terms, the Company and each Shareholder shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity agreement incurred by the Company and each such Shareholder, in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and such Shareholder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to,
10
<PAGE> 69
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5, each Shareholder shall be
required to contribute the amount of any damages which such Shareholder is
required to pay by reason of such untrue statement or omission, provided,
however, that no Shareholder shall be required under such circumstances to pay
any amount in excess of the total price at which the Registrable Shares of such
Shareholder were offered to the public. Notwithstanding the foregoing, no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company.
6. No Other Obligation to Register Shares. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to a
Shareholder to register all or any portion of the Registrable Shares under the
Securities Act.
7. Shareholder Representations, Warranties and Agreements. Each
Shareholder, jointly and not severally, and solely on behalf of itself,
represents and warrants to, and agrees with, the Company, that:
(a) This Agreement has been duly executed and delivered by such
Shareholder, and is the legal, valid and binding obligation of such Shareholder,
and is enforceable as to such Shareholder in accordance with its terms. No
consent of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which such Shareholder is a party, or to which
any of such Shareholder's properties or assets are subject, which has not been
obtained, is required for the execution, delivery and performance of this
Agreement, and the execution, delivery and performance of this Agreement will
not violate, result in a breach of, conflict with or (with or without the giving
of notice or the passage of time or both) entitle any party to terminate or call
a default under any such contract, agreement, instrument, lease, license,
arrangement or understanding.
(b) Neither such Shareholder nor any of such Shareholder's affiliates
(as defined in the regulations under the Securities Act), will take, directly or
indirectly, during the term of this Agreement, any action designed to stabilize
(except as may be permitted by applicable law) or manipulate the price of any
security of the Company.
(c) Such Shareholder shall promptly furnish to the Company any and all
information as may be required by, or as may be necessary or advisable to comply
with the
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<PAGE> 70
provisions of, the Securities Act, the Exchange Act, and the rules and
regulations of the SEC thereunder in connection with the preparation and filing
of any Registration Statement pursuant hereto, or any amendment or supplement
thereto, or any Preliminary Prospectus or Prospectus included therein. All
information to be furnished to the Company by or on behalf of such Shareholder
expressly for use in connection with the preparation of any Preliminary
Prospectus, the Prospectus, the Registration Statement, or any amendment or
supplement thereto, will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
8. Underwritten Registration. No Shareholder of Registrable Securities may
participate in any underwritten registration hereunder unless such Shareholder
(i) executes and delivers the underwriting agreement or similar documents
relating thereto pursuant to which such Shareholder shall agree to sell, upon
the terms and subject to the conditions therein set forth, such Shareholder's
Shares on the basis provided therein, and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, custodial or escrow agreements
and such other documents as may be necessary, advisable or required pursuant to
the terms thereof or as may be from time to time reasonably requested by the
underwriter or underwriters named therein, the Company, or their respective
legal counsel, in connection therewith. The Company will cooperate to the extent
reasonably required to permit the Shareholders to conduct an underwritten
offering and will enter into customary underwriting arrangements. The Company
shall have approval rights with respect to the underwriter, which approval shall
not be unreasonably withheld. The Shareholders shall be entitled to no more than
two underwritten offerings in any year.
In the event of any conflict between the indemnification and contribution
terms as herein set forth and as set forth in any underwriting agreement entered
pursuant hereto, the underwriting agreement shall control.
9. Survival of Representations and Agreements. All representations,
warranties, covenants and agreements contained in this Agreement shall be deemed
to be representations, warranties, covenants and agreements at the effective
date of each Registration Statement contemplated by this Agreement, and such
representations, warranties, covenants and agreements, including the indemnity
and contribution agreements contained in Sections 4 and 5 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Company, any Shareholder or any Person which is entitled to
be indemnified under Section 4 hereof, and shall survive termination of this
Agreement.
10. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified, supplemented or waived without the prior written consent of
the Company and the Shareholders.
11. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid, or courier or overnight delivery service to the respective parties at
the following addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof), and further provided that in case of
directions to amend the Registration Statement pursuant to Section 3(c), a
Shareholder must confirm such notice in writing by overnight express delivery
with confirmation of receipt:
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<PAGE> 71
If to the Company: Crescent Real Estate Equities Company
c/o Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Attn: Gerald W. Haddock, President
Telephone: (817) 878-0444
Telecopier: (817) 878-0429
with copies to: Crescent Real Estate Equities Company
c/o Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Attn: David M. Dean, Senior Vice President-Law
Telephone: (817) 878-0442
Telecopier: (817) 878-0429
and to: Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Sylvia M. Mahaffey
Telephone: (202) 663-8027
Telecopier: (202) 663-8007
If to the Shareholders:
In addition to the manner of notice permitted above, notices given pursuant to
Sections 3(b) and 3(i) hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
12. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto. This Agreement may not be assigned by any
Shareholder, and any attempted assignment hereof by any Shareholder will be void
and of no effect and shall terminate all obligations of the Company hereunder;
provided, however, that any Shareholder may assign its rights hereunder to any
Person who executes a counterpart of this Agreement, as the same may be amended.
13
<PAGE> 72
13. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed wholly within said State.
15. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
16. Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
17. No Shareholder Liability. No shareholder or other equity owner of the
Company assumes any personal liability for the obligations listed herein or for
the Company's performance of such obligations.
14
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
CRESCENT REAL ESTATE EQUITIES COMPANY
By:
------------------------------------
Name:
Title:
15
<PAGE> 74
SHAREHOLDER SIGNATURE PAGE
------------------------
Frank J. Fertitta III
------------------------
Lorenzo J. Fertitta
------------------------
Blake L. Sartini
16
<PAGE> 75
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "AMENDMENT") is
dated as of February 17, 1998 and entered into by and between Station Casinos,
Inc., a Nevada corporation (the "COMPANY") and Crescent Real Estate Equities
Company, a Texas real estate investment trust ("CRESCENT") with reference to
that certain Agreement and Plan of Merger, dated as of January 16, 1998 by and
between the Company and Crescent ("MERGER AGREEMENT"). Capitalized terms used
in this Amendment without definition shall have the meanings set forth in the
Merger Agreement.
AMENDMENTS TO MERGER AGREEMENT
1.1 Amendment to Subsection 5.2(c). Subsection 5.2(c) of the Merger
Agreement is hereby amended by deleting such subsection in its entirety and
substituting for such subsection the following:
"(c) Each of the Company and Crescent will, or will cause the
appropriate party to, as soon as practicable after execution and delivery
of this Agreement and in a manner designed not to delay the Closing, make
all filings or submissions that may be required under the HSR Act. Each
of the Company and Crescent will, or will cause the appropriate party to,
promptly furnish to the other such necessary information and reasonable
assistance as the other may request in connection with the preparation of
any filing or submissions necessary under the HSR Act. Without limiting
the generality of the foregoing, each of the Company and Crescent will
promptly notify the other of the receipt and content of any inquiries or
requests for additional information made by any Governmental Entity in
connection therewith and will, or will cause the appropriate party to,
promptly (i) comply with any such inquiry or request and (ii) provide the
other with a description of the information provided to any Governmental
Entity with respect to any such inquiry or request. In addition, each of
the Company and Crescent will keep the other apprised of the status of
any such inquiry or request."
MISCELLANEOUS
2.1 Effect on Merger Agreement. On and after the date of this
Amendment, each reference in the Merger Agreement to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import referring to the Merger
Agreement shall mean and be a reference to the Merger Agreement, as amended by
this Amendment. Except as specifically amended by this Amendment, the Merger
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
2.2 Applicable Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed entirely within such State.
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto authorized
as of the date first written above.
STATION CASINOS, INC.
By: /s/ GLENN C. CHRISTENSON
----------------------------------------
Glenn C. Christenson
Executive Vice President, Chief
Administrative Officer and Chief
Financial Officer
CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ DALLAS E. LUCAS
----------------------------------------
Name: Dallas E. Lucas
Title: Senior Vice President and
Chief Financial Officer
- 2 -
<PAGE> 1
EXHIBIT 4.07
STATEMENT OF DESIGNATION
OF
6-3/4% SERIES A CONVERTIBLE CUMULATIVE PREFERRED SHARES
OF
CRESCENT REAL ESTATE EQUITIES COMPANY
The undersigned, the President and Chief Executive Officer of Crescent
Real Estate Equities Company, a real estate investment trust organized and
existing under the Texas Real Estate Investment Trust Act, as amended (the
"Company"), certifies that pursuant to the authority granted to and vested in
the Board of Trust Managers of the Company by the provisions of the Restated
Declaration of Trust of the Company, the Board of Trust Managers, acting
through an authorized committee thereof, has adopted the following resolution
designating a new series of preferred shares of beneficial interest of the
Company.
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Trust Managers of the Company by the provisions of the Restated
Declaration of Trust of the Company, the Board of Trust Managers, acting
through an authorized committee thereof, hereby designates 9,200,000 6- 3/4%
Series A Convertible Cumulative Preferred Shares of beneficial interest, $.01
par value per share (Liquidation Preference $25.00 Per Share) (the "Series A
Preferred Shares"), and authorizes the issuance thereof, and hereby fixes the
designation and number thereof and the voting powers, preferences and relative,
participating, optional and other special rights of such shares, and the
qualifications, limitations or restrictions thereto as follows:
A. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
Paragraph A shall have, for all purposes of this Statement of Designation, the
meanings herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
"Board of Trust Managers" shall mean the Board of Trust Managers
of the Company or any committee authorized by such Board of Trust Managers to
perform any of its responsibilities with respect to the Series A Preferred
Shares.
"Business Day" shall mean any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
in New York City, New York or Dallas, Texas are authorized or required by law,
regulation or executive order to close.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
from time to time.
"Common Shares" shall mean the common shares of beneficial
interest, $.01 par value per share, of the Company.
<PAGE> 2
"Constituent Person" shall have the meaning set forth in
subsection (e) of subparagraph (7) of paragraph B.
"Conversion Price" shall mean the conversion price per Common
Share for which the Series A Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to subsection (d) of subparagraph (7)
hereof. The initial conversion price per Common Share shall be $40.86
(equivalent to a conversion rate of .6119 Common Shares for each Series A
Preferred Share).
"Current Market Price" of publicly traded common shares or any
other class of shares of beneficial interest or other security of the Company
or any other issuer for any day shall mean the last reported sales price,
regular way, on such day or, if no sale takes place on such day, the average of
the reported closing bid and asked prices on such day, regular way, in either
case as reported on the New York Stock Exchange ("NYSE") or, if such security
is not listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted for trading
or, if not listed or admitted for trading on any national securities exchange,
on the Nasdaq National Market or, if such security is not quoted on such Nasdaq
National Market, the average of the closing bid and asked prices on such day in
the over-the-counter market as reported by Nasdaq or, if bid and asked prices
for such security on such day shall not have been reported through Nasdaq, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security and selected for such purpose
by the Chief Executive Officer of the Company or the Board of Trust Managers.
"Declaration of Trust" shall mean the Company's Restated
Declaration of Trust, as the same may be amended from time to time.
"Distribution Payment Date" shall have the meaning set forth in
subparagraph (3) of paragraph B.
"Distribution Period" shall have the meaning set forth in
subparagraph (3) of paragraph B.
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a Common Share during the five (5) consecutive Trading Days
selected by the Company commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day before
the "ex date" with respect to the issuance or distribution requiring such
computation. The term "ex date" when used with respect to any issuance or
distribution, means the first day on which the Common Shares trade regular way,
without the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determine that day's Current Market
Price.
"Issue Date" shall mean the first date on which Series A
Preferred Shares are issued and sold.
-2-
<PAGE> 3
"Junior Shares" shall have the meaning set forth in subparagraph
(2) of paragraph B.
"Non-Electing Share" shall have the meaning set forth in
subsection (e) of subparagraph (7) of paragraph B.
"Parity Shares" shall have the meaning set forth in subparagraph
(2) of paragraph B.
"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, and also includes 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 participates in a
public offering of the Series A Preferred Shares provided that the ownership of
Series A Preferred Shares by such Underwriter would not result in the Company
being "closely held" within the meaning of Section 856(h) of the Code, or would
otherwise result in the Company failing to qualify as a REIT.
"Preferred Shares" shall mean preferred shares of beneficial
interest, $.01 par value per share, of the Company.
"Record Date" shall have the meaning set forth in subparagraph
(3) of paragraph B.
"REIT" shall mean a real estate investment trust under Section
856 of the Code.
"Securities" shall have the meaning set forth in subsection
(d)(iii) of subparagraph (7) of paragraph B.
"Series A Preferred Shares" shall mean the Company's 6- 3/4%
Series A Convertible Cumulative Preferred Shares of beneficial interest, $.01
par value per share, liquidation value $25.00 per share.
"Series A Preferred Shares Redemption Date" shall have the
meaning set forth in subsection (d) of subparagraph (5) of paragraph B hereof.
"set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Company in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of distributions by the Board of Trust Managers, the allocation of
funds to be so paid on any series or class of shares of beneficial interest;
provided, however, that if any funds for any class or series of Junior Shares
or any class or series of shares of beneficial interest ranking on a parity
with the Series A Preferred Shares as to the payment of distributions are
placed in a separate account of the Company
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<PAGE> 4
or delivered to a disbursing, paying or other similar agent, then "set apart
for payment" with respect to the Series A Preferred Shares shall mean placing
such funds in a separate account or delivering such funds to a disbursing,
paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the Nasdaq National Market,
or if such securities are not quoted on such Nasdaq National Market, in the
applicable securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in subsection (e)
of subparagraph (7) of paragraph B hereof.
"Transfer Agent" means BankBoston, N.A. or such other agent or
agents of the Company as may be designated by the Board of Trust Managers or
their designee as the transfer agent for the Series A Preferred Shares.
B. Series A Preferred Shares.
(1) Number. The maximum number of Series A Preferred Shares
shall be 9,200,000.
(2) Relative Seniority. In respect of rights to receive
distributions and to participate in distributions or payments in the event of
any liquidation, dissolution or winding up of the Company, the Series A
Preferred Shares shall rank pari passu with any other preferred shares of
beneficial interest of the Company (the "Parity Shares"), and will rank senior
to the Common Shares and any other class or series of shares of beneficial
interest of the Company ranking, as to distributions and upon liquidation,
junior (collectively, the "Junior Shares") to the Parity Shares.
(3) Distributions. The holders of the then outstanding Series
A Preferred Shares shall be entitled to receive, when and as declared by the
Board of Trust Managers out of any funds legally available therefor, cumulative
cash distributions at the rate of $1.6875 per share per year, payable in equal
amounts of $.421875 per share quarterly in cash on the 15th day, or if not a
Business Day, the next succeeding Business Day, of February, May, August and
November in each year, beginning May 15, 1998 (each such day being hereinafter
called a "Distribution Payment Date" and each period ending on a Distribution
Payment Date being hereinafter called a "Distribution Period"), with respect to
each Distribution Period, to shareholders of record at the close of business on
such date as shall be fixed by the Board of Trust Managers at the time of
declaration of the distribution (the "Record Date"), which shall not be less
than 10 nor more than 30 days preceding the Distribution Payment Date. The
amount of any distribution payable for the initial Distribution Period and for
any other Distribution Period shorter than a full Distribution Period shall be
prorated and computed on the basis of a
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<PAGE> 5
360-day year of twelve 30-day months. Distributions on each Series A Preferred
Share shall accrue and be cumulative from and including the date of original
issue thereof, whether or not (i) distributions on such shares are earned or
declared or (ii) on any Distribution Payment Date there shall be funds legally
available for the payment of distributions. Distributions paid on the Series A
Preferred Shares in an amount less than the total amount of such distributions
at the time accrued and payable on such shares shall be allocated pro rata on a
per share basis among all such shares at the time outstanding. Distributions
on account of arrears for any past distribution periods may be declared and
paid at such time, if any, as may be fixed by the Board of Trust Managers, and
shall first be credited against the earliest accrued but unpaid distributions
due and payable with respect to such Series A Preferred Shares.
The amount of any distributions accrued on any Series A Preferred
Shares at any Distribution Payment Date shall be the amount of any unpaid
distributions accumulated thereon through and during such Distribution Period,
to and including such Distribution Payment Date, whether or not earned or
declared, and the amount of distributions accrued on any Series A Preferred
Shares at any date other than a Distribution Payment Date shall be equal to the
sum of the amount of any unpaid distributions accumulated thereon, to and
including the last preceding Distribution Payment Date, whether or not earned
or declared, plus an amount calculated on the basis of the annual distribution
rate of $1.6875 for the period after such last preceding Distribution Payment
Date to and including the date as of which the calculation is made, based on a
360-day year of twelve 30-day months.
If any Series A Preferred Shares are outstanding, no full
distributions shall be declared or paid or set apart for payment on any other
series of Parity Shares or any other class or series of Junior Shares for any
period unless full cumulative distributions have been declared and paid or
declared and a sum sufficient for the payment thereof has been set apart for
such payment on the Series A Preferred Shares for all past distribution periods
and the then current distribution period. If distributions are not paid in
full, or not declared in full and a sum sufficient for such full payment is not
set apart for the payment thereof, upon the Series A Preferred Shares and any
class or series of Parity Shares, all distributions declared upon Series A
Preferred Shares and upon any other class or series of Parity Shares shall be
paid or declared pro rata so that in all cases the amount of distributions paid
or declared per share on the Series A Preferred Shares and Parity Shares shall
bear to each other the same ratio that accumulated distributions per share,
including distributions accrued or in arrears, if any, on the Series A
Preferred Shares and Parity Shares bear to each other. Except as provided in
the preceding sentence, unless full cumulative distributions on the Series A
Preferred Shares have been paid or declared and a sum sufficient for such full
payment set apart for payment for all past Distribution Periods and the then
current Distribution Period, no distributions (other than distributions in
shares of Common Shares or in any other Junior Shares) shall be declared or
paid or set apart for payment or other distribution upon the Company's Common
Shares, or, except as provided above, on any other Junior Shares or Parity
Shares, nor shall any Common Shares or any other Junior Shares or Parity Shares
be redeemed, purchased or otherwise acquired for any consideration (or any
payment made to or available for a sinking fund for the redemption of any such
shares) by the Company or any subsidiary of the
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<PAGE> 6
Company (except by conversion into or exchange for Junior Shares). Holders of
the Series A Preferred Shares shall not be entitled to any distributions,
whether payable in cash, property or shares of beneficial interest, in excess
of full accrued and cumulative distributions as herein provided. No interest
or sum of money in lieu of interest shall be payable in respect of any
distribution payment or payments on the Series A Preferred Shares that may be
in arrears.
Except as provided in this Statement of Designation, the Series A
Preferred Shares shall not be entitled to participate in the earnings or assets
of the Company.
(4) Liquidation Preference.
(a) Upon the voluntary or involuntary dissolution,
liquidation or winding up of the Company, the
holders of the Series A Preferred Shares then
outstanding shall be entitled to receive and to be
paid out of the assets of the Company legally
available for distribution to its shareholders,
before any payment or distribution shall be made on
any Junior Shares, the amount of $25.00 per Series
A Preferred Share, plus an amount equal to
distributions accrued and unpaid thereon to the
date fixed for such dissolution, liquidation or
winding up of the Company.
(b) After the payment to the holders of the Series A
Preferred Shares of the full preferential amounts
provided for in this subparagraph (4), the holders
of the Series A Preferred Shares as such shall have
no right or claim to any of the remaining assets of
the Company.
(c) If, upon any voluntary or involuntary dissolution,
liquidation, or winding up of the Company, the
amounts payable with respect to the preference
value of the Series A Preferred Shares and any
Parity Shares are not paid in full, the holders of
the Series A Preferred Shares and of such Parity
Shares will share ratably in any such distribution
of assets of the Company in proportion to the full
respective preferential amounts provided for in
this subparagraph (4) to which they are entitled.
(d) Neither the sale of all or substantially all the
property or business of the Company, nor the merger
or consolidation of the Company into or with any
other entity or the merger or consolidation of any
other entity into or with the Company, shall be
deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary, of the Company for
the purposes of this subparagraph (4).
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<PAGE> 7
(5) Redemption at the Option of the Company.
(a) Subject to subsections (b) and (h) of this
subparagraph (5), the Series A Preferred Shares
shall not be redeemable by the Company prior to
February 18, 2003. On and after February 18, 2003,
the Company, at its option, may redeem the Series A
Preferred Shares, in whole or from time to time in
part, as set forth herein, at a redemption price of
$25.00 per Series A Preferred Share, subject to the
provisions below.
(b) Prior to February 18, 2003, the Series A Preferred
Shares may be redeemed at the option of the
Company, in whole or from time to time in part, at
a redemption price of $25.00 per Series A Preferred
Share, if the Board of Trust Managers determines
that such a redemption is necessary or advisable to
preserve the status of the Company as a REIT for
federal income tax purposes, subject to the
provisions below.
(c) If fewer than all of the outstanding Series A
Preferred Shares are to be redeemed, the shares to
be redeemed will be determined pro rata or by lot
as may be determined by the Board of Trust Managers
or in such other manner as prescribed by the
Company's Board of Trust Managers in its sole
discretion to be equitable, provided that such
method satisfies any applicable requirements of any
securities exchange on which the Series A Preferred
Shares are listed. In the event that such
redemption is to be by lot, if as a result of such
redemption any holder of Series A Preferred Shares
would own, or be deemed to own by virtue of certain
attribution provisions of the Code, as specified in
the Declaration of Trust, in excess of 9.9% of the
Series A Preferred Shares issued and outstanding
because such holder's Series A Preferred Shares
were not redeemed, or were only redeemed in part,
then the Company will redeem the requisite number
of Series A Preferred Shares of such shareholder
such that he will not own, or be deemed to own by
virtue of certain attribution provisions of the
Code, as specified in the Declaration of Trust in
excess of 9.9% of Series A Preferred Shares issued
and outstanding subsequent to such redemption. A
new certificate shall be issued representing any
unredeemed Series A Preferred Shares without cost
to the holder thereof.
(d) Notice of redemption will be mailed, not less than
30 nor more than 60 days prior to the date fixed
for redemption, to each holder of record of Series
A Preferred Shares to be redeemed, notifying
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<PAGE> 8
such holder of the Company's election to redeem
such shares, stating the date fixed for redemption
thereof (the "Series A Preferred Shares Redemption
Date"), the redemption price, the number of shares
to be redeemed (and, if fewer than all the Series A
Preferred Shares are to be redeemed, the number of
shares to be redeemed from such holder), the
place(s) where the Series A Preferred Share
certificates are to be surrendered for payment, the
date on which such holder's conversion rights as to
the Series A Preferred Shares shall terminate, and
that distributions on the Series A Preferred Shares
will cease to accrue on the specified redemption
date.
(e) On or after the Series A Preferred Shares
Redemption Date, each holder of Series A Preferred
Shares to be redeemed must present and surrender
his Series A Preferred Share certificates to the
Company at the place designated in such notice and
thereupon the redemption price of such shares will
be paid to or on the order of the Person whose name
appears on such Series A Preferred Share
certificates as the owner thereof and each such
Series A Preferred Share certificate surrendered
will be canceled. From and after the Series A
Preferred Shares Redemption Date (unless the
Company defaults in payment of the redemption
price), all distributions on the Series A Preferred
Shares designated for redemption in such notice
will cease to accrue and all rights of the holders
thereof (including conversion rights), except the
right to receive the redemption price thereof
(including all accrued and unpaid distributions up
to the Series A Preferred Shares Redemption Date),
will cease and terminate and such shares will not
thereafter be transferred (except with the consent
of the Company) on the Company's books, and such
shares shall not be deemed to be outstanding for
any purpose whatsoever. At its election, the
Company, prior to the Series A Preferred Shares
Redemption Date, may irrevocably deposit the
redemption price (including accrued and unpaid
distributions) of the Series A Preferred Shares so
called for redemption in trust for the holders
thereof with a bank or trust company, in which case
such notice to holders of the Series A Preferred
Shares to be redeemed will (i) state the date of
such deposit, (ii) specify the office of such bank
or trust company as the place of payment of the
redemption price and (iii) call upon such holders
to surrender the Series A Preferred Share
certificates representing such shares at such place
on or about the date fixed in such redemption
notice (which may not be later than the Series A
Preferred Shares Redemption Date) against payment
of the redemption price (including all accrued
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<PAGE> 9
and unpaid distributions up to the Series A
Preferred Shares Redemption Date). Any moneys so
deposited which remain unclaimed by the holders of
the Series A Preferred Shares at the end of two
years after the Series A Preferred Shares
Redemption Date will be returned by such bank or
trust company to the Company.
(f) Notwithstanding the foregoing, unless full
cumulative distributions on all outstanding Series
A Preferred Shares for all past Distribution
Periods and the then current Distribution Period
have been paid, or declared and a sum sufficient
for the payment thereof set apart for payment, no
Series A Preferred Shares shall be redeemed unless
(i) all outstanding Series A Preferred Shares are
simultaneously redeemed or (ii) the Board of Trust
Managers determines that such redemption is
necessary or advisable to preserve the status of
the Company as a REIT for federal income tax
purposes; provided, however, that the foregoing
shall not prevent the purchase or acquisition of
Series A Preferred Shares pursuant to a purchase or
exchange offer made on the same terms to holders of
all outstanding Series A Preferred Shares.
(g) The holders of Series A Preferred Shares at the
close of business on a Distribution Record Date
will be entitled to receive the distribution
payable with respect to such Series A Preferred
Shares on the corresponding Distribution Payment
Date notwithstanding the redemption thereof between
such Distribution Record Date and the corresponding
Distribution Payment Date or the Company's default
in the payment of the distribution due. Except as
provided above, the Company will make no payment or
allowance for unpaid distributions, whether or not
in arrears, on Series A Preferred Shares which have
been called for redemption.
(h) If at any time, whether or not prior to February
18, 2003, the Company is subject to the
jurisdiction of an agency or other authority of any
state, county, city or other political subdivision
with respect to any activities of the Company or
any of its subsidiaries related to gaming (a
"Gaming Authority"), and such Gaming Authority
requires a record or beneficial owner to be found
suitable, then notwithstanding any other provision
of this Statement of Designation, the Company shall
have the right, by written notice to such record or
beneficial owner, (i) to require such record or
beneficial owner of Series A Preferred Shares to
apply, at such owner's sole cost and expense as to
the application and related investigation, for a
finding of suitability by such
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<PAGE> 10
Gaming Authority and (ii) as to any record or
beneficial owner that is required to be, but is
not, found suitable by such Gaming Authority, (A)
to require such record or beneficial owner to
dispose of such owner's Series A Preferred Shares
within 30 days or within the time prescribed by
such Gaming Authority, whichever is earlier, and
(B) if such disposition is not made in
accordance with clause (A), to redeem each Series
A Preferred Share of such owner at a redemption
price of $25.00 per Series A Preferred Share, on
the terms set forth above (other than subsection
(f) of this subparagraph (5), which subsection
shall not apply to any such redemption).
(i) The Series A Preferred Shares have no stated
maturity date and will not be subject to any
sinking fund or mandatory redemption.
(6) Shares to be Retired.
All Series A Preferred Shares which shall have been issued and
reacquired in any manner by the Company shall be restored to the status of
authorized but unissued Preferred Shares, without designation as to series.
(7) Conversion.
Holders of Series A Preferred Shares shall have the right to
convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions
of this subparagraph (7), a holder of Series A
Preferred Shares shall have the right, at his
option, at any time to convert such shares into the
number of fully paid and nonassessable Common
Shares obtained by dividing the aggregate
liquidation preference of such shares by the
Conversion Price (as in effect at the time and on
the date provided for in the last paragraph of
subsection (b) of this subparagraph (7)) by
surrendering such shares to be converted, such
surrender to be made in the manner provided in
subsection (b) of this subparagraph (7); provided,
however, that the right to convert shares called
for redemption pursuant to subparagraph (5) hereof
shall terminate at the close of business on the
Series A Preferred Shares Redemption Date fixed for
such redemption, unless the Company shall default
in making payment of any amounts payable upon such
redemption under subparagraph (5).
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<PAGE> 11
(b) In order to exercise the conversion right, the
holder of each Series A Preferred Share to be
converted shall surrender the certificate
representing such share, duly endorsed or assigned
to the Company or in blank, at the office of the
Transfer Agent, accompanied by written notice to
the Company that the holder thereof elects to
convert such Series A Preferred Share. Unless the
share issuable on conversion is to be issued in the
same name as the name in which such Series A
Preferred Share is registered, each share
surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to
the Company, duly executed by the holder or such
holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Company
demonstrating that such taxes have been paid).
Holders of Series A Preferred Shares at the close
of business on a distribution payment Record Date
shall be entitled to receive the distribution
payable on such shares on the corresponding
Distribution Payment Date notwithstanding the
conversion thereof following such distribution
payment Record Date and prior to such Distribution
Payment Date. However, Series A Preferred Shares
surrendered for conversion during the period
between the close of business on any distribution
payment Record Date and the opening of business on
the corresponding Distribution Payment Date (except
shares converted after the issuance of notice of
redemption with respect to a Series A Preferred
Shares Redemption Date during such period or
coinciding with such Distribution Payment Date,
such Series A Preferred Shares being entitled to
such distribution on the Distribution Payment Date)
must be accompanied by payment of an amount equal
to the distribution payable on such shares on such
Distribution Payment Date. A holder of Series A
Preferred Shares on a distribution payment Record
Date who (or whose transferee) tenders any such
shares for conversion into Common Shares on such
Distribution Payment Date will receive the
distribution payable by the Company on such Series
A Preferred Shares on such date, and the converting
holder need not include payment of the amount of
such distribution upon surrender of Series A
Preferred Shares for conversion. Except as
provided above, the Company shall make no payment
or allowance for unpaid distributions, whether or
not in arrears, on converted shares or for
distributions on the Common Shares issued upon such
conversion.
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<PAGE> 12
As promptly as practicable after the surrender of
certificates for Series A Preferred Shares as
aforesaid, the Company shall issue and shall
deliver at the office of the Transfer Agent to such
holder, or on his written order, a certificate or
certificates for the number of full Common Shares
issuable upon the conversion of such shares in
accordance with the provisions of this subparagraph
(7), and any fractional interest in respect of a
Common Share arising upon such conversion shall be
settled as provided in subsection (c) of this
subparagraph (7).
Each conversion shall be deemed to have been
effected immediately prior to the close of business
on the date on which the certificates for Series A
Preferred Shares shall have been surrendered and
such notice (and if applicable, payment of an
amount equal to the distribution payable on such
shares) received by the Company as aforesaid, and
the Person or Persons in whose name or names any
certificate or certificates for Common Shares shall
be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the
shares represented thereby at such time on such
date, and such conversion shall be at the
Conversion Price in effect at such time and on such
date unless the share transfer books of the Company
shall be closed on that date, in which event such
Person or Persons shall be deemed to have become
such holder or holders of record at the close of
business on the next succeeding day on which such
share transfer books are open, but such conversion
shall be at the Conversion Price in effect on the
date on which such shares have been surrendered and
such notice received by the Company.
(c) No fractional shares of scrip representing
fractions of Common Shares shall be issued upon
conversion of Series A Preferred Shares. Instead
of any fractional interest in a Common Share that
would otherwise be deliverable upon the conversion
of a Series A Preferred Share, the Company shall
pay to the holder of such share an amount in cash
based upon the Current Market Price of Common
Shares on the Trading Day immediately preceding the
date of conversion. If more than one Series A
Preferred Share shall be surrendered for conversion
at one time by the same holder, the number of full
Common Shares issuable upon conversion thereof
shall be computed on the basis of the aggregate
number of Series A Preferred Shares so surrendered.
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<PAGE> 13
(d) The Conversion Price shall be adjusted from time to
time as follows:
(i) If the Company shall after the Issue Date
(A) pay or make a distribution on its Common
Shares in Common Shares, (B) subdivide its
outstanding Common Shares into a greater
number of shares, (C) combine its
outstanding Common Shares into a smaller
number of shares or (D) issue any shares of
beneficial interest by reclassification of
its Common Shares, then in each such case
the Conversion Price in effect at the
opening of business on the day following the
date fixed for the determination of
shareholders entitled to receive such
distribution or at the opening of business
on the day following the day on which such
subdivision, combination or reclassification
becomes effective, as the case may be, shall
be adjusted so that the holder of any Series
A Preferred Shares thereafter surrendered
for conversion shall be entitled to receive
the number of Common Shares that such holder
would have owned or have been entitled to
receive after the happening of any of the
events described above had such shares been
converted immediately prior to the record
date in the case of a distribution or the
effective date in the case of a subdivision,
combination or reclassification. An
adjustment made pursuant to this subsection
(i) shall become effective immediately after
the opening of business on the day next
following the record date (except as
provided in paragraph (h) below) in the case
of a distribution and shall become effective
immediately after the opening of business on
the day next following the effective date in
the case of a subdivision, combination or
reclassification. Such adjustment(s) shall
be made successively whenever any of the
events listed above shall occur.
(ii) If the Company shall issue after the Issue
Date rights, options or warrants to all
holders of Common Shares entitling them (for
a period expiring within 45 days after the
record date mentioned below) to subscribe
for or purchase Common Shares at a price per
share less than the Fair Market Value per
Common Share on the record date for the
determination of shareholders entitled to
receive such rights, options or warrants,
then the Conversion Price in effect at the
opening of business on the day next
following such record date shall be adjusted
to equal the
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<PAGE> 14
price determined by multiplying (I) the
Conversion Price in effect immediately prior
to the opening of business on the day
following the date fixed for such
determination by (II) a fraction, the
numerator of which shall be the sum of (A)
the number of Common Shares outstanding on
the close of business on the date fixed for
such determination and (B) the number of
Common Shares that the aggregate proceeds to
the Company from the exercise of such
rights, options or warrants for Common
Shares would purchase at such Fair Market
Value, and the denominator of which shall be
the sum of (A) the number of Common Shares
outstanding on the close of business on the
date fixed for such determination and (B)
the number of additional Common Shares
offered for subscription or purchase
pursuant to such rights, options or
warrants. Such adjustments shall be made
successively whenever any such rights,
options or warrants are issued, and shall
become effective immediately after the
opening of business on the day next
following such record date (except as
provided in subsection (h) below). In
determining whether any rights, options or
warrants entitle the holders of Common
Shares to subscribe for or purchase Common
Shares at less than the Fair Market Value,
there shall be taken into account any
consideration received by the Company upon
issuance and upon exercise of such rights,
options or warrants, the value of such
consideration, if other than cash, to be
determined by the Chief Executive Officer of
the Company or the Board of Trust Managers.
(iii) If the Company shall distribute to all
holders of its Common Shares any shares of
beneficial interest of the Company (other
than Common Shares) or evidence of its
indebtedness or assets (excluding cash
distributions paid out of the total equity
applicable to Common Shares, including
revaluation equity, less the amount of
stated capital attributable to Common
Shares, determined on the basis of the most
recent annual consolidated cost basis and
current value basis and quarterly
consolidated balance sheets of the Company
and its consolidated subsidiaries available
at the time of the declaration of the
distribution) or rights, options or warrants
to subscribe for or purchase any of its
securities (excluding those rights, options
and warrants issued to all holders of Common
Shares entitling them for a period expiring
within 45 days after the record
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<PAGE> 15
date referred to in subsection (ii) above to
subscribe for or purchase Common Shares,
which rights, options and warrants are
referred to in and treated under subsection
(ii) above) (any of the foregoing being
hereinafter in this subsection (iii) called
the "Securities"), then in each case the
Conversion Price shall be adjusted so that
it shall equal the price determined by
multiplying (I) the Conversion Price in
effect immediately prior to the close of
business on the date fixed for the
determination of shareholders entitled to
receive such distribution by (II) a
fraction, the numerator of which shall be
the Fair Market Value per Common Share on
the record date mentioned below less the
then fair market value (as determined by the
Chief Executive Officer of the Company or
the Board of Trust Managers, whose
determination shall be conclusive) of the
portion of the shares of beneficial interest
or assets or evidences of indebtedness so
distributed or of such rights, options or
warrants applicable to one Common Share, and
the denominator of which shall be the Fair
Market Value per Common Share on the record
date mentioned below. Such adjustment shall
become effective immediately at the opening
of business on the Business Day next
following (except as provided in subsection
(h) below) the record date for the
determination of shareholders entitled to
receive such distribution. For the purposes
of this subsection (iii), the distribution
of a Security, which is distributed not only
to the holders of the Common Shares on the
date fixed for the determination of
shareholders entitled to such distribution
of such Security, but also is distributed
with each Common Share delivered to a Person
converting a Series A Preferred Share after
such determination date, shall not require
an adjustment of the Conversion Price
pursuant to this subsection (iii); provided
that on the date, if any, on which a Person
converting a Series A Preferred Share would
no longer be entitled to receive such
Security with a Common Share (other than as
a result of the termination of all such
Securities), a distribution of such
Securities shall be deemed to have occurred,
and the Conversion Price shall be adjusted
as provided in this subsection (iii) (and
such day shall be deemed to be "the date
fixed for the determination of the
shareholders entitled to receive such
distribution"
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<PAGE> 16
and "the record date" within the meaning of
the two preceding sentences).
(iv) No adjustment in the Conversion Price shall
be required unless such adjustment would
require a cumulative increase or decrease of
at least 1% in such price; provided,
however, that any adjustments that by reason
of this subsection (iv) are not required to
be made shall be carried forward and taken
into account in any subsequent adjustment
until made; and provided, further, that any
adjustment shall be required and made in
accordance with the provisions of this
subparagraph (7) (other than this subsection
(iv)) not later than such time as may be
required in order to preserve the tax-free
nature of a distribution to the holders of
Common Shares. Notwithstanding any other
provisions of this subparagraph (7), the
Company shall not be required to make any
adjustment of the Conversion Price for the
issuance of any Common Shares pursuant to
any plan providing for the reinvestment of
distributions or interest payable on
securities of the Company and the investment
of additional optional amounts in Common
Shares under such plan. All calculations
under this subparagraph (7) shall be made to
the nearest cent (with $.005 being rounded
upward) or to the nearest one-ten-thousandth
of a share (with .0005 of a share being
rounded upward), as the case may be.
Anything in this subsection (d) to the
contrary notwithstanding, the Company shall
be entitled, to the extent permitted by law,
to make such reductions in the Conversion
Price, in addition to those required by this
subsection (d), as it in its sole discretion
shall determine to be advisable in order
that any share distributions, subdivision of
shares, reclassification or combination of
shares, distribution of rights, options or
warrants to purchase shares or securities,
or distribution of other assets (other than
cash distributions) hereafter made by the
Company to its shareholders shall not be
taxable.
(e) If the Company shall be a party to any transaction
(including without limitation a merger,
consolidation, statutory share exchange, self
tender offer for all or substantially all of the
Common Shares, sale of all or substantially all of
the Company's assets or recapitalization of the
Common Shares and excluding any transaction as to
which subsection (d)(i) of this subparagraph (7)
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<PAGE> 17
applied) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a
result of which Common Shares shall be converted
into the right to receive shares, stock, securities
or other property (including cash or any
combination thereof), each Series A Preferred Share
which is not converted into the right to receive
shares, stock, securities or other property in
connection with such Transaction shall thereafter
be convertible into the kind and amount of shares,
stock, securities and other property (including
cash or any combination thereof) receivable upon
the consummation of such Transaction by a holder of
that number of Common Shares into which one Series
A Preferred Share was convertible immediately prior
to such Transaction, assuming such holder of Common
Shares (i) is not a Person with which the Company
consolidated or into which the Company merged or
which merged into the Company or to which such sale
or transfer was made, as the case may be (a
"Constituent Person"), or an affiliate of a
Constituent Person and (ii) failed to exercise his
rights of the election, if any, as to the kind or
amount of shares, stock, securities and other
property (including cash) receivable upon such
Transaction (each a "Non-Electing Share") (provided
that if the kind or amount of shares, stock,
securities and other property (including cash)
receivable upon such Transaction by each Non-
Electing Share is not the same for each Non-
Electing Share, then the kind and amount of shares,
stock, securities and other property (including
cash) receivable upon such Transaction for each
Non-Electing Share shall be deemed to be the kind
and amount so receivable per share by a plurality
of the Non-Electing Shares). The Company shall not
be a party to any Transaction unless the terms of
such Transaction are consistent with the provisions
of this subsection (e), and it shall not consent or
agree to the occurrence of any Transaction until
the Company has entered into an agreement with the
successor or purchasing entity, as the case may be,
for the benefit of the holders of the Series A
Preferred Shares that will require such successor
or purchasing entity, as the case may be, to make
provision in its certificate or articles of
incorporation or other constituent documents to the
end that the provisions of this subsection (e)
shall thereafter correspondingly be made applicable
as nearly as may reasonably be, in relation to any
shares of stock or other securities or property
thereafter deliverable upon conversion of the
Series A Preferred Shares. The provisions of this
subsection (e) shall similarly apply to successive
Transactions.
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<PAGE> 18
(f) If:
(i) the Company shall declare a distribution on
the Common Shares (other than in cash out of
the total equity applicable to Common
Shares, including revaluation equity, less
the amount of stated capital attributable to
Common Shares, determined on the basis of
the most recent annual consolidated cost
basis and current value basis and quarterly
consolidated balance sheets of the Company
and its consolidated subsidiaries available
at the time of the declaration of the
distribution); or
(ii) the Company shall authorize the granting to
all holders of the Common Shares of rights,
options or warrants to subscribe for or
purchase any shares of any class or any
other rights, options or warrants; or
(iii) there shall be any reclassifications of the
Common Shares (other than an event to which
subsection (d)(i) of this subparagraph (7)
applied) or any consolidation or merger to
which the Company is a party and for which
approval of any shareholders of the Company
is required, or a statutory share exchange
involving the conversion or exchange of
Common Shares into securities or other
property, or a self tender offer by the
Company for all or substantially all of its
outstanding Common Shares, or the sale or
transfer of all or substantially all of the
assets of the Company and for which approval
of any stockholder of the Company is
required; or
(iv) there shall occur the voluntary or
involuntary liquidation, dissolution or
winding up of the Company,
then the Company shall cause to be filed with the
Transfer Agent and shall cause to be mailed to the
holders of the Series A Preferred Shares at their
addresses as shown on the share records of the
Company, as promptly as possible, but at least 15
days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such
distribution or grant of rights, options or
warrants, or, if a record is not to be taken, the
date as of which the holders of Common Shares of
record to be entitled to such distribution or grant
of rights, options or warrants are to be
determined, provided, however, that no such
notification need be made in respect
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<PAGE> 19
of a record or determination date for a
distribution or grant of rights unless the
corresponding adjustment in the Conversion Price
would be an increase or decrease of at least 1% or
(B) the date on which such reclassification,
consolidation, merger, statutory share exchange,
self tender offer, sale, transfer, liquidation,
dissolution or winding up is expected to become
effective, and the date as of which it is expected
that holders of Common Shares of record shall be
entitled to exchange their Common Shares for
securities or other property, if any, deliverable
upon such reclassification, consolidation, merger,
statutory share exchange, self tender offer, sale,
transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any
defect therein shall not affect the legality or
validity of the proceedings described in this
subparagraph (7).
(g) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the
Transfer Agent an officer's certificate setting
forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts
requiring such adjustment, which certificate shall
be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after
delivery of such certificate, the Company shall
prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted
Conversion Price and the effective date of such
adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of
each Series A Preferred Share at such holder's last
address as shown on the share records of the
Company.
(h) In any case in which subsection (d) of this
subparagraph (7) provides that an adjustment shall
become effective on the date next following the
record date for an event, the Company may defer
until the occurrence of such event (A) issuing to
the holder of any Series A Preferred Shares
converted after such record date and before the
occurrence of such event the additional Common
Shares issuable upon such conversion by reason of
the adjustment required by such event over and
above the Common Shares issuable upon such
conversion before giving effect to such adjustment
and (B) fractionalizing any Series A Preferred
Share and/or paying to such holder any amount of
cash in lieu of any fraction pursuant to subsection
(c) of this subparagraph (7).
(i) There shall be no adjustment of the Conversion
Price in case of the issuance of any shares of
beneficial interest of the Company
-19-
<PAGE> 20
in a reorganization, acquisition or other similar
transaction except as specifically set forth in
this subparagraph (7). If any action or
transaction would require adjustment of the
Conversion Price pursuant to more than one
subsection of this subparagraph (7), only one
adjustment shall be made, and such adjustment shall
be the amount of adjustment that has the highest
absolute value.
(j) If the Company shall take any action affecting the
Common Shares, other than action described in this
subparagraph (7), that in the opinion of the Board
of Trust Managers would materially adversely affect
the conversion rights of the holders of the Series
A Preferred Shares, the Conversion Price for the
Series A Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any,
and at such time, as the Board of Trust Managers,
in its sole discretion, may determine to be
equitable in the circumstances.
(k) The Company covenants that it will at all times
reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but
unissued Common Shares, for the purpose of
effecting conversion of the Series A Preferred
Shares, the full number of Common Shares
deliverable upon the conversion of all outstanding
Series A Preferred Shares not theretofore
converted. For purposes of this subsection (k),
the number of Common Shares that shall be
deliverable upon the conversion of all outstanding
Series A Preferred Shares shall be computed as if
at the time of computation all such outstanding
shares were held by a single holder.
The Company covenants that any Common Shares issued
upon conversion of the Series A Preferred Shares
shall be validly issued, fully paid and
nonassessable. Before taking any action that would
cause an adjustment reducing the Conversion Price
below the then par value of the Common Shares
deliverable upon conversion of the Series A
Preferred Shares, the Company will take any action
that, in the opinion of its counsel, may be
necessary in order that the Company may validly and
legally issue fully paid and nonassessable Common
Shares at such adjusted Conversion Price.
The Company shall endeavor to list the Common
Shares required to be delivered upon conversion of
the Series A Preferred Shares, prior to such
delivery, upon each national securities exchange,
-20-
<PAGE> 21
if any, upon which the outstanding Common Shares
are listed at the time of such delivery.
Prior to the delivery of any securities that the
Company shall be obligated to deliver upon
conversion of the Series A Preferred Shares, the
Company shall endeavor to comply with all federal
and state laws and regulations thereunder requiring
the registration of such securities, or any
approval of or consent to the delivery thereof by
any governmental authority.
(l) The Company will pay any and all documentary stamp
or similar issue or transfer taxes payable in
respect of the issue or delivery of Common Shares
or other securities or property on conversion of
the Series A Preferred Shares pursuant hereto;
provided, however, that the Company shall not be
required to pay any tax that may be payable in
respect of any transfer involved in the issue or
delivery of Common Shares or other securities or
property in a name other than that of the holder of
the Series A Preferred Shares to be converted, and
no such issue or delivery shall be made unless and
until the Person requesting such issue or delivery
has paid to the Company the amount of any such tax
or has established, to the reasonable satisfaction
of the Company, that such tax has been paid.
(m) In addition to the foregoing adjustments, the
Company will be permitted to make such reductions
in the Conversion Price as it considers to be
advisable in order that any event treated for
federal income tax purposes as a dividend of stock
or stock rights will not be taxable to the holders
of the Common Shares.
(n) Whenever reference is made in this subparagraph (7)
to the issuance or sale of Common Shares, the term
"Common Shares" shall include any shares of
beneficial interest of any class of the Company
other than preferred shares of any class with a
fixed (absolutely or by reference to an adjustment
formula) limit on dividends and a fixed amount
payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up
of the Company.
(8) Voting Rights. Except as required by law or as provided
below, the holders of the Series A Preferred Shares shall not be entitled to
vote at any meeting of the shareholders for election of Trust Managers or for
any other purposes or otherwise to participate
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<PAGE> 22
in any action taken by the Company or the shareholders thereof, or to receive
notice of any meeting of shareholders.
(a) In any matter in which the Series A Preferred
Shares are entitled to vote (as expressly provided
herein or as may be required by law), including any
action by written consent, each Series A Preferred
Share shall be entitled to one vote.
(b) Whenever distributions on any Series A Preferred
Shares shall be in arrears for six or more
Distribution Periods, whether or not such
Distribution Periods are consecutive, the holders
of the Series A Preferred Shares, voting separately
as a class with all other series of Preferred
Shares upon which like voting rights have been
conferred and are exercisable, will be entitled to
vote for the election of two additional Trust
Managers of the Company at a special meeting called
by the holders of record of at least ten percent
(10%) of any series of Preferred Shares so in
arrears (unless such request is received less than
90 days before the date fixed for the next annual
or special meeting of the shareholders) or at the
next annual meeting of shareholders, and all other
Trust Managers of the Company shall be elected by
the holders of the Company's Common Shares. In
such case, the entire Board of Trust Managers of
the Company will be increased by two Trust
Managers. Voting rights of the holders of the
Series A Preferred Shares shall continue at each
subsequent annual meeting until all distributions
accumulated on such Series A Preferred Shares for
the past Distribution Periods and the then current
Distribution Period shall have been fully paid or
declared and a sum sufficient for the payment
thereof set aside for payment.
(c) As long as any Series A Preferred Shares remain
outstanding, the Company will not, without the
affirmative vote or consent of the holders of at
least two-thirds of the Series A Preferred Shares
outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such
series voting separately as a class) (i) authorize
or create, or increase the authorized or issued
amount of, any class or series of shares of
beneficial interest ranking prior to the Series A
Preferred Shares with respect to the payment of
distributions or the distribution of assets upon
liquidation, dissolution or winding up or
reclassify any authorized shares of beneficial
interest of the Company into such shares, or
create, authorize or issue any obligation or
security convertible into or evidencing the right
to purchase any such shares; or (ii) amend, alter
or repeal the provisions of the Declaration of
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<PAGE> 23
Trust or this Statement of Designation, whether by
merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right,
preference, privilege or voting power of the Series
A Preferred Shares or the holders thereof;
provided, however, with respect to the occurrence
of any of the Events set forth in (ii) above, so
long as the Series A Preferred Shares (or shares
into which the Series A Preferred Shares have been
converted in any successor entity to the Company)
remain outstanding with the terms thereof
materially unchanged, taking into account that upon
the occurrence of an Event, the Company may not be
the surviving entity, the occurrence of any such
Event shall not be deemed to materially and
adversely affect such rights, preferences,
privileges or voting power of holders of Series A
Preferred Shares and provided further that (x) any
increase in the amount of the authorized Preferred
Shares or the creation or issuance of any other
Series A Preferred Shares, or (y) any increase in
the amount of authorized Series A Preferred Shares,
in each case ranking on a parity with or junior to
the Series A Preferred Shares with respect to
payment of distributions or the distribution of
assets upon liquidation, dissolution or winding up,
shall not be deemed to materially and adversely
affect such rights, preferences, privileges or
voting power.
The foregoing voting provisions will not apply if,
at or prior to the time when the act with respect
to which such vote would otherwise be required
shall be effected, all outstanding Series A
Preferred Shares shall have been redeemed or called
for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
C. Exclusion of Other Rights.
Except as may otherwise be required by law, the Series A
Preferred Shares shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Statement of Designation (as such Statement of Designation
may be amended from time to time) and in the Declaration of Trust. The Series
A Preferred Shares shall have no preemptive or subscription rights.
D. Headings of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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<PAGE> 24
E. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Shares and
qualifications, limitations and restrictions thereof set forth in this
Statement of Designation (as such Statement of Designation may be amended from
time to time) is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other voting powers, preferences and
relative, participating, optional and other special rights of Series A
Preferred Shares and qualifications, limitations and restrictions thereof set
forth in this Statement of Designation (as so amended) which can be given
effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional or other special rights of
Series A Preferred Shares and qualifications, limitations and restrictions
thereof herein set forth shall be deemed dependent upon any other such voting
powers, preferences and relative, participating, optional or other special
right of Series A Preferred Shares and qualifications, limitations and
restrictions thereof unless so expressed herein.
F. Adoption.
This Statement of Designation was duly adopted by the Board of
Trust Managers of the Company. Shareholder action was not required.
* * *
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<PAGE> 25
IN WITNESS WHEREOF, I hereby certify that I, Gerald W. Haddock, am the
President and Chief Executive Officer of Crescent Real Estates Equities Company
(the "Company") and that as such, I am authorized to execute and file with the
County Clerk of Tarrant County, Texas this Statement of Designation (the
"Statement of Designation") on behalf of the Company and I further certify on
behalf of the Company that this Statement of Designation was authorized by the
Board of Trust Managers by unanimous written consent dated as of February 13,
1998 and is still in full force and effect as of the date hereof. I further
certify that my signature to this document is my free act and deed, that to the
best of my knowledge, information and belief, the matters and facts set forth
herein are true in all material respects and that this statement is made under
penalty of perjury.
Dated: February 18, 1998
CRESCENT REAL ESTATE EQUITIES COMPANY
/s/ GERALD W. HADDOCK
---------------------------------------
Name: Gerald W. Haddock
Title: President and Chief Executive
Officer
The undersigned, David M. Dean, the Senior Vice President, Law and
Secretary of the Company, hereby certifies that Gerald W. Haddock is the
President and Chief Executive Officer of the Company and that the signature set
forth above is his genuine signature.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 18th
day of February, 1998.
/s/ DAVID M. DEAN
---------------------------------------
Name: David M. Dean
Title: Senior Vice President, Law
and Secretary
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<PAGE> 26
STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on February 18, 1998, by
Gerald W. Haddock, President and Chief Executive Officer of Crescent Real
Estate Equities Company, a Texas real estate investment trust, on behalf of
said real estate investment trust.
[NOTARY PUBLIC STAMP] /s/ LYNN SONSEL
LYNN SONSEL ---------------------------------
Notary Public Notary Public - State of Texas
STATE OF TEXAS
My Comm. Exp. 08/29/2000
---------------------------------
Printed Name of Notary Public
My commission expires:
- ---------------------------
STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on February 18, 1998, by
David M. Dean.
[NOTARY PUBLIC STAMP] /s/ LYNN SONSEL
LYNN SONSEL ---------------------------------
Notary Public Notary Public - State of Texas
STATE OF TEXAS
My Comm. Exp. 08/29/2000
---------------------------------
Printed Name of Notary Public
My commission expires:
- ----------------------------
<PAGE> 1
EXHIBIT 10.02
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into
as of the [___] day of [_________], 1994, by and between Richard E. Rainwater
("Mr. Rainwater") and Rainwater, Inc., a Texas corporation ("RI").
W I T N E S S E T H:
WHEREAS, RI is engaged in a series of transactions involving the
formation of Crescent Real Estate Equities, Inc., a Maryland corporation
(together with its subsidiary corporations and limited partnerships, the
"Company"), a public offering of shares of the Company, and the acquisition of
real estate investments by the Company; and
WHEREAS, the Company will enter into a series of transactions (the
"Formation Transactions") pursuant to which it will acquire substantially all
of the real estate assets owned by real estate investment businesses affiliated
with Mr. Rainwater, as well as certain additional real estate assets; and
WHEREAS, as a condition precedent to the consummation of the Formation
Transactions, the Company has requested that RI obtain from Mr. Rainwater for
the benefit of the Company, and that RI thereupon assign to the Company,
certain agreements to, among other things, restrict certain real estate
activities of Mr. Rainwater in order to avoid potential conflicts of interest
between Mr. Rainwater and the Company and to protect the business interests of
the Company; and
WHEREAS, Mr. Rainwater and RI intend by this Agreement to establish
such restrictions, as between themselves; and
WHEREAS, it is their intention that following the execution of this
Agreement, all rights, title and interest of RI herein will be transferred,
assigned and conveyed to the Company, which, following such transfer, will
possess the sole and exclusive right to exercise the rights acquired under this
Agreement, and to which Mr. Rainwater will be bound for the performance of his
obligations hereunder.
NOW, THEREFORE, in consideration of the premises and mutual
undertakings herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by each of the parties hereto,
Mr. Rainwater and the Company agree as follows:
1. Covenant not to Compete. Mr. Rainwater hereby agrees that,
during the term of this Agreement as set forth in Section 3 hereof (the "Term"),
and except as otherwise provided herein, he shall not, without the express,
prior written consent of the Company, which consent shall be based on the
approval of a majority of the independent directors and may be withheld in the
Company's sole discretion, directly or indirectly engage in real estate
acquisition,
<PAGE> 2
management, operating, leasing, development, or redevelopment activities (which
activities hereinafter are described as "Real Estate Activities") other than in
his capacity as an employee, officer, director, or stockholder of the Company.
Notwithstanding the foregoing, RI acknowledges, and the Company by
accepting assignment of this Agreement shall acknowledge, that Mr. Rainwater
has a broad and varied range of investment interests, and that many companies
in which he has or may acquire an equity interest own and may hereafter acquire
real property. RI also acknowledges, and the Company by accepting assignment
of this Agreement shall acknowledge, that companies in which Mr. Rainwater has
or may acquire an equity interest engage in Real Estate Activities and that
such activities are not necessarily intended to be prohibited by this
Agreement. RI therefore agrees, and the Company by accepting assignment of
this Agreement shall agree, that the following activities of Mr. Rainwater are
expressly permitted, notwithstanding any other provision of this Agreement:
a. Any Real Estate Activities in which Mr. Rainwater is engaged,
directly or indirectly, as of the date hereof;
b. Any real estate investments in which Mr. Rainwater may have an
interest on or after the date hereof, so long as Mr. Rainwater
engages in any such investments solely as a passive investor,
without the actual power to exercise control over Real Estate
Activities related to any such real estate investments.
c. Any Real Estate Activities carried out directly or indirectly
by Mr. Rainwater or any entity in which Mr. Rainwater has an
interest, which Real Estate Activities are incidental to the
conduct of another business of Mr. Rainwater or any such
entity, and which Real Estate Activities are entered into for
the purpose of furthering business activities of Mr. Rainwater
or any such entity that are not Real Estate Activities.
2. Investment Opportunities. During the term of this Agreement,
Mr. Rainwater hereby agrees that he shall offer to the Company any real estate
investment opportunity presented to him or to a controlled affiliate of Mr.
Rainwater, whether or not Mr. Rainwater would be permitted to participate in
such real estate investment opportunity pursuant to paragraph 1(b) above. In
the event that the Company elects not to participate in any such investment
presented to it by Mr. Rainwater, neither Mr. Rainwater, nor any of his
controlled affiliates, shall participate in the investment without the express
prior written consent of a majority of the Company's independent directors.
For purposes of this Agreement, "controlled affiliate" means any entity over
which Mr. Rainwater has the actual power to exercise management control.
The Company acknowledges (i) that Mr. Rainwater, in the normal course
of his business, assists or participates in complex corporate transactions,
debt restructurings, recapitalizations, acquisitions, mergers and other similar
transactions and activities, in connection with which he may receive
securities, property, or other consideration and (ii) that the Company will not
actively engage in any such transactions or activities and shall not have the
right to receive or
- 2 -
<PAGE> 3
acquire, or to prevent Mr. Rainwater from receiving or acquiring, any such
consideration solely because such consideration may include real estate or
direct or indirect interests therein. Nothing in this paragraph shall be
construed to permit Mr. Rainwater to engage in Real Estate Activities other
than those permitted by paragraph 1 of this Agreement.
3. Term. This Agreement shall remain in full force and effect
until the later of (a) three years after the date of completion of the Offering
or (b) one year after the later to occur of (i) the date on which Mr. Rainwater
ceases to serve as a director of the Company or (ii) the date on which Mr.
Rainwater's beneficial ownership of the Company (including Common Stock and
Units) first represents less than a 2.5% interest in the equity securities of
the Company. All calculations of beneficial ownership of equity securities of
the Company for purposes of clause (b)(ii) of the foregoing sentence shall be
in conformity with Rule 13d-1 and 13d-3 of Regulation 13D-G, promulgated under
the Securities Act of 1934, as amended, as such Rule may be amended from time
to time (including any substitute or replacement rule adopted in lieu or in
place thereof) and may be in effect as of the date as of which any reference
thereto is relevant under this Agreement.
4. Reasonable and Necessary Restrictions. Mr. Rainwater hereby
acknowledges and agrees that the restrictions, prohibitions and other
provisions of this Agreement are reasonable, fair and equitable in scope, term
and duration, are necessary to protect the legitimate business interests of RI
and the Company and are a material inducement to RI and the Company to enter
into the transactions contemplated in the recitals hereto.
5. SPECIFIC PERFORMANCE. Mr. Rainwater hereby acknowledges and
agrees that the obligations undertaken by him pursuant to this agreement are
unique and that any remedy at law for a breach or threatened breach of any of
his obligations hereunder would be inadequate. Consequently, Mr. Rainwater
agrees that the right of RI and the Company to specific performance of the
terms of this agreement is essential to protect the rights and interests of RI
and the Company. Mr. Rainwater further agrees that in addition to any other
remedies that RI and the Company may have at law or in equity, RI and the
Company shall have the right to have all obligations, covenants, agreements and
other provisions of this agreement specifically performed by Mr. Rainwater, and
the Company shall have the right to a temporary restraining order or a
temporary or permanent injunction to secure specific performance and to prevent
a breach or threatened breach of this agreement by Mr. Rainwater.
6. Controlled Affiliates. Mr. Rainwater hereby agrees that he
will not authorize or cause any controlled affiliate, as that term is defined
in Section 2 hereof, to engage in any activities in which he would be
prohibited from engaging pursuant to this agreement. Notwithstanding anything
to the contrary in this agreement, Mr. Rainwater is not required by the terms
of this agreement to violate any currently existing fiduciary or contractual
duty to any entity.
7. ASSIGNMENT. This agreement may be assigned by RI to the
Company, which following such assignment shall have the exclusive right to
possess and to exercise, or to refrain from exercising, all rights of Ri
arising out of this agreement.
- 3 -
<PAGE> 4
8. MISCELLANEOUS.
(a) Governing Law. This agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the laws of the State of Maryland.
(b) Binding Effect. This agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors, assigns, heirs and personal representatives.
(c) Severability. Every provision of this agreement is
severable, and the invalidity or unenforceability of any term or provision of
this Agreement shall not affect the validity or enforceability of the remainder
of this Agreement.
(d) Amendment; Waiver. No termination, cancellation,
modification, amendment, deletion, addition or other change in this agreement,
or any provision hereof, or waiver of any right or remedy herein provided,
shall be effective for any purpose unless specifically set forth in a writing
signed by the party or parties to be bound thereby and approved by a majority
of the independent directors of the Company. The waiver of any right or remedy
with respect to any occurrence on one occasion shall not be deemed a waiver of
such right or remedy with respect to such occurrence on any other occasion.
(e) Entire Agreement. This Agreement (i) constitutes the
entire agreement and supersedes all prior agreements and understandings,
whether written or oral, between the parties hereto with respect to the subject
matter hereof, so that no such external or separate agreement relating to the
subject matter of this agreement shall have any effect or be binding, unless
the same is referred to specifically in this Agreement or is executed by the
parties after the date hereof; (ii) is not intended to confer upon any other
person any rights or remedies hereunder; and (iii) shall not be assigned by
operation of law or otherwise without the express written consent of each of
the parties hereto.
(f) Headings. The section and subsection headings of this
Agreement are inserted for convenience of reference of the parties only, and
shall not be deemed a part hereof or affect the construction or interpretation
of any provisions hereof.
(g) Counterparts. This Agreement may be executed in two or
more counterparts, which together shall constitute a single Agreement. It
shall not be necessary that each party hereto execute each counterpart hereof,
so long as each such party executes at least one counterpart hereof.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be executed by one of its duly
authorized corporate officers, as of the date first above written.
RAINWATER, INC.
BY: /S/ JOHN C. GOFF
-----------------------------------------
PRINT NAME:
----------------------------------
TITLE:
-----------------------------------------
/S/ RICHARD E. RAINWATER
----------------------------------------------
RICHARD E. RAINWATER
- 5 -
<PAGE> 1
EXHIBIT 10.03
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into as of
the [___] day of [__________], 1994, by and between John C. Goff ("the Officer")
and Rainwater, Inc., a Texas corporation ("RI").
W I T N E S S E T H:
WHEREAS, RI is engaged in a series of transactions involving the formation
of Crescent Real Estate Equities, Inc., a Maryland corporation (together with
its subsidiary corporations and limited partnerships, the "Company"), a public
offering of shares of the Company, and the acquisition of real estate
investments by the Company; and
WHEREAS, the Company will enter into a series of transactions (the
"Formation Transactions") pursuant to which it will acquire substantially all of
the real estate assets owned by real estate investment businesses affiliated
with Richard E. Rainwater, as well as certain additional real estate assets; and
WHEREAS, the Officer is an executive officer of RI; and
WHEREAS, as a condition precedent to the consummation of the Formation
Transactions, the Company has requested that RI obtain from the Officer for the
benefit of the Company, and that RI thereupon assign to the Company, certain
agreements to, among other things, restrict certain real estate activities of
the Officer in order to avoid potential conflicts of interest between the
Officer and the Company and to protect the business interests of the Company;
and
WHEREAS, the Officer and RI intend by this Agreement to establish such
restrictions, as between themselves; and
WHEREAS, it is their intention that following the execution of this
Agreement, all rights, title and interest of RI herein will be transferred,
assigned and conveyed to the Company, which, following such transfer, will
possess the sole and exclusive right to exercise the rights acquired under this
Agreement, and to which the Officer will be bound for the performance of his
obligations hereunder.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
Officer and the Company agree as follows:
1. Covenant not to Compete. The Officer hereby agrees that, during the term
of this Agreement as set forth in Section 3 hereof (the "Term"), and except as
otherwise provided herein, he shall not, without the express, prior written
consent of the Company, which consent shall be based on the approval of a
majority of the independent directors and may be withheld in the Company's sole
discretion, directly or indirectly engage in real estate acquisition,
management, operating, leasing, development, or redevelopment activities (which
activities hereinafter are described as "Real Estate Activities") other than in
his capacity as an employee, officer, director, or stockholder of the Company.
Notwithstanding the foregoing, RI acknowledges, and the Company by
accepting assignment of this Agreement shall acknowledge, that the Officer has a
broad and varied range of investment interests, and that many companies in which
he has or may acquire an equity interest own and may hereafter acquire real
property. RI also acknowledges, and the Company by accepting assignment of this
Agreement shall acknowledge, that companies in which the Officer has or may
acquire an equity interest engage in Real Estate Activities and that such
activities are not necessarily intended to be prohibited by this Agreement. RI
therefore agrees, and the Company by accepting assignment of this Agreement
shall agree, that the following activities of the Officer are expressly
permitted, notwithstanding any other provision of this Agreement:
a Any Real Estate Activities in which the Officer is engaged, directly
or indirectly, as of the date hereof;
b. Any real estate investments in which the Officer may have an interest
on or after the date hereof, so long as the Officer engages in any
such investments solely as a passive investor, without the actual
power to exercise control over Real Estate Activities related to any
such real estate investments.
-2-
<PAGE> 3
c. Any Real Estate Activities carried out directly or indirectly by the
Officer or any entity in which the Officer has an interest, which Real
Estate Activities are incidental to the conduct of another business of
the Officer or any such entity, and which Real Estate Activities are
entered into for the purpose of furthering business activities of the
Officer or any such entity that are not Real Estate Activities.
2. Investment Opportunities. During the term of this Agreement, the Officer
hereby agrees that he shall offer to the Company any real estate investment
opportunity presented to him or to a controlled affiliate of the Officer,
whether or not the Officer would be permitted to participate in such real estate
investment opportunity pursuant to paragraph 1(b) above. In the event that the
Company elects not to participate in any such investment presented to it by the
Officer, neither the Officer, nor any of his controlled affiliates, shall
participate in the investment without the express prior written consent of a
majority of the Company's independent directors. For purposes of this Agreement,
"controlled affiliate" means any entity over which the Officer has the actual
power to exercise management control.
3. Term. This Agreement shall remain in full force and effect until one
year after the date on which the Officer first ceases to serve as a director or
executive officer of the Company.
4. Reasonable and Necessary Restrictions. The Officer hereby acknowledges
and agrees that the restrictions, prohibitions and other provisions of this
Agreement are reasonable, fair and equitable in scope, term and duration, are
necessary to protect the legitimate business interests of RI and the Company and
are a material inducement to RI and the Company to enter into the transactions
contemplated in the recitals hereto.
5. Specific Performance. The Officer hereby acknowledges and agrees that
the obligations undertaken by him pursuant to this Agreement are unique and that
any remedy at law for a breach or threatened breach of any of his obligations
hereunder would be inadequate. Consequently, the Officer agrees that the right
of RI and the Company to specific performance of the terms of this Agreement is
essential to protect the rights and interests of RI and the Company. The Officer
further agrees that in addition to
-3-
<PAGE> 4
any other remedies that RI and the Company may have at law or in equity, RI and
the Company shall have the right to have all obligations, covenants, agreements
and other provisions of this Agreement specifically performed by the Officer,
and the Company shall have the right to a temporary restraining order or a
temporary or permanent injunction to secure specific performance and to prevent
a breach or threatened breach of this Agreement by the Officer.
6. Controlled Affiliates. The Officer hereby agrees that he will not
authorize or cause any controlled affiliate, as that term is defined in Section
2 hereof, to engage in any activities in which he would be prohibited from
engaging pursuant to this Agreement. Notwithstanding anything to the contrary in
this Agreement, the Officer is not required by the terms of this Agreement to
violate any currently existing fiduciary or contractual duty to any entity.
7. Assignment. This Agreement may be assigned by RI to the Company, which
following such assignment shall have the exclusive right to possess and to
exercise, or to refrain from exercising, all rights of RI arising out of this
Agreement.
8. Miscellaneous.
(a) Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the laws
of the State of Maryland.
(b) Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, assigns, heirs
and personal representatives.
(c) Severability. Every provision of this Agreement is severable, and
the invalidity or unenforceability of any term or provision of this Agreement
shall not affect the validity or enforceability of the remainder of this
Agreement.
(d) Amendment; Waiver. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in a writing signed by
the party or parties to be bound thereby and approved by a majority of the
independent directors of the Company. The waiver of any right or remedy with
respect to any occurrence on one occasion shall not
-4-
<PAGE> 5
be deemed a waiver of such right or remedy with respect to such occurrence on
any other occasion.
(e) Entire Agreement. This Agreement (i) constitutes the entire
agreement and supersedes all prior agreements and understandings, whether
written or oral, between the parties hereto with respect to the subject matter
hereof, so that no such external or separate agreement relating to the subject
matter of this Agreement shall have any effect or be binding, unless the same is
referred to specifically in this Agreement or is executed by the parties after
the date hereof; (ii) is not intended to confer upon any other person any rights
or remedies hereunder; and (iii) shall not be assigned by operation of law or
otherwise without the express written consent of each of the parties hereto.
(f) Headings. The section and subsection headings of this Agreement are
inserted for convenience of reference of the parties only, and shall not be
deemed a part hereof or affect the construction or interpretation of any
provisions hereof.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, which together shall constitute a single agreement. It shall not
be necessary that each party hereto execute each counterpart hereof, so long as
each such party executes at least one counterpart hereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be executed by one of its duly authorized
corporate officers, as of the date first above written.
RAINWATER, INC.
By: /s/ Gerald W. Haddock
--------------------------------------
Print Name:
-------------------------------
Title:
------------------------------------
/s/ John C. Goff
------------------------------------------
John C. Goff
-5-
<PAGE> 1
EXHIBIT 10.04
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into as of
the [___] day of [__________], 1994, by and between Gerald W. Haddock ("the
Officer") and Rainwater, Inc., a Texas corporation ("RI").
W I T N E S S E T H:
WHEREAS, RI is engaged in a series of transactions involving the formation
of Crescent Real Estate Equities, Inc., a Maryland corporation (together with
its subsidiary corporations and limited partnerships, the "Company"), a public
offering of shares of the Company, and the acquisition of real estate
investments by the Company; and
WHEREAS, the Company will enter into a series of transactions (the
"Formation Transactions") pursuant to which it will acquire substantially all of
the real estate assets owned by real estate investment businesses affiliated
with Richard E. Rainwater, as well as certain additional real estate assets; and
WHEREAS, the Officer is an executive officer of RI; and
WHEREAS, as a condition precedent to the consummation of the Formation
Transactions, the Company has requested that RI obtain from the Officer for the
benefit of the Company, and that RI thereupon assign to the Company, certain
agreements to, among other things, restrict certain real estate activities of
the Officer in order to avoid potential conflicts of interest between the
Officer and the Company and to protect the business interests of the Company;
and
WHEREAS, the Officer and RI intend by this Agreement to establish such
restrictions, as between themselves; and
WHEREAS, it is their intention that following the execution of this
Agreement, all rights, title and interest of RI herein will be transferred,
assigned and conveyed to the Company, which, following such transfer, will
possess the sole and exclusive right to exercise the rights acquired under this
Agreement, and to which the Officer will be bound for the performance of his
obligations hereunder.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
Officer and the Company agree as follows:
1. Covenant not to Compete. The Officer hereby agrees that, during the term
of this Agreement as set forth in Section 3 hereof (the "Term"), and except as
otherwise provided herein, he shall not, without the express, prior written
consent of the Company, which consent shall be based on the approval of a
majority of the independent directors and may be withheld in the Company's sole
discretion, directly or indirectly engage in real estate acquisition,
management, operating, leasing, development, or redevelopment activities (which
activities hereinafter are described as "Real Estate Activities") other than in
his capacity as an employee, officer, director, or stockholder of the Company.
Notwithstanding the foregoing, RI acknowledges, and the Company by
accepting assignment of this Agreement shall acknowledge, that the Officer has a
broad and varied range of investment interests, and that many companies in which
he has or may acquire an equity interest own and may hereafter acquire real
property. RI also acknowledges, and the Company by accepting assignment of this
Agreement shall acknowledge, that companies in which the Officer has or may
acquire an equity interest engage in Real Estate Activities and that such
activities are not necessarily intended to be prohibited by this Agreement. RI
therefore agrees, and the Company by accepting assignment of this Agreement
shall agree, that the following activities of the Officer are expressly
permitted, notwithstanding any other provision of this Agreement:
a. Any Real Estate Activities in which the Officer is engaged, directly or
indirectly, as of the date hereof;
b. Any real estate investments in which the Officer may have an interest on
or after the date hereof, so long as the Officer engages in any such
investments solely as a passive investor, without the actual power to
exercise control over Real Estate Activities related to any such real
estate investments.
- 2 -
<PAGE> 3
c. Any Real Estate Activities carried out directly or indirectly by the
Officer or any entity in which the Officer has an interest, which Real
Estate Activities are incidental to the conduct of another business of the
Officer or any such entity, and which Real Estate Activities are entered
into for the purpose of furthering business activities of the Officer or
any such entity that are not Real Estate Activities.
2. Investment Opportunities. During the term of this Agreement, the Officer
hereby agrees that he shall offer to the Company any real estate investment
opportunity presented to him or to a controlled affiliate of the Officer,
whether or not the Officer would be permitted to participate in such real estate
investment opportunity pursuant to paragraph 1(b) above. In the event that the
Company elects not to participate in any such investment presented to it by the
Officer, neither the Officer, nor any of his controlled affiliates, shall
participate in the investment without the express prior written consent of a
majority of the Company's independent directors. For purposes of this Agreement,
"controlled affiliate" means any entity over which the Officer has the actual
power to exercise management control.
3. Term. This Agreement shall remain in full force and effect until one
year after the date on which the Officer first ceases to serve as a director or
executive officer of the Company.
4. Reasonable and Necessary Restrictions. The Officer hereby acknowledges
and agrees that the restrictions, prohibitions and other provisions of this
Agreement are reasonable, fair and equitable in scope, term and duration, are
necessary to protect the legitimate business interests of RI and the Company and
are a material inducement to RI and the Company to enter into the transactions
contemplated in the recitals hereto.
5. Specific Performance. The Officer hereby acknowledges and agrees that
the obligations undertaken by him pursuant to this Agreement are unique and that
any remedy at law for a breach or threatened breach of any of his obligations
hereunder would be inadequate. Consequently, the Officer agrees that the right
of RI and the Company to specific performance of the terms of this Agreement is
essential to protect the rights and interests of RI and the Company. The Officer
further agrees that in addition to
- 3 -
<PAGE> 4
any other remedies that RI and the Company may have at law or in equity, RI and
the Company shall have the right to have all obligations, covenants, agreements
and other provisions of this Agreement specifically performed by the Officer,
and the Company shall have the right to a temporary restraining order or a
temporary or permanent injunction to secure specific performance and to prevent
a breach or threatened breach of this Agreement by the Officer.
6. Controlled Affiliates. The Officer hereby agrees that he will not
authorize or cause any controlled affiliate, as that term is defined in Section
2 hereof, to engage in any activities in which he would be prohibited from
engaging pursuant to this Agreement. Notwithstanding anything to the contrary in
this Agreement, the Officer is not required by the terms of this Agreement to
violate any currently existing fiduciary or contractual duty to any entity.
7. Assignment. This Agreement may be assigned by RI to the Company, which
following such assignment shall have the exclusive right to possess and to
exercise, or to refrain from exercising, all rights of RI arising out of this
Agreement.
8. Miscellaneous.
(a) Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the laws
of the State of Maryland.
(b) Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, assigns, heirs
and personal representatives.
(c) Severability. Every provision of this Agreement is severable, and
the invalidity or unenforceability of any term or provision of this Agreement
shall not affect the validity or enforceability of the remainder of this
Agreement.
(d) Amendment; Waiver. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless specifically set forth in a writing signed by
the party or parties to be bound thereby and approved by a majority of the
independent directors of the Company. The waiver of any right or remedy with
respect to any occurrence on one occasion shall not
- 4 -
<PAGE> 5
be deemed a waiver of such right or remedy with respect to such occurrence on
any other occasion.
(e) Entire Agreement. This Agreement (i) constitutes the entire
agreement and supersedes all prior agreements and understandings, whether
written or oral, between the parties hereto with respect to the subject matter
hereof, so that no such external or separate agreement relating to the subject
matter of this Agreement shall have any effect or be binding, unless the same is
referred to specifically in this Agreement or is executed by the parties after
the date hereof; (ii) is not intended to confer upon any other person any rights
or remedies hereunder; and (iii) shall not be assigned by operation of law or
otherwise without the express written consent of each of the parties hereto.
(f) Headings. The section and subsection headings of this Agreement are
inserted for convenience of reference of the parties only, and shall not be
deemed a part hereof or affect the construction or interpretation of any
provisions hereof.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, which together shall constitute a single agreement. It shall not
be necessary that each party hereto execute each counterpart hereof, so long as
each such party executes at least one counterpart hereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
or caused this Agreement to be executed by one of its duly authorized corporate
officers, as of the date first above written.
RAINWATER, INC.
By: /s/ JOHN C. GOFF
--------------------------------
Print Name:
------------------------
Title:
-----------------------------
/s/ GERALD W. HADDOCK
-----------------------------------
GERALD W. HADDOCK
- 5 -
<PAGE> 1
EXHIBIT 10.05
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 15th
day of April, 1994, by and between Rainwater, Inc., a Texas corporation
("Employer"), and John C. Goff ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee will, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer (the
"Board") to elect and remove of officers, Employee will serve Employer as Chief
Executive Officer (or in such other executive office as Employer or the Board
may determine) and will perform, faithfully and diligently, the services and
functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board. Employee will devote
his full time, attention, skills, benefits and best efforts to the performance
of his duties hereunder and to the promotion of the business and interests of
Employer and its affiliates and will not, without the prior written consent of
the Board, become engaged in any other activity requiring significant time or
personal services by Employee that will conflict with the proper performance of
any such duties under this Agreement. Employer hereby acknowledges that Employee
has a broad and varied range of investment interests and that Employee must
devote such reasonable time and attention to the proper and judicious management
of such interests as may be reasonably required from time to time. Accordingly,
nothing contained in this Agreement shall limit or be deemed to limit Employee's
personal investment activities, and Employee's engaging in such activities shall
not be or be deemed to be a breach or violation of this Agreement.
3. TERM. Unless sooner terminated pursuant to the provisions hereof, the
term of this Agreement (together with any renewals pursuant to this Section, the
"Terms") shall be for a term of three years, commencing on the date of this
Agreement and terminating April 14, 1997; provided that this Agreement will be
automatically renewed for a term of one year unless
<PAGE> 2
either party notifies the other prior to January 1 of a given year that they do
not wish to renew this Agreement.
4. COMPENSATION. As compensation for his services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) Salary. During the Term, Employee will be paid an annual salary of
$160,000.00, payable monthly (the "Salary"). At any time and from time to
time the Salary may be increased if so determined by the Board or its
Compensation Committee after a review of Employee's performance of his
duties hereunder.
(b) Bonus. In addition to the Salary, Employee will be entitled to
receive such bonuses as may be determined by the Board or its Compensation
Committee.
(c) Benefits. During the Term, Employee will be entitled to
receive such group benefits as Employer may provide to its other employees
at comparable salaries and responsibilities to those of Employee.
(d) Expenses. Employer will reimburse Employee for all reasonable and
necessary out-of-pocket travel and other expenses incurred by Employee in
rendering services required under this Agreement, on a monthly basis upon
submission of a detailed monthly statement and reasonable documentation.
5. CONFIDENTIALITY; NON-COMPETITION.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and its affiliates in any Confidential
Information (as hereinafter defined) of Employer and its affiliates.
Employee acknowledges and agrees that any and all Confidential Information
learned by Employee during the course of his engagement by Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, will be and is the property of Employer and its
affiliates. Employee further acknowledges and understands that his
disclosure of any Confidential Information and/or proprietary information
will result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Confidential Information" means all
confidential and proprietary information of Employer and its affiliates,
including without limitation information derived from reports,
investigations, experiments, research, drawing, designs, plans, proposals,
codes, marketing and sales programs, client lists, client mailing lists,
financial projections, cost summaries, pricing formula, and all other
concepts, ideas, materials, or information prepared or performed for or by
Employer or its affiliates. "Confidential Information" also includes
information related to the business, products or sales of Employer or its
affiliates, or any of their respective customers, other than information
that is otherwise publicly available.
-2-
<PAGE> 3
(b) Covenant Not-to-Divulge Confidential Information. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of Confidential Information. As a portion of the
consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during
the Term and thereafter to hold in strict confidence and not to disclose
or allow to be disclosed to any person, firm or corporation, other than to
persons engaged by Employer and its affiliates to further the business of
Employer and its affiliates, and not to use except in the pursuit of the
business of Employer and its affiliates, the Confidential Information,
without the prior written consent of Employer, including Confidential
Information developed by Employee.
(c) Return of Materials at Termination. In the event of any termination
or cessation of his employment with Employer for any reason whatsoever,
Employee will promptly deliver to Employer all documents, data and other
information pertaining to Confidential Information. Employee will not take
any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Confidential Information.
(d) Competition. Employee will enter into a Non-Competition Agreement
with Employer in substantially the form of Exhibit A hereto.
6. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
(a) The expiration of the Term as set forth in Section 3 above;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for
"just cause" (as hereinafter defined); or
(e) Written notice to Employee from Employer of termination for any
reason other than as set forth in Sections 6(a), 6(b), 6(c) or 6(d).
For purposes of Section 6(c), the "disability of Employee will mean his
inability, because of mental or physical illness or incapacity, to perform his
duties under this Agreement for a continuous period of 180 days or for 180 days
out of a 210-day period. For purposes of Section 6(d), "just cause" shall mean
Employee shall commit any act or omit to take any action in bad faith and to the
detriment of Employer.
Notwithstanding anything to the contrary in this Agreement, the provisions
of Section 5 will survive any termination, for whatever reason, of Employee's
employment under this Agreement. In the event of the termination of Employee's
employment prior to the completion
-3-
<PAGE> 4
of the Term, Employee or his estate, as the case may be will be entitled only to
the Salary payable pursuant to Section 4 hereof through the end of the calendar
month in which termination occurs, except that (a) if Employee's employment is
terminated pursuant to Section 6(d), Employee will be entitled to receive a
lump-sum payment equal to six month's Salary at the rate in effect immediately
prior to the termination on the date of termination, and (b) if Employee's
employment is terminated pursuant to Section 6(e), Employee will be entitled to
receive the greater of (i) a payment equal to the full Salary payable pursuant
to Section 4(a) as if no termination had occurred or (ii) a payment equal to one
year's Salary at the rate in effect immediately prior to the termination (except
that, in case of both (i) and (ii), such sum shall be payable in one lump-sum
payment on the date of termination).
7. REMEDIES. Employee recognizes and acknowledges that in the event of any
default in, or breach of any of, the terms, conditions or provisions of this
Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law will be inadequate. Accordingly, Employee agrees that
in such event, Employer and its affiliates will have the right of specific
performance and/or injunctive relief in addition to any and all other remedies
and rights at law or in equity, and such rights and remedies will be cumulative.
8. ACKNOWLEDGMENTS. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 by Employer and its
affiliates will not interfere with Employee's ability to pursue a proper
livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
9. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows: if to Employer, to 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, Attention: President; or if to Employee, to John C.
Goff, 777 Main Street, Suite 2700, Fort Worth, Texas 76102.
Notices delivered personally will be deemed communicated as of actual receipt;
mailed notices will be deemed communicated as of three days after mailing.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto and supersedes all prior agreements and understandings, oral or
written between the parties hereto. No modification or amendment of any of the
terms, conditions or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
11. GOVERNING LAW; VENUE. This Agreement and the rights and obligations of
the parties hereto will be governed, construed and enforced in accordance with
the laws of the State of Texas, without regard to the principles of conflicts of
laws thereof. The parties agree that this Agreement shall be performable in
Tarrant County, Texas.
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<PAGE> 5
12. PARTIES BOUND; ASSIGNMENT. This Agreement and the rights and
obligations hereunder will be binding upon and inure to the benefit of Employer
and Employee, and their respective heirs, personal representatives, successors
and assigns. Employer will have the right to assign this Agreement to Crescent
Real Estate Equities, Inc., a Maryland corporation, or any of its subsidiaries
of affiliated entities, including, without limitation, Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership, or to any
affiliate of Employer, or to Employer's successors or assigns. The terms
"successors" and "assigns" will include any person, corporation, partnership or
other entity that buys all or substantially all of Employer's assets or all of
its stock, or with which Employer merges or consolidates. The rights, duties or
benefits to Employee hereunder are personal to him, and no such right or benefit
may be assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Section 6 above.
13. CHOICE OF FORUM. The parties hereto agree that should any suit, action
or proceeding arising out of this Agreement be instituted by any party hereto
(other than a suit, action or proceeding to enforce or realize upon any final
court judgment arising out of this Agreement), such suit, action or proceeding
shall be instituted only in a state or federal court in Tarrant County, Texas.
Each of the parties hereto consents to the in personam jurisdiction of any state
or federal court in Tarrant County, Texas and waives any objection to the venue
of any such suit, action or proceeding. The parties hereto recognize that courts
outside Tarrant County, Texas may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Tarrant County, Texas, the party instituting such proceeding shall
indemnify any other party hereto for any losses and expenses that may result
from the breach of the foregoing covenant to institute such proceeding only in a
state or federal court in Tarrant County, Texas, including without limitation
any additional expenses incurred as a result of litigating in another
jurisdiction, such as reasonable fees and expenses of local counsel and travel
and lodging expenses for parties, witnesses, experts and support personnel.
14. SERVICE OF PROCESS. Service of any and all process that may be served
on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 11
and service thus made shall be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
15. ENFORCEABILITY. If, for any reason, any provision contained in this
agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written, it is the intent of each
of the parties that the court should reform such covenant to such narrower scope
as it determines enforceable.
-5-
<PAGE> 6
16. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
17. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
18. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
19. OTHER OBLIGATIONS. Employee represents and warrants that he has not as
of the execution of this Agreement assumed any obligations inconsistent with
those contained herein.
20. AFFILIATE. An "Affiliate" of any party hereto will mean any person
controlling, controlled by or under common control with such party.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RAINWATER, INC.
By: /s/ RICHARD E. RAINWATER
--------------------------------
Richard E. Rainwater
President
/s/ JOHN C. GOFF
-----------------------------------
John C. Goff
-6-
<PAGE> 7
FIRST AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"First Amendment"), dated July 1, 1995, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this First Amendment which are defined in the Agreement (as hereinafter
defined) shall have the same meaning for purposes of this First Amendment as in
the Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Golf ("Goff") dated April 15, 1994 (the
"Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Agreement to Crescent
Real Estate Equities Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), pursuant to that certain Management Functions
Conveyance Agreement between Rainwater, Inc. and the Operating Partnership dated
May 4, 1994; and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on June 12, 1995 that the Agreement should be amended to provide
for an annual salary of $240,000 be paid to Golf, commencing July 1, 1995, in
reward for services rendered to Crescent, Ltd. and the Operating Partnership and
for Goff's contributions to the success and prosperity of Crescent, Ltd. and the
Operating Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to the
Agreement, desire to amend the Agreement to reflect the increase in Goff's
annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
<PAGE> 8
1. Paragraph 4 (a) of the Agreement be amended to provide for an annual
salary in the amount of $240,000 be paid to Goff, commencing July 1, 1995, as
provided pursuant to the terms of the Agreement.
2. Except as herein amended, the Agreement is hereby ratified, confirmed
and affirmed for all purposes and in all respects.
3. This First Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this First Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this First
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
-----------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
---------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 9
SECOND AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Second Amendment"), dated March 15, 1996, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Second Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Second
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on March 14, 1996 that the Effective Agreement should be amended
to provide for an annual salary of $300,000 be paid to Goff, commencing March
15, 1996, in reward for services rendered to Crescent, Ltd. and the Operating
Partnership and for Goff's contributions to the success and prosperity of
Crescent, Ltd. and the Operating Partnership; and
<PAGE> 10
WHEREAS, the undersigned parties, consisting of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $300,000 be paid to Goff, commencing March 15, 1996, as provided
pursuant to the terms of the Original Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Second Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Second Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Second
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its sole general partner
By: /s/ DAVID M. DEAN
------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 11
THIRD AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Third Amendment"), dated March 3, 1997, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Third Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Third
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "First Amendment");
and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partnership interests in the Operating
Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Trust
Managers of CREE determined on March 2, 1997 that the Effective Agreement should
be amended to provide for an annual salary of $400,000 be paid to Goff,
commencing March 3, 1997, in reward for services rendered to Crescent, Ltd. and
the Operating Partnership and for Goff's contributions to the success and
prosperity of Crescent, Ltd. and the Operating Partnership; and
<PAGE> 12
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $400,000 be paid to Goff, commencing March 3, 1997, as provided
pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Third Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Third Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Third
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
----------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
---------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 13
FOURTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This FOURTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Fourth Amendment"), dated August 30, 1997, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Fourth Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Fourth
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "First Amendment");
and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Second
Amendment"); and
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of John C. Goff dated March 3, 1997 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, pursuant to an agreement between Goff and the Board of Directors
of Crescent, Ltd. (the "Board") that Goff would shift a significant amount of
his time and energy to Crescent Operating, Inc. ("COI") and to Charter
Behavioral Health Systems, LLC after the spin off of COI and thereby reduce the
amount of time he devotes to Crescent, Ltd. and the Operating Partnership, the
Board and Goff have determined that the Effective Agreement should be amended to
provide for a decreased annual salary of $ 100,000 be paid to Goff, commencing
as of August 30, 1997, for services rendered to Crescent, Ltd. and the Operating
Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
decrease in Goff's annual salary;
<PAGE> 14
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $100,000 be paid to Goff, commencing August 30, 1997, as provided
pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Fourth Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Fourth Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Fourth
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
----------------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
--------------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 1
EXHIBIT 10.06
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 15th
day of April, 1994, by and between Rainwater, Inc., a Texas corporation
("Employer"), and Gerald W. Haddock ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee will, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer (the
"Board") to elect and remove officers, Employee will serve Employer as President
and Chief Operating Officer (or in such other executive office as Employer or
the Board may determine) and will perform, faithfully and diligently, the
services and functions relating to such office or otherwise reasonably incident
to such office as may be designated from time to time by the Board. Employee
will devote his full time, attention, skills, benefits and best efforts to the
performance of his duties hereunder and to the promotion of the business and
interests of Employer and its affiliates and will not, without the prior written
consent of the Board, become engaged in any other activity requiring significant
time or personal services by Employee that will conflict with the proper
performance of any such duties under this Agreement. Employer hereby
acknowledges that Employee has a broad and varied range of investment interests
and that Employee must devote such reasonable time and attention to the proper
and judicious management of such interests as may be reasonably required from
time to time. Accordingly, nothing contained in this Agreement shall limit or be
deemed to limit Employee's personal investment activities, and Employee's
engaging in such activities shall not be or be deemed to be a breach or
violation of this Agreement.
3. TERM. Unless sooner terminated pursuant to the provisions hereof, the
term of this Agreement (together with any renewals pursuant to this Section, the
"Term") shall be for a term of three years, commencing on the date of this
Agreement and terminating April 14, 1997; provided that this Agreement will be
automatically renewed for a term of one year unless
<PAGE> 2
either party notifies the other prior to January 1 of a given year that they do
not wish to renew this Agreement.
4. COMPENSATION. As compensation for his services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) Salary. During the Term, Employee will be paid an annual salary of
$160,000.00, payable monthly (the "Salary"). At any time and from time to
time the Salary may be increased if so determined by the Board or its
Compensation Committee after a review of Employee's performance of his
duties hereunder.
(b) Bonus. In addition to the Salary, Employee will be entitled to
receive such bonuses as may be determined by the Board or its Compensation
Committee.
(c) Benefits. During the Term, Employee will be entitled to receive
such group benefits as Employer may provide to its other employees at
comparable salaries and responsibilities to those of Employee.
(d) Expenses. Employer will reimburse Employee for all reasonable and
necessary out-of-pocket travel and other expenses incurred by Employee in
rendering services required under this Agreement, on a monthly basis upon
submission of a detailed monthly statement and reasonable documentation.
5. CONFIDENTIALITY; NON-COMPETITION.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and its affiliates in any Confidential
Information (as hereinafter defined) of Employer and its affiliates.
Employee acknowledges and agrees that any and all Confidential Information
learned by Employee during the course of his engagement by Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, will be and is the property of Employer and its
affiliates. Employee further acknowledges and understands that his
disclosure of any Confidential Information and/or proprietary information
will result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Confidential Information" means all
confidential and proprietary information of Employer and its affiliates,
including without limitation information derived from reports,
investigations, experiments, research, drawing, designs, plans, proposals,
codes, marketing and sales programs, client lists, client mailing lists,
financial projections, cost summaries, pricing formula, and all other
concepts, ideas, materials, or information prepared or performed for or by
Employer or its affiliates. "Confidential Information" also includes
information related to the business, products or sales of Employer or its
affiliates, or any of their respective customers, other than information
that is otherwise publicly available.
-2-
<PAGE> 3
(b) Covenant Not-to-Divulge Confidential Information. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of Confidential Information. As a portion of the
consideration for the employment of Employee and for the compensation being
paid to Employee by Employer, Employee agrees at all times during the Term
and thereafter to hold in strict confidence and not to disclose or allow to
be disclosed to any person, firm or corporation, other than to persons
engaged by Employer and its affiliates to further the business of Employer
and its affiliates, and not to use except in the pursuit of the business of
Employer and its affiliates, the Confidential Information, without the
prior written consent of Employer, including Confidential Information
developed by Employee.
(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents, data
and other information pertaining to Confidential Information. Employee will
not take any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Confidential Information.
(d) Competition. Employee will enter into a Non-Competition Agreement
with Employer in substantially the form of Exhibit A hereto.
6. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
(a) The expiration of the Term as set forth in Section 3 above;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for "just
cause" (as hereinafter defined); or
(e) Written notice to Employee from Employer of termination for any
reason other than as set forth in Sections 6(a), 6(b), 6(c) or 6(d).
For purposes of Section 6(c), the "disability" of Employee will mean his
inability, because of mental or physical illness or incapacity, to perform his
duties under this Agreement for a continuous period of 180 days or for 180 days
out of a 210-day period. For purposes of Section 6(d), "just cause" shall mean
Employee shall commit any act or omit to take any action in bad faith and to the
detriment of Employer.
Notwithstanding anything to the contrary in this Agreement, the provisions
of Section 5 will survive any termination, for whatever reason, of Employee's
employment under this Agreement. In the event of the termination of Employee's
employment prior to the completion
-3-
<PAGE> 4
of the Term, Employee or his estate, as the case may be, will be entitled only
to the Salary payable pursuant to Section 4 hereof through the end of the
calendar month in which termination occurs, except that (a) if Employee's
employment is terminated pursuant to Section 6(d), Employee will be entitled to
receive a lump-sum payment equal to six month's Salary at the rate in effect
immediately prior to the termination on the date of termination, and (b) if
Employee's employment is terminated pursuant to Section 6(e), Employee will be
entitled to receive the greater of (i) a payment equal to the full Salary
payable pursuant to Section 4(a) as if no termination had occurred or (ii) a
payment equal to one year's Salary at the rate in effect immediately prior to
the termination (except that, in case of both (i) and (ii), such sum shall be
payable in one lump-sum payment on the date of termination).
7. REMEDIES. Employee recognizes and acknowledges that in the event of any
default in, or breach of any of, the terms, conditions or provisions of this
Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law will be inadequate. Accordingly, Employee agrees that
in such event, Employer and its affiliates will have the right of specific
performance and/or injunctive relief in addition to any and all other remedies
and rights at law or in equity, and such rights and remedies will be cumulative.
8. ACKNOWLEDGMENTS. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 by Employer and its
affiliates will not interfere with Employee's ability to pursue a proper
livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
9. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows: if to Employer, to 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, Attention: President; or if to Employee, to Gerald W.
Haddock, 777 Main Street, Suite 2700, Fort Worth, Texas 76102.
Notices delivered personally will be deemed communicated as of actual receipt;
mailed notices will be deemed communicated as of three days after mailing.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto and supersedes all prior agreements and understandings, oral or
written between the parties hereto. No modification or amendment of any of the
terms, conditions or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
11. GOVERNING LAW; VENUE. This Agreement and the rights and obligations of
the parties hereto will be governed, construed and enforced in accordance with
the laws of the State of Texas, without regard to the principles of conflicts of
laws thereof. The parties agree that this Agreement shall be performable in
Tarrant County, Texas.
-4-
<PAGE> 5
12. PARTIES BOUND; ASSIGNMENT. This Agreement and the rights and
obligations hereunder will be binding upon and inure to the benefit of Employer
and Employee, and their respective heirs, personal representatives, successors
and assigns. Employer will have the right to assign this Agreement to Crescent
Real Estate Equities, Inc., a Maryland corporation, or any of its subsidiaries
of affiliated entities, including, without limitation, Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership, or to any
affiliate of Employer, or to Employer's successors or assigns. The terms
"successors" and "assigns" will include any person, corporation, partnership or
other entity that buys all or substantially all of Employer's assets or all of
its stock, or with which Employer merges or consolidates. The rights, duties or
benefits to Employee hereunder are personal to him, and no such right or benefit
may be assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Section 6 above.
13. CHOICE OF FORUM. The parties hereto agree that should any suit, action
or proceeding arising out of this Agreement be instituted by any party hereto
(other than a suit, action or proceeding to enforce or realize upon any final
court judgment arising out of this Agreement), such suit, action or proceeding
shall be instituted only in a state or federal court in Tarrant County, Texas.
Each of the parties hereto consents to the in persona jurisdiction of any state
or federal court in Tarrant County, Texas and waives any objection to the venue
of any such suit, action or proceeding. The parties hereto recognize that courts
outside Tarrant County, Texas may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Tarrant County, Texas, the party instituting such proceeding shall
indemnify any other party hereto for any losses and expenses that may result
from the breach of the foregoing covenant to institute such proceeding only in a
state or federal court in Tarrant County, Texas, including without limitation
any additional expenses incurred as a result of litigating in another
jurisdiction, such as reasonable fees and expenses of local counsel and travel
and lodging expenses for parties, witnesses, experts and support personnel.
14. SERVICE OF PROCESS. Service of any and all process that may be served
on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 11
and service thus made shall be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
15. ENFORCEABILITY. If, for any reason, any provision contained in this
agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written, it is the intent of each
of the parties that the court should reform such covenant to such narrower scope
as it determines enforceable.
-5-
<PAGE> 6
16. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
17. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
18. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
19. OTHER OBLIGATIONS. Employee represents and warrants that he has not as
of the execution of this Agreement assumed any obligations inconsistent with
those contained herein.
20. AFFILIATE. An "affiliate" of any party hereto will mean any person
controlling, controlled by or under common control with such party.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RAINWATER, INC.
By: /s/ RICHARD E. RAINWATER
--------------------------------
Richard E. Rainwater
President
/s/ GERALD W. HADDOCK
-----------------------------------
Gerald W. Haddock
-6-
<PAGE> 7
FIRST AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
GERALD W. HADDOCK
This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT OF GERALD W. HADDOCK (the
"First Amendment"), dated July 1, 1995, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this First Amendment which are defined in the Agreement (as hereinafter
defined) shall have the same meaning for purposes of this First Amendment as in
the Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with Gerald W. Haddock ("Haddock") dated April 15, 1994
(the "Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Agreement to Crescent
Real Estate Equities Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), pursuant to that certain Management Functions
Conveyance Agreement between Rainwater, Inc. and the Operating Partnership dated
May 4, 1994; and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on June 12, 1995 that the Agreement should be amended to provide
for an annual salary of $240,000 be paid to Haddock, commencing July 1, 1995, in
reward for services rendered to Crescent, Ltd. and the Operating Partnership and
for Haddock's contributions to the success and prosperity of Crescent, Ltd. and
the Operating Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to the
Agreement, desire to amend the Agreement to reflect the increase in Haddock's
annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and
<PAGE> 8
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Paragraph 4 (a) of the Agreement be amended to provide for an annual
salary in the amount of $240,000 be paid to Haddock, commencing July 1, 1995, as
provided pursuant to the terms of the Agreement.
2. Except as herein amended, the Agreement is hereby ratified, confirmed
and affirmed for all purposes and in all respects.
3. This First Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this First Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this First
Amendment as of the date first written above.
GERALD W. HADDOCK
/s/ GERALD W. HADDOCK
----------------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
--------------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 9
SECOND AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
GERALD W. HADDOCK
This SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT OF GERALD W. HADDOCK (the
"Second Amendment"), dated March 15, 1996, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Second Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Second
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with Gerald W. Haddock ("Haddock") dated April 15, 1994
(the "Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of Gerald W. Haddock dated July 1, 1995 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on March 14, 1996 that the Effective Agreement should be amended
to provide for an annual salary of $300,000 be paid to Haddock, commencing March
15, 1996, in reward for services rendered to Crescent, Ltd. and the Operating
Partnership and for Haddock's contributions to the success and prosperity of
Crescent, Ltd. and the Operating Partnership; and
<PAGE> 10
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Haddock's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $300,000 be paid to Haddock, commencing March 15, 1996, as
provided pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Second Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Second Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Second
Amendment as of the date first written above.
GERALD W. HADDOCK
/s/ GERALD W. HADDOCK
----------------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
-------------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 11
THIRD AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
GERALD W. HADDOCK
This THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT OF GERALD W. HADDOCK (the
"Third Amendment"), dated March 3, 1997, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Third Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Third
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with Gerald W. Haddock ("Haddock") dated April 15, 1994
(the "Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of Gerald W. Haddock dated July 1, 1995 (the "First
Amendment"); and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of Gerald W. Haddock dated March 15, 1996 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partnership interests in the Operating
Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Trust
Managers of CREE determined on March 2, 1997 that the Effective Agreement
should be amended to provide for an annual salary of $400,000 be paid to
Haddock, commencing March 3, 1997, in reward for services rendered to Crescent,
Ltd. and the Operating Partnership and for Haddock's contributions to the
success and prosperity of Crescent, Ltd. and the Operating Partnership; and
<PAGE> 12
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Haddock's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $400,000 be paid to Haddock, commencing March 3, 1997, as provided
pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Third Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Third Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Third
Amendment as of the date first written above.
GERALD W. HADDOCK
/s/ GERALD W. HADDOCK
----------------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
--------------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 1
EXHIBIT 10.10
CRESCENT REAL ESTATE EQUITIES, LTD.
FIRST AMENDED AND RESTATED
401(K) PLAN
Defined Contribution Plan 7.7
Restated March 17, 1997
<PAGE> 2
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES, LTD.
401(K) PLAN
Defined Contribution Plan 7.7
Restated March 17, 1997
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
INTRODUCTION
<S> <C> <C>
ARTICLE I FORMAT AND DEFINITIONS
Section 1.01 ----- Format
Section 1.02 ----- Definitions
ARTICLE II PARTICIPATION
Section 2.01 ----- Active Participant
Section 2.02 ----- Inactive Participant
Section 2.03 ----- Cessation of Participation
ARTICLE III CONTRIBUTIONS
Section 3.01 ----- Employer Contributions
Section 3.01A ----- Rollover Contributions
Section 3.02 ----- Forfeitures
Section 3.03 ----- Allocation
Section 3.04 ----- Contribution Limitation
Section 3.05 ----- Excess Amounts
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
Section 4.01 ----- Investment of Contributions
Section 4.01A ----- Investment in Qualifying Employer Securities
Section 4.01B ----- Limitation on Investment in Qualifying Employer
Securities by Some Participants
ARTICLE V BENEFITS
Section 5.01 ----- Retirement Benefits
Section 5.02 ----- Death Benefits
Section 5.03 ----- Vested Benefits
Section 5.04 ----- When Benefits Start
Section 5.05 ----- Withdrawal Privileges
Section 5.06 ----- Loans to Participants
</TABLE>
TABLE OF CONTENTS 3
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VI DISTRIBUTION OF BENEFITS
Section 6.01 ----- Form of Distribution
Section 6.02 ----- Election Procedures
Section 6.03 ----- Notice Requirements
Section 6.04 ----- Distributions Under Qualified
Domestic Relations Orders
ARTICLE VII TERMINATION OF PLAN
ARTICLE VIII ADMINISTRATION OF PLAN
Section 8.01 ----- Administration
Section 8.02 ----- Records
Section 8.03 ----- Information Available
Section 8.04 ----- Claim and Appeal Procedures
Section 8.05 ----- Unclaimed Vested Account Procedure
Section 8.06 ----- Delegation of Authority
ARTICLE IX GENERAL PROVISIONS
Section 9.01 ----- Amendments
Section 9.02 ----- Direct Rollovers
Section 9.03 ----- Mergers and Direct Transfers
Section 9.04 ----- Provisions Relating to the Insurer and Other Parties
Section 9.05 ----- Employment Status
Section 9.06 ----- Rights to Plan Assets
Section 9.07 ----- Beneficiary
Section 9.08 ----- Nonalienation of Benefits
Section 9.09 ----- Construction
Section 9.10 ----- Legal Actions
Section 9.11 ----- Small Amounts
Section 9.12 ----- Word Usage
Section 9.13 ----- Transfers Between Plans
ARTICLE X TOP-HEAVY PLAN REQUIREMENTS
Section 10.01 ----- Application
Section 10.02 ----- Definitions
Section 10.03 ----- Modification of Vesting Requirements
Section 10.04 ----- Modification of Contributions
Section 10.05 ----- Modification of Contribution Limitation
PLAN EXECUTION
</TABLE>
TABLE OF CONTENTS 4
<PAGE> 6
INTRODUCTION
The Primary Employer previously established a 401(k) savings plan on
July 1, 1994.
The Primary Employer is of the opinion that the plan document should
be amended and restated and that the plan should be continued. It believes
that the best means to accomplish these changes is to completely amend and
restate the plan's terms, provisions and conditions. This amendment and
restatement of the plan document, effective March 17, 1997, is substituted in
lieu of the prior plan document; provided, however, that the plan shall
continue and shall not constitute a new plan.
The plan, as amended and restated herein, continues to be for the
exclusive benefit of employees of the Employer. All persons covered under the
plan on March 16, 1997, shall continue to be covered under the plan, as amended
and restated herein, with no loss of benefits.
It is intended that the plan, as amended and restated herein, shall
continue to qualify as a profit sharing plan under the Internal Revenue Code of
1986, including any later amendments to the Code.
INTRODUCTION 5
<PAGE> 7
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01--FORMAT.
Words and phrases defined in the DEFINITIONS SECTION of Article I
shall have that defined meaning when used in this Plan, unless the context
clearly indicates otherwise.
These words and phrases have an initial capital letter to aid in
identifying them as defined terms.
SECTION 1.02--DEFINITIONS.
ACCOUNT means, for a Participant, his share of the Investment Fund.
Separate accounting records are kept for those parts of his Account
that result from:
(a) Elective Deferral Contributions
(b) Matching Contributions
(c) Other Employer Contributions
If the Employer elects to include any of these Contributions
in computing the percentages in the EXCESS AMOUNTS SECTION of
Article III, a separate accounting record shall be kept for
any part of his Account resulting from such Employer
Contributions.
(d) Rollover Contributions
If the Participant's Vesting Percentage is less than 100% as to any of
the Employer Contributions, a separate accounting record will be kept
for any part of his Account resulting from such Employer Contributions
and, if there has been a prior Forfeiture Date, from such
Contributions made before a prior Forfeiture Date.
A Participant's Account shall be reduced by any distribution of his
Vested Account and by any Forfeitures. A Participant's Account will
participate in the earnings credited, expenses charged and any
appreciation or depreciation of the Investment Fund. His Account is
subject to any minimum guarantees applicable under the Group Contract
or other investment arrangement.
ACCRUAL COMPUTATION PERIOD means a 12-consecutive month period ending
on the last day of each Plan Year, including corresponding
12-consecutive month periods before July 1, 1994.
ACTIVE PARTICIPANT means an Eligible Employee who is actively
participating in the Plan according to the provisions in the ACTIVE
PARTICIPANT SECTION of Article II.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships
or other organizations of which the Employer is a part and which is
affiliated within the meaning of Code Section 414(m) and regulations
thereunder. Such a group includes at least two organizations one of
which is either a service
ARTICLE I 6
<PAGE> 8
organization (that is, an organization the principal business of which
is performing services), or an organization the principal business of
which is performing management functions on a regular and continuing
basis. Such service is of a type historically performed by employees.
In the case of a management organization, the Affiliated Service Group
shall include organizations related, within the meaning of Code
Section 144(a)(3), to either the management organization or the
organization for which it performs management functions. The term
Controlled Group, as it is used in this Plan, shall include the term
Affiliated Service Group.
ALTERNATE PAYEE means any spouse, former spouse, child or other
dependent of a participant who is recognized by a qualified domestic
relations order as having a right to receive all, or a portion of the
benefits payable under the Plan with respect to such Participant.
ANNIVERSARY DATE means December 31.
ANNUAL COMPENSATION means, on any given date, the Employee's
Compensation for the latest Compensation Year ending on or before the
given date.
ANNUITY STARTING DATE means, for a Participant, the first day of the
first period for which an amount is payable in a single sum.
BENEFICIARY means the person or persons named by a Participant to
receive any benefits under this Plan upon the Participant's death.
Unless a qualified election has been made, for the purpose of
distributing any death benefits before Annuity Starting Date, the
Beneficiary of a married Participant shall be the Participant's
spouse. See the BENEFICIARY SECTION of Article IX.
CLAIMANT means any person who has made a claim for benefits under this
Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article VIII.
CODE means the Internal Revenue Code of 1986, as amended.
COMPENSATION means, except as modified in this definition, the total
earnings paid or made available to an Employee by the Employer during
any specified period.
"Earnings" in this definition means Compensation as defined in the
CONTRIBUTION LIMITATION SECTION of Article III.
Compensation shall also include elective contributions. Elective
contributions are amounts excludable from the Employee's gross income
under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed
by the Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity. Elective contributions also include
Compensation deferred under a Code Section 457 plan maintained by the
Employer and Employee contributions "picked up" by a governmental
entity and, pursuant to Code Section 414(h)(2), treated as Employer
contributions.
For purposes of the EXCESS AMOUNTS SECTION of Article III, the
Employer may elect to use an alternative nondiscriminatory definition
of Compensation in accordance with the regulations under Code Section
414(s).
Compensation shall exclude earnings paid before the Employee's Entry
Date.
For Plan Years beginning after December 31, 1988, and before January
1, 1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for any
year shall not exceed $200,000. For Plan Years beginning on or after
January 1, 1994, the annual Compensation of each Participant taken
into account for determining all benefits provided under the Plan for
any year shall not exceed $150,000.
ARTICLE I 7
<PAGE> 9
The $200,000 limit shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415(d). The $150,000
limit shall be adjusted by the Commissioner for increases in the cost
of living in accordance with Code Section 401(a)(17)(B). The cost of
living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which pay is determined (determination
period) beginning in such calendar year. If a determination period
consists of fewer than 12 months, the annual compensation limit will
be multiplied by a fraction the numerator of which is the number of
months in the determination period, and the denominator of which is
12.
In determining the Compensation of a Participant for purposes of the
annual compensation limit, the rules of Code Section 414(q)(6) shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
the year. If, as a result of the application of such rules the
adjusted annual compensation limit is exceeded, then (except for
purposes of determining the portion of Compensation up to the
integration level if this Plan provides for permitted disparity) the
limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under
this definition prior to the application of this limitation.
If Compensation for any prior determination period is taken into
account in determining a Participant's benefits accruing in the
current Plan Year, the Compensation for that prior determination
period is subject to the annual compensation limit in effect for that
prior determination period. For this purpose, for determination
periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1989, which are used to determine
benefits in Plan Years beginning after December 31, 1988 and before
January 1, 1994, the annual compensation limit is $200,000. For this
purpose, for determination periods beginning before the first day of
the first Plan Year beginning on or after January 1, 1994, which are
used to determine benefits in Plan Years beginning on or after January
1, 1994, the annual compensation limit is $150,000.
Compensation means, for an Employee who is a Leased Employee, the
Employee's Compensation for the services he performs for the Employer,
determined in the same manner as the Compensation of Employees who are
not Leased Employees, regardless of whether such Compensation would be
received directly from the Employer or from the leasing organization.
COMPENSATION YEAR means each one-year period ending on the last day of
the Plan Year, including corresponding periods before July 1, 1994.
CONTRIBUTIONS means
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
Rollover Contributions
ARTICLE I 8
<PAGE> 10
as set out in Article III, unless the context clearly indicates
otherwise.
CONTROLLED GROUP means any group of corporations, trades or businesses
of which the Employer is a part that are under common control. A
Controlled Group includes any group of corporations, trades or
businesses, whether or not incorporated, which is either a
parent-subsidiary group, a brother-sister group, or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and
regulations thereunder and, for purposes of determining contribution
limitations under the CONTRIBUTION LIMITATION SECTION of Article III,
as modified by Code Section 415(h) and, for the purpose of identifying
Leased Employees, as modified by Code Section 144(a)(3). The term
Controlled Group, as it is used in this Plan, shall include the term
Affiliated Service Group and any other employer required to be
aggregated with the Employer under Code Section 414(o) and the
regulations thereunder.
DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
DISCRETIONARY CONTRIBUTIONS means discretionary contributions made by
the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS
SECTION of Article III.
DISTRIBUTEE means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse or
former spouse.
ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions made by the
Employer to fund this Plan in accordance with a qualified cash or
deferred arrangement as described in Code Section 401(k). See the
EMPLOYER CONTRIBUTIONS SECTION of Article III.
ELIGIBILITY SERVICE means an Employee's Period of Service. If he has
more than one Period of Service, or if all or a part of a Period of
Service is not counted, his Eligibility Service shall be determined by
adjusting his Employment Commencement Date so that he has one
continuous period of Eligibility Service equal to the aggregate of all
his countable Periods of Service. An Employee's Eligibility Service
shall be determined on the basis that 30 days equal one month and 365
days equal one year.
However, Eligibility Service is modified as follows:
Period of Military Duty included:
A Period of Military Duty shall be included as service with
the Employer to the extent it has not already been credited.
Period of Severance included (service spanning rule):
A Period of Severance shall be deemed to be a Period of
Service under either of the following conditions:
(a) the Period of Severance immediately follows a period
during which an Employee is not absent from work and
ends within 12 months; or
(b) the Period of Severance immediately follows a period
during which an Employee is absent from work for any
reason other than quitting, being discharged or
retiring (such as a leave of absence or layoff) and
ends within 12 months of the date he was first
absent.
ARTICLE I 9
<PAGE> 11
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the
Employer.
ELIGIBLE EMPLOYEE means any Employee of the Employer who meets the
following requirement. He is not engaged as an independent contractor
or he is not classified as ineligible for participation in the Plan.
ELIGIBLE RETIREMENT PLAN means an individual retirement account
described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code
Section 403(a) or a qualified trust described in Code Section 401(a),
that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all or any
portion of the balance to the credit of the Distributee, except that
an Eligible Rollover Distribution does not include:
(a) Any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Distributee or
the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated Beneficiary, or
for a specified period of ten years or more.
(b) Any distribution to the extent such distribution is required
under Code Section 401(a)(9).
(c) The portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities).
EMPLOYEE means an individual who is employed by the Employer or any
other employer required to be aggregated with the Employer under Code
Sections 414(b), (c), (m) or (o). A Controlled Group member is
required to be aggregated with the Employer.
The term Employee shall also include any Leased Employee deemed to be
an employee of any employer described in the preceding paragraph as
provided in Code Sections 414(n) or 414(o).
EMPLOYER means the Primary Employer. This will also include any
successor corporation or firm of the Employer which shall, by written
agreement, assume the obligations of this Plan or any predecessor
corporation or firm of the Employer (absorbed by the Employer, or of
which the Employer was once a part) which became a predecessor because
of a change of name, merger, purchase of stock or purchase of assets
and which maintained this Plan.
EMPLOYER CONTRIBUTIONS means
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
as set out in Article III, unless the context clearly indicates
otherwise.
EMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs
an Hour-of-Service.
ARTICLE I 10
<PAGE> 12
ENTRY DATE means the date an Employee first enters the Plan as an
Active Participant. See the ACTIVE PARTICIPANT SECTION of Article II.
FISCAL YEAR means the Primary Employer's taxable year. The last day
of the Fiscal Year is December 31.
FORFEITURE means the part, if any, of a Participant's Account that is
forfeited. See the FORFEITURES SECTION of Article III.
FORFEITURE DATE means, as to a Participant, the date the Participant
incurs five consecutive Vesting Breaks in Service. A Participant
incurs a Vesting Break in Service on the last day of the period used
to determine the Vesting Break in Service.
This is the date on which the Participant's Nonvested Account will be
forfeited unless an earlier forfeiture occurs as provided in the
FORFEITURES SECTION of Article III.
GROUP CONTRACT means the group annuity contract or contracts into
which the Trustee enters with the Insurer for the investment of
Contributions and the payment of benefits under this Plan. The term
Group Contract as it is used in this Plan is deemed to include the
plural unless the context clearly indicates otherwise.
HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee
or a highly compensated former Employee.
A highly compensated active Employee means any Employee who performs
service for the Employer during the determination year and who, during
the look-back year is:
(a) An Employee who is a 5% owner, as defined in Section
416(i)(1)(B)(i), at any time during the determination year or
the look-back year.
(b) An Employee who receives compensation in excess of $75,000
(indexed in accordance with Section 415(d) during the
look-back year.
(c) An Employee who receives compensation in excess of $50,000
(indexed in accordance with Section 415(d) during the
look-back year and is a member of the top-paid group for the
look-back year.
ARTICLE I 11
<PAGE> 13
(d) An Employee who is an officer, within the meaning of Section
416(i), during the look-back year and who receives
compensation in the look-back year greater than 50% of the
dollar limitation in effect under Section 415(b)(1)(A) for the
calendar year in which the look-back year begins. The number
of officers is limited to 50 (or, if lesser, the greater of 3
employees or 10% of employees) excluding those employees who
may be excluded in determining the top-paid group.
(e) An Employee who is both described in paragraph b, c or d above
when these paragraphs are modified to substitute the
determination year for the look-back year and one of the 100
Employees who receive the most compensation from the Employer
during the determination year.
If no officer has satisfied the compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding
the determination year.
A highly compensated former Employee means any Employee who separated
from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid
by the Employer during such year, then the family member and the 5
percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or benefits
equal to the sum of such compensation and contributions or benefits of
the family member and 5 percent owner or top-ten highly compensated
Employee. For purposes of this definition, family member includes the
spouse, lineal ascendants and descendants of the Employee or former
Employee and the spouses of such lineal ascendants and descendants.
Compensation is compensation within the meaning of Code Section
415(c)(3), including elective or salary reduction contributions to a
cafeteria plan, cash or deferred arrangement or tax-sheltered annuity.
The top- paid group consists of the top 20% of employees ranked on the
basis of compensation received during the year.
Employers aggregated under Section 414(b), (c), (m) or (o) are treated
as a single Employer.
HOUR-OF-SERVICE means, for the elapsed time method of crediting
service in this Plan, each hour for which an Employee is paid, or
entitled to payment, for performing duties for the Employer.
Hour-of-Service means, for the hours method of crediting service in
this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to
payment, for performing duties for the Employer during the
applicable computation period.
ARTICLE I 12
<PAGE> 14
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer because of a period of time in which
no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence. Notwithstanding
the preceding provisions of this subparagraph (b), no credit
will be given to the Employee
(1) for more than 501 Hours-of-Service under this
subparagraph (b) because of any single continuous
period in which the Employee performs no duties
(whether or not such period occurs in a single
computation period); or
(2) for an Hour-of-Service for which the Employee is
directly or indirectly paid, or entitled to payment,
because of a period in which no duties are performed
if such payment is made or due under a plan
maintained solely for the purpose of complying with
applicable worker's or workmen's compensation, or
unemployment compensation or disability insurance
laws; or
(3) for an Hour-of-Service for a payment which solely
reimburses the Employee for medical or medically
related expenses incurred by him.
For purposes of this subparagraph (b), a payment shall be
deemed to be made by, or due from the Employer, regardless of
whether such payment is made by, or due from the Employer,
directly or indirectly through, among others, a trust fund or
insurer, to which the Employer contributes or pays premiums
and regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit of
particular employees or are on behalf of a group of employees
in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours-of-Service shall not be credited both under
subparagraph (a) or subparagraph (b) above (as the case may
be) and under this subparagraph (c). Crediting of
Hours-of-Service for back pay awarded or agreed to with
respect to periods described in subparagraph (b) above will be
subject to the limitations set forth in that subparagraph.
The crediting of Hours-of-Service above shall be applied under the
rules of paragraphs (b) and (c) of the Department of Labor Regulation
2530.200b-2 (including any interpretations or opinions implementing
said rules); which rules, by this reference, are specifically
incorporated in full within this Plan. The reference to paragraph (b)
applies to the special rule for determining hours of service for
reasons other than the performance of duties such as payments
calculated (or not calculated) on the basis of units of time and the
rule against double credit. The reference to paragraph (c) applies to
the crediting of hours of service to computation periods.
Hours-of-Service shall be credited for employment with any other
employer required to be aggregated with the Employer under Code
Sections 414(b), (c), (m) or (o) and the regulations thereunder for
purposes of eligibility and vesting. Hours-of-Service shall also be
credited for any individual who is considered an employee for purposes
of this Plan pursuant to Code Section 414(n) or Code Section 414(o)
and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service
has occurred for eligibility or vesting purposes, during a Parental
Absence an Employee shall be credited with the Hours-of-Service which
otherwise would normally have been credited to the Employee but for
such absence, or in any case
ARTICLE I 13
<PAGE> 15
in which such hours cannot be determined, eight Hours-of-Service per
day of such absence. The Hours-of-Service credited under this
paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a break in
service in that period; or in all other cases, in the following
computation period.
INACTIVE PARTICIPANT means a former Active Participant who has an
Account. See the INACTIVE PARTICIPANT SECTION of Article II.
INSURER means Principal Mutual Life Insurance Company and any other
insurance company or companies named by the Trustee or Primary
Employer.
INVESTMENT FUND means the total assets held for the purpose of
providing benefits for Participants. These funds result from
Contributions made under the Plan.
INVESTMENT MANAGER means any fiduciary (other than a trustee or Named
Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets
of the Plan; and
(b) who (1) is registered as an investment adviser under the
Investment Advisers Act of 1940, or (2) is a bank, as defined
in the Investment Advisers Act of 1940, or (3) is an insurance
company qualified to perform services described in
subparagraph (a) above under the laws of more than one state;
and
(c) who has acknowledged in writing being a fiduciary with respect
to the Plan.
LATE RETIREMENT DATE means the Anniversary Date coinciding with or
next following a Participant's Normal Retirement Date and on which
retirement benefits begin. If a Participant continues to work for the
Employer after his Normal Retirement Date, his Late Retirement Date
shall be the earliest Anniversary Date on or after he ceases to be an
Employee. An earlier or a later Retirement Date may apply if the
Participant so elects. An earlier Retirement Date may apply if the
Participant is age 70 1/2. See the WHEN BENEFITS START SECTION of
Article V.
LEASED EMPLOYEE means any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any
other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Code Section 414(n)(6)) on a substantially full time
basis for a period of at least one year, and such services are of a
type historically performed by employees in the business field of the
recipient employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to service
performed for the recipient employer shall be treated as provided by
the recipient employer.
A Leased Employee shall not be considered an employee of the recipient
if:
(a) such employee is covered by a money purchase pension plan
providing (1) a nonintegrated employer contribution rate of at
least 10 percent of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the
employee's gross income under Code Sections 125, 402(e)(3),
402(h) or 403(b), (2) immediate participation, and (3) full
and immediate vesting and
ARTICLE I 14
<PAGE> 16
(b) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
LOAN ADMINISTRATOR means the person or positions authorized to
administer the Participant loan program.
The Loan Administrator is the H.R. Director.
MATCHING CONTRIBUTIONS means matching contributions made by the
Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of
Article III.
MONTHLY DATE means each Yearly Date and the same day of each following
month during the Plan Year beginning on such Yearly Date.
NAMED FIDUCIARY means the person or persons who have authority to
control and manage the operation and administration of the Plan.
The Named Fiduciary is the Employer.
NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who
is neither a Highly Compensated Employee nor a Family Member.
NONVESTED ACCOUNT means the part, if any, of a Participant's Account
that is in excess of his Vested Account.
NORMAL RETIREMENT AGE means the age at which the Participant's normal
retirement benefit becomes nonforfeitable. A Participant's Normal
Retirement Age is the older of age 65 or his age on the date five
years after the first day of the Plan Year in which his Entry Date
occurred.
NORMAL RETIREMENT DATE means the Anniversary Date coinciding with or
next following the date the Participant reaches his Normal Retirement
Age. Unless otherwise provided in this Plan, a Participant's
retirement benefits shall begin on a Participant's Normal Retirement
Date if he has ceased to be an Employee on such date and has a Vested
Account. Even if the Participant is an Employee on his Normal
Retirement Date, he may choose to have his retirement benefit begin on
such date. See the WHEN BENEFITS START SECTION of Article V.
PARENTAL ABSENCE means an Employee's absence from work which begins on
or after the first Yearly Date after December 31, 1984,
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in
connection with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
ARTICLE I 15
<PAGE> 17
PARTICIPANT means either an Active Participant or an Inactive
Participant.
PERIOD OF MILITARY DUTY means, for an Employee
(a) who served as a member of the armed forces of the United
States, and
(b) who was reemployed by the Employer at a time when the Employee
had a right to reemployment in accordance with seniority
rights as protected under Section 2021 through 2026 of Title
38 of the U. S. Code,
the period of time from the date the Employee was first absent from
active work for the Employer because of such military duty to the date
the Employee was reemployed.
PERIOD OF SERVICE means a period of time beginning on an Employee's
Employment Commencement Date or Reemployment Commencement Date
(whichever applies) and ending on his Severance from Service Date.
PERIOD OF SEVERANCE means a period of time beginning on an Employee's
Severance from Service Date and ending on the date he again performs
an Hour-of-Service.
A one-year Period of Severance means a Period of Severance of 12
consecutive months.
Solely for purposes of determining whether a one-year Period of
Severance has occurred for eligibility or vesting purposes, the
12-consecutive month period beginning on the first anniversary of the
first date of a Parental Absence shall not be a one-year Period of
Severance.
PLAN means the 401(k) savings plan of the Employer set forth in this
document, including any later amendments to it.
PLAN ADMINISTRATOR means the person or persons who administer the
Plan.
The Plan Administrator is the Employer.
PLAN YEAR means a period beginning on a Yearly Date and ending on the
day before the next Yearly Date.
PRIMARY EMPLOYER means Crescent Real Estate Equities, Ltd.
QUALIFIED NONELECTIVE CONTRIBUTIONS means contributions (other than
Employer Contributions made to the Plan on behalf of a Participant on
account of Elective Deferral Contributions or on account of
contributions made by the Participant) made by the Employer to fund
this Plan which an Employee may not elect to have paid to him in cash
instead of being contributed to the Plan and which are subject to the
distribution and nonforfeitability requirements under Code Section
401(k). See the EMPLOYER CONTRIBUTIONS SECTION of Article III.
QUALIFYING EMPLOYER SECURITIES means any instrument issued by the
Employer and meeting the requirements of Section 4975(e)(8) of the
Code.
ARTICLE I 16
<PAGE> 18
QUALIFYING EMPLOYER SECURITIES ACCOUNT means for a Participant, his
share of Qualifying Employer Securities.
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth
Monthly Date after each Yearly Date which is within the same Plan
Year.
REEMPLOYMENT COMMENCEMENT DATE means the date an Employee first
performs an Hour-of-Service following a Period of Severance.
REENTRY DATE means the date a former Active Participant reenters the
Plan. See the ACTIVE PARTICIPANT SECTION of Article II.
RETIREMENT DATE means the date a retirement benefit will begin and is
a Participant's Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made
by or for a Participant according to the provisions of the ROLLOVER
CONTRIBUTIONS SECTION of Article III.
SEVERANCE FROM SERVICE DATE means the earlier of
(a) the date on which an Employee quits, retires, dies or is
discharged, or
(b) the first anniversary of the date an Employee begins a
one-year absence from service (with or without pay). This
absence may be the result of any combination of vacation,
holiday, sickness, disability, leave of absence or layoff.
Solely to determine whether a one-year Period of Severance has
occurred for eligibility or vesting purposes for an Employee who is
absent from service beyond the first anniversary of the first day of a
Parental Absence, Severance from Service Date is the second
anniversary of the first day of the Parental Absence. The period
between the first and second anniversaries of the first day of the
Parental Absence is not a Period of Service and is not a Period of
Severance. TEFRA means the Tax Equity and Fiscal Responsibility Act
of 1982.
TEFRA COMPLIANCE DATE means the date a plan is to comply with the
provisions of TEFRA. The TEFRA Compliance Date as used in this Plan
is,
(a) for purposes of contribution limitations, Code Section 415,
(1) if the plan was in effect on July 1, 1982, the first
day of the first limitation year which begins after
December 31, 1982, or
(2) if the plan was not in effect on July 1, 1982, the
first day of the first limitation year which ends
after July 1, 1982.
(b) for all other purposes, the first Yearly Date after December
31, 1983.
ARTICLE I 17
<PAGE> 19
TOTALLY AND PERMANENTLY DISABLED means that a Participant is disabled
as a result of a physical or mental condition resulting from bodily
injury, disease or mental disorder that renders him incapable of
continuing any gainful occupation and is eligible for and receives a
disability benefit under Title II of the Federal Social Security Act.
TRUST means an agreement of trust between the Primary Employer and
Trustee established for the purpose of holding and distributing the
Trust Fund under the provisions of the Plan. The Trust may provide
for the investment of all or any portion of the Trust Fund in the
Group Contract.
TRUST FUND means the total funds held under the Trust for the purpose
of providing benefits for Participants. These funds result from
Contributions made under the Plan which are forwarded to the Trustee
to be deposited in the Trust Fund.
TRUSTEE means the trustee or trustees under the Trust. The term
Trustee as it is used in this Plan is deemed to include the plural
unless the context clearly indicates otherwise.
VALUATION DATE means for the purposes of the date on which the value
of the assets of the Trust is determined. The value of each Account
which is maintained under this Plan shall be determined on the
Valuation Date. In each Plan Year, the Valuation Date shall be the
close of each business day.
VESTED ACCOUNT means the vested part of a Participant's Account. The
Participant's Vested Account is determined as follows.
If the Participant's Vesting Percentage is 100%, his Vested Account
equals his Account.
If the Participant's Vesting Percentage is less than 100%, his Vested
Account equals the sum of (a) and (b) below:
(a) The part of the Participant's Account that results from
Employer Contributions made before a prior Forfeiture Date and
all other Contributions which were 100% vested when made.
(b) The balance of the Participant's Account in excess of the
amount in (a) above multiplied by his Vesting Percentage.
If the Participant has withdrawn any part of his Account resulting
from Employer Contributions, other than the vested Employer
Contributions included in (a) above, the amount determined under this
subparagraph (b) shall be equal to P(AB + D) - D as defined below:
P The Participant's Vesting Percentage.
AB The balance of the Participant's Account in excess of the
amount in (a) above.
D The amount of withdrawal resulting from Employer
Contributions, other than the vested Employer Contributions
included in (a) above.
The Participant's Vested Account is nonforfeitable.
ARTICLE I 18
<PAGE> 20
VESTING BREAK IN SERVICE means a Vesting Computation Period in which
an Employee is credited with 500 or fewer Hours-of-Service. An
Employee incurs a Vesting Break in Service on the last day of a
Vesting Computation Period in which he has a Vesting Break in Service.
If any former Participant is reemployed after a Vesting Break in
Service has occurred, Vesting Service shall include Vesting Service
prior to his Vesting Break in Service subject to the following rules:
(i) If a former Participant has a Vesting Break in Service, his
pre-break and post-break service shall be used for computing
Vesting Service only after he has been employed for one (1)
Year of Service following the date of his reemployment with
the Employer.
(ii) Any former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting
from Employer Contributions shall lose credits otherwise
allowable under (i) above if his consecutive Vesting Breaks in
Service equal or exceed the greater of (A) five (5) or (B) the
aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive Vesting Breaks in Service, a former
Participant's Vested Account balance attributable to pre-break
service shall not be increased as a result of post-break
service;
(iv) If a former Participant who has not had his Years of Service
before a Vesting Break in Service disregarded pursuant to (ii)
above completes a Year of Service (a Vesting Break in Service
previously occurred, but employment had not terminated), he
shall participate in the Plan retroactively from the first day
of the Plan Year during which he completes one (1) Year of
Service.
VESTING COMPUTATION PERIOD means a 12-consecutive month period ending
on the last day of each Plan Year, including corresponding
12-consecutive month periods before July 1, 1994.
VESTING PERCENTAGE means the percentage used to determine the
nonforfeitable portion of a Participant's Account attributable to
Employer Contributions which were not 100% vested when made.
A Participant's Vesting Percentage is shown in the following schedule
opposite the number of whole years of his Vesting Service.
<TABLE>
<CAPTION>
------------------------------------------------
VESTING SERVICE VESTING
(whole years) PERCENTAGE
------------------------------------------------
<S> <C>
Less than 1 0
------------------------------------------------
2 20
------------------------------------------------
2 40
------------------------------------------------
3 60
------------------------------------------------
4 80
------------------------------------------------
5 or more 100
------------------------------------------------
</TABLE>
However, the Vesting Percentage for a Participant who is an Employee
on or after the earliest of (i) the date he reaches his Normal
Retirement Age, (ii) the date of his death, or (iii) the date he
becomes Totally and Permanently Disabled, shall be 100% on such date.
If the schedule used to determine a Participant's Vesting Percentage
is changed, the new schedule shall not
ARTICLE I 19
<PAGE> 21
apply to a Participant unless he is credited with an Hour-of-Service
on or after the date of the change and the Participant's
nonforfeitable percentage on the day before the date of the change is
not reduced under this Plan. The amendment provisions of the
AMENDMENT SECTION of Article IX regarding changes in the computation
of the Vesting Percentage shall apply.
VESTING SERVICE means one year of service for each Vesting Computation
Period in which an Employee is credited with at least 1,000
Hours-of-Service.
However, Vesting Service is modified as follows:
Service before a date excluded:
Service accrued for a Vesting Computation Period ending before
July 1, 1994, is excluded.
Period of Military Duty included:
A Period of Military Duty shall be included as service with
the Employer to the extent it has not already been credited.
For purposes of crediting Hours-of-Service during the Period
of Military Duty, an Hour-of-Service shall be credited
(without regard to the 501 Hour-of-Service limitation) for
each hour an Employee would normally have been scheduled to
work for the Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the
Employer.
YEARLY DATE means July 1, 1994, and each following January 1.
YEARS OF SERVICE means an Employee's Vesting Service disregarding any
modifications which exclude service.
ARTICLE I 20
<PAGE> 22
ARTICLE II
PARTICIPATION
SECTION 2.01--ACTIVE PARTICIPANT.
(a) An Employee shall first become an Active Participant (begin
active participation in the Plan) on the earliest
Monthly Date on or after March 17, 1997, on which he
is an Eligible Employee and has met both of the
eligibility requirements set forth below. This date
is his Entry Date.
(1) He has completed one month of Eligibility Service
before his Entry Date.
(2) He is age 21 or older.
The requirements in items (1) and (2) above are waived for any
Carter Crowley Properties employee who transfers and becomes a
Crescent Real Estate Equities, Ltd. Employee. This date shall
be an Entry Date if the Eligible Employee has met all the
other eligibility requirements.
Each Employee who was an Active Participant under the Plan on
March 16, 1997, shall continue to be an Active Participant if
he is still an Eligible Employee on March 17, 1997, and his
Entry Date shall not change.
If a person has been an Eligible Employee who has met all the
eligibility requirements above, but is not an Eligible
Employee on the date which would have been his Entry Date, he
shall become an Active Participant on the date he again
becomes an Eligible Employee. This date is his Entry Date.
(b) An Inactive Participant shall again become an Active
Participant (resume active participation in the Plan) on the
date he again performs an Hour-of-Service as an Eligible
Employee. This date is his Reentry Date.
Upon again becoming an Active Participant, he shall cease to
be an Inactive Participant.
(c) A former Participant shall again become an Active Participant
(resume active participation in the Plan) on the date he again
performs an Hour-of-Service as an Eligible Employee. This
date is his Reentry Date.
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate
must be communicated to the Employer, in writing, at least 30 days before the
beginning of the Plan Year.
There shall be no duplication of benefits for a Participant under this
Plan because of more than one period as an Active Participant.
ARTICLE II 21
<PAGE> 23
ARTICLE III
CONTRIBUTIONS
SECTION 3.01--EMPLOYER CONTRIBUTIONS.
Employer Contributions for Plan Years which end on or after March 17,
1997, may be made without regard to current or accumulated net income,
earnings, or profits of the Employer. Notwithstanding the foregoing, the Plan
shall continue to be designed to qualify as a profit sharing plan for purposes
of Code Sections 401(a), 402, 412, and 417. Such Contributions will be equal
to the Employer Contributions as described below:
(a) The amount of each Elective Deferral Contribution for a
Participant shall be equal to any percentage (not less than 1%
nor more than 15%) of his Compensation for the pay period as
elected in his elective deferral agreement. An Employee who
is eligible to participate in the Plan may file an elective
deferral agreement with the Employer. The elective deferral
agreement to start Elective Deferral Contributions may be
effective on a Participant's Entry Date (Reentry Date, if
applicable) or any following Quarterly Date. The Participant
shall make any change or terminate the elective deferral
agreement by filing a new elective deferral agreement. A
Participant's elective deferral agreement making a change may
be effective on any date an elective deferral agreement to
start Elective Deferral Contributions could be effective. A
Participant's elective deferral agreement to stop Elective
Deferral Contributions may be effective on any date. The
elective deferral agreement must be in writing and effective
before the beginning of the pay period in which Elective
Deferral Contributions are to start, change or stop.
Elective Deferral Contributions are fully (100%) vested and
nonforfeitable.
(b) The amount of each Matching Contribution for a Participant
eligible for an allocation shall be equal to a percentage as
determined by the Employer of the Elective Deferral
Contributions made for him for the Matching Contribution
period, disregarding any Elective Deferral Contributions in
excess of 4% of his Compensation for the Matching Contribution
period. The Matching Contribution period may be a month,
quarter, half-year, or year as determined by the Employer.
Matching Contributions are subject to the Vesting Percentage.
(c) The amount of each Qualified Nonelective Contribution shall be
determined by the Employer. A Qualified Nonelective
Contribution shall be made for a Participant only if he is a
Nonhighly Compensated Employee or a Non-key Employee (as
defined in Article X).
Qualified Nonelective Contributions are fully (100%) vested
and nonforfeitable.
(d) The amount of each Discretionary Contribution shall be
determined by the Employer.
Discretionary Contributions are subject to the Vesting
Percentage.
No Participant shall be permitted to have Elective Deferral
Contributions, as defined in the EXCESS AMOUNTS SECTION of Article III, made
under this Plan, or any other qualified plan maintained by the Employer, during
any taxable year, in excess of the dollar limitation contained in Code Section
402(g) in effect at the beginning of such taxable year.
The Employer shall pay to the Trustee its Contributions used to
determine the Actual Deferral Percentage, as
ARTICLE III 22
<PAGE> 24
defined in the EXCESS AMOUNTS SECTION of Article III, to the Plan for each Plan
Year not later than the end of the twelve-month period immediately following
the Plan Year for which they are deemed to be paid. Any such Contributions
accumulated through payroll deductions shall be paid to the Trustee as soon as
administratively practicable and in no event later than the 15th business day
of the month after the month in which such amounts otherwise would have been
paid to the Participant.
A portion of the Plan assets resulting from Employer Contributions
(but not more than the original amount of those Contributions) may be returned
if the Employer Contributions are made because of a mistake of fact or are more
than the amount deductible under Code Section 404 (excluding any amount which
is not deductible because the Plan is disqualified). The amount involved must
be returned to the Employer within one year after the date the Employer
Contributions are made by mistake of fact or the date the deduction is
disallowed, whichever applies. Except as provided under this paragraph and
Article VII, the assets of the Plan shall never be used for the benefit of the
Employer and are held for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and for defraying reasonable expenses of
administering the Plan.
SECTION 3.01A--ROLLOVER CONTRIBUTIONS.
A Rollover Contribution may be made by or for an Eligible Employee if
the following conditions are met:
(a) The Contribution is a rollover contribution which the Code
permits to be transferred to a plan that meets the
requirements of Code Section 401(a).
(b) If the Contribution is made by the Eligible Employee, it is
made within sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the
Plan Administrator that the proposed transfer is in fact a
rollover contribution that meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the
Eligible Employee may direct the trustee or named fiduciary of another plan to
transfer the funds which would otherwise be a Rollover Contribution directly to
this Plan. Such transferred funds shall be called a Rollover Contribution.
The Contribution shall be made according to procedures set up by the Plan
Administrator.
If the Eligible Employee is not an Active Participant at the time the
Rollover Contribution is made, he shall be deemed to be a Participant only for
the purposes of investment and distribution of the Rollover Contribution. He
shall not share in the allocation of Employer Contributions until the time he
meets all the requirements to become an Active Participant.
Rollover Contributions made by or for an Eligible Employee shall be
credited to his Account. The part of the Participant's Account resulting from
Rollover Contributions is fully (100%) vested and nonforfeitable at all times.
A separate accounting record shall be maintained for that part of his Rollover
Contribution which consists of voluntary contributions that were deducted from
the Participant's gross income for Federal income tax purposes.
SECTION 3.02--FORFEITURES.
The Nonvested Account of a Participant shall be forfeited as of the
earlier of the following: the date of the Participant's death, if prior to
such date he had ceased to be an Employee; or his Forfeiture Date. All or a
ARTICLE III 23
<PAGE> 25
part of a Participant's Nonvested Account will be forfeited if, after he
ceases to be an Employee, he receives a distribution of his entire Vested
Account or a distribution of his Vested Account derived from Employer
Contributions which were not 100% vested when made according to the provisions
of the VESTED BENEFITS SECTION of Article V or the SMALL AMOUNTS SECTION of
Article IX. If a Participant's Vested Account is zero on the date he ceases to
be an Employee, he shall be deemed to have received a distribution of his
entire Vested Account on such date. The forfeiture will occur as of the date
he receives the distribution or on the date such provision became effective, if
later. If he receives a distribution of his entire Vested Account, his entire
Nonvested Account will be forfeited. If he receives a distribution of his
Vested Account from Employer Contributions which were not 100% vested when
made, but less than his entire Vested Account, the amount to be forfeited will
be determined by multiplying his Nonvested Account by a fraction. The
numerator of the fraction is the amount of the distribution derived from
Employer Contributions which were not 100% vested when made and the denominator
of the fraction is his entire Vested Account derived from such Employer
Contributions on the date of distribution.
A Forfeiture shall also occur as described in the EXCESS AMOUNTS
SECTION of Article III.
Forfeitures may first be applied to pay expenses under the Plan which
would otherwise be paid by the Employer.
Forfeitures not used to pay expenses shall be applied to reduce the
earliest Employer Contributions made after the Forfeitures are determined.
Forfeitures shall be determined at least once during each taxable year of the
Employer. Upon their application, such Forfeitures shall be deemed to be
Employer Contributions.
Forfeitures of Matching Contributions which relate to excess amounts
shall be applied as provided in the EXCESS AMOUNTS SECTION of Article III.
If a Participant again becomes an Eligible Employee after receiving a
distribution which caused his Nonvested Account to be forfeited, he shall have
the right to repay to the Plan the entire amount of the distribution he
received (excluding any amount of such distribution resulting from
Contributions which were 100% vested when made). The repayment must be made
before the earlier of the date five years after the date he again becomes an
Eligible Employee or the end of the first period of five consecutive Vesting
Breaks in Service which begin after the date of the distribution.
If the Participant makes the repayment provided above, the Plan
Administrator shall restore to his Account an amount equal to his Nonvested
Account which was forfeited on the date of distribution, unadjusted for any
investment gains or losses. If the amount of the repayment is zero dollars
because the Participant was deemed to have received a distribution or the plan
did not have repayment provisions in effect on the date the distribution was
made and he again performs an Hour-of-Service as an Eligible Employee within
the repayment period, the Plan Administrator shall restore the Participant's
Account as if he had made a required repayment on the date he performed such
Hour-of-Service. Restoration of the Participant's Account shall include
restoration of all Code Section 411(d)(6) protected benefits with respect to
that restored Account, according to applicable Treasury regulations. Provided,
however, the Plan Administrator shall not restore the Nonvested Account if a
Forfeiture Date has occurred after the date of the distribution and on or
before the date of repayment and that Forfeiture Date would result in a
complete forfeiture of the amount the Plan Administrator would otherwise
restore.
The Plan Administrator shall restore the Participant's Account by the
close of the Plan Year following the Plan Year in which repayment is made.
Permissible sources for restoration are Forfeitures or Employer Contributions.
The Employer shall contribute, without regard to any requirement or condition
of the EMPLOYER
ARTICLE III 24
<PAGE> 26
CONTRIBUTIONS SECTION of Article III, such additional amount needed to make the
required restoration. The repaid and restored amounts are not included in the
Participant's Annual Addition, as defined in the CONTRIBUTION LIMITATION
SECTION of Article III.
SECTION 3.03--ALLOCATION.
The following Contributions for the Plan Year shall be allocated among
all eligible persons:
Qualified Nonelective Contributions
Discretionary Contributions
The eligible persons are all Participants and former Participants who
(i) are Active Participants on the last day of the Plan Year and had 1,000 or
more Hours-of-Service in the Accrual Computation Period that ends in the Plan
Year or (ii) were Active Participants at any time in the Plan Year and have
died, retired or become Totally and Permanently Disabled. The amount allocated
to such a person shall be determined below and under Article X.
The following Contributions for each Plan Year shall be allocated to
each Participant for whom such Contributions were made under the EMPLOYER
CONTRIBUTIONS SECTION of Article III:
Elective Deferral Contributions
Matching Contributions
These Contributions shall be allocated when made and credited to the
Participant's Account.
The following Contributions are allocated as of the last day of the
Plan Year to each eligible person for whom they are made and credited to his
Account:
Qualified Nonelective Contributions are allocated as of the last day
of each Plan Year. For purposes of this allocation, only Nonhighly Compensated
Employees and Non-key Employees (as defined in Article X) shall be eligible
persons. The amount allocated to each eligible person for the Plan Year shall
be equal to Qualified Nonelective Contributions for the Plan Year, multiplied
by the ratio of (a) his Annual Compensation as of the last day of the Plan Year
to (b) the total of such compensation for all eligible persons. This amount is
credited to his Account.
Discretionary Contributions are allocated as of the last day of each
Plan Year. The amount allocated to each eligible person for the Plan Year
shall be equal to the Discretionary Contributions for the Plan Year, multiplied
by the ratio of (a) his Annual Compensation as of the last day of the Plan Year
to (b) the total of such compensation for all eligible persons. This amount is
credited to his Account.
Notwithstanding anything to the contrary, if this is a Plan that would
otherwise fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1)
or 410(b)(2)(A)(i) and the Regulations thereunder because Employer
Contributions would not be allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
Contribution for the Plan Year shall be expanded to include
the minimum number of Participants who would not otherwise be
eligible as are necessary to satisfy the applicable test. The
specific Participants who shall become eligible
ARTICLE III 25
<PAGE> 27
under the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed
the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's Contribution for the Plan
Year shall be further expanded to include the minimum number
of Participants who are not actively employed on the last day
of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to
share shall be those Participants, when compared to similarly
situated Participants, who have completed the greatest number
of Hours-of-Service in the Plan Year before terminating
employment.
In determining the amount of Employer Contributions to be allocated to
a Participant who is a Leased Employee, contributions and benefits provided by
the leasing organization which are attributable to services such Leased
Employee performs for the Employer shall be treated as provided by the Employer
and there shall be no duplication of those contributions or benefits under this
Plan.
SECTION 3.04--CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set
forth in this section, the following terms are defined:
Aggregate Annual Addition means, for a Participant with
respect to any Limitation Year, the sum of his Annual
Additions under all defined contribution plans of the
Employer, as defined in this section, for such Limitation
Year. The nondeductible participant contributions which the
Participant makes to a defined benefit plan shall be treated
as Annual Additions to a defined contribution plan. The
Contributions the Employer, as defined in this section, made
for the Participant for a Plan Year beginning on or after
March 31, 1984, to an individual medical benefit account, as
defined in Code Section 415(l)(2), under a pension or annuity
plan of the Employer, as defined in this section, shall be
treated as Annual Additions to a defined contribution plan.
Also, amounts derived from contributions paid or accrued after
December 31, 1985, in Fiscal Years ending after such date,
which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee, as
defined in Code Section 419A(d)(3), under a welfare benefit
fund, as defined in Code Section 419(e), maintained by the
Employer, as defined in this section, are treated as Annual
Additions to a defined contribution plan. The 25% of
Compensation limit under Maximum Permissible Amount does not
apply to Annual Additions resulting from contributions made to
an individual medical account, as defined in Code Section
415(l)(2), or to Annual Additions resulting from contributions
for medical benefits, within the meaning of Code Section 419A,
after separation from service.
Annual Addition means the amount added to a Participant's
account for any Limitation Year which may not exceed the
Maximum Permissible Amount. The Annual Addition under any
plan for a Participant with respect to any Limitation Year,
shall be equal to the sum of (1) and (2) below:
(1) Employer contributions and forfeitures credited to
his account for the Limitation Year.
(2) Participant contributions made by him for the
Limitation Year.
ARTICLE III 26
<PAGE> 28
Before the first Limitation Year beginning after December 31,
1986, the amount under (2) above is the lesser of (i) 1/2 of his
nondeductible participant contributions made for the Limitation Year,
or (ii) the amount, if any, of his nondeductible participant
contributions made for the Limitation Year which is in excess of six
percent of his Compensation, as defined in this section, for such
Limitation Year.
Compensation means all wages for Federal income tax
withholding purposes, as defined under Code Section 3401(a)
(for purposes of income tax withholding at the source),
disregarding any rules limiting the remuneration included as
wages based on the nature or location of the employment or the
services performed.
For any self-employed individual Compensation will mean earned
income.
For purposes of applying the limitations of this section,
Compensation for a Limitation Year is the Compensation
actually paid or made available during such Limitation Year.
Defined Benefit Plan Fraction means, with respect to a
Limitation Year for a Participant who is or has been a
participant in a defined benefit plan ever maintained by the
Employer, as defined in this section, the quotient, expressed
as a decimal, of
(1) the Participant's Projected Annual Benefit under all
such plans as of the close of such Limitation Year,
divided by
(2) on and after the TEFRA Compliance Date, the lesser of
(i) or (ii) below:
(i) 1.25 multiplied by the maximum dollar
limitation which applies to defined benefit
plans determined for the Limitation Year
under Code Sections 415(b) or (d) or
(ii) 1.4 multiplied by the Participant's highest
average compensation as defined in the
defined benefit plan(s),
including any adjustments under Code Section 415(b).
Before the TEFRA Compliance Date, this denominator is
the Participant's Projected Annual Benefit as of the
close of the Limitation Year if the plan(s) provided
the maximum benefit allowable.
The Defined Benefit Plan Fraction shall be modified as
follows:
If the Participant was a participant as of the first day of
the first Limitation Year beginning after December 31, 1986,
in one or more defined benefit plans maintained by the
Employer, as defined in this section, which were in existence
on May 6, 1986, the denominator of this fraction will not be
less than 125 percent of the sum of the annual benefits under
such plans which the Participant had accrued as of the close
of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the
plan after May 5, 1986. The preceding sentence applies only
if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for all
Limitation Years beginning before January 1, 1987.
ARTICLE III 27
<PAGE> 29
Defined Contribution Plan Fraction means, for a Participant
with respect to a Limitation Year, the quotient, expressed as
a decimal, of
(1) the Participant's Aggregate Annual Additions for such
Limitation Year and all prior Limitation Years, under
all defined contribution plans (including the
Aggregate Annual Additions attributable to
nondeductible accounts under defined benefit plans
and attributable to all welfare benefit funds, as
defined in Code Section 419(e) and attributable to
individual medical accounts, as defined in Code
Section 415(l)(2)) ever maintained by the Employer,
as defined in this section, divided by
(2) on and after the TEFRA Compliance Date, the sum of
the amount determined for the Limitation Year under
(i) or (ii) below, whichever is less, and the amounts
determined in the same manner for all prior
Limitation Years during which he has been an Employee
or an employee of a predecessor employer:
(i) 1.25 multiplied by the maximum permissible
dollar amount for each such Limitation Year,
or
(ii) 1.4 multiplied by the maximum permissible
percentage of the Participant's Compensation,
as defined in this section, for each such
Limitation Year.
Before the TEFRA Compliance Date, this denominator is
the sum of the maximum allowable amount of Annual
Addition to his account(s) under all the plan(s) of
the Employer, as defined in this section, for each
such Limitation Year.
The Defined Contribution Plan Fraction shall be modified as
follows:
If the Participant was a participant as of the first day of
the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the
Employer, as defined in this section, which were in existence
on May 6, 1986, the numerator of this fraction shall be
adjusted if the sum of the Defined Contribution Plan Fraction
and Defined Benefit Plan Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, the
dollar amount determined below shall be permanently subtracted
from the numerator of this fraction. The dollar amount is
equal to the excess of the sum of the two fractions, before
adjustment, over 1.0 multiplied by the denominator of his
Defined Contribution Plan Fraction. The adjustment is
calculated using his Defined Contribution Plan Fraction and
Defined Benefit Plan Fraction as they would be computed as of
the end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the
Code Section 415 limitations applicable to the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as Annual Additions.
For a plan that was in existence on July 1, 1982, for purposes
of determining the Defined Contribution Plan Fraction for any
Limitation Year ending after December 31, 1982, the Plan
Administrator may elect, in accordance with the provisions of
Code Section 415, that the
ARTICLE III 28
<PAGE> 30
denominator for each Participant for all Limitation Years
ending before January 1, 1983, will be equal to
(1) the Defined Contribution Plan Fraction denominator
which would apply for the last Limitation Year ending
in 1982 if an election under this paragraph were not
made, multiplied by.
(2) a fraction, equal to (i) over (ii) below:
(i) the lesser of (A) $51,875, or (B) 1.4,
multiplied by 25% of the Participant's
Compensation, as defined in this section, for
the Limitation Year ending in 1981;
(ii) the lesser of (A) $41,500, or (B) 25% of the
Participant's Compensation, as defined in
this section, for the Limitation Year ending
in 1981.
The election described above is applicable only if the plan
administrators under all defined contribution plans of the
Employer, as defined in this section, also elect to use the
modified fraction.
Employer means any employer that adopts this Plan and all
Controlled Group members and any other entity required to be
aggregated with the employer pursuant to regulations under
Code Section 414(o).
Limitation Year means the 12-consecutive month period within
which it is determined whether or not the limitations of Code
Section 415 are exceeded. Limitation Year means each
12-consecutive month period ending on the last day of each
Plan Year, including corresponding 12-consecutive month
periods before July 1, 1994. If the Limitation Year is other
than the calendar year, execution of this Plan (or any
amendment to this Plan changing the Limitation Year)
constitutes the Employer's adoption of a written resolution
electing the Limitation Year. If the Limitation Year is
changed, the new Limitation Year shall begin within the
current Limitation Year, creating a short Limitation Year.
Maximum Permissible Amount means, for a Participant with
respect to any Limitation Year, the lesser of (1) or (2)
below:
(1) The greater of $30,000 or one-fourth of the maximum
dollar limitation which applies to defined benefit
plans set forth in Code Section 415(b)(1)(A) as in
effect for the Limitation Year. (Before the TEFRA
Compliance Date, $25,000 multiplied by the cost of
living adjustment factor permitted by Federal
regulations.)
(2) 25% of his Compensation, as defined in this section,
for such Limitation Year.
The compensation limitation referred to in (2) shall not apply
to any contribution for medical benefits (within the meaning
of Code Section 401(h) or Code Section 419A(f)(2)) which is
otherwise treated as an annual addition under Code Section
415(l)(1) or Code Section 419A(d)(2).
If there is a short Limitation Year because of a change in
Limitation Year, the Maximum Permissible Amount will not
exceed the maximum dollar limitation which would otherwise
apply multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
Projected Annual Benefit means a Participant's expected annual
benefit under all defined benefit plan(s) ever maintained by
the Employer, as defined in this section. The Projected
Annual Benefit
ARTICLE III 29
<PAGE> 31
shall be determined assuming that the Participant will
continue employment until the later of current age or normal
retirement age under such plan(s), and that the Participant's
compensation for the current Limitation Year and all other
relevant factors used to determine benefits under such plan(s)
will remain constant for all future Limitation Years. Such
expected annual benefit shall be adjusted to the actuarial
equivalent of a straight life annuity if expressed in a form
other than a straight life or qualified joint and survivor
annuity.
(b) The Annual Addition under this Plan for a Participant during a
Limitation Year shall not be more than the Maximum Permissible
Amount.
(c) Contributions which would otherwise be credited to the
Participant's Account shall be limited or reallocated to the
extent necessary to meet the restrictions of subparagraph (b)
above for any Limitation Year in the following order.
Discretionary Contributions shall be reallocated in the same
manner as described in the ALLOCATION SECTION of Article III
to the remaining Participants to whom the limitations do not
apply for the Limitation Year. The Discretionary
Contributions shall be limited if there are no such remaining
Participants. Qualified Nonelective Contributions shall be
reallocated in the same manner as described in the ALLOCATION
SECTION of Article III to the remaining Participants to whom
the limitations do not apply for the Limitation Year. The
Qualified Nonelective Contributions shall be limited if there
are no such remaining Participants. Elective Deferral
Contributions that are not the basis for Matching
Contributions shall be limited. Matching Contributions shall
be limited to the extent necessary to limit the Participant's
Annual Addition under this Plan to his maximum amount. If
Matching Contributions are limited because of this limit,
Elective Deferral Contributions that are the basis for
Matching Contributions shall be reduced in proportion.
If, due to (i) an error in estimating a Participant's
Compensation as defined in this section, (ii) because the
amount of the Forfeitures to be used to offset Employer
Contributions is more than the amount of the Employer
Contributions due for the remaining Participants, (iii) as a
result of a reasonable error in determining the amount of
elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any individual
under the limits of Code Section 415, or (iv) other limited
facts and circumstances, a Participant's Annual Addition is
greater than the amount permitted in (b) above, such excess
amount shall be applied as follows. Matching Contributions
based on Elective Deferral Contributions which are returned
shall be forfeited. If after the return of Elective Deferral
Contributions, an excess amount still exists, and the
Participant is an Active Participant as of the end of the
Limitation Year, the excess amount shall be used to offset
Employer Contributions for him in the next Limitation Year.
If after the return of Elective Deferral Contributions, an
excess amount still exists, and the Participant is not an
Active Participant as of the end of the Limitation Year, the
excess amount will be held in a suspense account which will be
used to offset Employer Contributions for all Participants in
the next Limitation Year. No Employer Contributions that
would be included in the next Limitation Year's Annual
Addition may be made before the total suspense account has
been used.
ARTICLE III 30
<PAGE> 32
(d) A Participant's Aggregate Annual Addition for a Limitation
Year shall not exceed the Maximum Permissible Amount.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or a
welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section
415(l)(2), maintained by the Employer, as defined in this
section, and such plans and welfare benefit funds and
individual medical accounts do not otherwise limit the
Aggregate Annual Addition to the Maximum Permissible Amount,
any reduction necessary shall be made first to the profit
sharing plans, then to all other such plans and welfare
benefit funds and individual medical accounts and, if
necessary, by reducing first those that were most recently
allocated. Welfare benefit funds and individual medical
accounts shall be deemed to be allocated first. However,
elective deferral contributions shall be the last
contributions reduced before the welfare benefit fund or
individual medical account is reduced.
If some of the Employer's defined contribution plans were not
in existence on July 1, 1982, and some were in existence on
that date, the Maximum Permissible Amount which is based on a
dollar amount may differ for a Limitation Year. The Aggregate
Annual Addition for the Limitation Year in which the dollar
limit differs shall not exceed the lesser of (1) 25% of
Compensation as defined in this section, (2) $45,475, or (3)
the greater of $30,000 or the sum of the Annual Additions for
such Limitation Year under all the plan(s) to which the
$45,475 amount applies.
(e) If a Participant is or has been a participant in both defined
benefit and defined contribution plans (including a welfare
benefit fund or individual medical account) ever maintained by
the Employer, as defined in this section, the sum of the
Defined Benefit Plan Fraction and the Defined Contribution
Plan Fraction for any Limitation Year shall not exceed 1.0
(1.4 before the TEFRA Compliance Date).
After all other limitations set out in the plans and funds
have been applied, the following limitations shall apply so
that the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction shall not
exceed 1.0 (1.4 before the TEFRA Compliance Date). The
Projected Annual Benefit shall be limited first. If the
Participant's annual benefit(s) equal his Projected Annual
Benefit, as limited, then Annual Additions to the defined
contribution plan(s) shall be limited to the extent needed to
reduce the sum to 1.0 (1.4). First, the voluntary
contributions the Participant may make for the Limitation Year
shall be limited. Next, in the case of a profit sharing plan,
any forfeitures allocated to the Participant shall be
reallocated to remaining participants to the extent necessary
to reduce the decimal to 1.0 (1.4). Last, to the extent
necessary, employer contributions for the Limitation Year
shall be reallocated or limited, and any required and optional
employee contributions to which such employer contributions
were geared shall be reduced in proportion.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or
welfare benefit fund or individual medical account maintained
by the Employer, as defined in this section, any reduction
above shall be made first to the profit sharing plans, then to
all other such plans and welfare benefit plans and individual
medical accounts and, if necessary, by reducing first those
that were most recently allocated. However, elective deferral
contributions shall be the last contributions reduced before
the welfare benefit fund or individual medical account is
reduced. The annual addition to the welfare benefit fund and
individual medical account shall be limited last.
ARTICLE III 31
<PAGE> 33
SECTION 3.05--EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are
defined:
Actual Deferral Percentage means the ratio (expressed as a
percentage) of Elective Deferrall Contributions under this
Plan on behalf of the Eligible Participant for the Plan Year
to the Eligible Participant's Compensation for the Plan Year.
In modification of the foregoing, Compensation shall be
limited to the Compensation received while an Active
Participant. The Elective Deferral Contributions used to
determine the Actual Deferral Percentage shall include Excess
Elective Deferrals (other than Excess Elective Deferrals of
Nonhighly Compensated Employees that arise solely from
Elective Deferral Contributions made under this Plan or any
other plans of the Employer or a Controlled Group member), but
shall exclude Elective Deferral Contributions that are used in
computing the Contribution Percentage (provided the Average
Actual Deferral Percentage test is satisfied both with and
without exclusion of these Elective Deferral Contributions).
Under such rules as the Secretary of the Treasury shall
prescribe in Code Section 401(k)(3)(D), the Employer may elect
to include Qualified Nonelective Contributions and Qualified
Matching Contributions under this Plan in computing the Actual
Deferral Percentage. For an Eligible Participant for whom
such Contributions on his behalf for the Plan Year are zero,
the percentage is zero.
Aggregate Limit means the greater of (1) or (2) below:
(1) The sum of
(i) 125 percent of the greater of the Average
Actual Deferral Percentage of the Nonhighly
Compensated Employees for the Plan Year or
the Average Contribution Percentage of
Nonhighly Compensated Employees under the
Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(ii) the lesser of 200% or two plus the lesser of
such Average Actual Deferral Percentage or
Average Contribution Percentage.
(2) The sum of
(i) 125 percent of the lesser of the Average
Actual Deferral Percentage of the Nonhighly
Compensated Employees for the Plan Year or
the Average Contribution Percentage of
Nonhighly Compensated Employees under the
Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(ii) the lesser of 200% or two plus the greater of
such Average Actual Deferral Percentage or
Average Contribution Percentage.
Average Actual Deferral Percentage means the average
(expressed as a percentage) of the Actual Deferral Percentages
of the Eligible Participants in a group.
Average Contribution Percentage means the average (expressed
as a percentage) of the Contribution Percentages of the
Eligible Participants in a group.
Contribution Percentage means the ratio (expressed as a
percentage) of the Eligible Participant's Contribution
Percentage Amounts to the Eligible Participant's Compensation
for the Plan Year. In
ARTICLE III 32
<PAGE> 34
modification of the foregoing, Compensation shall be limited
to the Compensation received while an Active Participant. For
an Eligible Participant for whom such Contribution Percentage
Amounts for the Plan Year are zero, the percentage is zero.
Contribution Percentage Amounts means the sum of the
Participant Contributions and Matching Contributions (that are
not Qualified Matching Contributions) under this Plan on
behalf of the Eligible Participant for the Plan Year. Such
Contribution Percentage Amounts shall not include Matching
Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the Contributions to which
they relate are Excess Elective Deferrals, Excess
Contributions or Excess Aggregate Contributions. Under such
rules as the Secretary of the Treasury shall prescribe in Code
Section 401(k)(3)(D), the Employer may elect to include
Qualified Nonelective Contributions and Qualified Matching
Contributions under this Plan which were not used in computing
the Actual Deferral Percentage in computing the Contribution
Percentage. The Employer may also elect to use Elective
Deferral Contributions in computing the Contribution
Percentage so long as the Average Actual Deferral Percentage
test is met before the Elective Deferral Contributions are
used in the Average Contribution Percentage test and continues
to be met following the exclusion of those Elective Deferral
Contributions that are used to meet the Average Contribution
Percentage test.
Elective Deferral Contributions means employer contributions
made on behalf of a participant pursuant to an election to
defer under any qualified cash or deferred arrangement as
described in Code Section 401(k), any simplified employee
pension cash or deferred arrangement as described in Code
Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code
Section 501(c)(18), and any employer contributions made on
behalf of a participant for the purchase of an annuity
contract under Code Section 403(b) pursuant to a salary
reduction agreement. Elective Deferral Contributions shall
not include any deferrals properly distributed as excess
Annual Additions.
Eligible Participant means, for purposes of the Actual
Deferral Percentage, any Employee who is eligible to make an
Elective Deferral Contribution, and shall include the
following: any Employee who would be a plan participant if he
chose to make required contributions; any Employee who can
make Elective Deferral Contributions but who has changed the
amount of his Elective Deferral Contribution to 0%, or whose
eligibility to make an Elective Deferral Contribution is
suspended because of a loan, distribution or hardship
withdrawal; and, any Employee who is not able to make an
Elective Deferral Contribution because of Code Section
415(c)(1) - Annual Additions limits. The Actual Deferral
Percentage for any such included Employee is zero.
Eligible Participant means, for purposes of the Average
Contribution Percentage, any Employee who is eligible to make
a Participant Contribution or to receive a Matching
Contribution, and shall include the following: any Employee
who would be a plan participant if he chose to make required
contributions; any Employee who can make a Participant
Contribution or receive a matching contribution but who has
made an election not to participate in the Plan; and any
Employee who is not able to make a Participant Contribution or
receive a matching contribution because of Code Section
415(c)(1) or 415(e) limits. The Average Contribution
Percentage for any such included Employee is zero.
Excess Aggregate Contributions means, with respect to any Plan
Year, the excess of:
(1) The aggregate Contributions taken into account in
computing the numerator of the Contribution
Percentage actually made on behalf of Highly
Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Average Contribution
ARTICLE III 33
<PAGE> 35
Percentage test (determined by reducing Contributions
made on behalf of Highly Compensated Employees in
order of their Contribution Percentages beginning
with the highest of such percentages).
Such determination shall be made after first determining
Excess Elective Deferrals and then determining Excess
Contributions.
Excess Contributions means, with respect to any Plan Year, the
excess of:
(1) The aggregate amount of Contributions actually taken
into account in computing the Actual Deferral
Percentage of Highly Compensated Employees for such
Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Actual Deferral Percentage test (determined by
reducing Contributions made on behalf of Highly
Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such
percentages).
A Participant's Excess Contributions for a Plan Year will be
reduced by the amount of Excess Elective Deferrals, if any,
previously distributed to the Participant for the taxable year
ending in that Plan Year.
Excess Elective Deferrals means those Elective Deferral
Contributions that are includible in a Participant's gross
income under Code Section 402(g) to the extent such
Participant's Elective Deferral Contributions for a taxable
year exceed the dollar limitation under such Code section.
Excess Elective Deferrals shall be treated as Annual
Additions, as defined in the CONTRIBUTION LIMITATION SECTION
of Article III, under the Plan, unless such amounts are
distributed no later than the first April 15 following the
close of the Participant's taxable year.
Matching Contributions means employer contributions made to
this or any other defined contribution plan, or to a contract
described in Code Section 403(b), on behalf of a participant
on account of a Participant Contribution made by such
participant, or on account of a participant's Elective
Deferral Contributions, under a plan maintained by the
employer.
Participant Contributions means contributions made to any plan
by or on behalf of a participant that are included in the
participant's gross income in the year in which made and that
are maintained under a separate account to which earnings and
losses are allocated.
Qualified Matching Contributions means Matching Contributions
which are subject to the distribution and nonforfeitability
requirements under Code Section 401(k) when made.
Qualified Nonelective Contributions means any employer
contributions (other than Matching Contributions) which an
employee may not elect to have paid to him in cash instead of
being contributed to the plan and which are subject to the
distribution and nonforfeitability requirements under Code
Section 401(k).
(b) A Participant may assign to this Plan any Excess Elective
Deferrals made during a taxable year by notifying the Plan
Administrator in writing on or before the first following
March 1 of the amount of the Excess Elective Deferrals to be
assigned to the Plan. A Participant is deemed to notify the
Plan Administrator of any Excess Elective Deferrals that arise
by taking into account only those Elective Deferral
Contributions made to this Plan and any other plans of the
Employer or a Controlled Group member and reducing such Excess
Elective Deferrals by the amount of Excess Contributions, if
any, previously distributed for the Plan Year beginning in
that taxable year. The Participant's claim for Excess
Elective Deferrals shall be accompanied by the Participant's
written statement that if such
ARTICLE III 34
<PAGE> 36
amounts are not distributed, such Excess Elective Deferrals,
when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k) or
403(b), will exceed the limit imposed on the Participant by
Code Section 402(g) for the year in which the deferral
occurred. The Excess Elective Deferrals assigned to this Plan
can not exceed the Elective Deferral Contributions allocated
under this Plan for such taxable year.
Notwithstanding any other provisions of the Plan, Elective
Deferral Contributions in an amount equal to the Excess
Elective Deferrals assigned to this Plan, plus any income and
minus any loss allocable thereto, shall be distributed no
later than April 15 to any Participant to whose Account Excess
Elective Deferrals were assigned for the preceding year and
who claims Excess Elective Deferrals for such taxable year.
The income or loss allocable to such Excess Elective Deferrals
shall be equal to the income or loss allocable to the
Participant's Elective Deferral Contributions for the taxable
year in which the excess occurred multiplied by a fraction.
The numerator of the fraction is the Excess Elective
Deferrals. The denominator of the fraction is the closing
balance without regard to any income or loss occurring during
such taxable year (as of the end of such taxable year) of the
Participant's Account resulting from Elective Deferral
Contributions.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Elective Deferrals, plus any income and minus any loss
allocable thereto, shall be forfeited. These Forfeitures
shall be used to offset the earliest Employer Contribution due
after the Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective
Deferrals have been determined, one of the following tests
must be met:
(1) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the
Average Actual Deferral Percentages is not more than
2.
The Actual Deferral Percentage for any Eligible Participant
who is a Highly Compensated Employee for the Plan Year and who
is eligible to have Elective Deferral Contributions (and
Qualified
ARTICLE III 35
<PAGE> 37
Nonelective Contributions or Qualified Matching
Contributions, or both, if used in computing the Actual
Deferral Percentage) allocated to his account under two or
more plans or arrangements described in Code Section 401(k)
that are maintained by the Employer or a Controlled Group
member shall be determined as if all such Elective Deferral
Contributions (and, if applicable, such Qualified Nonelective
Contributions or Qualified Matching Contributions, or both)
were made under a single arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated
as separate if mandatorily disaggregated under the regulations
under Code Section 401(k).
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code sections only if aggregated with
this Plan, then this section shall be applied by determining
the Actual Deferral Percentage of employees as if all such
plans were a single plan. Plans may be aggregated in order to
satisfy Code Section 401(k) only if they have the same Plan
Year.
For purposes of determining the Actual Deferral Percentage of
an Eligible Participant who is a five-percent owner or one of
the ten most highly-paid Highly Compensated Employees, the
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
used in computing the Actual Deferral Percentage) and
Compensation of such Eligible Participant include the Elective
Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching Contributions,
or both) and Compensation for the Plan Year of Family Members.
Family Members, with respect to such Highly Compensated
Employees, shall be disregarded as separate employees in
determining the Actual Deferral Percentage both for
Participants who are Nonhighly Compensated Employees and for
Participants who are Highly Compensated Employees.
For purposes of determining the Actual Deferral Percentage,
Elective Deferral Contributions, Qualified Nonelective
Contributions and Qualified Matching Contributions must be
made before the last day of the 12-month period immediately
following the Plan Year to which contributions relate.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Actual Deferral Percentage test
and the amount of Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, used in such test.
The determination and treatment of the Contributions used in
computing the Actual Deferral Percentage shall satisfy such
other requirements as may be prescribed by the Secretary of
the Treasury.
If the Plan Administrator should determine during the Plan
Year that neither of the above tests is being met, the Plan
Administrator may adjust the amount of future Elective
Deferral Contributions of the Highly Compensated Employees.
Notwithstanding any other provisions of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose Accounts such Excess
Contributions were allocated for the preceding Plan
ARTICLE III 36
<PAGE> 38
Year. If such excess amounts are distributed more than 2 1/2
months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be
imposed on the employer maintaining the plan with respect to
such amounts. Such distributions shall be made beginning with
the Highly Compensated Employee(s) who has the greatest Actual
Deferral Percentage, reducing his Actual Deferral Percentage
to the next highest Actual Deferral Percentage level. Then,
if necessary, reducing the Actual Deferral Percentage of the
Highly Compensated Employees at the next highest level, and
continuing in this manner until the average Actual Deferral
Percentage of the Highly Compensated Group satisfies the
Actual Deferral Percentage test. Excess Contributions of
Participants who are subject to the family member aggregation
rules shall be allocated among the Family Members in
proportion to the Elective Deferral Contributions (and amounts
treated as Elective Deferral Contributions) of each Family
Member that is combined to determine the combined Actual
Deferral Percentage.
Excess Contributions shall be treated as Annual Additions, as
defined in the CONTRIBUTION LIMITATION SECTION of Article III,
under the Plan.
The Excess Contributions shall be adjusted for income or loss.
The income or loss allocable to such Excess Contributions
shall be equal to the income or loss allocable to the
Participant's Elective Deferral Contributions (and, if
applicable, Qualified Nonelective Contributions or Qualified
Matching Contributions, or both) for the Plan Year in which
the excess occurred multiplied by a fraction. The numerator
of the fraction is the Excess Contributions. The denominator
of the fraction is the closing balance without regard to any
income or loss occurring during such Plan Year (as of the end
of such Plan Year) of the Participant's Account resulting from
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
used in computing the Actual Deferral Percentage).
Excess Contributions shall be distributed from the
Participant's Account resulting from Elective Deferral
Contributions. If such Excess Contributions exceed the
balance in the Participant's Account resulting from Elective
Deferral Contributions, the balance shall be distributed from
the Participant's Account resulting from Qualified Matching
Contributions (if applicable) and Qualified Nonelective
Contributions, respectively.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be forfeited. These Forfeitures shall be used
to offset the earliest Employer Contribution due after the
Forfeiture arises.
(d) As of the end of each Plan Year, one of the following tests
must be met:
(1) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average
Contribution Percentage for Eligible Participants who
are Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average
Contribution Percentage for Eligible Participants who
are Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the
Average Contribution Percentages is not more than 2.
If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to the
Average Contribution Percentage test maintained by the
Employer or a Controlled Group member and the sum of the
Average Actual Deferral Percentage and Average
ARTICLE III 37
<PAGE> 39
Contribution Percentage of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit,
then the Contribution Percentage of those Highly Compensated
Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly
Compensated Employees whose Contribution Percentage is the
highest) so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution
Percentage is reduced shall be treated as an Excess Aggregate
Contribution. The Average Actual Deferral Percentage and
Average Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to
meet the Average Actual Deferral Percentage and Average
Contribution Percentage tests. Multiple use does not occur if
either the Average Actual Deferral Percentage or Average
Contribution Percentage of the Highly Compensated Employees
does not exceed 1.25 multiplied by the Average Actual Deferral
Percentage and Average Contribution Percentage of the
Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Participant who
is a Highly Compensated Employee for the Plan Year and who is
eligible to have Contribution Percentage Amounts allocated to
his account under two or more plans described in Code Section
401(a) or arrangements described in Code Section 401(k) that
are maintained by the Employer or a Controlled Group member
shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated
as separate if mandatorily disaggregated under the regulations
under Code Section 401(m) or permissibly disaggregated as
provided.
In the event that this Plan satisfies the requirements of Code
Sections 401(m), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of Code sections only if aggregated with this
Plan, then this section shall be applied by determining the
Contribution Percentages of Eligible Participants as if all
such plans were a single plan. Plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the
same Plan Year.
For purposes of determining the Contribution Percentage of an
Eligible Participant who is a five-percent owner or one of the
ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such
Participant shall include Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members. Family
Members, with respect to Highly Compensated Employees, shall
be disregarded as separate employees in determining the
Contribution Percentage both for employees who are Nonhighly
Compensated Employees and for employees who are Highly
Compensated Employees.
For purposes of determining the Contribution Percentage,
Participant Contributions are considered to have been made in
the Plan Year in which contributed to the Plan. Matching
Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end
of the 12-month period beginning on the day after the close of
the Plan Year.
ARTICLE III 38
<PAGE> 40
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage test and
the amount of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage
of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
Notwithstanding any other provisions of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if not vested, or
distributed, if vested, no later than the last day of each
Plan Year to Participants to whose Accounts such Excess
Aggregate Contributions were allocated for the preceding Plan
Year. If such Excess Aggregate Contributions are distributed
more than 2 1/2 months after the last day of the Plan Year in
which such excess amounts arose, a ten (10) percent excise tax
will be imposed on the employer maintaining the plan with
respect to those amounts. Excess Aggregate Contributions will
be distributed beginning with the Highly Compensated
Employee(s) who has the greatest Contribution Percentage,
reducing his contribution percentage to the next highest
level. Then, if necessary, reducing the Contribution
Percentage of the Highly Compensated Employee at the next
highest level, and continuing in this manner until the Actual
Contribution Percentage of the Highly Compensated Group
satisfies the Actual Contribution Percentage Test. Excess
Aggregate Contributions of Participants who are subject to the
family member aggregation rules shall be allocated among the
Family Members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching Contributions)
of each Family Member that is combined to determine the
combined Contribution Percentage. Excess Aggregate
Contributions shall be treated as Annual Additions, as defined
in the CONTRIBUTION LIMITATION SECTION of Article III, under
the Plan.
The Excess Aggregate Contributions shall be adjusted for
income or loss. The income or loss allocable to such Excess
Aggregate Contributions shall be equal to the income or loss
allocable to the Participant's Contribution Percentage Amounts
for the Plan Year in which the excess occurred multiplied by a
fraction. The numerator of the fraction is the Excess
Aggregate Contributions. The denominator of the fraction is
the closing balance without regard to any income or loss
occurring during such Plan Year (as of the end of such Plan
Year) of the Participant's Account resulting from Contribution
Percentage Amounts.
Excess Aggregate Contributions shall be distributed from the
Participant's Account resulting from Participant Contributions
that are not required as a condition of employment or
participation or for obtaining additional benefits from
Employer Contributions. If such Excess Aggregate
Contributions exceed the balance in the Participant's Account
resulting from such Participant Contributions, the balance
shall be forfeited, if not vested, or distributed, if vested,
on a pro-rata basis from the Participant's Account resulting
from Contribution Percentage Amounts. These Forfeitures shall
be used to offset the earliest Employer Contribution due after
the Forfeiture arises.
ARTICLE III 39
<PAGE> 41
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01--INVESTMENT OF CONTRIBUTIONS.
All Contributions are forwarded by the Employer to the Trustee to be
deposited in the Trust Fund.
Investment of Contributions is governed by the provisions of the
Trust, the Group Contract and any other funding arrangement in which the Trust
Fund is or may be invested. To the extent permitted by the Trust, Group
Contract or other funding arrangement, the parties named below shall direct the
Contributions to any of the accounts available under the Trust or Group
Contract and may request the transfer of assets resulting from those
Contributions between such accounts. A Participant may not direct the Trustee
to invest the Participant's Account in collectibles. Collectibles means any
work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage or
other tangible personal property specified by the Secretary of Treasury. To
the extent that a Participant does not direct the investment of his Account,
such Account shall be invested ratably in the accounts available under the
Trust or Group Contract in the same manner as the undirected Accounts of all
other Participants. The Vested Accounts of all Inactive Participants may be
segregated and invested separately from the Accounts of all other Participants.
The Trust Fund shall be valued at current fair market value as of the
last day of the last calendar month ending in the Plan Year and, at the
discretion of the Trustee, may be valued more frequently. The valuation shall
take into consideration investment earnings credited, expenses charged,
payments made and changes in the value of the assets held in the Trust Fund.
The Account of a Participant shall be credited with its share of the gains and
losses of the Trust Fund. That part of a Participant's Account invested in a
funding arrangement which establishes an account or accounts for such
Participant thereunder shall be credited with the gain or loss from such
account or accounts. That part of a Participant's Account which is invested in
other funding arrangements shall be credited with a proportionate share of the
gain or loss of such investments. The share shall be determined by multiplying
the gain or loss of the investment by the ratio of the part of the
Participant's Account invested in such funding arrangement to the total of the
Trust Fund invested in such funding arrangement.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding policy of
the Plan and to determine appropriate methods of carrying out the Plan's
objectives. The Named Fiduciary shall inform the Trustee and any Investment
Manager of the Plan's short-term and long-term financial needs so the
investment policy can be coordinated with the Plan's financial requirements.
(a) Employer Contributions other than Elective Deferral
Contributions: The Participant shall direct the investment of
such Employer Contributions and transfer of assets resulting
from those Contributions.
(b) Elective Deferral Contributions: The Participant shall direct
the investment of Elective Deferral Contributions and transfer
of assets resulting from those Contributions.
(c) Rollover Contributions: The Participant shall direct the
investment of Rollover Contributions and transfer of assets
resulting from those Contributions.
ARTICLE IV 40
<PAGE> 42
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not subject
to Participant direction.
SECTION 4.01A--INVESTMENT IN QUALIFYING EMPLOYER SECURITIES.
Participants in the Plan shall be entitled to invest all or any
portion of their Elective Deferral Contributions in Qualifying Employer
Securities.
Once investment in Qualifying Employer Securities is made available to
Eligible Employees, then it shall continue to be available unless the Plan and
Trust is amended to disallow such available investment. In the absence of such
election, such Eligible Employees shall be deemed to have elected to have their
Accounts invested wholly in the Investment Funds. Once an election is made, it
shall be considered to continue until a new election is made.
Any dividends payable on the Qualifying Employer Securities shall
unless otherwise directed by the Participant be invested in additional shares
of Qualifying Employer Securities hereunder.
If the securities of the Employer are not publicly traded and if no
market or an extremely thin market exists for the Qualifying Employer
Securities, so that a reasonable valuation may not be obtained from the market
place, then such Qualifying Employer Securities must be valued at least
annually by an independent appraiser who is not associated with the Employer,
the Plan Administrator, the Trustee, or any person related to any fiduciary
under the Plan. The independent appraiser may be associated with a person who
is merely a contract administrator with respect to the Plan, but who exercises
no discretionary authority and is not a Plan fiduciary.
If there is a public market for Qualifying Employer Securities of the
type held by the Plan, then the Plan Administrator may use as the value of the
shares the price at which such shares traded in such market, or an average of
the bid and asked prices for such shares in such market, provided that such
value is representative of the fair market value of such shares in the opinion
of the Plan Administrator. If the Qualifying Employer Securities do not trade
on the annual valuation date or if the market is very thin on such date, then
the Plan Administrator may use the average of trade prices for a period of time
ending on such date, provided that such value is representative of the fair
market value of such shares in the opinion of the Plan Administrator. The
value of a Participant's Qualifying Employer Securities Account may be
expressed in units.
For purposes of determining the annual valuation of the Plan and for
reporting to Participants and regulatory authorities, the assets of the Plan
shall be valued at least annually on the Valuation Date which corresponds to
the last day of the Plan Year. The fair market value of Qualifying Employer
Securities shall be determined on such a Valuation Date. The average of the
bid and asked prices of Qualifying Employer Securities as of the date of the
transaction shall apply for purposes of valuing distributions and other
transactions of the Plan to the extent such value is representative of the fair
market value of such shares in the opinion of the Plan Administrator.
All purchases of Qualifying Employer Securities shall be made at a
price, or prices, which, in the judgment of the Plan Administrator, do not
exceed the fair market value of such Qualifying Employer Securities.
In the event that the Trustee acquires shares of Qualifying Employer
Securities by purchase from a "disqualified person" as defined in Code Section
4975(e)(2), in exchange for cash or other assets of the Trust, the terms of
such purchase shall contain the provision that in the event that there is a
final determination by the Internal Revenue Service or court of competent
jurisdiction that a fair market value of such shares of Qualifying
ARTICLE IV 41
<PAGE> 43
Employer Securities, as of the date of purchase was less than the purchase
price paid by the Trustee, then the seller shall pay or transfer, as the case
may be, to the Trustee, an amount of cash, shares of Qualifying Employer
Securities, or any combination thereof equal in value to the difference between
the purchase price and said fair market value for all such shares. In the
event that cash and/or shares of Qualifying Employer Securities are paid and/or
transferred to the Trustee under this provision, shares of Qualifying Employer
Securities shall be valued at their fair market value as of the date of said
purchase, and interest at a reasonable rate from the date of purchase to the
date of payment shall be paid by the seller on the amount of cash paid.
The Plan Administrator may direct the Trustee to sell, resell or
otherwise dispose of Qualifying Employer Securities to any person, including
the Employer, provided that any such sales to any disqualified person,
including the Employer, will be made at not less than the fair market value and
no commission is charged. Any such sale shall be made in conformance with
Section 408(e) of ERISA.
In the event the Plan Administrator directs the Trustee to dispose of
any Qualifying Employer Securities held as Trust Assets under circumstances
which require registration and/or qualification of the securities under
applicable Federal or state securities laws, then the Employer, at its own
expense, will take or cause to be taken any and all such action as may be
necessary or appropriate to effect such registration and/or qualification.
The Plan Administrator may exercise the right to vote with respect to
Qualifying Employer Securities or may pass-through such vote to participants in
a manner determined by the Plan Administrator in its sole discretion. As of
the date hereof, the Plan Administrator shall exercise all voting rights with
respect to Qualifying Employer Securities.
SECTION 4.01B -- LIMITATION OF INVESTMENT IN QUALIFYING
EMPLOYER SECURITIES BY SOME PARTICIPANTS.
Participants who are directors, officers, 10% stockholders of the
Employer, and other persons subject to Section 16 of the Securities Exchange
Act of 1934 (the "1934 Act") will be permitted to change the level of
investment in the Qualifying Employer Securities Account only once every six
months. Additionally, Participants who are directors, officers, 10%
stockholders of the Employer, and other persons subject to Section 16 of the
1934 Act who cease participation in the Qualifying Employer Securities Account,
or who reduce their participation in such account to a nominal level, may not
participate (e.g., direct that investments be made on their behalf) under the
Qualifying Employer Securities Account again for at least six months.
Intra-plan transfers by such Participants between the Qualifying Employer
Securities Account and the other investment accounts available under the Plan
may only be made pursuant to an investment election made during the period
beginning on the third business day following the date of release of annual or
quarterly financial information by the Employer and ending on the twelfth
business day following such date. Subject to certain limited exceptions,
Participants who are directors, officers, 10% stockholders of the Employer, and
other persons subject to Section 16 of the 1934 Act making withdrawals of
investments under the Qualifying Employer Securities Account must cease further
purchases/investment under the Qualifying Employer Securities Account for six
months.
With respect to Participants who are directors, officers, 10%
stockholders of the Employer, and other persons subject to the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b- 3 or its successors under the 1934 Act. To the extent
any provisions of the Plan or action by the Plan Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan Administrator.
ARTICLE IV 42
<PAGE> 44
ARTICLE V
BENEFITS
SECTION 5.01--RETIREMENT BENEFITS.
On a Participant's Retirement Date, his Vested Account shall be
distributed to him according to the distribution of benefits provisions of
Article VI and the provisions of the SMALL AMOUNTS SECTION of Article IX.
SECTION 5.02--DEATH BENEFITS.
If a Participant dies before his Annuity Starting Date, his Vested
Account shall be distributed according to the distribution of benefits
provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of
Article IX.
SECTION 5.03--VESTED BENEFITS.
A Participant may receive a distribution of his Vested Account at any
time after he ceases to be an Employee, provided he has not again become an
Employee. If such amount is not payable under the provisions of the SMALL
AMOUNTS SECTION of Article IX, it will be distributed only if the Participant
so elects.
If a Participant does not receive an earlier distribution according to
the provisions of this section or the SMALL AMOUNTS SECTION of Article IX, upon
his Retirement Date or death, his Vested Account shall be applied according to
the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION
of Article V.
The Nonvested Account of a Participant who has ceased to be an
Employee shall remain a part of his Account until it becomes a Forfeiture;
provided, however, if the Participant again becomes an Employee so that his
Vesting Percentage can increase, the Nonvested Account may become a part of his
Vested Account.
SECTION 5.04--WHEN BENEFITS START.
Benefits under the Plan begin when a Participant retires, dies or
ceases to be an Employee, whichever applies, as provided in the preceding
sections of this article. Benefits which begin before Normal Retirement Date
for a Participant who became Totally and Permanently Disabled when he was an
Employee shall be deemed to begin because he is Totally and Permanently
Disabled. The start of benefits is subject to the qualified election
procedures of Article VI.
Unless otherwise elected, benefits shall begin before the sixtieth day
following the close of the Plan Year in which the latest date below occurs:
(a) The date the Participant attains age 65 (Normal Retirement
Age, if earlier).
(b) The tenth anniversary of the Participant's Entry Date.
(c) The date the Participant ceases to be an Employee.
ARTICLE V 43
<PAGE> 45
Notwithstanding the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately distributable,
within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be
deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
The Participant may elect to have his benefits begin after the latest
date for beginning benefits described above, subject to the provisions of this
section. The Participant shall make the election in writing and deliver the
signed statement of election to the Plan Administrator before Normal Retirement
Date or the date he ceases to be an Employee, if later. The election must
describe the form of distribution and the date the benefits will begin. The
Participant shall not elect a date for beginning benefits or a form of
distribution that would result in a benefit payable when he dies which would be
more than incidental within the meaning of governmental regulations.
Benefits shall begin by the Participant's required beginning date, as
defined in the FORM OF DISTRIBUTION SECTION of Article VI.
Contributions which are used to compute the Actual Deferral
Percentage, as defined in the EXCESS AMOUNTS SECTION of Article III, may be
distributed upon disposition by the Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) used by the Employer in a trade
or business or disposition by the Employer of the Employer's interest in a
subsidiary (within the meaning of Code Section 409(d)(3)) if the transferee
corporation is not a Controlled Group member, the Employee continues employment
with the transferee corporation and the transferor corporation continues to
maintain the Plan. Such distributions made after March 31, 1988, must be made
in a single sum.
SECTION 5.05--WITHDRAWAL PRIVILEGES.
A Participant who has attained age 59 1/2 may withdraw all or any
portion of his Vested Account which results from the following Contributions:
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
Rollover Contributions
No distribution from the Participant's Account shall occur prior to
100% vesting.
A Participant may make such a withdrawal at any time.
A Participant may withdraw all or any portion of his Vested Account
which results from the following Contributions
Elective Deferral Contributions
in the event of hardship due to an immediate and heavy financial need.
Withdrawals from the Participant's Account resulting from Elective Deferral
Contributions shall be limited to the amount of the Participant's Elective
Deferral Contributions. Immediate and heavy financial need shall be limited
to: (i) expenses incurred or necessary for medical care, described in Code
Section 213(d), of the Participant, the Participant's spouse, or any
ARTICLE V 44
<PAGE> 46
dependents of the Participant (as defined in Code Section 152); (ii) purchase
(excluding mortgage payments) of a principal residence for the Participant;
(iii) payment of tuition and related educational fees for the next 12 months of
post-secondary education for the Participant, his spouse, children or
dependents; (iv) the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or (v) any other distribution which is deemed by the
Commissioner of Internal Revenue to be made on account of immediate and heavy
financial need as provided in Treasury regulations. The Participant's request
for a withdrawal shall include his written statement that an immediate and
heavy financial need exists and explain its nature.
No withdrawal shall be allowed which is not necessary to satisfy such
immediate and heavy financial need. Such withdrawal shall be deemed necessary
only if all of the following requirements are met: (i) the distribution is not
in excess of the amount of the immediate and heavy financial need of the
Participant (including amounts necessary to pay any Federal, state or local
income taxes or penalties reasonably anticipated to result from the
distribution); (ii) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under all
plans maintained by the Employer; (iii) the Plan, and all other plans
maintained by the Employer, provide that the Participant's elective
contributions and employee contributions will be suspended for at least 12
months after receipt of the hardship distribution; and (iv) the Plan, and all
other plans maintained by the Employer, provide that the Participant may not
make elective contributions for the Participant's taxable year immediately
following the taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next taxable year less the
amount of such Participant's elective contributions for the taxable year of the
hardship distribution. The Plan will suspend elective contributions and
employee contributions for 12 months and limit elective deferrals as provided
in the preceding sentence. A Participant shall not cease to be an Eligible
Participant, as defined in the EXCESS AMOUNTS SECTION of Article III, merely
because his elective contributions or employee contributions are suspended.
A request for withdrawal shall be in writing on a form furnished for
that purpose and delivered to the Plan Administrator before the withdrawal is
to occur.
A forfeiture shall not occur solely as a result of a withdrawal.
SECTION 5.06--LOANS TO PARTICIPANTS.
Loans shall be made available to all Participants on a reasonably
equivalent basis. For purposes of this section, Participant means any
Participant or Beneficiary who is a party-in-interest, within the meaning of
Section 3(14) of the Employee Retirement Income Security Act of 1974. Loans
shall not be made to highly compensated employees, as defined in Code Section
414(q), in an amount greater than the amount made available to other
Participants.
No loans will be made to any shareholder-employee or owner-employee.
For purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or
is considered as owning within the meaning of Code Section 318(a)(1)), on any
day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
ARTICLE V 45
<PAGE> 47
A loan to a Participant shall be a Participant-directed investment of
his Account. No Account other than the borrowing Participant's Account shall
share in the interest paid on the loan or bear any expense or loss incurred
because of the loan.
The number of outstanding loans shall be limited to one. No more than
one loan will be approved for any Participant in any 12-month period. The
minimum amount of any loan shall be $1,000.
Loans must be adequately secured and bear a reasonable rate of
interest.
The amount of the loan shall not exceed the maximum amount that may be
treated as a loan under Code Section 72(p) (rather than a distribution) to the
Participant and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan balance of
loans during the one-year period ending on the day before the
new loan is made.
(b) The greater of (1) or (2), reduced by (3) below:
(1) One-half of the Participant's Vested Account.
(2) $10,000.
(3) Any outstanding loan balance on the date the new loan
is made.
For purposes of this maximum, a Participant's Vested Account does not include
any accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and all qualified employer plans, as defined in Code Section
72(p)(4), of the Employer and any Controlled Group member shall be treated as
one plan.
The foregoing notwithstanding, the amount of such loan shall not
exceed 50% of the amount of the Participant's Vested Account. For purposes of
this maximum, a Participant's Vested Account does not include any accumulated
deductible employee contributions, as defined in Code Section 72(o)(5)(B). No
collateral other than a portion of the Participant's Vested Account (as limited
above) shall be accepted. The Loan Administrator shall determine if the
collateral is adequate for the amount of the loan requested.
Notwithstanding any other provision of this Plan, the portion of the
Participant's Vested Account used as a security interest held by the Plan by
reason of a loan outstanding to the Participant shall be taken into account for
purposes of determining the amount of the Vested Account payable at the time of
death or distribution, but only if the reduction is used as repayment of the
loan.
Each loan shall bear a reasonable fixed rate of interest to be
determined by the Loan Administrator. In determining the interest rate, the
Loan Administrator shall take into consideration fixed interest rates currently
being charged by commercial lenders for loans of comparable risk on similar
terms and for similar durations, so
ARTICLE V 46
<PAGE> 48
that the interest will provide for a return commensurate with rates currently
charged by commercial lenders for loans made under similar circumstances. The
Loan Administrator shall not discriminate among Participants in the matter of
interest rates; but loans granted at different times may bear different
interest rates in accordance with the current appropriate standards.
The loan shall by its terms require that repayment (principal and
interest) be amortized in level payments, not less frequently than quarterly,
over a period not extending beyond five years from the date of the loan. A
loan is not subject to this five-year repayment requirement if it is used to
buy any dwelling unit, which within a reasonable time, is to be used as the
principal residence of the Participant. The "reasonable time" will be
determined at the time the loan is made. The period of repayment for any loan
shall be arrived at by mutual agreement between the Loan Administrator and the
Participant.
The Participant shall make a written application for a loan from the
Plan on forms provided by the Loan Administrator. The application must specify
the amount and duration requested. No loan will be approved unless the
Participant is creditworthy. The Participant must grant authority to the Loan
Administrator to investigate the Participant's creditworthiness so that the
loan application may be properly considered.
Information contained in the application for the loan concerning the
income, liabilities, and assets of the Participant will be evaluated to
determine whether there is a reasonable expectation that the Participant will
be able to satisfy payments on the loan as due. Additionally, the Loan
Administrator will pursue any appropriate further investigations concerning the
creditworthiness and/or credit history of the Participant to determine whether
a loan should be approved.
Each loan shall be fully documented in the form of a promissory note
signed by the Participant for the face amount of the loan, together with
interest determined as specified above.
There will be an assignment of collateral to the Plan executed at the
time the loan is made.
In those cases where repayment through payroll deduction by the
Employer is available, installments are so payable, and a payroll deduction
agreement will be executed by the Participant at the time of making the loan.
Where payroll deduction is not available, payments are to be timely
made.
Any payment that is not by payroll deduction shall be made payable to
the Employer or Trustee, as specified in the promissory note, and delivered to
the Loan Administrator, including prepayments, service fees and penalties, if
any, and other amounts due under the note.
The promissory note may provide for reasonable late payment penalties
and/or service fees. Any penalties or service fees shall be applied to all
Participants in a nondiscriminatory manner. If the promissory note so
provides, such amounts may be assessed and collected from the Account of the
Participant as part of the loan balance.
Each loan may be paid prior to maturity, in part or in full, without
penalty or service fee, except as may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a
default is deemed to occur.
ARTICLE V 47
<PAGE> 49
Upon default, the Plan has the right to pursue any remedy available by
law to satisfy the amount due, along with accrued interest, including the right
to enforce its claim against the security pledged and execute upon the
collateral as allowed by law.
If any payment of principal or interest or any other amount due under
the promissory note, or any portion thereof, is not made for a period of 90
days after due, the entire principal balance whether or not otherwise then due,
shall become immediately due and payable without demand or notice, and subject
to collection or satisfaction by any lawful means, including specifically but
not limited to the right to enforce the claim against the security pledged and
to execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of
security or use of amounts pledged to satisfy the amount then due, will not
occur until a distributable event occurs in accordance with the Plan, and will
not occur to an extent greater than the amount then available upon any
distributable event which has occurred under the Plan.
All reasonable costs and expenses, including but not limited to
attorney's fees, incurred by the Plan in connection with any default or in any
proceeding to enforce any provision of a promissory note or instrument by which
a promissory note for a Participant loan is secured, shall be assessed and
collected from the Account of the Participant as part of the loan balance.
If payroll deduction is being utilized, in the event that a
Participant's available payroll deduction amounts in any given month are
insufficient to satisfy the total amount due, there will be an increase in the
amount taken subsequently, sufficient to make up the amount that is then due.
If the subsequent deduction is also insufficient to satisfy the amount due
within 31 days, a default is deemed to occur as above. If any amount remains
past due more than 90 days, the entire principal amount, whether or not
otherwise then due, along with interest then accrued and any other amount then
due under the promissory note, shall become due and payable, as above.
If the Participant ceases to be a party-in-interest (as defined in
this section), the balance of the outstanding loan becomes due and payable, and
the Participant's Vested Account will be used as available for distribution(s)
to pay the outstanding loan. The Participant's Vested Account will not be used
to pay any amount due under the outstanding loan before the date which is 31
days after the date he ceased to be an Employee, and the Participant may elect
to repay the outstanding loan with interest on the day of repayment. If no
distributable event has occurred under the Plan at the time that the
Participant's Vested Account would otherwise be used under this provision to
pay any amount due under the outstanding loan, this will not occur until the
time, or in excess of the extent to which, a distributable event occurs under
the Plan.
ARTICLE V 48
<PAGE> 50
ARTICLE VI
DISTRIBUTION OF BENEFITS
SECTION 6.01--FORM OF DISTRIBUTION.
The form of benefit payable to or on behalf of a Participant is a
single sum payment. The entire interest of a Participant must be distributed no
later than the Participant's required beginning date. The Participant's
required beginning date is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70 1/2, unless
otherwise provided in (a), (b) or (c) below:
(a) The required beginning date for a Participant who attains age
70 1/2 before January 1, 1988, and who is not a 5-percent
owner is the first day of April of the calendar year following
the calendar year in which the later of retirement or
attainment of age 70 1/2 occurs.
(b) The required beginning date for a Participant who attains age
70 1/2 before January 1, 1988, and who is a 5-percent owner is
the first day of April of the calendar year following the
later of
(1) the calendar year in which the Participant attains
age 70 1/2, or
(2) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5-percent owner, or the calendar year in which the
Participant retires.
(c) The required beginning date of a Participant who is not a
5-percent owner and who attains age 70 1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1. 1990.
A Participant is treated as a 5-percent owner for purposes of this section if
such Participant is a 5-percent owner as defined in Code Section 416(i)
(determined in accordance with Code Section 416 but without regard to whether
the Plan is top-heavy) at any time during the Plan Year ending with or within
the calendar year in which such owner attains age 66 1/2 or any subsequent Plan
Year.
SECTION 6.02--ELECTION PROCEDURES.
The Participant shall make any election under this section in writing.
The Plan Administrator may require such individual to complete and sign any
necessary documents as to the provisions to be made. Any election permitted
under (a) below shall be subject to the qualified election provisions of (b)
below.
(a) Death Benefits. A Participant may elect his Beneficiary.
(b) Qualified Election. The Participant may make an election at
any time during the election period. The Participant revoke
the election made (or make a new election) at any time and any
number of times during the election period. An election is
effective only if it meets the consent requirements below.
A Participant may make an election as to death benefits at any
time before he dies.
ARTICLE VI 49
<PAGE> 51
If the Participant's Vested Account has at any time exceeded
$3,500, any benefit which is immediately distributable
requires the consent of the Participant. The consent of the
Participant to a benefit which is immediately distributable
must not be made before the date the Participant is provided
with the notice of the ability to defer the distribution. Such
consent shall be made in writing. The consent shall not be
made more than 90 days before the Annuity Starting Date. The
consent of the Participant shall not be required to the extent
that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination
of this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's
Account balance may, without the Participant's consent, be
distributed to the Participant or transferred to another
defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(e)(7)) within
the same Controlled Group. A benefit is immediately
distributable if any part of the benefit could be distributed
to the Participant before the Participant attains the older of
Normal Retirement Age or age 62. Spousal consent is needed to
name a Beneficiary other than the spouse. If the Participant
names a Beneficiary other than his spouse, the spouse has the
right to limit consent only to a specific Beneficiary. The
spouse can relinquish such right. Such consent shall be made
in writing. The spouse's consent shall be witnessed by a plan
representative or notary public. The spouse's consent must
acknowledge the effect of the election, including that the
spouse had the right to limit consent only to a specific
Beneficiary and that the relinquishment of such right was
voluntary. Unless the consent of the spouse expressly permits
designations by the Participant without a requirement of
further consent by the spouse, the spouse's consent must be
limited to the Beneficiary, class of Beneficiaries, or
contingent Beneficiary named in the election. Spousal consent
is not required, however, if the Participant establishes to
the satisfaction of the plan representative that the consent
of the spouse cannot be obtained because there is no spouse or
the spouse cannot be located. A spouse's consent under this
paragraph shall not be valid with respect to any other spouse.
A Participant may revoke a prior election without the consent
of the spouse. Any new election will require a new spousal
consent, unless the consent of the spouse expressly permits
such election by the Participant without further consent by
the spouse. A spouse's consent may be revoked at any time
within the Participant's election period.
SECTION 6.03--NOTICE REQUIREMENTS.
The Plan Administrator shall furnish to the Participant a written
explanation of the right of the Participant to defer distribution until the
benefit is no longer immediately distributable. The Plan Administrator shall
furnish the written explanation by a method reasonably calculated to reach the
attention of the Participant no less than 30 days and no more than 90 days
before the Annuity Starting Date.
SECTION 6.04--DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS.
The Plan specifically permits distributions to an Alternate Payee
under a qualified domestic relations order as defined in Code Section 414(p),
at any time, irrespective of whether the Participant has attained his earliest
retirement age as defined in Code Section 414(p), under the Plan. A
distribution to an Alternate Payee before the Participant's attainment of
earliest retirement age, as defined in Code Section 414(p), is available only
if:
a) the order specifies distributions at that time or permits an
agreement between the Plan and the Alternate Payee to
authorize an earlier distribution; and
ARTICLE VI 50
<PAGE> 52
b) if the present value of the Alternate Payee's benefits under
the Plan exceeds $3,500, and the order requires, the Alternate
Payee consents to any distribution occurring before the
Participant's attainment of earliest retirement age, as
defined in Code Section 414(p).
Nothing in this section shall permit a Participant a right to receive
a distribution at a time otherwise not permitted under the Plan nor shall it
permit the Alternate Payee to receive a form of payment not permitted under the
Plan.
The Plan Administrator shall establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly shall notify the
Participant and an Alternate Payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator shall determine the qualified
status of the order and shall notify the Participant and each Alternate Payee,
in writing, of its determination. The Plan Administrator shall provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations. The Plan Administrator may treat as qualified any domestic
relations order entered before January 1, 1985, irrespective of whether it
satisfies all the requirements described in Code Section 414(p).
If any portion of the Participant's Vested Account is payable during
the period the Plan Administrator is making its determination of the qualified
status of the domestic relations order, a separate accounting shall be made of
the amount payable. If the Plan Administrator determines the order is a
qualified domestic relations order within 18 months of the date amounts are
first payable following receipt of the order, the payable amount shall be
distributed in accordance with the order. If the Plan Administrator does not
make its determination of the qualified status of the order within the 18 month
determination period, the payable amounts shall be distributed in the manner
the Plan would distribute if the order did not exist and the order shall apply
prospectively if the Plan Administrator later determines the order is a
qualified domestic relations order.
The Plan shall make payments or distributions required under this
section by separate benefit checks or other separate distribution to the
Alternate Payee(s).
ARTICLE VI 51
<PAGE> 53
ARTICLE VII
TERMINATION OF PLAN
The Employer expects to continue the Plan indefinitely but reserves
the right to terminate the Plan in whole or in part at any time upon giving
written notice to all parties concerned. Complete discontinuance of
Contributions under the Plan constitutes complete termination of Plan.
The Account of each Participant shall be fully (100%) vested and
nonforfeitable as of the effective date of complete termination of Plan. The
Account of each Participant who is included in the group of Participants deemed
to be affected by the partial termination of the Plan shall be fully (100%)
vested and nonforfeitable as of the effective date of the partial Plan
termination. The Participant's Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article will be a retirement benefit and shall be distributed to the
Participant according to the provisions of Article VI.
A Participant's Account which does not result from Contributions which
are used to compute the Actual Deferral Percentage, as defined in the EXCESS
AMOUNTS SECTION of Article III, may be distributed to the Participant after the
effective date of the complete or partial Plan termination. A Participant's
Account resulting from Contributions which are used to compute such percentage
may be distributed upon termination of the Plan without the establishment or
maintenance of another defined contribution plan, other than an employee stock
ownership plan (as defined in Code Section 4975(e) or Code Section 409) or a
simplified employee pension plan (as defined in Code Section 408(k)). Such a
distribution made after March 31, 1988, must be in a single sum.
Upon complete termination of Plan, no more Employees shall become
Participants and no more Contributions shall be made.
The assets of this Plan shall not be paid to the Employer at any time,
except that, after the satisfaction of all liabilities under the Plan, any
assets remaining may be paid to the Employer. The payment may not be made if
it would contravene any provision of law.
ARTICLE VII 52
<PAGE> 54
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01--ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has
complete control of the administration of the Plan. The Plan Administrator has
all the powers necessary for it to properly carry out its administrative
duties. Not in limitation, but in amplification of the foregoing, the Plan
Administrator has the power to construe the Plan, including ambiguous
provisions, and to determine all questions that may arise under the Plan,
including all questions relating to the eligibility of Employees to participate
in the Plan and the amount of benefit to which any Participant or Beneficiary
may become entitled. The Plan Administrator's decisions upon all matters
within the scope of its authority shall be final.
Unless otherwise set out in the Plan or Group Contract, the Plan
Administrator may delegate recordkeeping and other duties which are necessary
for the administration of the Plan to any person or firm which agrees to accept
such duties. The Plan Administrator shall be entitled to rely upon all tables,
valuations, certificates and reports furnished by the consultant or actuary
appointed by the Plan Administrator and upon all opinions given by any counsel
selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by
Participants, former Participants and Beneficiaries. The Plan Administrator
shall determine all facts necessary to establish the right of any Claimant to
benefits and the amount of those benefits under the provisions of the Plan.
The Plan Administrator may establish rules and procedures to be followed by
Claimants in filing claims for benefits, in furnishing and verifying proofs
necessary to determine age, and in any other matters required to administer the
Plan.
The Plan Administrator shall direct the Trustee as to the exercise of
all voting powers over any shares of Qualifying Employer Securities.
SECTION 8.02--RECORDS.
All acts and determinations of the Plan Administrator shall be duly
recorded. All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03--INFORMATION AVAILABLE.
Any Participant in the Plan or any Beneficiary may examine copies of
the Plan description, latest annual report, any bargaining agreement, this
Plan, the Group Contract or any other instrument under which the Plan was
established or is operated. The Plan Administrator shall maintain all of the
items listed in this section in its office, or in such other place or places as
it may designate in order to comply with governmental regulations. These items
may be examined during reasonable business hours. Upon the written request of
a Participant or
ARTICLE VIII 53
<PAGE> 55
Beneficiary receiving benefits under the Plan, the Plan Administrator will
furnish him with a copy of any of these items. The Plan Administrator may make
a reasonable charge to the requesting person for the copy.
SECTION 8.04--CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information
when making a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan
Administrator shall provide adequate written notice to the Claimant whose claim
for benefits under the Plan has been denied. The notice must be furnished
within 90 days of the date that the claim is received by the Plan
Administrator. The Claimant shall be notified in writing within this initial
90-day period if special circumstances require an extension of time needed to
process the claim and the date by which the Plan Administrator's decision is
expected to be rendered. The written notice shall be furnished no later than
180 days after the date the claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the
reason for the denial; specify references to pertinent Plan provisions on which
denial is based; describe any additional material and information needed for
the Claimant to perfect his claim for benefits; explain why the material and
information is needed; inform the Claimant that any appeal he wishes to make
must be in writing to the Plan Administrator within 60 days after receipt of
the Plan Administrator's notice of denial of benefits and that failure to make
the written appeal within such 60-day period shall render the Plan
Administrator's determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or
his authorized representative, may submit in writing whatever issues and
comments the Claimant, or his representative, feels are pertinent. The
Claimant, or his authorized representative may review pertinent Plan documents.
The Plan Administrator shall reexamine all facts related to the appeal and make
a final determination as to whether the denial of benefits is justified under
the circumstances. The Plan Administrator shall advise the Claimant of its
decision within 60 days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
60-day limit unfeasible. The Claimant must be notified within the 60-day limit
if an extension is necessary. The Plan Administrator shall render a decision
on a claim for benefits no later than 120 days after the request for review is
received.
SECTION 8.05--UNCLAIMED VESTED ACCOUNT PROCEDURE.
At the time the Participant's Vested Account is distributable to the
Participant, spouse or Beneficiary without his consent according to the
provisions of Article VI or Article IX, the Plan Administrator, by certified or
registered mail addressed to his last known address and in accordance with the
notice requirements of Article VI, will notify him of his entitlement to a
benefit. If the Participant, spouse or Beneficiary fails to claim the Vested
Account or make his whereabouts known in writing within six months from the
date of mailing the notice, the Plan Administrator may treat such unclaimed
Vested Account as a forfeiture and apply it according to the forfeiture
provisions of Article III. If Article III contains no forfeiture provisions,
such amount will be applied to reduce the earliest Employer Contributions due
after the forfeiture arises.
If a Participant's Vested Account is forfeited according to the
provisions of the above paragraph and the Participant, his spouse or his
Beneficiary at any time make a claim for benefits, the forfeited Vested Account
shall be reinstated, unadjusted for any gains or losses occurring after the
date it was forfeited. The reinstated Vested Account shall then be distributed
to the Participant, spouse or Beneficiary according to the preceding provisions
of the Plan.
SECTION 8.06--DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities
under this article may be delegated by the Plan Administrator to a retirement
committee. The duties and responsibilities of the retirement committee shall
be set out in a separate written agreement.
ARTICLE VIII 54
<PAGE> 56
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01--AMENDMENTS.
The Employer may amend this Plan at any time, including any remedial
retroactive changes (within the specified period of time as may be determined
by Internal Revenue Service regulations) to comply with the requirements of any
law or regulation issued by any governmental agency to which the Employer is
subject. An amendment may not diminish or adversely affect any accrued
interest or benefit of Participants or their Beneficiaries or eliminate an
optional form of distribution with respect to benefits attributable to service
before the amendment nor allow reversion or diversion of Plan assets to the
Employer at any time, except as may be necessary to comply with the
requirements of any law or regulation issued by any governmental agency to
which the Employer is subject. No amendment to this Plan shall be effective to
the extent that it has the effect of decreasing a Participant's accrued
benefit. However, a Participant's Account may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan
amendment which has the effect of decreasing a Participant's Account or
eliminating an optional form of benefit, with respect to benefits attributable
to service before the amendment shall be treated as reducing an accrued
benefit. Furthermore, if the vesting schedule of the Plan is amended, in the
case of an Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's employer-derived
accrued benefit will not be less than his percentage computed under the Plan
without regard to such amendment.
An amendment shall not decrease a Participant's vested interest in the
Plan. If an amendment to the Plan, or a deemed amendment in the case of a
change in top-heavy status of the Plan as provided in the MODIFICATION OF
VESTING REQUIREMENTS SECTION of Article X, changes the computation of the
percentage used to determine that portion of a Participant's Account
attributable to Employer Contributions which is nonforfeitable (whether
directly or indirectly), each Participant or former Participant
(a) who has completed at least three Years of Service on the date
the election period described below ends (five Years of
Service if the Participant does not have at least one
Hour-of-Service in a Plan Year beginning after December 31,
1988) and
(b) whose nonforfeitable percentage will be determined on any date
after the date of the change
may elect, during the election period, to have the nonforfeitable percentage of
his Account that results from Employer Contributions determined without regard
to the amendment. This election may not be revoked. An election does not need
to be provided for any Participant or former Participant whose nonforfeitable
percentage, determined according to the Plan provisions as changed, cannot at
any time be less than the percentage determined without regard to such change.
The election period shall begin no later than the date the Plan amendment is
adopted, or deemed adopted in the case of a change in the top-heavy status of
the Plan, and end no earlier than the sixtieth day after the latest of the date
the amendment is adopted (deemed adopted) or becomes effective, or the date the
Participant is issued written notice of the amendment (deemed amendment) by the
Employer or the Plan Administrator.
SECTION 9.02--DIRECT ROLLOVERS.
This section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this section, a Distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan, specified by the Distributee, in a Direct Rollover.
ARTICLE IX 55
<PAGE> 57
SECTION 9.03--MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets
or liabilities transferred to, any other retirement plan, unless each
Participant in the plan would (if the plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit the Participant would have been entitled to receive
immediately before the merger, consolidation or transfer (if this Plan had then
terminated). The Employer may enter into merger agreements or direct transfer
of assets agreements with the employers under other retirement plans which are
qualifiable under Code Section 401(a), including an elective transfer, and may
accept the direct transfer of plan assets, or may transfer plan assets, as a
party to any such agreement. The Employer shall not consent to, or be a party
to a merger, consolidation or transfer of assets with a defined benefit plan if
such action would result in a defined benefit feature being maintained under
this Plan. The Employer shall not consent to, or be a party to a merger,
consolidation or transfer of assets with a plan which is subject tot he
survivor annuity requirements of Code Section 401(a)(11) if such action would
result in a survivor annuity feature being maintained under the Plan.
The Plan may accept a direct transfer of plan assets on behalf of an
Eligible Employee. If the Eligible Employee is not an Active Participant when
the transfer is made, the Eligible Employee shall be deemed to be an Active
Participant only for the purpose of investment and distribution of the
transferred assets. Employer Contributions shall not be made for or allocated
to the Eligible Employee, until the time he meets all of the requirements to
become an Active Participant.
The Plan shall hold, administer and distribute the transferred assets
as a part of the Plan. The Plan shall maintain a separate account for the
benefit of the Employee on whose behalf the Plan accepted the transfer in order
to reflect the value of the transferred assets.
This Plan shall not accept any direct or indirect transfers (as that
term is defined and interpreted under Code Section 401(a)(11) and the
Regulations thereunder) from a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus or profit sharing plan which
would otherwise have provided for a life annuity form of payment to the
Participant.
SECTION 9.04 -- PROVISIONS RELATING TO THE INSURER
AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the
provisions of the Group Contract. The Insurer shall not be required to perform
any act not provided in or contrary to the provisions of the Group Contract.
See the CONSTRUCTION SECTION of this article.
Any issuer or distributor of investment contracts or securities is
governed solely by the terms of its policies, written investment contract,
prospectuses, security instruments, and any other written agreements entered
into with the Trustee.
ARTICLE IX 56
<PAGE> 58
Such Insurer, issuer or distributor is not a party to the Plan, nor
bound in any way by the Plan provisions. Such parties shall not be required to
look to the terms of this Plan, nor to determine whether the Employer, the Plan
Administrator, the Trustee, or the Named Fiduciary have the authority to act in
any particular manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or a change
in Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Plan has not been amended or terminated and in dealing
with any party acting as Trustee according to the latest information which they
have received at their home office or principal address.
SECTION 9.05--EMPLOYMENT STATUS.
Nothing contained in this Plan gives an Employee the right to be
retained in the Employer's employ or to interfere with the Employer's right to
discharge any Employee.
SECTION 9.06--RIGHTS TO PLAN ASSETS.
No Employee shall have any right to or interest in any assets of the
Plan upon termination of his employment or otherwise except as specifically
provided under this Plan, and then only to the extent of the benefits payable
to such Employee in accordance with Plan provisions.
Any final payment or distribution to a Participant or his legal
representative or to any Beneficiaries, of such Participant under the Plan
provisions shall be in full satisfaction of all claims against the Plan, the
Named Fiduciary, the Plan Administrator, the Trustee, the Insurer, and the
Employer arising under or by virtue of the Plan.
SECTION 9.07--BENEFICIARY.
Each Participant may name a Beneficiary to receive any death benefit
that may arise out of his participation in the Plan. The Participant may
change his Beneficiary from time to time. Unless a qualified election has been
made, for purposes of distributing any death benefits before Retirement Date,
the Beneficiary of a Participant who has a spouse shall be the Participant's
spouse. The Participant's Beneficiary designation and any change of
Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES
SECTION of Article VI. It is the responsibility of the Participant to give
written notice to the Insurer of the name of the Beneficiary on a form
furnished for that purpose.
With the Employer's consent, the Plan Administrator may maintain
records of Beneficiary designations for Participants before their Retirement
Dates. In that event, the written designations made by Participants shall be
filed with the Plan Administrator. If a Participant dies before his Retirement
Date, the Plan Administrator shall certify to the Insurer the Beneficiary
designation on its records for the Participant.
If, at the death of a Participant, there is no Beneficiary named or
surviving, any death benefit under the Group Contract shall be paid under the
applicable provisions of the Group Contract.
SECTION 9.08--NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any
creditor of any Participant, Beneficiary, or spouse. A Participant,
Beneficiary or spouse does not have any rights to alienate, anticipate,
commute, pledge, encumber or assign any of such benefits, except in the case of
a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The
preceding sentences shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a Participant
according to a domestic relations order, unless such order is determined by the
Plan Administrator to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985.
ARTICLE IX 57
<PAGE> 59
SECTION 9.09--CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under
and construed according to Federal law and, to the extent permissible,
according to the laws of the state in which the Employer has its principal
office. In case any provision of this Plan is held illegal or invalid for any
reason, such determination shall not affect the remaining provisions of this
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included.
In the event of any conflict between the provisions of the Plan and
the terms of any contract or policy issued hereunder, the provisions of the
Plan control the operation and administration of the Plan.
SECTION 9.10--LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary
are the necessary parties to any action or proceeding involving the assets held
with respect to the Plan or administration of the Plan or Trust. No person
employed by the Employer, no Participant, former Participant or their
Beneficiaries or any other person having or claiming to have an interest in the
Plan is entitled to any notice of process. A final judgment entered in any
such action or proceeding shall be binding and conclusive on all persons having
or claiming to have an interest in the Plan.
SECTION 9.11--SMALL AMOUNTS.
If the Vested Account of a Participant has never exceeded $3,500
($5,000 for Plan Years beginning after December 31, 1997), the entire Vested
Account shall be payable in a single sum as of the earliest of his Retirement
Date, the date he dies, or the date he ceases to be an Employee for any other
reason. This is a small amounts payment. If a small amount is payable as of
the date the Participant dies, the small amounts payment shall be made to the
Participant's Beneficiary. If a small amount is payable while the Participant
is living, the small amounts payment shall be made to the Participant. The
small amounts payment is in full settlement of all benefits otherwise payable.
No other small amounts payments shall be made.
SECTION 9.12--WORD USAGE.
The masculine gender, where used in this Plan, shall include the
feminine gender and the singular words as used in this Plan may include the
plural, unless the context indicates otherwise.
SECTION 9.13--TRANSFERS BETWEEN PLANS.
If an Employee previously participated in another plan of the Employer
which credited service under the elapsed time method for any purpose which
under this Plan is determined using the hours method, then the Employee's
service shall be equal to the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to him under the
other plan as of the date he became an Eligible Employee under
this Plan.
(b) One year or a part of a year of service for the applicable
service period in which he became an Eligible Employee if he
is credited with the required number of Hours-of-Service. If
the Employer does not have sufficient records to determine the
Employee's actual Hours-of-Service in that part of the service
period before the date he became an Eligible Employee, the
Hours-of-Service shall be determined using an equivalency.
For any month in which he would be required to be credited
with one Hour-of-Service, the Employee shall be deemed for
purposes of this section to be credited with 190
ARTICLE IX 58
<PAGE> 60
Hours-of-Service.
(c) The Employee's service determined under this Plan using the
hours method after the end of the applicable service period in
which he became an Eligible Employee.
If an Employee previously participated in another plan of the Employer
which credited service under the hours method for any purpose which under this
Plan is determined using the elapsed time method, then the Employee's service
shall be equal to the sum of (d), (e) and (f) below:
(d) The number of whole years of service credited to him under the
other plan as of the beginning of the applicable service
period under that plan in which he became an Eligible Employee
under this Plan.
(e) The greater of (1) the service that would be credited to him
for that entire service period using the elapsed time method
or (2) the service credited to him under the other plan as of
the date he became an Eligible Employee under this Plan.
(f) The Employee's service determined under this Plan using the
elapsed time method after the end of the applicable service
period under the other plan in which he became an Eligible
Employee.
Any modification of service contained in this Plan shall be applicable
to the service determined pursuant to this section.
If the Employee previously participated in the plan of a Controlled
Group member which credited service under a different method than is used in
this Plan, for purposes of determining eligibility and vesting the provisions
above shall apply as though the plan of the Controlled Group member were a plan
of the Employer.
ARTICLE IX 59
<PAGE> 61
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01--APPLICATION.
The provisions of this article shall supersede all other provisions in
the Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this
article, all members of the Controlled Group shall be treated as one Employer.
The term Employer as used in this article shall be deemed to include all
members of the Controlled Group unless the term as used clearly indicates only
the Employer is meant.
The accrued benefit or account of a participant which results from
deductible voluntary contributions shall not be included for any purpose under
this article.
The minimum vesting and contribution provisions of the MODIFICATION OF
VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of Article X
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or
more employers, including the Employer, if there is evidence that retirement
benefits were the subject of good faith bargaining between such
representatives. For this purpose, the term "employee representatives" does
not include any organization more than half of whose members are employees who
are owners, officers, or executives.
SECTION 10.02--DEFINITIONS.
The following terms are defined for purposes of this article.
Aggregation Group means
(a) each of the Employer's retirement plans in which a Key
Employee is a participant during the Year containing the
Determination Date or one of the four preceding Years,
(b) each of the Employer's other retirement plans which allows the
plan(s) described in (a) above to meet the nondiscrimination
requirement of Code Section 401(a)(4) or the minimum coverage
requirement of Code Section 410, and
(c) any of the Employer's other retirement plans not included in
(a) or (b) above which the Employer desires to include as part
of the Aggregation Group. Such a retirement plan shall be
included only if the Aggregation Group would continue to
satisfy the requirements of Code Section 401(a)(4) and Code
Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation
Group. The plans in (a), (b) and (c) above constitute the
"permissive" Aggregation Group.
Compensation means, as to an Employee for any period, compensation as
defined in the CONTRIBUTION LIMITATION SECTION of Article III. For
purposes of determining who is a Key Employee, Compensation shall
include, in addition to compensation as defined in the CONTRIBUTION
LIMITATION SECTION of
ARTICLE IX 60
<PAGE> 62
Article III, elective contributions. Elective contributions are
amounts excludable from the Employee's gross income under Code
Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity.
For purposes of Compensation as defined in this section, Compensation
shall be limited in the same manner and in the same time as the
Compensation defined in the DEFINITION SECTION of Article I.
Determination Date means as to this Plan for any Year, the last day of
the preceding Year. However, if there is no preceding Year, the
Determination Date is the last day of such Year.
Key Employee means any Employee or former Employee (including
Beneficiaries of deceased Employees) who at any time during the
determination period was
(a) one of the Employer's officers (subject to the maximum below)
whose Compensation (as defined in this section) for the Year
exceeds 50 percent of the dollar limitation under Code Section
415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own,
under Code Section 318) more than a half percent ownership
interest and one of the largest interests in the Employer
during any Year of the determination period if such person's
Compensation (as defined in this section) for the Year exceeds
the dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of the Employer, or
(d) a one-percent owner of the Employer whose Compensation (as
defined in this section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate
employer for purposes of determining ownership in the Employer.
The determination period is the Year containing the Determination Date
and the four preceding Years. If the Employer has fewer than 30
Employees, no more than three Employees shall be treated as Key
Employees because they are officers. If the Employer has between 30
and 500 Employees, no more than ten percent of the Employer's
Employees (if not an integer, increased to the next integer) shall be
treated as Key Employees because they are officers. In no event will
more than 50 Employees be treated as Key Employees because they are
officers if the Employer has 500 or more Employees. The number of
Employees for any Plan Year is the greatest number of Employees during
the determination period. Officers who are employees described in
Code Section 414(q)(8) shall be excluded. If the Employer has more
than the maximum number of officers to be treated as Key Employees,
the officers shall be ranked by amount of annual Compensation (as
defined in this section), and those with the greater amount of annual
Compensation during the determination period shall be treated as Key
Employees. To determine the ten Employees owning the largest
interests in the Employer, if more than one Employee has the same
ownership interest, the Employee(s) having the greater annual
Compensation shall be treated as owning the larger interest(s). The
determination of who is a Key Employee shall be made according to Code
Section 416(i)(1) and the regulations thereunder.
ARTICLE IX 61
<PAGE> 63
Non-key Employee means a person who is a non-key employee within the
meaning of Code Section 416 and regulations thereunder.
Present Value means the present value of a participant's accrued
benefit under a defined benefit plan as of his normal retirement age
(attained age if later) or, if the plan provides non-proportional
subsidies, the age at which the benefit is most valuable. The accrued
benefit of any Employee (other than a Key Employee) shall be
determined under the method which is used for accrual purposes for all
plans of the Employer or if there is no one method which is used for
accrual purposes for all plans of the Employer, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
Code Section 411(b)(1)(C). For purposes of establishing Present
Value, any benefit shall be discounted only for 7.5% interest and
mortality according to the 1971 Group Annuity Table (Male) without the
7% margin but with projection by Scale E from 1971 to the later of (a)
1974, or (b) the year determined by adding the age to 1920, and
wherein for females the male age six years younger is used. If the
Present Value of accrued benefits is determined for a participant
under more than one defined benefit plan included in the Aggregation
Group, all such plans shall use the same actuarial assumptions to
determine the Present Value.
Top-heavy Plan means a plan which is a top-heavy plan for any plan
year beginning after December 31, 1983. This Plan shall be a
Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds 60 percent and
this Plan is not part of any required Aggregation Group or
permissive Aggregation Group.
(b) this Plan is a part of a required Aggregation Group, but not
part of a permissive Aggregation Group, and the Top-heavy
Ratio for the required Aggregation Group exceeds 60 percent.
(c) this Plan is a part of a required Aggregation Group and part
of a permissive Aggregation Group and the Top-heavy Ratio for
the permissive Aggregation Group exceeds 60 percent.
Top-heavy Ratio means the ratio calculated below for this Plan or for
the Aggregation Group.
(a) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which
during the five-year period ending on the determination date
has or has had accrued benefits, the Top-heavy Ratio for this
Plan alone or for the required or permissive Aggregation Group
as appropriate is a fraction, the numerator of which is the
sum of the account balances of all Key Employees as of the
determination date and the denominator of which is the sum of
all account balances of all employees as of the determination
date. Both the numerator and denominator of the Top-heavy
Ratio are adjusted for any distribution of an account balance
(including those made from terminated plan(s) of the Employer
which would have been part of the required Aggregation Group
had such plan(s) not been terminated) made in the five-year
period ending on the determination date. Both the numerator
and denominator of the Top-heavy Ratio are increased to
reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the
regulations thereunder.
(b) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined
benefit plans which during the five-year period ending on the
determination date has or has had accrued benefits,
ARTICLE IX 62
<PAGE> 64
the Top-heavy Ratio for any required or permissive Aggregation
Group as appropriate is a fraction, the numerator of which is
the sum of the account balances under the defined contribution
plan(s) of all Key Employees and the Present Value of accrued
benefits under the defined benefit plan(s) for all Key
Employees, and the denominator of which is the sum of the
account balances under the defined contribution plan(s) for
all employees and the Present Value of accrued benefits under
the defined benefit plans for all employees. Both the
numerator and denominator of the Top-heavy Ratio are adjusted
for any distribution of an account balance or an accrued
benefit (including those made from terminated plan(s) of the
Employer which would have been part of the required
Aggregation Group had such plan(s) not been terminated) made
in the five-year period ending on the determination date.
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Code Section 416 and
the regulations thereunder for the first and second plan years
of a defined benefit plan. The account balances and accrued
benefits of an employee who is not a Key Employee but who was
a Key Employee in a prior year will be disregarded. The
calculation of the Top-heavy Ratio and the extent to which
distributions, rollovers and transfers during the five-year
period ending on the determination date are to be taken into
account, shall be determined according to the provisions of
Code Section 416 and regulations thereunder. The account
balances and accrued benefits of an individual who has
performed no service for the Employer during the five-year
period ending on the determination date shall be excluded from
the Top-heavy Ratio until the time the individual again
performs service for the Employer. Deductible employee
contributions will not be taken into account for purposes of
computing the Top-heavy Ratio. When aggregating plans, the
value of account balances and accrued benefits will be
calculated with reference to the determination dates that fall
within the same calendar year.
Account, as used in this definition, means the value of an employee's
account under one of the Employer's retirement plans on the latest
valuation date. In the case of a money purchase plan or target
benefit plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and
on or before such determination date or due to be made as of such
determination date but not yet forwarded to the insurer or trustee.
In the case of a profit sharing plan, such value shall be adjusted to
include any contributions made for or by the employee after the
valuation date and on or before such determination date. During the
first Year of any profit sharing plan such adjustment in value shall
include contributions made after such determination date that are
allocated as of a date in such Year. The nondeductible employee
contributions which an employee makes under a defined benefit plan of
the Employer shall be treated as if they were contributions under a
separate defined contribution plan.
Valuation Date means, as to this Plan, the last day of the last
calendar month ending in a Year.
Year means the Plan Year unless another year is specified by the
Employer in a separate written resolution in accordance with
regulations issued by the Secretary of the Treasury or his delegate.
SECTION 10.03--MODIFICATION OF VESTING REQUIREMENTS.
If a Participant's Vesting Percentage determined under Article I is
not at least as great as his Vesting Percentage would be if it were determined
under a schedule permitted in Code Section 416, the following shall
ARTICLE IX 63
<PAGE> 65
apply. During any Year in which the Plan is a Top-heavy Plan, the
Participant's Vesting Percentage shall be the greater of the Vesting Percentage
determined under Article I or the schedule below.
<TABLE>
<CAPTION>
------------------------------------------
VESTING SERVICE NONFORFEITABLE
------------------------------------------
<S> <C>
Less than 2 0
------------------------------------------
2 20
------------------------------------------
3 40
------------------------------------------
4 60
------------------------------------------
5 80
------------------------------------------
6 or more 100
------------------------------------------
</TABLE>
The schedule above shall not apply to Participants who are not
credited with an Hour-of-Service after the Plan first becomes a Top-heavy Plan.
The Vesting Percentage determined above applies to all of the Participant's
Account resulting from Employer Contributions, including Contributions the
Employer makes before the TEFRA Compliance Date or when the Plan is not a
Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a
Participant's Vesting Percentage shall be determined under Article I. A
Participant's Vesting Percentage determined under either Article I or the
schedule above shall never be reduced and the election procedures of the
AMENDMENTS SECTION of Article IX shall apply when changing to or from the
schedule as though the automatic change were the result of an amendment.
The part of the Participant's Vested Account resulting from the
minimum contributions required pursuant to the MODIFICATION OF CONTRIBUTIONS
SECTION of Article X shall not be forfeited because of a period of reemployment
after benefit payments have begun.
SECTION 10.04--MODIFICATION OF CONTRIBUTIONS.
During any Year in which this Plan is a Top-heavy Plan, the Employer
shall make a minimum contribution or allocation on the last day of the Year for
each person who is a Non-key Employee on that day and who either was or could
have been an Active Participant during the Year. A Non-key Employee is not
required to have a minimum number of hours-of-service or minimum amount of
Compensation, or to have had any Elective Deferral Contributions made for him
in order to be entitled to this minimum. The minimum contribution or
allocation for such person shall be equal to the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this
article).
(b) The "highest percentage" of Compensation (as defined in this
article) for such Year at which the Employer's contributions
are made for or allocated to any Key Employee. The highest
percentage shall be determined by dividing the Employer
Contributions made for or allocated to each Key Employee
during such Year by the amount of his Compensation (as defined
in this article), which is not more than the maximum set out
above, and selecting the greatest quotient (expressed as a
percentage). To determine the highest percentage, all of the
Employer's defined contribution plans within the Aggregation
Group shall be treated as one plan. The provisions of this
paragraph shall not apply if this Plan and a defined benefit
plan of the Employer are required to be included in the
Aggregation Group and this Plan enables the defined benefit
plan to meet the requirements of Code Section 401(a)(4) or
Code Section 410.
If the Employer's contributions and allocations otherwise required
under the defined contribution plan(s) are at
ARTICLE IX 64
<PAGE> 66
least equal to the minimum above, no additional contribution or reallocation
shall be required. If the Employer's contributions and allocations are less
than the minimum above and Employer Contributions under this Plan are allocated
to Participants, any Employer Contributions (other than those which are
allocated on the basis of the amount made for such person) shall be reallocated
to provide the minimum. The remaining Contributions shall be allocated as
provided in the preceding articles of this Plan taking into account any amount
which was reallocated to provide the minimum. If the Employer's total
contributions and allocations are less than the minimum above after any
reallocation provided above, the Employer shall contribute the difference for
the Year.
The minimum contribution or allocation applies to all of the
Employer's defined contribution plans in the aggregate which are Top-heavy
Plans. If an additional contribution or allocation is required to meet the
minimum above, it shall be provided in this Plan.
A minimum allocation under a profit sharing plan shall be made without
regard to whether or not the Employer has profits.
If a person who is otherwise entitled to a minimum contribution or
allocation above is also covered under a defined benefit plan of the Employer's
which is a Top-heavy Plan during that same Year, the minimum benefits for him
shall not be duplicated. The defined benefit plan shall provide an annual
benefit for him on, or adjusted to, a straight life basis of the lesser of (c)
two percent of his average pay multiplied by his years of service or (d) twenty
percent of his average pay. Average pay and years of service shall have the
meaning set forth in such defined benefit plan for this purpose.
For purposes of this section, any employer contribution made according
to a salary reduction or similar arrangement shall not apply before the first
Yearly Date in 1985. On and after the first Yearly Date in 1989, any such
employer contributions and employer contributions which are matching
contributions, as defined in Code Section 401(m), shall not apply in
determining if the minimum contribution requirement has been met, but shall
apply in determining the minimum contribution required. Forfeitures credited
to a Participant's Account are treated as employer contributions.
The requirements of this section shall be met without regard to
contributions under Chapter 2 of the Code (relating to tax on self-employment),
Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title
II of the Social Security Act or any other Federal or state law.
SECTION 10.05--MODIFICATION OF CONTRIBUTION LIMITATION.
If the provisions of subsection (e) of the CONTRIBUTION LIMITATION
SECTION of Article III are applicable for any Limitation Year during which this
Plan is a Top-heavy Plan, the benefit limitations shall be modified. The
definitions of Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction in the CONTRIBUTION LIMITATION SECTION of Article III shall be
modified by substituting "1.0" in lieu of "1.25." The optional denominator for
determining the Defined Contribution Plan Fraction shall be modified by
substituting "$41,500" in lieu of "$51,875." In addition, an adjustment shall
be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in the CONTRIBUTION LIMITATION
SECTION of Article III, and shall be made with respect to the last Plan Year
beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect
to a Participant so long as employer contributions, forfeitures or
nondeductible employee contributions are not credited to his account under this
or any
ARTICLE IX 65
<PAGE> 67
of the Employer's other defined contribution plans and benefits do not accrue
for such Participant under the Employer's defined benefit plan(s), until the
sum of his Defined Contribution and Defined Benefit Plan Fractions is less than
1.0.
ARTICLE IX 66
<PAGE> 68
By executing this Plan, the Primary Employer acknowledges having
counseled to the extent necessary with selected legal and tax advisors
regarding the Plan's legal and tax implications.
Executed this __________ day of_________________________,19______.
CRESCENT REAL ESTATE EQUITIES, LTD.
By:
-------------------------------
-----------------------------------
Title
PLAN EXECUTION 67
<PAGE> 1
EXHIBIT 10.27
MASTER LEASE AGREEMENT
DATED JUNE 16, 1997
BY AND BETWEEN
CRESCENT REAL ESTATE FUNDING VII, L.P.
AS LANDLORD,
AND
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
AND EACH OF THE FACILITY SUBSIDIARIES LISTED ON EXHIBIT B,
AS TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS.....................................1
1.1 "Additional Charges".................................1
1.2 "Additional Rent"....................................1
1.3 "Affiliated Person"..................................1
1.4 "Agreement"..........................................2
1.5 "Allowance"..........................................2
1.6 "Applicable Laws"....................................2
1.7 "Award"..............................................2
1.8 "Business Day".......................................2
1.9 "Capital Addition"...................................2
1.10 "Capital Additions Cost"............................3
1.11 "Capital Expenditure"...............................3
1.12 "Change in Control".................................3
1.13 "Code"..............................................3
1.14 "Collective Leased Properties"......................4
1.15 "Commencement Date".................................4
1.16 "Comparable Facility"...............................4
1.17 "Condemnation"......................................4
1.18 "Condemnor".........................................4
1.19 "Contractor"........................................4
1.20 "Contractor's"......................................4
1.21 "Default"...........................................4
1.22 "Designated Leased Property"........................4
1.23 "Encumbrance".......................................4
1.24 "Entity"............................................4
1.25 "Environment".......................................5
1.26 "Environmental Notice"..............................5
1.27 "Environmental Obligation"..........................5
1.28 "Environmental Report"..............................5
1.29 "Event of Default"..................................5
1.30 "Extended Terms"....................................5
1.31 "Facility"..........................................5
1.32 "Facility Mortgage".................................5
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
1.33 "Facility Mortgagee"................................5
1.34 "Facility Subsidiaries".............................5
1.35 "Facility Trade Name"...............................5
1.36 "Fair Market Rental"................................5
1.37 "Fair Market Value".................................5
1.38 "Financial Officer's Certificate"...................6
1.39 "Financials"........................................6
1.40 "Fiscal Year".......................................6
1.41 "Fixed Term"........................................6
1.42 "Fixtures"..........................................6
1.43 "Franchise Agreement"...............................6
1.44 "Franchise Fees"....................................6
1.45 "Franchise Subordination Agreement".................6
1.46 "Franchisor"........................................6
1.47 "GAAP"..............................................6
1.48 "Government Agencies"...............................6
1.49 "Hazardous Substances"..............................7
1.50 "Impositions" ......................................7
1.51 "Indebtedness"......................................8
1.52 "Insurance Requirements"............................8
1.53 "Land"..............................................8
1.54 "Landlord"..........................................8
1.55 "Lease Year"........................................8
1.56 "Leased Improvements"...............................8
1.57 "Leased Personal Property"..........................8
1.58 "Leased Property"...................................9
1.59 "Legal Requirements"................................9
1.60 "Lending Institution"...............................9
1.61 "Lien"..............................................9
1.62 "Management Agreement"..............................9
1.63 "Manager"...........................................9
1.64 "Minimum Rent"......................................9
1.65 "Notice"...........................................10
1.66 "Non-Priority Additional Rent".....................10
1.67 "Officer's Certificate"............................10
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
1.68 "OpCo".............................................10
1.69 "Overdue Rate".....................................10
1.70 "Parent"...........................................10
1.71 "Permitted Encumbrances"...........................10
1.72 "Person"...........................................10
1.73 "Philadelphia Facility"............................10
1.74 "Primary Intended Use".............................10
1.75 "Prime Rate".......................................11
1.76 "Priority Additional Rent Base Amount".............11
1.77 "Purchase Agreement"...............................11
1.78 "Qualified Affiliate"..............................11
1.79 "Qualified Appraiser"..............................11
1.80 "Regulated Medical Wastes".........................12
1.81 "Rent".............................................12
1.82 "SEC"..............................................12
1.83 "State"............................................12
1.84 "Subordinated Creditor"............................12
1.85 "Subordination Agreement"..........................12
1.86 "Subsidiary".......................................12
1.87 "Substitute Leased Property".......................12
1.88 "Substitution Date"................................12
1.89 "Tenant"...........................................12
1.90 "Tenant's Personal Property".......................12
1.91 "Term".............................................13
1.92 "Unsuitable for Its Primary Intended Use"..........13
1.93 "Work".............................................13
ARTICLE 2 COLLECTIVE LEASED PROPERTIES AND TERM..........13
2.1 Collective Leased Properties........................13
2.2 Condition of Collective Leased Properties...........14
2.3 Fixed Term..........................................15
2.4 Extended Term.......................................15
2.5 Determination of Minimum Rent for Extended Terms....16
ARTICLE 3 RENT...........................................16
3.1 Rent................................................16
3.2 Late Payment of Rent................................18
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
3.3 Net Lease...........................................19
3.4 No Termination, Abatement, Etc......................19
3.5 Annual Allowance....................................19
ARTICLE 4 USE OF THE COLLECTIVE LEASED PROPERTIES.......20
4.1 Permitted Use.......................................20
4.2 Compliance with Legal and Insurance
Requirements, Etc...................................22
4.3 Compliance with Medicaid and Medicare
Requirements........................................22
4.4 Environmental Matters...............................22
4.5 Tenant's Right to Close Facilities..................24
ARTICLE 5 MAINTENANCE AND REPAIRS........................25
5.1 Maintenance and Repair..............................25
5.2 Tenant's Personal Property..........................26
5.3 Yield Up............................................27
5.4 Encroachments, Restrictions, Etc....................28
5.5 Landlord to Grant Easements, Etc....................28
5.6 Philadelphia Facility...............................29
ARTICLE 6 CAPITAL ADDITIONS, ETC.........................29
6.1 Construction of Capital Additions to
the Leased Property.................................29
6.2 Financing of Capital Additions......................29
6.3 Capital Additions Financed by Landlord..............30
6.4 Non-Capital Additions...............................31
6.5 Salvage.............................................31
6.6 Landlord's Right of First Refusal to
Provide Financing for Capital Additions.............31
ARTICLE 7 LIENS..........................................32
7.1 Liens...............................................32
7.2 Landlord's Lien.....................................32
ARTICLE 8 PERMITTED CONTESTS.............................33
ARTICLE 9 INSURANCE AND INDEMNIFICATION..................34
9.1 General Insurance Requirements......................34
9.2 Replacement Cost....................................35
9.3 Waiver of Subrogation...............................35
9.4 Form Satisfactory, Etc..............................35
9.5 Blanket Policy......................................36
9.6 No Separate Insurance...............................36
9.7 Indemnification of Landlord.........................37
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
9.8 Independent Contractor..............................37
ARTICLE 10 CASUALTY......................................38
10.1 Insurance Proceeds.................................38
10.2 Damage or Destruction..............................38
10.3 Tenant's Property..................................39
10.4 Restoration of Tenant's Property...................39
10.5 No Abatement of Rent...............................39
10.6 Waiver.............................................39
ARTICLE 11 CONDEMNATION..................................40
11.1 Total Condemnation, Etc............................40
11.2 Partial Condemnation...............................40
11.3 Abatement of Rent..................................41
11.4 Temporary Condemnation.............................41
11.5 Allocation of Award................................41
ARTICLE 12 DEFAULTS AND REMEDIES.........................41
12.1 Events of Default..................................41
12.2 Remedies...........................................44
12.3 Tenant's Waiver....................................45
12.4 Application of Funds...............................46
12.5 Landlord's Right to Cure Tenant's Default..........46
12.6 Landlord's Right to Assume Contracts...............46
ARTICLE 13 HOLDING OVER..................................47
ARTICLE 14 LANDLORD'S DEFAULT............................47
ARTICLE 15 LANDLORD FINANCING............................47
ARTICLE 16 SUBLETTING AND ASSIGNMENT.....................48
16.1 Subletting and Assignment..........................48
16.2 Required Sublease Provisions.......................48
16.3 Permitted Assignments and Subleases................49
16.4 Sublease Limitation................................50
16.5 Tenant's Right to Mortgage its Leasehold...........50
ARTICLE 17 ESTOPPEL CERTIFICATES AND
FINANCIAL STATEMENTS....................................50
17.1 Estoppel Certificates..............................50
17.2 Financial Statements...............................51
17.3 General Operations.................................51
ARTICLE 18 LANDLORD'S RIGHT TO INSPECT...................52
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
ARTICLE 19 APPRAISAL.....................................53
ARTICLE 20 FACILITY MORTGAGES............................55
20.1 Landlord May Grant Liens...........................55
20.2 Subordination of Lease.............................55
20.3 Notice to Mortgagee and Ground Landlord............56
ARTICLE 21 ADDITIONAL COVENANTS OF TENANT................56
21.1 Conduct of Business................................56
21.2 Maintenance of Accounts and Records................56
21.3 Payments to Franchisor.............................57
21.4 Management of Collective Leased Properties.........57
21.5 Liens and Encumbrances.............................57
ARTICLE 22 MISCELLANEOUS.................................58
22.1 Limitation on Payment of Rent......................58
22.2 No Waiver..........................................58
22.3 Remedies Cumulative................................58
22.4 Severability.......................................58
22.5 Acceptance of Surrender............................59
22.6 No Merger of Title.................................59
22.7 Conveyance by Landlord.............................59
22.8 Quiet Enjoyment....................................59
22.9 Landlord's Consent.................................60
22.10 Memorandum of Lease...............................60
22.11 Notices...........................................60
22.12 Construction......................................61
22.13 Counterparts; Headings............................62
22.14 Applicable Law, Etc...............................62
22.15 Substitution of Leased Properties.................62
22.16 No Broker.........................................64
22.17 Confidentiality...................................65
</TABLE>
- vii -
<PAGE> 8
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT is entered into as of the 16th day of
June, 1997, by and between CRESCENT REAL ESTATE FUNDING VII, L.P., a Delaware
limited partnership, having its principal office at 777 Main Street, Suite
2100, Fort Worth, Texas 76102 ("LANDLORD"), CHARTER BEHAVIORAL HEALTH SYSTEMS,
LLC, a Delaware limited liability company, having its principal office at Suite
900, 3414 Peachtree Rd., N.E., Atlanta, GA 30326 ("OPCO"), and each of the
entities listed on Exhibit B attached hereto.
W I T N E S S E T H :
WHEREAS, Landlord owns fee simple title to the Collective Leased
Properties (this and other capitalized terms used and not otherwise defined
herein having the meanings ascribed to such terms in Article 1); and
WHEREAS, Landlord wishes to lease the Collective Leased Properties to
Tenant and Tenant wishes to lease the Collective Leased Properties from
Landlord, all subject to and upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in
this Article shall have the meanings assigned to them in this Article and
include the plural as well as the singular, (ii) all accounting terms not
otherwise defined herein shall have the meanings assigned to them in accordance
with GAAP, (iii) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this Agreement, and (iv) the words "herein," "hereof,"
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
1.1 "ADDITIONAL CHARGES" shall have the meaning given such term in
Section 3.1.3.
1.2 "ADDITIONAL RENT" shall mean the monthly sum of One Million Six
Hundred and Sixty-Six Thousand Six Hundred Sixty-Seven Dollars ($1,666,667.00).
1.3 "AFFILIATED PERSON" shall mean, with respect to any Person, (a)
in the case of any such Person which is a partnership, any partner in such
partnership, (b) in the case of any such Person which is a limited liability
company, any member of such company, and (c) any other Person which is a
Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person
or to one or more of the Persons referred to in the preceding clauses (a) and
(b).
<PAGE> 9
1.4 "AGREEMENT" shall mean this Master Lease Agreement, including
Exhibits A and B hereto, as it and they may be amended from time to time as
herein provided.
1.5 "ALLOWANCE" shall mean an annual amount with respect to each
Lease Year not to exceed the additional rent for each such Lease Year. The
Allowance shall be paid by Landlord to Tenant pursuant to Section 3.5 hereof.
1.6 "APPLICABLE LAWS" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders (whether
now existing or hereafter enacted or promulgated irrespective of whether its
enactment is foreseeable or contemplated), of all courts of competent
jurisdiction and Government Agencies, and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including common
law rulings, relating to injury to, or the protection of, real or personal
property or human health (except those requirements which, by definition, are
solely the responsibility of employers) or the Environment, including, without
limitation, all valid requirements of courts and other Government Agencies
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of underground improvements (including, without limitation, treatment
or storage tanks, or water, gas or oil wells), or emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes whether solid, liquid or
gaseous in nature, into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances or Regulated Medical Wastes, underground
improvements (including, without limitation, treatment or storage tanks, or
water, gas or oil wells), or pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature.
1.7 "AWARD" shall mean all compensation, sums or other value awarded,
paid or received by virtue of a total or partial Condemnation of any of the
Collective Leased Properties (after deduction of all reasonable legal fees and
other reasonable costs and expenses, including, without limitation, expert
witness fees, incurred by Landlord, in connection with obtaining any such
award).
1.8 "BUSINESS DAY" shall mean any day other than Saturday, Sunday, or
any other day on which banking institutions in the states of Texas, Georgia and
the State are authorized by law or executive action to close.
1.9 "CAPITAL ADDITION" shall mean one or more new buildings, or one
or more additional structures annexed to any portion of any of the Leased
Improvements with respect to any of the Collective Leased Properties, or the
material expansion of existing improvements, which are constructed on any
parcel or portion of the Land during the Term, including the construction of a
new wing or new story, the renovation of existing improvements on any of the
Collective Leased Properties in order to provide a functionally new facility
needed to provide services not previously offered, or any material expansion,
construction, renovation or conversion in order to increase by more than 10%
the bed capacity of any Facility, to change the purpose for which such beds are
utilized or to improve materially the quality of any Facility.
- 2 -
<PAGE> 10
1.10 "CAPITAL ADDITIONS COST" shall mean the cost of any Capital
Addition proposed to be made by Tenant at any of the Collective Leased
Properties, whether paid for by Tenant or Landlord. Such cost shall include
(a) the cost of construction of the Capital Addition, including site
preparation and improvement, materials, labor, supervision, developer and
administrative fees, legal fees, and related design, engineering and
architectural services, the cost of any fixtures, the cost of equipment and
other personalty, the cost of construction financing (including, but not
limited to, capitalized interest) and other miscellaneous costs approved by
Landlord, (b) if agreed to by Landlord in writing, in advance, the cost of any
land (including all related acquisition costs incurred by Tenant) contiguous to
the applicable Leased Property which is to become a part of such Leased
Property purchased for the purpose of placing thereon a Capital Addition or any
portion thereof or for providing means of access thereto, or parking facilities
therefor, including the cost of surveying the same, (c) the cost of insurance,
real estate taxes, water and sewage charges and other carrying charges for such
Capital Addition during construction, (d) title insurance charges, (e) filing,
registration and recording taxes and fees, (f) documentary stamp or transfer
taxes, and (g) all actual and reasonable costs and expenses of Landlord and
Tenant and, if agreed to by Landlord in writing, in advance, any Lending
Institution committed to finance the Capital Addition relating to financing for
the Capital Addition, including, but not limited to, all (i) reasonable
attorneys' fees and expenses, (ii) printing expenses, (iii) filing,
registration and recording taxes and fees, (iv) documentary stamp or transfer
taxes, (v) title insurance charges and appraisal fees, (vi) rating agency fees,
and (vii) commitment fees charged by any Lending Institution advancing or
offering to advance any portion of any financing to which Landlord has
consented in writing for such Capital Addition.
1.11 "CAPITAL EXPENDITURE" shall mean any expenditure with respect to
the Collective Leased Properties that is properly categorized as a capital
expenditure in accordance with GAAP.
1.12 "CHANGE IN CONTROL" shall mean the acquisition by any Person, or
two or more Persons acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3 of the SEC) of 50% or more, or rights, options or
warrants to acquire 50% or more, of the outstanding shares of voting stock of
Tenant or any Facility Subsidiary, as the case may be, or the merger or
consolidation of Tenant or any Facility Subsidiary (except with OpCo, a
Facility Subsidiary or a wholly-owned Subsidiary of OpCo), as the case may be
with or into any other Person or any one or a series of related sales or
conveyances to any Person (except to OpCo, a Facility Subsidiary or a
wholly-owned subsidiary of OpCo) of all or substantially all of the assets of
Tenant or any Facility Subsidiary, as the case may be. In the case of OpCo,
only the following shall constitute a Change in Control; (i) a sale or
conveyance in one or a related series of transactions of all or substantially
all the assets of OpCo to any Person and (ii) a merger or consolidation in
which OpCo is not the surviving or resulting entity or of which the holders of
the equity interests of OpCo immediately prior to the merger or consolidation
do not own more than 50% of the equity interests in the surviving or resulting
entity immediately after the merger or consolidation.
1.13 "CODE" shall mean the Internal Revenue Code of 1986 and, to the
extent applicable, the Treasury Regulations promulgated thereunder, each as
from time to time amended.
- 3 -
<PAGE> 11
1.14 "COLLECTIVE LEASED PROPERTIES" shall have the meaning given such
term in Section 2.1.
1.15 "COMMENCEMENT DATE" shall mean June 17, 1997.
1.16 "COMPARABLE FACILITY" shall mean a facility having as its
primary use the Primary Intended Use and which is reasonably acceptable to
Landlord, with an expected future profitability substantially equivalent to or
greater than that of the Designated Leased Property which Tenant proposes that
it replace, both immediately prior to such substitution and as reasonably
projected over the term of this Agreement, taking into account any cash paid or
received in connection with the substitution and any other relevant factors.
1.17 "CONDEMNATION" shall mean, with respect to any of the Collective
Leased Properties, (a) the exercise of any governmental power with respect to
such Leased Property, whether by legal proceedings or otherwise, by a Condemnor
of its power of condemnation, (b) a voluntary sale or transfer of such Leased
Property by Landlord to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending, and (c) a taking or
voluntary conveyance of all or part of such Leased Property, or any interest
therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting
such Leased Property, whether or not the same shall have actually been
commenced.
1.18 "CONDEMNOR" shall mean any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
1.19 "CONTRACTOR" shall have the meaning given such term in Section
9.8.
1.20 "CONTRACTOR'S" Insurance Certificate" shall have the meaning
given such term in Section 9.8.
1.21 "DEFAULT" shall mean any event or condition which with the
giving of notice and/or lapse of time may ripen into an Event of Default.
1.22 "DESIGNATED LEASED PROPERTY" shall mean a property designated by
Tenant pursuant to Section 22.15 on which there exists a Comparable Facility
which Tenant proposes to substitute for a Leased Property.
1.23 "ENCUMBRANCE" shall have the meaning given such term in Section
20.1.
1.24 "ENTITY" shall mean any corporation, general or limited
partnership, limited liability company or partnership, stock company or
association, joint venture, association, company, trust, bank, trust company,
land trust, business trust, cooperative, any government or agency or political
subdivision thereof or any other entity.
- 4 -
<PAGE> 12
1.25 "ENVIRONMENT" shall mean soil, surface waters, ground waters,
land, stream, sediments, surface or subsurface strata, ambient air, physical
structures and equipment, and where radon gas is present, the interior air of
buildings.
1.26 "ENVIRONMENTAL NOTICE" shall have the meaning given such term in
Section 4.4.1.
1.27 "ENVIRONMENTAL OBLIGATION" shall have the meaning given such
term in Section 4.4.1.
1.28 "ENVIRONMENTAL REPORT" shall have the meaning given such term in
Section 4.4.2.
1.29 "EVENT OF DEFAULT" shall have the meaning given such term in
Section 12.1.
1.30 "EXTENDED TERMS" shall have the meaning given such term in
Section 2.4.
1.31 "FACILITY" shall mean, with respect to any of the Collective
Leased Properties, the facility offering health care or related services being
operated or proposed to be operated on such Leased Property.
1.32 "FACILITY MORTGAGE" shall mean, with respect to any of the
Collective Leased Properties, any Encumbrance placed upon such Leased Property
in accordance with Article 20.
1.33 "FACILITY MORTGAGEE" shall mean the holder of any Facility
Mortgage.
1.34 "FACILITY SUBSIDIARIES" shall mean the Entities listed on
Exhibit B attached hereto, each of which is a wholly owned Subsidiary of OpCo.
1.35 "FACILITY TRADE NAME" shall mean, with respect to any Facility,
any name under which Tenant has conducted the business of operating such
Facility at any time during the Term.
1.36 "FAIR MARKET RENTAL" shall mean, with respect to any of the
Collective Leased Properties, the rental which a willing tenant not compelled
to rent would pay a willing landlord not compelled to lease for the use and
occupancy of such Leased Property (including all Capital Additions) on the
terms and conditions of this Agreement for the term in question , assuming
Tenant is not in default hereunder and determined by agreement between Landlord
and Tenant or, failing agreement, in accordance with the appraisal procedures
set forth in Article 19.
1.37 "FAIR MARKET VALUE" shall mean, with respect to any of the
Collective Leased Properties, the price that a willing buyer not compelled to
buy would pay a willing seller not compelled to sell for such Leased Property
(without taking into account any reduction in value resulting from any
indebtedness to which such Leased Property is subject), assuming the same is
unencumbered by this Agreement and determined by agreement between Landlord and
Tenant or, failing agreement, the appraisal procedures set forth in Article 19.
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<PAGE> 13
1.38 "FINANCIAL OFFICER'S CERTIFICATE" shall mean, as to any Person,
a certificate of the chief financial officer of such Person, duly authorized,
accompanying the financial statements required to be delivered by such Person
pursuant to Section 17.2, in which such officer shall certify (a) that such
statements have been properly prepared in accordance with GAAP and fairly
present in all material respects the financial condition of such Person at and
as of the dates thereof and the results of its and their operations for the
periods covered thereby, (except that, in the case of financial statements
delivered pursuant to Sections 17.2(a) and 17.2(c), the certificate shall state
the extent to which such financial statements are not in accordance with GAAP)
and (b) certify that such officer has reviewed this Agreement and has no
knowledge of any Default or Event of Default hereunder.
1.39 "FINANCIALS" shall mean, for any Fiscal Year or other accounting
period of OpCo, annual audited and quarterly unaudited financial statements for
OpCo, including OpCo's balance sheet and the related statements of income and
cash flows, all in reasonable detail, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding Fiscal
Year, and prepared in accordance with GAAP throughout the periods reflected,
except to the extent GAAP is customarily not complied with by OpCo in preparing
quarterly unaudited financial statements.
1.40 "FISCAL YEAR" shall mean the twelve (12) month period from
October 1 to September 30.
1.41 "FIXED TERM" shall have the meaning given such term in Section
2.3.
1.42 "FIXTURES" shall have the meaning given such term in Section
2.1(d).
1.43 "FRANCHISE AGREEMENT" shall mean, collectively, that certain
Franchise Agreement of even date herewith by and between Franchisor, as
franchisor, and OpCo, as franchisee, and those certain Franchise Agreements of
even date herewith by and between Franchisor, as franchisor, and each of the
Facility Subsidiaries, as franchisee.
1.44 "FRANCHISE FEES" shall mean all amounts payable by Tenant to
Franchisor under the Franchise Agreement.
1.45 "FRANCHISE SUBORDINATION AGREEMENT" shall mean that certain
Subordination Agreement of even date herewith, as the same may be amended from
time to time, by and among OpCo, Landlord and Franchisor.
1.46 "FRANCHISOR" shall mean, collectively, Magellan Health Services,
Inc., a Delaware corporation, and Charter Franchise Services, LLC, a Delaware
limited liability company.
1.47 "GAAP" shall mean generally accepted accounting principles
consistently applied.
1.48 "GOVERNMENT AGENCIES" shall mean any court, agency, authority,
board (including, without limitation, environmental protection, planning and
zoning), bureau, commission,
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<PAGE> 14
department, office or instrumentality of any nature whatsoever of any
governmental unit of the United States or the State or any county or any
political subdivision of any of the foregoing, whether now or hereafter in
existence, having jurisdiction over Tenant or the Collective Leased Properties
or any portion thereof or the Facilities operated thereon.
1.49 "HAZARDOUS SUBSTANCES" shall mean any substance:
(a) the presence of which requires or may hereafter require
notification, investigation or remediation under any federal, state or
local statute, regulation, rule, ordinance, order, action or policy;
or
(b) which is or becomes defined as a "hazardous waste," "hazardous
material" or "hazardous substance" or "pollutant" or contaminant"
under any present or future federal, state or local statute,
regulation, rule or ordinance or amendments thereto including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C, et seq.) and the Resource Conservation and
Recovery Act (42 U.S.C, section 6901 et seq.) and the regulations
promulgated thereunder; or
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
becomes regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of the United States, any
state of the United States, or any political subdivision thereof; or
(d) the presence of which on any of the Collective Leased
Properties causes or threatens to cause a nuisance upon such Leased
Property or to adjacent properties or poses or threatens to pose a
hazard to any of the Collective Leased Properties or to the health or
safety of persons on or about any of the Collective Leased Properties;
or
(e) without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons or volatile organic compounds; or
(f) without limitation, which contains polychlorinated biphenyls
(PCBs) or asbestos or urea formaldehyde foam insulation; or
(g) without limitation, which contains or emits radioactive
particles, waves or material; or
(h) without limitation, constitutes Regulated Medical Wastes.
1.50 "IMPOSITIONS" shall mean, with respect to any of the Collective
Leased Properties, collectively, all taxes (including, without limitation, all
taxes imposed under the laws of the State, as such laws may be amended from
time to time, and all ad valorem, sales and use, single business, gross
receipts, transaction privilege, rent or similar taxes as the same relate to or
are imposed upon Landlord, Tenant or the business conducted upon such Leased
Property), assessments (including, without limitation, all assessments for
public improvements or benefit,
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<PAGE> 15
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees) and all other governmental
charges, in each case whether general or special, ordinary or extraordinary, or
foreseen or unforeseen, of every character in respect of such Leased Property
or the business conducted thereon by Tenant (including all interest and
penalties thereon due to any failure in payment by Tenant), which at any time
prior to, during or in respect of the Term hereof may be assessed or imposed on
or in respect of or be a lien upon (a) Landlord's interest in such Leased
Property, (b) such Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein, or (c) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with such Leased Property or the leasing or use of such Leased Property or any
part thereof by Tenant; provided, however, that nothing contained herein shall
be construed to require Tenant to pay (i) any tax based on net income imposed
on Landlord, (ii) any net revenue tax of Landlord, (iii) any transfer fee or
other tax imposed with respect to the sale, exchange, financing, mortgaging, or
other disposition by Landlord of the applicable Leased Property or the proceeds
thereof (other than in connection with the sale, exchange or other disposition
to, or in connection with a transaction involving, Tenant), or (iv) any single
business, franchise fees, gross receipts (other than a tax on any rent received
by Landlord from Tenant), transaction privilege, rent or similar taxes as the
same relate to or are imposed upon Landlord, except to the extent that any tax,
assessment, tax levy or charge that Tenant is obligated to pay pursuant to the
first sentence of this definition and that is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy
or charge set forth in clause (i) or (ii) preceding is levied, assessed or
imposed expressly in lieu thereof.
1.51 "INDEBTEDNESS" shall mean all obligations, contingent or
otherwise, which in accordance with GAAP should be reflected on the obligor's
balance sheet as debt.
1.52 "INSURANCE REQUIREMENTS" shall mean all terms of any insurance
policy required by this Agreement and all requirements of the issuer of any
such policy.
1.53 "LAND" shall have the meaning given such term in Section 2.1(a).
1.54 "LANDLORD" shall have the meaning given such term in the
preamble to this Agreement.
1.55 "LEASE YEAR" shall mean any consecutive annual period starting
on the Commencement Date and ending on the day prior to the anniversary
thereof; provided that if the Commencement Date is not the first day of a
calendar month then the first (1st) Lease Year shall end on the last day of the
calendar month in which occurs the date which would otherwise be the last day
of such Lease Year.
1.56 "LEASED IMPROVEMENTS" shall have the meaning given such term in
Section 2.1(b).
1.57 "LEASED PERSONAL PROPERTY" shall have the meaning given such
term in Section 2.1(e).
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<PAGE> 16
1.58 "LEASED PROPERTY" shall mean any one of the Collective Leased
Properties.
1.59 "LEGAL REQUIREMENTS" shall mean, with respect to any of the
Collective Leased Properties, all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting such Leased Property or the maintenance,
construction, alteration or operation thereof, whether now or hereafter enacted
or in existence, including, without limitation, (a) all permits, licenses,
certificates of need, authorizations and regulations necessary to operate such
Leased Property for its Primary Intended Use, and (b) all covenants,
agreements, restrictions and encumbrances contained in any instruments at any
time in force affecting such Leased Property, including those which may (i)
require material repairs, modifications or alterations in or to such Leased
Property or (ii) in any way adversely affect the use and enjoyment thereof.
1.60 "LENDING INSTITUTION" shall mean any insurance company,
federally insured commercial or savings bank, national banking association,
savings and loan association, employees' welfare, pension or retirement fund or
system, syndicated lenders' group, commercial finance company, leasing company,
corporate profit sharing or pension trust, college or university, or real
estate investment trust, including any corporation qualified to be treated for
federal tax purposes as a real estate investment trust, such trust having a net
worth of at least $50,000,000.
1.61 "LIEN" shall mean any mortgage, security interest, pledge,
collateral assignment, or other encumbrance, lien or charge of any kind, or any
transfer of any property or assets for the purpose of subjecting the same to
the payment of Indebtedness or performance of any other obligation in priority
to payment of any Person's general creditors.
1.62 "MANAGEMENT AGREEMENT" shall mean any agreement whether written
or oral entered into between Tenant and any other party (including any
Affiliated Person as to Tenant) pursuant to which management services are
provided to all or substantially all of any Facility, together with all
amendments, modifications or supplements thereto.
1.63 "MANAGER" shall mean the management party under any Management
Agreement
1.64 "MINIMUM RENT" shall mean the following monthly sums with
respect to the Fixed Term:
<TABLE>
<CAPTION>
Lease Year Minimum Rent
<S> <C>
1 $3,476,666.67
2 $3,650,500.00
3 $3,833,025.00
4 $4,024,676.25
5 $4,225,910.06
</TABLE>
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<PAGE> 17
<TABLE>
<S> <C>
6 $4,437,205.56
7 $4,659,065.84
8 $4,892,019.13
9 $5,136,620.09
10 $5,393,451.09
11 $5,663,123.64
12 $5,946,279.82
</TABLE>
With respect to each Extended Term, the Minimum Rent shall be an amount
determined in accordance with Section 2.5.
1.65 "NOTICE" shall mean a notice given in accordance with Section
22.11.
1.66 "NON-PRIORITY ADDITIONAL RENT" shall mean the installments of
additional rent with respect to any Lease Year in excess of the Priority
Additional Rent Base Amount.
1.67 "OFFICER'S CERTIFICATE" shall mean a certificate signed by an
officer of Tenant.
1.68 "OPCO" shall have the meaning given such term in the preamble to
this Agreement.
1.69 "OVERDUE RATE" shall mean, on any date, a per annum rate of
interest equal to the lesser of the Prime Rate plus six (6) percentage points
and the maximum rate then permitted under applicable law.
1.70 "PARENT" shall mean, with respect to any Person, any Person
which owns directly, or indirectly through one or more Subsidiaries, more than
fifty percent (50%) of beneficial equity interest in such Person.
1.71 "PERMITTED ENCUMBRANCES" shall mean, with respect to any of the
Collective Leased Properties, all rights, restrictions, and easements of record
set forth on Schedule B to the applicable owner's or leasehold title insurance
policy issued to Landlord on the date hereof, plus any other such encumbrances
as may have been consented to in writing by Landlord from time to time, plus
items that constitute Permitted Exceptions under and as that term is defined in
the Purchase Agreement.
1.72 "PERSON" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such Person where the context so admits.
1.73 "PHILADELPHIA FACILITY" shall mean the "Charter Fairmount"
Facility currently under renovation and located in Philadelphia, Pennsylvania.
1.74 "PRIMARY INTENDED USE" shall have the meaning given such term in
Section 4.1.1.
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<PAGE> 18
1.75 "PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank (or its successor) as
its prime rate in effect at its principal office in New York City, New York.
1.76 "PRIORITY ADDITIONAL RENT BASE AMOUNT" for any Lease Year shall
mean an amount of Additional Rent equal to Ten Million Dollars ($10,000,000);
provided, however, that if Landlord funds, or makes an irrevocable commitment
to fund, Capital Expenditures for any Lease Year in an amount in excess of Ten
Million Dollars ($10,000,000) at Tenant's request, then the Priority Additional
Rent Base Amount for such Lease Year shall be increased to the amount of
Capital Expenditures funded or committed to be funded by Landlord for such
Lease Year. Notwithstanding the foregoing, in the event that, and for so long
as, the accrued and unpaid Franchise Fees, including interest thereon, if any,
equal or exceed Fifteen Million Dollars ($15,000,000), then the Priority
Additional Rent Base Amount for any such Lease Year shall be reduced to $0.00;
provided, however, that if Landlord funds, or makes an irrevocable commitment
to fund, Capital Expenditures for any Lease Year in any amount at Tenant's
request, then the Priority Additional Rent Base Amount for such Lease Year
shall be increased from $0.00 to the amount of Capital Expenditures funded or
committed to be funded by Landlord for such Lease Year. The Priority
Additional Rent Base Amount shall be computed monthly in advance of the payment
of Rent due hereunder for the next succeeding month. Such calculation shall be
made on the 25th day of the month, unless the 25th day of the month is not a
Business Day, in which event such calculation for such month shall be made on
the first Business Day following such 25th day. Notwithstanding anything set
forth above to the contrary, if any request by Tenant to Landlord for a
disbursement of the Allowance in any Fiscal Year is for an amount in excess of
the amount budgeted for capital expenditures in Tenant's approved annual budget
for such Fiscal Year, then the Priority Additional Rent Base Amount shall not
be increased as provided above to the extent that the amount of such request is
above the budgeted amount unless such request is accompanied by Franchisor's
consent to such requested amount.
1.77 "PURCHASE AGREEMENT" shall have the meaning given such term in
Section 22.15 hereof.
1.78 "QUALIFIED AFFILIATE" shall mean any (x) Parent or Subsidiary of
OpCo, or (y) partnership or limited liability company in which OpCo has an
ownership interest of not less than 25%, whether or not such interest is
controlling.
1.79 "QUALIFIED APPRAISER" shall mean an appraiser who is not in
control of, controlled by or under common control with either Landlord or
Tenant and has not been an employee of Landlord or Tenant or any Affiliated
Person with respect to either of Landlord or Tenant at any time, who is
qualified to appraise commercial real estate in the State and is a member of
the American Institute of Real Estate Appraisers (or any successor association
or body of comparable standing if such Institute is not then in existence) and
who has held his or her certificate as an M.A.I, or its equivalent for a period
of not less than three (3) years, and has been actively engaged in the
appraisal of commercial real estate in such area for a period of not less than
five (5) years, immediately preceding his or her appointment hereunder.
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<PAGE> 19
1.80 "REGULATED MEDICAL WASTES" shall mean all materials generated by
Tenant, subtenants, patients, occupants or the operators of the Collective
Leased Properties which are now or may hereafter be subject to regulation
pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws
promulgated by any Government Agencies.
1.81 "RENT" shall mean, collectively, the Minimum Rent, Additional
Rent and Additional Charges.
1.82 "SEC" shall mean the Securities and Exchange Commission.
1.83 "STATE" shall mean, as to each Leased Property, the state in
which such Leased Property is located.
1.84 "SUBORDINATED CREDITOR" shall mean any creditor of Tenant which
is a party to a Subordination Agreement in favor of Landlord.
1.85 "SUBORDINATION AGREEMENT" shall mean any agreement executed by a
Subordinated Creditor pursuant to which the payment and performance of Tenant's
obligations to such Subordinated Creditor are subordinated to the payment and
performance of Tenant's obligations to Landlord under this Agreement.
1.86 "SUBSIDIARY" shall mean, with respect to any Person, any Entity
in which such Person owns directly, or indirectly through one or more
Subsidiaries, more than fifty percent (50%) of the beneficial equity interest
of such Person.
1.87 "SUBSTITUTE LEASED PROPERTY" shall have the meaning given such
term in Section 22.15 hereof.
1.88 "SUBSTITUTION DATE" shall have the meaning given such term in
Section 22.15 hereof.
1.89 "TENANT" shall mean OpCo and the Facility Subsidiaries listed in
Exhibit B, jointly and severally.
1.90 "TENANT'S PERSONAL PROPERTY" shall mean all tangible personal
property now owned or hereafter acquired by Tenant on or after the date hereof
and located at any of the Collective Leased Properties or used in connection
with Tenant's business at any of the Collective Leased Properties, including,
without limitation, all motor vehicles and consumable inventory and supplies,
furniture, furnishings, movable walls and partitions, equipment and machinery
and all other tangible personal property of Tenant, and all modifications,
replacements, alterations and additions to such personal property installed at
the expense of Tenant.
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<PAGE> 20
1.91 "TERM" shall mean, collectively, the Fixed Term and the Extended
Terms, to the extent properly exercised pursuant to the provisions of Section
2.4, unless sooner terminated pursuant to the provisions of this Agreement.
1.92 "UNSUITABLE FOR ITS PRIMARY INTENDED USE" shall mean, with
respect to any Facility, a state or condition of such Facility such that (a)
following any damage or destruction involving such Leased Property, such Leased
Property cannot reasonably be expected to be restored to substantially the same
condition as existed immediately before such damage or destruction, and as
otherwise required by Section 10.2.3, within six (6) months following such
damage or destruction or such shorter period of time as to which business
interruption insurance is available to cover Rent and other costs related to
such Leased Property following such damage or destruction, or (b) as the result
of a partial taking by Condemnation, such Facility cannot be operated, in the
good faith judgment of OpCo, on a commercially practicable basis for its
Primary Intended Use taking into account, among other relevant factors, the
number of usable beds, the amount of square footage, or the revenues affected
by such damage or destruction or partial taking.
1.93 "WORK" shall have the meaning given such term in Section 10.2.3.
ARTICLE 2
COLLECTIVE LEASED PROPERTIES AND TERM
2.1 Collective Leased Properties.
Upon and subject to the terms and conditions hereinafter set forth,
Landlord leases to Tenant and Tenant leases from Landlord all of the following
(collectively, the "COLLECTIVE LEASED PROPERTIES"):
(a) those certain tracts, pieces and parcels of land conveyed to
Landlord pursuant to Deeds dated on or about the date hereof, the
common names and street addresses of which are set forth in Exhibit A
attached hereto (the "LAND");
(b) all buildings, structures, Fixtures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas and roadways appurtenant to such buildings
and structures presently situated upon the Land and all Capital
Additions (collectively, the "LEASED IMPROVEMENTS");
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property,
now or hereafter permanently affixed to or incorporated into the
Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution
control,
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<PAGE> 21
waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection
equipment, all of which, to the maximum extent permitted by law, are
hereby deemed by the parties hereto to constitute real estate,
together with all replacements, modifications, alterations and
additions thereto, but specifically excluding Tenant's Personal
Property (collectively, the "FIXTURES");
(e) all machinery, equipment, furniture, furnishings, moveable walls
or partitions, computers or trade fixtures or other personal property
of any kind or description used or useful in Tenant's business on or
in the Leased Improvements, and located on or in the Leased
Improvements, including, without limitation, all "Personal Property"
as defined in the Purchase Agreement, and all modifications,
replacements, alterations and additions to such personal property,
except items, if any, included within the category of Fixtures, but
specifically excluding Tenant's Personal Property (collectively, the
"LEASED PERSONAL PROPERTY"); and
(f) all leases of space (including any security deposits held by
Tenant pursuant thereto) in the Leased Improvements to tenants
thereof.
Landlord hereby assigns to Tenant, and Tenant hereby assumes, all of
the leases described in clause (f) immediately preceding, such assumption being
to the full extent set forth in the Assignment of Leases executed at the
closing pursuant to the Purchase Agreement. In connection therewith, Tenant
agrees to perform any and all covenants of landlord thereunder, past, present
and future. Notwithstanding the foregoing, such leases shall, without the
necessity of further documentation, be deemed reassigned to Landlord upon the
expiration or earlier termination of the Term. In connection with any
reassignment thereof occurring following an Event of Default hereunder, such
reassignment shall not release Tenant from any liability thereunder with
respect to the period ending prior to the expiration of the Term.
2.2 Condition of Collective Leased Properties.
Tenant acknowledges receipt and delivery of possession of the
Collective Leased Properties and Tenant accepts the Collective Leased
Properties in their "as is" condition, subject to the rights of all occupants
and parties in possession, the existing state of title, including all
covenants, conditions, restrictions, reservations, mineral leases, easements
and other matters of record or that are visible or apparent on the Collective
Leased Properties, all applicable Legal Requirements, the lien of financing
instruments, mortgages and deeds of trust, and such other matters which would
be disclosed by an inspection of the Collective Leased Properties and the
record title thereto or by an accurate survey thereof. TENANT REPRESENTS THAT
IT HAS INSPECTED THE COLLECTIVE LEASED PROPERTIES AND ALL OF THE FOREGOING AND
HAS FOUND THE CONDITION THEREOF SATISFACTORY AND IS NOT RELYING ON ANY
REPRESENTATION OR WARRANTY OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES WITH
RESPECT THERETO, AND TENANT WAIVES ANY CLAIM OR ACTION AGAINST LANDLORD IN
RESPECT OF THE CONDITION OF THE COLLECTIVE LEASED PROPERTIES. LANDLORD MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE COLLECTIVE
LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO ITS
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<PAGE> 22
FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT
OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. To
the maximum extent permitted by law, however, Landlord hereby assigns to Tenant
all of Landlord's rights to proceed against any predecessor in title for
breaches of warranties or representations or for latent defects in the
Collective Leased Properties. Landlord shall fully cooperate with Tenant in
the prosecution of any such claims, in Landlord's or Tenant's name, all at
Tenant's sole cost and expense. Tenant shall indemnify, defend, and hold
harmless Landlord from and against any loss, cost, damage or liability
(including reasonable attorneys' fees) incurred by Landlord in connection with
such cooperation.
2.3 Fixed Term.
The initial term of this Agreement (the "FIXED TERM") shall commence
at 12:01 a.m. on the Commencement Date and shall expire at 11:59 p.m. on the
last day of the twelfth (12th) Lease Year.
2.4 Extended Term.
Provided that no Default or Event of Default shall have occurred and
be continuing and this Agreement shall be in full force and effect, Tenant
shall, subject to Section 2.5 below, have the right to extend the Term for each
of four (4) consecutive five (5)-year renewal terms (collectively, the
"EXTENDED TERMS") for all, and not less than all, of the Collective Leased
Properties.
Each Extended Term shall commence on the day succeeding the expiration
of the Fixed Term or the preceding Extended Term, as the case may be. All of
the terms, covenants and provisions of this Agreement (including but not
limited to those with respect to Additional Rent and payments of the Allowance)
shall apply to each such Extended Term, except that (x) the Minimum Rent for
each Extended Term shall be the Fair Market Rental for such Extended Term and
shall be determined pursuant to Section 2.5 below and (y) Tenant shall have no
right to extend the Term beyond the expiration of the Extended Terms. If
Tenant shall elect to exercise any of the aforesaid options, it shall do so by
giving Landlord Notice thereof not later than one (1) year prior to the
scheduled expiration of the then current Term of this Agreement (Fixed Term or
Extended Term, as the case may be), it being understood and agreed that time
shall be of the essence with respect to the giving of such Notice. Tenant may
not exercise its option for more than one such Extended Term at a time. If
Tenant shall fail to give any such Notice, this Agreement shall automatically
terminate at the end of the Term then in effect and Tenant shall have no
further option to extend the Term of this Agreement. If Tenant shall give such
Notice, the extension of this Agreement shall be automatically effected without
the execution of any additional documents, it being understood and agreed,
however, that Tenant and Landlord shall execute such documents and agreements
as either party shall reasonably require to evidence the same. Notwithstanding
the provisions of the foregoing sentence, if, subsequent to the giving of such
Notice, an Event of Default shall occur and be continuing, unless Landlord
shall otherwise consent in writing, the extension of this Agreement shall cease
to take effect and this Agreement
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<PAGE> 23
shall automatically terminate at the end of the Term then in effect and Tenant
shall have no further option to extend the Term of this Agreement.
2.5 Determination of Minimum Rent for Extended Terms.
The Minimum Rent for each Extended Term shall be equal to the amount
set forth in clause (x) in Section 2.4 above and shall be determined by the
mutual agreement of Landlord and Tenant within thirty (30) days after Landlord
receives Tenant's Notice exercising its option to extend with respect to such
Extended Term, but in no event earlier than twelve (12) months prior to the
commencement of the applicable Extended Term. In the event Landlord and Tenant
are unable to agree on the Minimum Rent for such Extended Term within such
period, such Minimum Rent shall be determined pursuant to appraisal in
accordance with Article 19.
ARTICLE 3
RENT
3.1 Rent.
Tenant shall pay to Landlord, in lawful money of the United States of
America which shall be legal tender for the payment of public and private
debts, without offset, abatement, demand or deduction, Minimum Rent, Additional
Rent and Additional Charges, during the Term, except as hereinafter expressly
provided. All payments to Landlord shall be made by wire transfer of
immediately available federal funds or by other means acceptable to Landlord
and Tenant, each in its sole discretion. Rent for any partial month shall be
prorated on a per diem basis based on a 365-day year and the actual number of
days elapsed.
3.1.1 Minimum Rent.
Minimum Rent shall be paid in advance on the first day of each
calendar month; provided, however, that the first monthly installment of
Minimum Rent shall be payable on the Commencement Date.
3.1.2 Additional Rent.
Additional Rent shall be paid in advance on the first day of each
calendar month; provided, however, that the first monthly installment of
Additional Rent shall be payable on the Commencement Date. Except as otherwise
set forth in Section 12.1(a) hereof, Tenant's failure to pay Additional Rent
shall not constitute a Default or Event of Default hereunder.
3.1.3 Additional Charges.
In addition to the Minimum Rent and Additional Rent payable hereunder,
Tenant shall pay and discharge as and when due and payable the following
(collectively, "ADDITIONAL CHARGES"):
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<PAGE> 24
(a) Impositions. Subject to Article 8 relating to Permitted
Contests, Tenant shall pay, or cause to be paid, all Impositions
before any fine, penalty, interest or cost (other than any opportunity
cost as a result of a failure to take advantage of any discount for
early payment) may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and shall promptly,
upon request, furnish to Landlord copies of official receipts or other
satisfactory proof evidencing such payments. If any such Imposition
may, at the option of the taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance of such
Imposition), Tenant may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in
installments and, in such event, shall pay such installments during
the Term as the same become due and before any fine, penalty, premium,
further interest or cost may be added thereto. Landlord, at its
expense, shall, to the extent required or permitted by applicable law,
prepare and file all tax returns in respect of Landlord's net income,
gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes and taxes on its capital stock, and
Tenant, at its expense, shall, to the extent required or permitted by
applicable laws and regulations, prepare and file all other tax
returns and reports in respect of any Imposition as may be required by
any government or Government Agency. Provided no Default or Event of
Default shall have occurred and be continuing, if any refund shall be
due from any taxing authority in respect of any Imposition paid by
Tenant, the same shall be paid over to or retained by Tenant.
Landlord and Tenant shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with
respect to the Collective Leased Properties as may be necessary to
prepare any required returns and reports. In the event Government
Agencies classify any property covered by this Agreement as personal
property, Tenant shall file all personal property tax returns in such
jurisdictions where it may legally so file. Each party shall, to the
extent it possesses the same, provide the other, upon request, with
cost and depreciation records necessary for filing returns for any
property so classified as personal property. Where Landlord is
legally required to file personal property tax returns, Landlord shall
provide Tenant with copies of assessment notices in sufficient time
for Tenant to file a protest. All Impositions assessed against such
personal property shall be (irrespective of whether Landlord or Tenant
shall file the relevant return) paid by Tenant not later than the last
date on which the same may be made without interest or penalty. If
the provisions of any Facility Mortgage require deposits on account of
Impositions to be made with such Facility Mortgagee, provided the
Facility Mortgagee has not elected to waive such provision, Tenant
shall either pay Landlord the monthly amounts required at the time and
place that payments of Minimum Rent are required and Landlord shall
transfer such amounts to such Facility Mortgagee or, pursuant to
written direction by Landlord, Tenant shall make such deposits
directly with such Facility Mortgagee. Landlord shall, however, use
commercially reasonable best efforts to cause any Facility Mortgagee
not to impose such obligation on Tenant.
Landlord shall give prompt Notice to Tenant of all Impositions payable
by Tenant hereunder of which Landlord at any time has knowledge; provided,
however, that Landlord's failure to give any such Notice shall in no way
diminish Tenant's obligation hereunder to pay such Impositions, except that
Landlord shall (unless Tenant itself knew, or should have known,
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about the existence of such Impositions obligation) pay all penalties, fines
and other expenses arising out of Landlord's failure to give such Notice.
(b) Utility Charges. Tenant shall pay or cause to be paid all
charges for electricity, power, gas, oil, water and other utilities
used in connection with the Collective Leased Properties.
(c) Insurance Premiums. Tenant shall pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant
to Article 9.
(d) Other Charges. Tenant shall pay or cause to be paid all other
amounts, liabilities and obligations which Tenant assumes or agrees to
pay under this Agreement, including, without limitation, all
agreements to indemnify Landlord under Sections 4.4 and 9.7.
(e) Prorations. Tenant shall pay or cause to be paid all amounts
required to be paid by OpCo under Section 10.4 of the Purchase
Agreement.
(f) Reimbursement for Additional Charges. If Tenant pays or causes
to be paid property taxes or similar Additional Charges attributable
to periods after the end of the Term, whether upon expiration or
sooner termination of this Agreement (other than termination following
an Event of Default), Tenant may, within sixty (60) days of the end of
the Term, provide Notice to Landlord of its estimate of such amounts.
Landlord shall promptly reimburse Tenant for all payments of such
taxes and other similar Additional Charges that are attributable to
any period after the Term of this Agreement (unless this Agreement
shall have been terminated following an Event of Default). Tenant
acknowledges that it has no claims against Landlord for Additional
Charges attributable to the periods prior to the first day of the
Term.
3.2 Late Payment of Rent.
If any installment of (i) Minimum Rent, (ii) Additional Rent (with
respect to which Landlord has made a disbursement of the Allowance) or (iii)
Additional Charges (but only as to those Additional Charges which are payable
directly to Landlord) shall not be paid on its due date, Tenant shall pay
Landlord, on demand, as Additional Charges, a late charge (to the extent
permitted by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of payment
thereof. To the extent that Tenant pays any Additional Charges directly to
Landlord or any Facility Mortgagee pursuant to any requirement of this
Agreement, Tenant shall be relieved of its obligation to pay such Additional
Charges to the Entity to which they would otherwise be due.
In the event of any failure by Tenant to pay any Additional Charges
when due, Tenant shall promptly pay and discharge, as Additional Charges, every
fine, penalty, interest and cost which may be added for non-payment or late
payment of such items. Landlord shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Agreement or by
statute or otherwise in the case of
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non-payment of the Additional Charges as in the case of non-payment of the
Minimum Rent and Additional Rent, except as otherwise specifically provided in
this Agreement.
3.3 Net Lease.
The Minimum Rent shall be absolutely net to Landlord so that this
Agreement shall yield to Landlord the full amount of the installments or
amounts of Minimum Rent throughout the Term, subject to any other provisions of
this Agreement which expressly provide for adjustment of such Minimum Rent.
3.4 No Termination, Abatement, Etc.
Except as otherwise specifically provided in this Agreement, Tenant,
to the maximum extent permitted by law, shall remain bound by this Agreement in
accordance with its terms and shall neither take any action without the consent
of Landlord to modify, surrender or terminate this Agreement, nor seek, nor be
entitled to any abatement, deduction, deferment or reduction of the Rent, or
set-off against the Rent, nor shall the respective obligations of Landlord and
Tenant be otherwise affected by reason of (a) any damage to or destruction of
any of the Collective Leased Properties or any portion thereof from whatever
cause or any Condemnation; (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of any of the Collective Leased Properties, or
any portion thereof, or the interference with such use by any Person or by
reason of eviction by paramount title; (c) any claim which Tenant may have
against Landlord by reason of any default or breach of any warranty by Landlord
under this Agreement or any other agreement between Landlord and Tenant, or to
which Landlord and Tenant are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Landlord or any assignee or transferee of
Landlord; or (e) for any other cause whether similar or dissimilar to any of
the foregoing. Tenant hereby waives all rights arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law, to (i)
modify, surrender or terminate this Agreement or quit or surrender any of the
Collective Leased Properties or any portion thereof, or (ii) entitle Tenant to
any abatement, reduction, suspension or deferment of the Rent or other sums
payable or other obligations to be performed by Tenant hereunder, except as
otherwise specifically provided in this Agreement. The obligations of Tenant
hereunder shall be separate and independent covenants and agreements, and the
Rent and all other sums payable by Tenant hereunder shall continue to be
payable in all events unless the obligations to pay the same shall be
terminated pursuant to the express provisions of this Agreement.
3.5 Annual Allowance.
Provided no Default or Event of Default pursuant to Section 12.1(a)
hereof has occurred and is continuing and this Agreement shall be in full force
and effect, Landlord shall pay the Allowance to, or at the direction of, Tenant
during each Lease Year of the Term. At least Ten Million Dollars ($10,000,000)
of the Allowance shall be used to pay for Capital Expenditures made during
such Lease Year. At Tenant's election, Tenant shall have the right to use up
to Ten Million Dollars ($10,000,000) of the Allowance to pay for Impositions,
premiums for insurance required pursuant to Article 9 hereof and franchise
fees due and owing under the Franchise
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Agreement. Anything in this Agreement to the contrary notwithstanding, any and
all assets paid for (or which are the subject of reimbursements to Tenant) by
disbursements of the Allowance with respect to Capital Expenditures shall
immediately be the property of Landlord and constitute part of the Collective
Leased Properties. Any portion of the Allowance not utilized in a particular
Lease Year shall, subject to the sentence immediately following, remain
available for use in subsequent Lease Years. Notwithstanding the foregoing (x)
in the event less than $10,000,000 of the Allowance for any Lease Year is used
to pay for Capital Expenditures, then a portion of any amount remaining to be
used in subsequent Lease Years shall be used only for Capital Expenditures,
such portion being equal to the amount by which Capital Expenditures funded
with the Allowance for such Lease Year were less than $10,000,000 and (y) in
the event any portion of the Allowance (including amounts accrued from prior
Lease Years) is not utilized as of the last day of the Term, such amount shall
be deemed forfeited and Tenant will receive no payment or credit with respect
thereto.
In order to receive a disbursement of the Allowance, Tenant shall
submit to Landlord (but not more often than twice monthly) a statement,
certified pursuant to an Officer's Certificate transmitted therewith, setting
forth in reasonable detail a description of the Capital Expenditures,
impositions, premiums for insurance required pursuant to Article 9 hereof, and
Franchise Fees incurred or owing during such Lease Year and for which an
Allowance disbursement is sought. Such Officer's Certificate shall certify
that the expenditures for which reimbursement is sought are either within
Tenant's approved annual budget or have been approved by Franchisor. Within
five (5) Business Days after receipt thereof, Landlord shall reimburse to
Tenant (or, upon Tenant's written direction, included along with such certified
statement, pay third-party contractors or vendors identified therein)
appropriate amounts requested. Upon two (2) Business Days prior Notice Landlord
shall have the right to audit Tenant's books and records to confirm the
accuracy of any such statement.
The foregoing provision hereof notwithstanding, in no event shall
Landlord be obligated (x) to make disbursements in any Lease Year in excess of
Ten Million Dollars ($10,000,000) with respect to impositions, premiums for
insurance required pursuant to Article 9 hereof, and Franchise Fees, except to
the extent that any amounts carry over from previous years pursuant to the
first paragraph of Section 3.5, (y) to make disbursements with respect to any
Lease Year in excess of the Additional Rent theretofore paid for such Lease
Year, except to the extent that any amounts carry over from previous years
pursuant to the first paragraph of Section 3.5 or (z) to make any disbursements
of the Allowance if Tenant has failed to pay any monthly installments of
Additional Rent at least equal to such disbursements.
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ARTICLE 4
USE OF THE COLLECTIVE LEASED PROPERTIES
4.1 Permitted Use.
4.1.1 Primary Intended Use.
Tenant shall, at all times during the Term and at any other
time that Tenant shall be in possession of any Leased Property, subject to
Section 4.5 hereof, continuously use each of the Collective Leased Properties
for the operation of a licensed acute or chronic care psychiatric hospital;
licensed residential treatment center; licensed subacute hospital; licensed
substance abuse, neurological, geriatric, correctional, juvenile justice or
other healthcare service facility providing inpatient care; outpatient
facility; or any combination of the foregoing; and the healthcare services
provided by or at a Leased Property may include inpatient hospitalization,
partial hospitalization programs, outpatient therapy, intensive outpatient
therapy, ambulatory detoxification, behavioral modification programs and
related services (provided such related services constitutes services intended
to be provided as part of the "Franchised Business," as such term is defined in
the Franchise Agreement), and for such other uses as may be incidental or
necessary thereto, including the operation of any medical office buildings
located on any such Leased Property (such use being hereinafter referred to as
such Leased Property's "PRIMARY INTENDED USE"). Tenant shall not use any of
the Collective Leased Properties or any portion thereof for any other use
without the prior written consent of Landlord. No use shall be made or
permitted to be made of any of the Collective Leased Properties and no acts
shall be done thereon which will cause the cancellation of any insurance policy
covering any of the Collective Leased Properties or any part thereof (unless
another adequate policy is available), nor shall Tenant sell or otherwise
provide to residents or patients therein, or permit to be kept, used or sold in
or about any of the Collective Leased Properties any article which may be
prohibited by law or by the standard form of fire insurance policies, or any
other insurance policies required to be carried hereunder, or fire
underwriter's regulations. Tenant shall, at its sole cost, comply with all of
the requirements pertaining to the Collective Leased Properties of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Collective Leased
Properties and Tenant's Personal Property, including, without limitation, the
Insurance Requirements. Tenant shall not take or omit to take any action, the
taking or omission of which materially impairs the value or the usefulness of
any of the Collective Leased Properties or any part thereof for its Primary
Intended Use.
4.1.2 Necessary Approvals.
Tenant shall proceed with all due diligence and exercise best
efforts to obtain and maintain all approvals necessary to use and operate, for
its Primary Intended Use, each of the Collective Leased Properties and each
Facility located thereon under applicable law and, without limiting the
foregoing, shall use its commercially reasonable best efforts to maintain
appropriate licensure and participation in those reimbursement programs for
which a Facility is eligible and in which management of the Facility desires to
participate.
4.1.3 Lawful Use, Etc.
Tenant shall not use or suffer or permit the use of any of the
Collective Leased Properties or Tenant's Personal Property for any unlawful
purpose. Tenant shall not commit or suffer to be committed any waste on any of
the Collective Leased Properties, or in any Facility, nor shall Tenant cause or
permit any nuisance thereon or therein. Tenant shall neither suffer nor permit
any of the Collective Leased Properties or any portion thereof, including any
Capital Addition or Tenant's Personal Property, to be used in such a manner as
(i) might reasonably tend
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to impair Landlord's (or Tenant's, as the case may be) title thereto or to any
portion thereof, or (ii) may reasonably make possible a claim or claims for
adverse usage or adverse possession by the public, as such, or of implied
dedication of the applicable Leased Property or any portion thereof.
4.2 Compliance with Legal and Insurance Requirements, Etc.
Subject to the provisions of Article 8, Tenant, at its sole expense,
shall (i) comply in all material respects with Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair, alteration
and restoration of all of the Collective Leased Properties, and (ii) procure,
maintain and comply in all material respects with all appropriate licenses,
certificates of need, permits, and other authorizations and agreements required
for any use of the Collective Leased Properties and Tenant's Personal Property
then being made, and for the proper erection, installation, operation and
maintenance of the Collective Leased Properties or any part thereof, including,
without limitation, any Capital Additions.
4.3 Compliance with Medicaid and Medicare Requirements.
Tenant shall, at its sole cost and expense, make whatever improvements
(capital or ordinary) as are required to conform each of the Collective Leased
Properties to such standards as may, from time to time, be required by Federal
Medicare (Title 18) or Medicaid (Title 19), to the extent Tenant is a
participant in such programs, or any other applicable programs or legislation,
or capital improvements required by any other governmental agency having
jurisdiction over such Leased Property as a condition of the continued
operation of such Leased Property for its Primary Intended Use.
4.4 Environmental Matters.
4.4.1 Restriction on Use, Etc.
Tenant shall not store, spill upon, dispose of or transfer to
or from the Collective Leased Properties any Hazardous Substance, except that
Tenant may store, transfer and dispose of Hazardous Substances in compliance
with all Applicable Laws. Tenant shall maintain the Collective Leased
Properties at all times free of any Hazardous Substance (except such Hazardous
Substances as are maintained in compliance with all Applicable Laws). Tenant
shall promptly: (a) notify Landlord in writing of any material change in the
nature or extent of Hazardous Substances at any of the Collective Leased
Properties, (b) transmit to Landlord a copy of any Community Right to Know
report which is required to be filed by Tenant with respect to any of the
Collective Leased Properties pursuant to SARA Title III or any other Applicable
Law, (c) transmit to Landlord copies of any demand letters, complaints or other
documents initiating legal action, citations, orders, notices or other material
communications asserting claims by private parties or government agencies with
respect to Hazardous Substances received by Tenant or its agents or
representatives (collectively, "ENVIRONMENTAL NOTICE"), which Environmental
Notice requires a written response or any action to be taken and/or if such
Environmental Notice gives notice of and/or could give rise to a material
violation of any Applicable Law and/or could give rise to any material cost,
expense, loss or damage (an "ENVIRONMENTAL OBLIGATION"), (d)
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observe and comply with all Applicable Laws relating to the use, maintenance
and disposal of Hazardous Substances and all orders or directives from any
official, court or agency of competent jurisdiction relating to the use or
maintenance or requiring the removal, treatment, containment or other
disposition thereof, and (e) pay or otherwise dispose of any fine, charge or
Imposition related thereto, unless Tenant shall contest the same in good faith
and by appropriate proceedings and the right to use and the value of any of the
Collective Leased Properties is not materially and adversely affected thereby.
If at any time Hazardous Substances are discovered in violation of
Applicable Laws on any of the Collective Leased Properties, Tenant shall take
all actions and incur any and all expenses, as may be necessary or as may be
required by any Government Agency, (i) to clean up and remove from and about
such Leased Properties all Hazardous Substances thereon, (ii) to contain and
prevent any further release or threat of release of Hazardous Substances on or
about such Leased Properties and (iii) to use good faith efforts to eliminate
any further release or threat of release of Hazardous Substances on or about
such Leased Properties.
4.4.2 Environment Report.
Six (6) months prior to expiration of the Term, Tenant shall
designate a qualified environmental engineer, satisfactory to Landlord in its
sole discretion, which engineer shall conduct an environmental investigation of
the Collective Leased Properties and prepare an environmental site assessment
report (the "ENVIRONMENTAL REPORT") with respect thereto. The scope of such
Environmental Report shall include, without limitation, review of relevant
records, interviews with persons knowledgeable about the Collective Leased
Properties and relevant governmental agencies, a site inspection of the
Collective Leased Properties, any buildings, the fencelines of the Collective
Leased Properties and adjoining properties (Phase I) and shall otherwise be
reasonably satisfactory in form and substance to Landlord. If such
investigation, in the opinion of the performing engineer, indicates that any of
the Collective Leased Properties are not environmentally sound and free from
oil, asbestos, radon and other Hazardous Substances (except in compliance with
Applicable Laws), such investigation shall also include a more detailed
physical site inspection, appropriate testing, subsurface and otherwise, and
review of historical records (Phase II) to demonstrate the compliance of such
of the Collective Leased Properties with Applicable Laws and the absence of
Hazardous Substances except in compliance with Applicable Laws.
All Environmental Reports, and supplements and amendments thereto,
shall be provided to Landlord contemporaneously with delivery thereof to
Tenant. With respect to any recommendations contained in the Environmental
Report, violations of Applicable Laws and/or the existence of any conditions at
any of the Collective Leased Properties which could give rise to an
Environmental Obligation, Tenant shall promptly give Notice thereof to
Landlord, together with a description, setting forth in reasonable detail, all
actions Tenant proposes to take in connection therewith and Tenant shall
promptly take all actions, and incur any and all expenses, as may be required
by Applicable Law or by any Government Agency or, in the case of conditions
that could give rise to an Environmental Obligation, as may be reasonably
required by Landlord, (i) to clean up, remove or remediate from and about the
Collective Leased Properties all Hazardous Substances thereon, (ii) to contain,
prevent and eliminate any further release or
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threat of release of Hazardous Substances on or about the Collective Leased
Properties, and (iii) otherwise to eliminate such violation or condition from
the Collective Leased Properties in accordance with Applicable Law .
Landlord shall, provided no Event of Default has occurred and is
continuing, Landlord shall, upon receipt of a bill, along with reasonable
substantiation thereof, promptly reimburse Tenant for the reasonable
out-of-pocket costs incurred in the preparation of the Phase I Environmental
Report. In no event shall Landlord be obligated to pay or reimburse Tenant for
the costs incurred in connection with any Phase II Report or in connection with
any actions taken or proposed to be taken by Tenant as described in the
immediately preceding paragraph.
4.4.3 Indemnification of Landlord.
Tenant shall protect, indemnify and hold harmless Landlord and
each Facility Mortgagee, their trustees, officers, agents, employees and
beneficiaries, and any of their respective successors or assigns (hereafter the
"INDEMNITEES," and when referred to singly, an "INDEMNITEE") for, from and
against any and all debts, liens, claims, causes of action, administrative
orders or notices, costs, fines, penalties or expenses (including, without
limitation, reasonable attorneys' fees and expenses) imposed upon, incurred by
or asserted against any Indemnitee resulting from, either directly or
indirectly, the presence in, the Environment or any properties surrounding any
of the Collective Leased Properties of any Hazardous Substances. Tenant's duty
herein includes, but is not limited to, indemnification for costs associated
with personal injury or property damage claims as a result of the presence of
Hazardous Substances in, upon or under the soil or ground water of any of the
Collective Leased Properties in violation of any Applicable Law. Upon Notice
from Landlord, Tenant shall undertake the defense, at Tenant's sole cost and
expense, of any indemnification duties set forth herein. The foregoing
provisions hereof notwithstanding, Tenant's indemnification of any Facility
Mortgagee pursuant to this Section 4.4.3 shall not extend to or include the
investigation and defense expenses (including, but not limited to, legal and
consulting fees and expenses) incurred by such Facility Mortgagee.
Tenant shall, upon demand, pay to Landlord, as an Additional Charge,
any cost, expense, loss or damage (including, without limitation, reasonable
attorneys' fees) incurred by Landlord in asserting any right under this Section
4.4, including without limitation any right of indemnity under this Section
4.4.3 or otherwise arising from a failure of Tenant strictly to observe and
perform the foregoing requirements, which amounts shall bear interest from the
date incurred until paid by Tenant to Landlord at the Overdue Rate.
4.4.4 Survival.
The provisions of this Section 4.4 shall survive the
expiration or sooner termination of this Agreement.
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4.5 Tenant's Right to Close Facilities.
Provided that no Default or Event of Default (except pursuant to
Section 12.1(e)) shall have occurred and be continuing, Tenant shall have the
right at any time and from time to time, to cease its operations in any or all
of the Facilities. Nothing herein shall entitle Tenant to any reduction in
Rent or diminish any of Tenant's other obligations, including without
limitation obligations to (x) maintain and insure any and all facilities, and
(y) surrender each Facility upon expiration or sooner termination of the Term
with all Tenant's Personal Property in place.
ARTICLE 5
MAINTENANCE AND REPAIRS
5.1 Maintenance and Repair.
5.1.1 Tenant's Obligations.
Tenant shall, at its sole cost and expense, keep each of the
Collective Leased Properties and all private roadways, sidewalks and curbs
appurtenant thereto (and Tenant's Personal Property) in good order and repair,
reasonable wear and tear excepted (whether or not the need for such repairs
occurs as a result of Tenant's use, any prior use, the elements or the age of
the Collective Leased Properties or Tenant's Personal Property, or any portion
thereof), and shall promptly make all necessary and appropriate repairs and
replacements thereto of every kind and nature, whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to the commencement of the
Term necessary for the Primary Intended Use (concealed or otherwise); provided,
however, that Tenant shall be permitted to prosecute claims against Landlord's
predecessors in title for breach of any representation or warranty made to or
on behalf of Landlord or for any latent defects in the Collective Leased
Properties. All repairs shall be made in a good, workmanlike and first-class
manner, in accordance with all applicable federal, state and local statutes,
ordinances, by-laws, codes, rules and regulations relating to any such work.
Except as permitted by Section 4.5, Tenant shall not take or omit to take any
action, the taking or omission of which materially impairs the value or the
usefulness of any of the Collective Leased Properties or any part thereof for
its respective Primary Intended Use. Tenant's obligations under this Section
5.1.1 as to any of the Collective Leased Properties shall be limited, in the
event of any casualty or Condemnation involving such Leased Property, as set
forth in Sections 10.2 and 11.2. Notwithstanding any provisions of this
Section 5.1 to the contrary, Tenant's obligations with respect to Hazardous
Substances are as set forth in Section 4.4.
5.1.2 Landlord's Obligations.
Landlord shall not, under any circumstances, be required to
build or rebuild any improvement on the Collective Leased Properties, or to
make any repairs, replacements, alterations, restorations or renewals of any
nature or description to the Collective Leased Properties, whether ordinary or
extraordinary, structural or nonstructural, foreseen or unforeseen, or to make
any expenditure whatsoever with respect thereto, or to maintain the Collective
Leased Properties in any way, except as specifically provided herein. Tenant
hereby waives, to the maximum extent permitted by law, the right to make
repairs at the expense of Landlord pursuant
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to any law in effect on the date hereof or hereafter enacted. Landlord shall
have the right to give, record and post, as appropriate, notices of
nonresponsibility under any mechanic's lien laws now or hereafter existing.
5.1.3 Nonresponsibility of Landlord; No Mechanics Liens.
Landlord's interest in the Collective Leased Properties shall
not be subject to liens for Capital Additions made by Tenant, and Tenant shall
have no power or authority to create any lien or permit any lien to attach to
any of the Collective Leased Properties or the present estate, reversion or
other estate of Landlord in the Collective Leased Properties or on the building
or other improvements thereon as a result of Capital Additions made by Tenant
or for any other cause or reason. All materialmen, contractors, artisans,
mechanics and laborers and other persons contracting with Tenant with respect
to the Collective Leased Properties, or any part thereof, are hereby charged
with notice that such liens are expressly prohibited and that they must look
solely to Tenant to secure payment for any work done or material furnished for
Capital Additions by Tenant or for any other purpose during the term of this
Agreement.
Nothing contained in this Agreement shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or implied,
by inference or otherwise, to any contractor, subcontractor, laborer or
materialmen for the performance of any labor or the furnishing of any materials
for any alteration, addition, improvement or repair to any of the Collective
Leased Properties or any part thereof or as giving Tenant any right, power or
authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to the filing of any lien
against any of the Collective Leased Properties or any part thereof nor to
subject Landlord's estate in any of the Collective Leased Properties or any
part thereof to liability under any Mechanic's Lien Law of the State in any
way, it being expressly understood that Landlord's estate shall not be subject
to any such liability.
5.2 Tenant's Personal Property.
Tenant may (and shall as provided hereinbelow), at its expense,
install, affix or assemble or place on any parcels of the Land or in any of the
Leased Improvements any items of Tenant's Personal Property, and Tenant may,
subject to Section 7.2 and the conditions set forth below, remove and replace
the same at any time in the ordinary course of business, provided that no
Default or Event of Default has occurred and is continuing. Tenant shall
provide and maintain throughout the Term all such Tenant's Personal Property as
shall be necessary in order to operate all of the Facilities located at the
Collective Leased Properties in compliance in all material respects with all
applicable licensure and certification requirements, in compliance with
applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for such Primary Intended
Use. All of Tenant's Personal Property (except that removed and replaced in
the ordinary course of business as permitted above, but including supplies and
inventory that are equivalent, on an aggregate basis, in amount and value
similar to that reasonably established for use by the Facilities in the
immediately preceding Lease Year) shall remain at the Collective Leased
Properties at the expiration or earlier termination of this Agreement without
the necessity of any payment by Landlord to Tenant and without any obligation
to account therefor.
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If Tenant uses any material item of tangible personal property on, or
in connection with, any Leased Property which belongs to anyone other than
Tenant, Tenant shall use its commercially reasonable best efforts to require
the agreement permitting such use to provide that Landlord or its designee may
assume Tenant's rights under such agreement upon management or operation of the
applicable Facility by Landlord or its designee.
5.3 Yield Up.
Upon the expiration or sooner termination of this Agreement, Tenant
shall vacate and surrender each of the Collective Leased Properties to Landlord
in the condition in which each of the Collective Leased Properties was in on
the Commencement Date, except as repaired, rebuilt, restored, altered or added
to as permitted or required by the provisions of this Agreement, reasonable
wear and tear excepted (and Condemnation, in the event that this Agreement is
terminated with respect to any of the Collective Leased Properties following a
Condemnation in accordance with Article 11). Rents, real estate taxes and
utilities shall be prorated in the same manner as set forth in Section 10.4 of
the Purchase Agreement. Along therewith Tenant shall surrender to Landlord any
and all records and documents related to the Collective Leased Properties and
Tenant's Personal Property (i.e., but not, subject to Section 12.6 hereof,
documents primarily related to Tenant's business operated therein) including
documents and records obtained by Tenant pursuant to Section 10.2 of the
Purchase Agreement. Landlord (or its designee) shall have the right, but not
the obligation, to assume any or all contracts relating to the Collective
Leased Properties and Tenant's Personal Property (i.e., contracts not primarily
related to the business operated therein). In no event shall Landlord (or its
designee) have any liability under such contracts for obligations or
liabilities accruing under such contracts prior to the date of such assumption
by such party. Tenant shall deliver to Landlord keys and security deposits
(for assumed leases) in the same fashion as described in Sections 10.2(e) and
10.4(d) of the Purchase Agreement.
In addition, upon the expiration or earlier termination of this
Agreement, Tenant shall, at Landlord's sole cost and expense, use its
commercially reasonable best efforts to transfer to and cooperate with Landlord
or Landlord's nominee in connection with the processing of all applications for
licenses, operating permits and other governmental authorizations and all
contracts, including contracts with governmental or quasi-governmental entities
which may be necessary for the operation of the Facilities located on the
Collective Leased Properties. If requested by Landlord, Tenant will continue
to manage any such Facility after the expiration or sooner termination of the
Term and for as long thereafter as is necessary (but not to exceed six (6)
months following the date of such expiration or sooner termination) to obtain
all necessary licenses, operating permits and other governmental
authorizations, on such reasonable terms as Landlord shall request, but in any
event Landlord shall pay to Tenant a management fee equal to the sum of (i)
reasonable out-of-pocket costs and expenses of Tenant in providing management
services, (ii) reasonable allocated internal costs of Tenant in providing
management services (including but not limited to a reasonably allocated
portion of the salaries and benefits costs of Tenant personnel who provide such
services), and (iii) 10% of the sum of (i) and (ii). In connection with any
such management arrangement, Tenant will, use its commercially reasonable best
efforts to the extent reasonable necessary, maintain in effect during the
period of its management arrangement, those contracts, including (for sixty
(60) days after such expiration
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or sooner termination, but after sixty (60) days, only if the Franchise
Agreement has been assumed pursuant to Section 12.6) the Franchise Agreement,
necessary for the performance of such management responsibilities and for the
operation of the Facilities for the Primary Intended Use.
5.4 Encroachments, Restrictions, Etc.
If any of the Leased Improvements shall, at any time, encroach upon
any property, street or right-of-way adjacent to the affected Leased Property,
or shall violate the agreements or conditions contained in any lawful
restrictive covenant or other agreement affecting any of the Collective Leased
Properties, or any part thereof, or shall impair the rights of others under any
easement or right-of-way to which any of the Collective Leased Properties is
subject, upon the request of Landlord (but only as to any encroachment,
violation or impairment that is not a Permitted Encumbrance) or of any Person
affected by any such encroachment, violation or impairment, Tenant shall, at
its sole cost and expense, subject to its right to contest the existence of any
encroachment, violation or impairment in accordance with the provisions of
Article 8, either (a) obtain valid and effective waivers or settlements of all
claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Landlord or Tenant, or
(b) make such changes in the Leased Improvements and take such other actions as
are reasonably practicable to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of any of the
Leased Improvements and, in any event, take all such actions as may be
necessary in order to ensure the continued operation of the affected Leased
Improvements for their respective Primary Intended Use substantially in the
manner and to the extent such Leased Improvements were operated prior to the
assertion of such violation, impairment or encroachment. Any such alteration
shall be made in conformity with the applicable requirements of this Article 5.
Tenant's obligations under this Section 5.4 shall be in addition to and shall
in no way discharge or diminish any obligation of any insurer under any policy
of title or other insurance.
5.5 Landlord to Grant Easements, Etc.
Landlord shall from time to time, so long as no Default or Event of
Default shall have occurred and be continuing, at the request of Tenant and at
Tenant's sole cost and expense, (a) grant easements and other rights in the
nature of easements with respect to any of the Collective Leased Properties to
third parties, (b) release existing easements or other rights in the nature of
easements which are for the benefit of any of the Collective Leased Properties,
(c) dedicate or transfer unimproved portions of any of the Collective Leased
Properties for road, highway or other public purposes, (d) execute petitions to
have any of the Collective Leased Properties annexed to any municipal
corporation or utility district, (e) execute amendments to any covenants and
restrictions affecting any of the Collective Leased Properties and (f) execute
and deliver to any Person any instrument appropriate to confirm or effect such
grants, release, dedications, transfers, petitions and amendments (to the
extent of its interests in such Leased Property); provided, however, that
Landlord shall have first determined that such grant, release, dedication,
transfer, petition or amendment is not detrimental to the operation of the
applicable Leased Property for its Primary Intended Use and does not materially
reduce the value of such
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Leased Property, and Landlord shall have received an Officer's Certificate
confirming such determination, together with such additional information as
Landlord may request.
5.6 Philadelphia Facility.
In the event Franchisor does not complete the
renovation/reconstruction of the Philadelphia Facility in a timely manner as
required by the Purchase Agreement for any reason (whether or not such failure
constitutes a breach of covenant by Franchisor pursuant to Section 7.1(q) of
the Purchase Agreement), Tenant shall promptly do so at its sole cost. Tenant
shall permit Franchisor to have access to the property on which the
Philadelphia Facility is to be constructed for the purpose of performing such
obligation.
ARTICLE 6
CAPITAL ADDITIONS, ETC.
6.1 Construction of Capital Additions to the Leased Property.
Tenant shall not construct or install Capital Additions on any of the
Collective Leased Properties without obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld, provided that no
consent shall be required for any Capital Addition so long as (a) the Capital
Additions Costs for such Capital Addition are less than $1,000,000, (b) such
construction or installation would not adversely affect or violate any Legal
Requirement or Insurance Requirement applicable to the applicable Leased
Property and (c) Landlord shall have received an Officer's Certificate
certifying as to the satisfaction of the conditions set out in clauses (a) and
(b) above. If Landlord's consent is required, prior to commencing construction
of any Capital Addition, Tenant shall submit to Landlord, in writing, a
proposal setting forth, in reasonable detail, any proposed Capital Addition and
shall provide to Landlord such plans and specifications, permits, licenses,
contracts and other information concerning the proposed Capital Addition as
Landlord may reasonably request. Landlord shall have thirty (30) days to
review all materials submitted to Landlord in connection with any such
proposal. Failure of Landlord to respond to Tenant's proposal within thirty
(30) days after receipt of all information and materials requested by Landlord
in connection with the proposed Capital Addition shall be deemed to constitute
approval of such proposed Capital Addition. Without limiting the generality of
the foregoing, such proposal shall indicate the approximate projected cost of
constructing such Capital Addition and the use or uses to which it will be put.
No Capital Addition shall be made which would tie in or connect any Leased
Improvement on the applicable Leased Property with any other improvements on
property adjacent to such Leased Property (and not part of the Land) including,
without limitation, tie-ins of buildings or other structures or utilities. Any
Capital Additions shall, upon the expiration or sooner termination of this
Agreement, pass to and become the property of Landlord, free and clear of all
encumbrances other than Permitted Encumbrances.
6.2 Financing of Capital Additions.
Tenant may arrange for financing for Capital Additions from a Lending
Institution; provided, however, that (i) any security interests in any property
of Tenant, including, without
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limitation, Tenant's leasehold interest in the Collective Leased Properties,
shall be expressly and fully subordinated to this Agreement and to the interest
of Landlord in the Collective Leased Properties and to the rights of any then
or thereafter existing Facility Mortgagee; and (ii) Landlord shall have a right
of first refusal to provide financing for Capital Additions in accordance with
Section 6.6.
6.3 Capital Additions Financed by Landlord.
If Landlord shall, (i) at the request of Tenant and in Landlord's sole
discretion, or (ii) in the exercise of its rights of first refusal to provide
financing pursuant to Section 6.6 hereof, elect to finance any proposed Capital
Addition, Tenant shall provide Landlord with such information as Landlord may
from time to time request, including, without limitation, the following:
(a) Evidence that such Capital Addition will be and, upon
completion, has been, completed in compliance with the applicable
requirements of State and federal law with respect to capital
expenditures for health care facilities;
(b) Copies of all building, zoning and land use permits and
approvals and, upon completion of such Capital Addition, a copy of the
certificate of occupancy for such Capital Addition, if required;
(c) Such information, certificates, licenses, permits or other
documents necessary to confirm that Tenant will be able to use the
Capital Addition upon completion thereof in accordance with the
Primary Intended Use, including all required federal, State or local
government licenses and approvals;
(d) An Officer's Certificate and a certificate from Tenant's
architect setting forth, in reasonable detail, the projected (or
actual, if available) Capital Additions Cost, and invoices and lien
waivers from Tenant's contractors for such work;
(e) A deed conveying to Landlord title to any land acquired for the
purpose of constructing the Capital Addition free and clear of any
liens or encumbrances, except those approved by Landlord, and, upon
completion of the Capital Addition, a final as-built survey thereof
reasonably satisfactory to Landlord;
(f) Endorsements to any outstanding policy of title insurance
covering the applicable Leased Property, or a commitment therefor,
satisfactory in form and substance to Landlord, (i) updating such
policy without any additional exceptions except as approved by
Landlord, and (ii) increasing the coverage thereof by an amount equal
to the Fair Market Value of the Capital Addition (except to the extent
covered by the owner's policy of title insurance referred to in
subparagraph (g) below);
(g) If appropriate, (i) an owner's policy of title insurance
insuring fee simple title to any land conveyed to Landlord pursuant to
subparagraph (e) above, free and clear of all liens and encumbrances,
except those approved by Landlord, and (ii) a lender's policy
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of title insurance, reasonably satisfactory in form and substance to
Landlord and any Facility Mortgagee;
(h) An appraisal of the applicable Leased Property by a Qualified
Appraiser, acceptable to Landlord, and/or an Officer's Certificate
stating that the value of the applicable Leased Property upon
completion of the Capital Addition exceeds the Fair Market Value
thereof prior to the commencement of such Capital Addition by an
amount not less than 80% of the Capital Additions Cost; and
(i) Prints of architectural and engineering drawings relating to
such Capital Addition and such other certificates, documents, opinions
of counsel, appraisals, surveys, certified copies of duly adopted
resolutions of the board of directors of Tenant authorizing the
execution and delivery of any lease amendment, or other instruments as
may be reasonably required by Landlord, any Facility Mortgagee and any
Lending Institution advancing or reimbursing Landlord or Tenant for
any portion of the Capital Additions Cost.
If Landlord shall finance the proposed Capital Addition, Landlord may
elect (with Tenant's consent, such consent not to be unreasonably withheld) to
obtain repayment of amounts so financed by an increase in the Rent payable
hereunder.
6.4 Non-Capital Additions.
Tenant shall have the right, at Tenant's sole cost and expense, to
make additions, modifications or improvements to the Collective Leased
Properties which are not Capital Additions ("NON-CAPITAL ADDITIONS") from time
to time as Tenant, in its discretion, may deem desirable for the applicable
Primary Intended Use, provided that any such Non-Capital Addition will not
materially detract from the value, operating efficiency or revenue-producing
capability of the applicable Leased Property or adversely affect the ability of
Tenant to comply with the provisions of this Agreement, and, without limiting
the foregoing, will not violate any Legal Requirement or Insurance Requirement
applicable to the applicable Leased Property. All such Non-Capital Additions
shall, upon expiration or earlier termination of this Agreement, pass to and
become the property of Landlord, free and clear of all liens and encumbrances,
other than Permitted Encumbrances.
6.5 Salvage.
All materials which are scrapped or removed in connection with the
making of either Capital Additions or Non-Capital Additions or repairs required
by Article 5 shall be the property of the Landlord.
6.6 Landlord's Right of First Refusal to Provide Financing for
Capital Additions.
In the event that at any time during the Term Tenant shall elect to
obtain construction financing in excess of $1,000,000 for any Capital
Additions, Tenant shall give Notice thereof to Landlord, which notice shall set
forth in reasonable detail the terms of such financing, shall
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identify the source thereof and shall include a copy of a final form of
commitment letter therefor. Landlord shall have the right, exercisable by the
giving of Notice to Tenant within thirty (30) days after such notice from
Tenant, to provide a final form of commitment for such financing on the same
terms and conditions as described in the Notice given to Landlord. In the
event that Landlord shall exercise such option, Tenant shall be obligated to
obtain such financing from Landlord on the terms and conditions set forth in
the Notice to Landlord. In the event that Landlord shall decline to provide
such financing or shall fail to give such notice to Tenant, Tenant shall be
free to obtain such financing from the party identified in, and on the terms
and conditions set forth in, the Notice given to Landlord with respect thereto.
ARTICLE 7
LIENS
7.1 Liens.
Subject to Article 8 and Section 16.5, Tenant shall not, directly or
indirectly, create or allow to remain and shall promptly discharge, at its
expense, any lien, encumbrance, attachment, title retention agreement or claim
upon the Collective Leased Properties or a non-consensual lien against Tenant's
leasehold interest therein or any attachment, levy, claim or encumbrance in
respect of the Rent, other than (a) Permitted Encumbrances, (b) restrictions,
liens and other encumbrances which are consented to in writing by Landlord, (c)
liens for those taxes of Landlord which Tenant is not required to pay
hereunder, (d) subleases permitted by Article 16, (e) liens for Impositions or
for sums resulting from noncompliance with Legal Requirements so long as (i)
the same are not yet payable, or (ii) are being contested in accordance with
Article 8, (f) liens of mechanics, laborers, materialmen, suppliers or vendors
incurred in the ordinary course of business that are not yet due and payable or
are for sums that are being contested in accordance with Article 8, and (g) any
Facility Mortgages or other liens which are the responsibility of Landlord
pursuant to the provisions of Article 20.
7.2 Landlord's Lien.
In addition to any statutory landlord's lien and in order to secure
payment of the Rent and all other sums payable hereunder by Tenant and the
performance of all of Tenant's other obligations hereunder, and to secure
payment of any loss, cost or damage which Landlord may suffer by reason of
Tenant's breach of this Agreement, Tenant hereby grants unto Landlord a
security interest in and an express contractual lien upon Tenant's Personal
Property, and all proceeds therefrom, subject to any Permitted Encumbrances;
and such Tenant's Personal Property shall not be removed from the Collective
Leased Properties at any time when a Default or an Event of Default has
occurred and is continuing as otherwise permitted pursuant to Section 5.2. In
addition, Tenant hereby grants unto Landlord a security interest in those
contracts described in Section 12.6 hereof.
Upon Landlord's request, Tenant shall execute and deliver to Landlord
financing statements in form sufficient to perfect the security interest of
Landlord in (x) Tenant's Personal Property and the proceeds thereof, and (y)
the contracts described in Section 12.6 hereof, in
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accordance with the provisions of the applicable laws of the State. The
security interest herein granted is in addition to any statutory lien for the
Rent.
ARTICLE 8
PERMITTED CONTESTS
Tenant shall have the right to contest the amount or validity of any
Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy,
encumbrance, charge or claim (collectively, "CLAIMS") as to any of the
Collective Leased Properties, by appropriate legal proceedings, conducted in
good faith and with due diligence, provided that (a) the foregoing shall in no
way be construed as relieving, modifying or extending Tenant's obligation to
pay any Claims as finally determined, (b) such contest shall not cause Landlord
or Tenant to be in default under any mortgage or deed of trust (except with
respect to any Facility Mortgage, the terms of which have not been fully
disclosed to Tenant) encumbering such Leased Property or any interest therein
or result in or reasonably be expected to result in a lien attaching to such
Leased Property, (c) no part of such Leased Property nor any Rent therefrom
shall be in any immediate danger of sale, forfeiture, attachment or loss, and
(d) Tenant shall indemnify and hold harmless Landlord from and against any
cost, claim, damage, penalty or reasonable expense, including reasonable
attorneys' fees, incurred by Landlord in connection therewith or as a result
thereof. Upon Landlord's request made as a result of a requirement of any
Facility Mortgagee, Tenant shall either (i) provide a bond or other assurance
reasonably satisfactory to Landlord that all Claims which may be assessed
against any of the Collective Leased Properties, together with all interest and
penalties thereon will be paid, or (ii) deposit within the time otherwise
required for payment with a bank or trust company, as trustee, as security for
the payment of such Claims, an amount sufficient to pay the same, together with
interest and penalties in connection therewith and all Claims which may be
assessed against or become a Claim on any of the Collective Leased Properties,
or any part thereof, in connection with any such contest. Tenant shall furnish
Landlord and any Facility Mortgagee with reasonable evidence of such deposit
within five (5) days after request therefor. Landlord agrees, however, to use
commercially reasonable best efforts to cause any Facility Mortgagee not to
require any bond or deposit by Tenant as hereinabove provided. Landlord agrees
to join in any such proceedings if required legally to prosecute such contest,
provided that Landlord shall not thereby be subjected to any liability therefor
(including, without limitation, for the payment of any costs or expenses in
connection therewith). Tenant shall be entitled to any refund of any Claims
and such charges and penalties or interest thereon which have been paid by
Tenant or paid by Landlord and for which Landlord has been fully reimbursed by
Tenant. If Tenant shall fail (x) to pay any Claims when finally determined,
(y) to provide security therefor as provided in this Article 8, or (z) to
prosecute any such contest diligently and in good faith, Landlord may, upon
reasonable notice to Tenant (which notice may be oral and shall not be required
if Landlord shall reasonably determine that the same is not practicable), pay
such charges, together with interest and penalties due with respect thereto,
and Tenant shall reimburse Landlord therefor, upon demand, as Additional
Charges.
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ARTICLE 9
INSURANCE AND INDEMNIFICATION
9.1 General Insurance Requirements.
Tenant shall, at all times during the Term and at any other time
Tenant shall be in possession of any of the Collective Leased Properties, keep
each of the Collective Leased Properties and Tenant's Personal Property insured
against the risks and in the amounts as follows and shall maintain (for so long
as such insurance is commercially available) the following insurance:
(a) "All-risk" property insurance, including insurance against loss
or damage by fire, vandalism and malicious mischief, explosion of
steamboilers, pressure vessels or other similar apparatus, now or
hereafter installed in the Facility located at such Leased Property,
extended coverage perils, earthquake (providing annual aggregate
limits of One Hundred Million Dollars ($100,000,000) as to all
locations outside of California and annual aggregate limits of Fifty
Million Dollars ($50,000,000) as to all locations within California)
and all physical loss perils insurance, including, but not limited to,
sprinkler leakage, in an amount (subject to Section 9.5) equal to one
hundred percent (100%) of the then full Replacement Cost thereof (as
defined in Section 9.2), with the usual extended coverage
endorsements, including a Replacement Cost Endorsement and Builder's
Risk Coverage during the continuance of any construction at such
Leased Property;
(b) Business interruption and blanket earnings plus extra expense
under a rental value insurance policy covering risk of loss during the
lesser of the first twelve (12) months of reconstruction or the actual
reconstruction period necessitated by the occurrence of any of the
hazards described in subparagraphs (a) and (b) above in such amounts
as may be customary for comparable properties in the area and in an
amount sufficient to prevent Landlord or Tenant from becoming a
co-insurer;
(c) Comprehensive general liability insurance, including bodily
injury and property damage (on the broadest form available, including
broad form contractual liability, fire legal liability and completed
operations coverage) having policy limits as to claims with respect to
the Collective Leased Properties of at least One Million Dollars
($1,000,000) per occurrence, Three Million Dollars ($3,000,000)
aggregate per location, subject to a Five Million Dollar ($5,000,000)
aggregate limit as to all locations, and with respect to claims
arising out of malpractice in an amount not less than One Million
Dollars ($1,000,000) per occurrence, subject to a Five Million
Dollars ($5,000,000) aggregate limit as to all Facilities, provided
that such limits shall be modified to conform to any required
underlying statutory coverage, such as State Patient Compensation
Funds, or the like, and Umbrella coverage shall be provided having
limits of Twenty Million Dollars ($20,000,000) per occurrence and in
the aggregate and attaching in excess of policy limits as to general
liability, malpractice, Patient Compensation Fund programs, where
applicable, and employer's liability coverage;
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(d) Flood (when the applicable Leased Property is located in whole
or in part within an area identified as an area having special flood
hazards and in which flood insurance has been made available under the
National Flood Insurance Act of 1968, as amended, or the Flood
Disaster Protection Act of 1973, as amended (or any successor acts
thereto)) and such other hazards and in such amounts as may be
customary for comparable properties in the area, said coverage to be
in an amount equal to the lesser of the full Replacement Cost of the
applicable Leased Property or the maximum amount available;
(e) Worker's compensation insurance coverage for all persons
employed by Tenant on the applicable Leased Property with statutory
limits and otherwise with limits of and provisions in accordance with
the requirements of applicable local, State and federal law, and
employer's liability insurance having a limit of $1,000,000; and
(f) Such additional insurance and endorsements (and/or increased
amounts of insurance hereinabove required) as may be reasonably
required, from time to time, by Landlord.
9.2 Replacement Cost.
"REPLACEMENT COST" as used herein, shall mean the actual replacement
cost of the property requiring replacement from time to time, including an
increased cost of construction endorsement, less exclusions provided in the
standard form of fire insurance policy. In the event either party believes
that the then full Replacement Cost has increased or decreased at any time
during the Term, such party, at its own cost, shall have the right to have such
full Replacement Cost redetermined by an accredited appraiser approved by the
other, which approval shall not be unreasonably withheld or delayed. The party
desiring to have the full Replacement Cost so redetermined shall forthwith, on
receipt of such determination by such appraiser, give written notice thereof to
the other. The determination of such appraiser shall be final and binding on
the parties hereto, and Tenant shall forthwith conform the amount of the
insurance carried to the amount so determined by the appraiser.
9.3 Waiver of Subrogation.
Landlord and Tenant agree that (insofar as and to the extent that such
agreement may be effective without invalidating or making it impossible to
secure insurance coverage from responsible insurance companies doing business
in the State) with respect to any property loss which is covered by insurance
then being carried by Landlord or Tenant, respectively, the party carrying such
insurance and suffering said loss releases the other of and from any and all
claims with respect to such loss; and they further agree that their respective
insurance companies shall have no right of subrogation against the other on
account thereof, even though extra premium may result therefrom. In the event
that any extra premium is payable by Tenant as a result of this provision,
Landlord shall not be liable for reimbursement to Tenant for such extra
premium.
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9.4 Form Satisfactory, Etc.
All insurance policies and endorsements required pursuant to this
Article 9 shall be fully paid for, nonassessable and shall contain such
provisions and expiration dates and be in such form and amounts and issued by
insurance carriers authorized to do business in the State, having a general
policy holder's rating of at least A-in Best's latest rating guide (or such
other comparable rating or such other customarily used rating agency as may be
required by any Facility Mortgagee), and otherwise as shall be approved by
Landlord. Without limiting the foregoing, such policies shall include only
deductibles reasonably approved by Landlord and shall name Landlord and any
Facility Mortgagee as additional insureds. All losses shall be payable to
Landlord or Tenant as provided in Article 10. Any loss adjustment shall
require the prior written consent of Landlord and Tenant. Tenant shall pay all
insurance premiums and deliver policies or certificates thereof to Landlord
prior to their effective date (and, with respect to any renewal policy, thirty
(30) days prior to the expiration of the existing policy), and, in the event
Tenant shall fail to effect such insurance as herein required, to pay the
premiums therefor or to deliver such policies or certificates to Landlord or
any Facility Mortgagee at the times required, Landlord shall have the right,
but not the obligation, to acquire such insurance and pay the premiums
therefor, which amounts shall be payable to Landlord, upon demand, as
Additional Charges, together with interest accrued thereon at the Overdue Rate
from the date such payment is made until the date repaid. All such policies
shall provide Landlord (and any Facility Mortgagee, if required by the same)
thirty (30) days' prior written notice of any material modification, expiration
or cancellation of such policy. Tenant may satisfy its insurance obligations
through the use of (i) a risk retention group or purchasing group or captive
insurance company with a capital structure reasonably approved by Landlord or
(ii) a self insurance program with retention limits reasonably approved by
Landlord and an excess policy or policies provided by an insurer meeting the
requirements of this Agreement.
9.5 Blanket Policy.
Notwithstanding anything to the contrary contained in this Article 9,
Tenant's obligation to maintain the insurance herein required may be brought
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by Tenant, provided that (a) the coverage thereby
afforded will not be reduced or diminished from that which would exist under a
separate policy meeting all other requirements of this Agreement, except that
the blanket all-risk policy may provide coverage as to the Collective Leased
Properties to a limit of Two Hundred Million Dollars ($200,000,000) per
occurrence and (b) the requirements of this Article 9 are otherwise satisfied.
9.6 No Separate Insurance.
Tenant shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required by this Article 9, or
increase the amount of any existing insurance by securing an additional policy
or additional policies, unless all parties having an insurable interest in the
subject matter of such insurance, including Landlord and all Facility
Mortgagees, are included therein as additional insureds and the loss is payable
under such insurance in the same manner as losses are payable under the
insurance required to be carried pursuant to this Agreement. In the event
Tenant shall take out any such separate insurance or increase any of the
amounts of the then existing insurance, Tenant shall give Landlord prompt
Notice thereof.
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9.7 Indemnification of Landlord.
Notwithstanding the existence of any insurance provided for herein and
without regard to the policy limits of any such insurance, Tenant shall
protect, indemnify and hold harmless Landlord for, from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and reasonable expenses (including, without limitation, reasonable attorneys'
fees), to the maximum extent permitted by law, imposed upon or incurred by or
asserted against Landlord by reason of: (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Collective
Leased Properties or adjoining sidewalks or rights of way, including, without
limitation, any claims of malpractice, (b) any past, present or future use,
misuse, non-use, condition, management, maintenance or repair of the Collective
Leased Properties or Tenant's Personal Property or any litigation, proceeding
or claim by governmental entities or other third parties to which Landlord is
made a party or participant relating to the Collective Leased Properties or
Tenant's Personal Property or such use, misuse, non-use, condition, management,
maintenance, or repair thereof, including failure to perform obligations (other
than Condemnation proceedings), to which Landlord is made a party, (c) any
Impositions (which are the obligations of Tenant to pay pursuant to the
applicable provisions of this Agreement), and (d) any failure on the part of
Tenant or anyone claiming under Tenant to perform or comply with any of the
terms of this Agreement. Tenant shall pay all amounts payable under this
Section 9.7 within ten (10) days after demand therefor and, if not timely paid,
such amounts shall bear interest at the Overdue Rate from the date of
determination to the date of payment. Tenant, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Landlord or may compromise or otherwise dispose of the same, with
Landlord's prior written consent (which consent may not be unreasonably
withheld or delayed). The obligations of Tenant under this Section 9.7 are in
addition to the obligations set forth in Section 4.4 and shall survive the
termination of this Agreement.
9.8 Independent Contractor.
Tenant shall cause any person or company (each a "CONTRACTOR")
entering upon any of the Collective Leased Properties to provide any
installation, construction or repair which (x) constitutes a Capital Addition
or (y) has an anticipated cost in excess of $250,000 to: (a) have in full
force and effect Contractor's Liability Coverage (hereafter defined) effective
throughout the period said Contractor is upon said Leased Property and (b)
deliver a certificate ("CONTRACTOR'S INSURANCE CERTIFICATE") evidencing
compliance with subpart (a) to Tenant prior to the Contractor's first entry
upon said Leased Property. As used herein the term Contractor's Liability
Coverage means a comprehensive general liability insurance policy meeting the
requirements of this Article 9 (as if required to be provided by Tenant) except
the minimum policy limit shall be $500,000 per occurrence and $1,000,000 in the
aggregate. Within thirty (30) days after delivery of Landlord's written
request, Tenant shall deliver copies of all Contractor's Certificates to
Landlord.
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ARTICLE 10
CASUALTY
10.1 Insurance Proceeds.
All proceeds payable by reason of any loss or damage to the Collective
Leased Properties, or any portion thereof, and insured under any policy of
property or casualty insurance required by Article 9 (other than proceeds of
business interruption insurance) in excess of $1,000,000 shall be paid directly
to Landlord and retained by Landlord (subject to the provisions of Section
10.2). If Tenant is required to reconstruct or repair any of the Collective
Leased Properties as provided herein, such proceeds shall be paid out by
Landlord from time to time for the reasonable costs of reconstruction or repair
of such Leased Property necessitated by such damage or destruction, subject to
the provisions of Section 10.2.3. Provided no Default or Event of Default has
occurred and is continuing, any excess proceeds of insurance remaining after
the completion of the restoration shall be paid to Tenant. All salvage
resulting from any risk covered by insurance shall belong to Landlord.
10.2 Damage or Destruction.
10.2.1 Obligation to Restore. If, during the Term, any of
the Collective Leased Properties shall be totally or partially destroyed Tenant
shall promptly restore such Facility as provided in Section 10.2.3.
10.2.2 Insufficient Insurance Proceeds. If the cost of the
repair or restoration of the applicable Leased Property exceeds the amount of
insurance proceeds received by Landlord pursuant to Article 10, upon the demand
of Landlord, Tenant shall contribute any excess amounts needed to restore such
Leased Property. Such difference shall be paid by Tenant to Landlord and held
by Landlord, together with any other insurance proceeds, for application to the
cost of repair and restoration.
10.2.3 Disbursement of Proceeds. Tenant shall, at its sole
cost and expense, commence promptly and continue diligently to perform the
repair and restoration of such Leased Property (hereinafter called the "WORK"),
or shall cause the same to be done, so as to restore such Leased Property in
full compliance with all Legal Requirements and so that such Leased Property
shall be at least equal in value and general utility to its general utility and
value immediately prior to such damage or destruction. Subject to the terms
hereof, Landlord shall advance such property and casualty insurance proceeds
and the amounts paid to it pursuant to Section 10.2.2 to Tenant regularly
during the repair and restoration period so as to permit payment for the cost
of any such restoration and repair. Any such advances shall be for not less
than $100,000 (or such lesser amount as equals the entire balance of the repair
and restoration) and Tenant shall submit to Landlord a written requisition and
substantiation therefor on such form or forms as may be reasonably acceptable
to Landlord. Landlord may, at its option, condition advancement of said
insurance proceeds and other amounts on (i) the absence of any Default or Event
of Default, (ii) its approval of plans and specifications of an architect
satisfactory to Landlord, (iii) general contractors' estimates, (iv)
architect's certificates, (v) unconditional lien waivers of general
contractors, (vi) evidence of approval by all governmental authorities and
other regulatory
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bodies whose approval is required and (vii) such other certificates as Landlord
may, from time to time, reasonably require. Landlord's obligation to disburse
insurance proceeds under this Article 10 shall be subject to the release of
such proceeds by the applicable Facility Mortgagee to Landlord.
Tenant's obligation to restore the applicable Leased Property pursuant
to this Article 10 shall be subject to the release of available insurance
proceeds by the applicable Facility Mortgagee to Landlord; provided, however,
that Tenant shall be entitled to cease operations at such Facility pursuant to
and in accordance with Section 4.5 above. In the event Tenant elects to close
such Facility as aforesaid, Tenant shall, as Additional Charges, pay to
Landlord all property or casualty insurance proceeds received in connection
therewith, along with any deductible or retention, but in no event shall Tenant
pay to Landlord less than the full Replacement Cost of such Facility, including
Tenant's Personal Property.
10.3 Tenant's Property.
All insurance proceeds payable by reason of any loss of or damage to
any of Tenant's Personal Property shall be paid to Tenant, and, to the extent
necessary to repair or replace Tenant's Personal Property in accordance with
Section 10.4, Tenant shall hold such proceeds in trust to pay the cost of
repairing or replacing damaged Tenant's Personal Property.
10.4 Restoration of Tenant's Property.
If Tenant is required to restore the applicable Leased Property as
hereinabove provided, Tenant shall either (a) restore all alterations and
improvements made by Tenant and Tenant's Personal Property, or (b) replace
such alterations and improvements and Tenant's Personal Property with
improvements or items of the same or better quality and utility in the
operation of such Leased Property.
10.5 No Abatement of Rent.
This Agreement shall remain in full force and effect and Tenant's
obligation to make all payments of Rent and to pay all other charges as and
when required under this Agreement shall remain unabated during the Term
notwithstanding any damage involving any of the Collective Leased Properties
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10
shall be considered an express agreement governing any cause of damage or
destruction to the applicable Leased Property and, to the maximum extent
permitted by law, no local or State statute, laws, rules, regulation or
ordinance in effect during the Term which provide for such a contingency shall
have any application in such case.
10.6 Waiver.
Tenant hereby waives any statutory rights of termination which may
arise by reason of any damage or destruction of any of the Collective Leased
Properties.
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ARTICLE 11
CONDEMNATION
11.1 Total Condemnation, Etc.
If either (i) the whole of any of the Collective Leased Properties
shall be taken by Condemnation or (ii) a Condemnation of less than the whole of
any of the Collective Leased Properties renders such Leased Property Unsuitable
for Its Primary Intended Use, this Agreement shall terminate with respect to
such Leased Property, Tenant and Landlord shall seek the Award for their
interests in such Leased Property as provided in Section 11.5 and the Minimum
Rent thereafter payable shall be reduced by one-twelfth (1/12th) of the product
of (x) ten percent (10%), and (y) the Award received by Landlord with respect
to such Leased Property, net of all expenses incurred by Landlord in obtaining
the same, including reasonable attorneys' fees.
11.2 Partial Condemnation.
In the event of a Condemnation of less than the whole of any of the
Collective Leased Properties such that such Leased Property is still suitable
for its Primary Intended Use, Tenant shall, at its sole cost and expense,
commence promptly and continue diligently to restore the untaken portion of the
Leased Improvements on such Leased Property so that such Leased Improvements
shall constitute a complete architectural unit of the same general character
and condition (as nearly as may be possible under the circumstances) as the
Leased Improvements existing immediately prior to such Condemnation, in full
compliance with all Legal Requirements. Subject to the terms hereof, Landlord
shall contribute to the cost of restoration that part of the Award necessary to
complete such repair or restoration, together with severance and other damages
awarded for the taken Leased Improvements, to Tenant regularly during the
restoration period so as to permit payment for the cost of such repair or
restoration. Landlord may, at its option, condition advancement of such Award
and other amounts on (i) the absence of any continuing Event of Default, (ii)
its approval of plans and specifications of an architect satisfactory to
Landlord (which approval shall not be unreasonably withheld or delayed), (iii)
general contractors' estimates, (iv) architect's certificates, (v)
unconditional lien waivers of general contractors, (vi) evidence of approval by
all governmental authorities and other regulatory bodies whose approval is
required and (vii) such other certificates as Landlord may, from time to time,
reasonably require. Landlord's obligation under this Section 11.2 to disburse
the Award and such other amounts shall be subject to (x) the collection thereof
by Landlord and (y) the satisfaction of any applicable requirements of any
Facility Mortgage, and the release of such Award by the applicable Facility
Mortgagee. Tenant's obligation to restore the applicable Leased Property shall
be subject to the release of the Award by the applicable Facility Mortgagee to
Landlord. If the cost of the restoration of the applicable Leased Property
exceeds that part of the Award necessary to complete such restoration, together
with severance and other damages awarded for the taken Leased Improvements,
Tenant shall contribute upon the demand of Landlord any excess amounts needed
to restore such Leased Property. Such difference shall be paid by Tenant to
Landlord and held by Landlord, together with such part of the Award and such
severance and other damages, for application to the cost of restoration.
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11.3 Abatement of Rent.
Other than as specifically provided in this Agreement, this Agreement
shall remain in full force and effect and Tenant's obligation to make all
payments of Rent and to pay all other charges as and when required under this
Agreement shall remain unabated during the Term notwithstanding any
Condemnation involving the Collective Leased Properties. The provisions of
this Article 11 shall be considered an express agreement governing any
Condemnation involving any or all of the Collective Leased Properties and, to
the maximum extent permitted by law, no local or State statute, law, rule,
regulation or ordinance in effect during the Term which provides for such a
contingency shall have any application in such case.
11.4 Temporary Condemnation.
In the event of any temporary Condemnation of all or any part of the
Collective Leased Properties or Tenant's interest therein, this Agreement shall
continue in full force and effect, and Tenant shall continue to pay, in the
manner and on the terms herein specified, the full amount of the Rent. Tenant
shall continue to perform and observe all of the other terms and conditions of
this Agreement on the part of Tenant to be performed and observed. Provided no
Default or Event of Default has occurred and is continuing, the entire amount
of any Award made for such temporary Condemnation allocable to the Term,
whether paid by way of damages, rent or otherwise, shall be paid to Tenant.
Tenant shall, promptly upon the termination of any such period of temporary
Condemnation, at its sole cost and expense, restore such Leased Property to the
condition that existed immediately prior to such Condemnation, in full
compliance with all Legal Requirements, unless such period of temporary
Condemnation shall extend beyond the expiration of the Term, in which event
Tenant shall not be required to make such restoration. For purposes of this
Section 11.4, a Condemnation shall be deemed to be temporary if the period of
such Condemnation is not expected to, and does not, exceed twenty-four (24)
months.
11.5 Allocation of Award.
Except as provided in the second sentence of this Section 11.5, the
total Award shall be solely the property of and payable to Landlord. Any
portion of the Award made for the taking of Tenant's leasehold interest in the
applicable Leased Property, loss of business during the remainder of the Term,
or Tenant's removal and relocation expenses shall be the sole property of and
payable to Tenant (subject to the provisions of Section 11.2). In any
Condemnation proceedings, Landlord and Tenant shall each seek its own Award in
conformity herewith, at its own expense.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 Events of Default.
The occurrence of any one or more of the following events shall
constitute an "EVENT OF DEFAULT" hereunder:
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(a) Tenant fails (i) to make any payment of the Rent payable
hereunder when due and such failure continues for a period of ten (10)
days after the date due, or (ii) to make any required payments of real
estate taxes by the earlier of (a) ten (10) days following Notice
from Landlord that such payment is due and owing and unpaid, and (b)
the date which is 30 days prior to the date on which a Government
Authority has the right to sell or initiate the process for selling
the applicable Leased Property due to a failure to pay the real estate
taxes. The foregoing provisions hereof notwithstanding, (x) Tenant's
failure to pay Additional Rent shall not constitute an Event of
Default, except if Tenant fails to pay Additional Rent in at least the
amount of the Allowance disbursed to date by Landlord, and (y) with
respect to the failure to pay Additional Charges that are amounts owed
to third parties (other than real estate taxes), the failure to pay
such amounts shall not constitute an Event of Default under this
Section 12.1(a) if Tenant pays the same in full, along with all
interest, penalties and late charges due and owing to such third
parties, no later than ten (10) days following Notice from Landlord
that such sum is due and owing. In the event Landlord gives Notice of
such circumstances to Tenant twice in any Lease Year, then on each
subsequent occasion for the remainder of such Lease Year when Landlord
gives Tenant any such Notice, Tenant shall pay to Landlord, as
Additional Charges (whether or not Tenant pays such third party within
ten (10) days as aforesaid), the sum of One Thousand Five Hundred
Dollars ($1,500).
(b) Tenant fails to maintain the insurance coverages required under
Article 9 within five (5) days after Notice thereof from Landlord.
(c) Tenant defaults in the due observance or performance of any of
the terms, covenants or agreements contained herein to be performed or
observed by it (other than as specified in clauses (a) and (b) above),
and, in either case, such default continues for a period of thirty
(30) days after Notice thereof from Landlord to Tenant (provided that
no such Notice shall be required if Landlord reasonably determines
that immediate action is necessary to protect person or property);
provided, however, that if such default is susceptible of cure but
such cure cannot be accomplished with due diligence within such period
of time and if, in addition, Tenant commences to cure such default
within thirty (30) days after Notice thereof from Landlord and
thereafter prosecutes the curing of such default with all due
diligence, such period of time shall be extended to such period of
time (not to exceed an additional one hundred eighty (180) days in the
aggregate) as may be necessary to cure such default with all due
diligence.
(d) Any obligation of Tenant in respect of any Indebtedness in a
principal amount in excess of $10,000,000 for money borrowed or for
the deferred purchase price of any material property or services, is
declared to be, or as a result of acceleration becomes, due and
payable prior to the stated maturity thereof.
(e) There occurs a final unappealable determination by applicable
federal or State authorities of the revocation or limitation of any
license, permit, certification, certificate of need or approval
required for the lawful operation of any of the Facilities in
accordance with its Primary Intended Use or the loss or limitation of
any license, permit,
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certification, certificate of need or approval under any other
circumstances under which Tenant is required to cease its operation of
such Facility in accordance with its Primary Intended Use at the time
of such loss or limitation, provided, however, that if Tenant ceases
its operations in such Facility pursuant to and in accordance with its
right to do so under Section 4.5 hereof, the closing thereof shall
cause such Event of Default to be deemed no longer continuing.
(f) Any representation or warranty made by or on behalf of Tenant
under or in connection with this Agreement, or in any document,
certificate, or agreement delivered in connection herewith proves to
have been false or misleading in any material respect on the date when
made or deemed made.
(g) Tenant is generally not paying its debts as they become due, or
Tenant makes a general assignment for the benefit of creditors.
(h) Any petition is filed by or against Tenant under the Federal
bankruptcy laws, or any other proceeding is instituted by or against
Tenant seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, reorganization, arrangement, adjustment or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, custodian or
other similar official for Tenant or for any substantial part of the
property of Tenant and such proceeding is not dismissed within ninety
(90) days after institution thereof, or Tenant takes any action to
authorize or effect any of the actions set forth above in this
paragraph.
(i) Tenant causes or institutes any proceeding for its dissolution
or termination.
(j) subject to Section 4.5 hereof, Tenant voluntarily ceases
operation of any of the Collective Leased Properties for its Primary
Intended Use for a period in excess of thirty (30) consecutive days,
except as a result of damage, destruction or partial or complete
Condemnation.
(k) The estate or interest of Tenant in any of the Collective
Leased Properties or any part thereof is levied upon or attached in
any proceeding and the same is not vacated or discharged within the
later of (x) one hundred and twenty (120) days after commencement
thereof, unless the amount in dispute is less than $100,000 in which
case Tenant shall give notice to Landlord of the dispute but Tenant
may defend in any suitable way, and (y) thirty (30) days after receipt
by Tenant of Notice thereof from Landlord (unless Tenant shall be
contesting such lien or attachment in good faith in accordance with
Article 8).
(l) Any Change in Control of Tenant occurs.
In any such event, Landlord, in addition to all other remedies available to it,
may terminate this Agreement with respect to all but not less than all of the
Collective Leased Properties by giving Notice thereof to Tenant and upon the
expiration of the time, if any, fixed in such Notice, this
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Agreement shall terminate and all rights of Tenant under this Agreement shall
cease. Landlord shall have and may exercise all rights and remedies available
at law and in equity to Landlord as a result of Tenant's breach of this
Agreement.
Upon the occurrence of an Event of Default, Landlord may, in addition
to any other remedies provided herein, enter upon the Collective Leased
Properties and take possession of, and either (i) retain any and all of
Tenant's Personal Property on any such Leased Property, without liability for
trespass or conversion (Tenant hereby waiving any right to Notice or hearing
prior to such taking of possession by Landlord) or (ii) sell the same at public
or private sale, after giving Tenant reasonable Notice of the time and place of
any public or private sale, at which sale Tenant or its assigns may purchase
all or any portion of Tenant's Personal Property. Unless otherwise provided by
law and without intending to exclude any other manner of giving Tenant
reasonable notice, the requirement of reasonable Notice shall be met if such
Notice is given at least five (5) days before the date of sale. The proceeds
from any such disposition shall belong to Landlord and shall not be applied as
a credit against the indebtedness which is secured by the security interest
granted in Section 7.2.
The foregoing provisions hereof notwithstanding, Landlord shall have
no right to assert any remedy hereunder, and an Event of Default shall be
deemed to no longer exist, if Tenant cures an Event of Default (A) under
Section 12.1(a) prior to the earlier of (x) the commencement by Landlord of
the exercise of any remedy under this Agreement by Landlord or (y) Landlord's
Notice to Tenant stating that an Event of Default exists and further stating
Landlord's intention to assert one or more remedies hereunder; and (B) under
any of Section 12.(b)-(l), prior to the commencement by Landlord of the
exercise of any remedy under this Agreement by Landlord.
12.2 Remedies.
None of (a) the termination of this Agreement pursuant to Section
12.1, (b) the repossession of the Collective Leased Properties, (c) the failure
of Landlord to re-let any or all of the Collective Leased Properties, or (d)
the reletting of any or all of the Collective Leased Properties, shall relieve
Tenant of its liability and obligations hereunder, all of which shall survive
any such termination, repossession or re-letting. In the event of any such
termination, Tenant shall forthwith pay to Landlord all Rent due and payable
with respect to the Collective Leased Properties through and including the date
of such termination. Thereafter, Tenant, until the end of what would have been
the Term of this Agreement in the absence of such termination, and whether or
not any of the Collective Leased Properties or any portion thereof shall have
been re-let, shall be liable to Landlord for, and shall pay to Landlord, as
current damages, the Rent and other charges which would be payable hereunder
for the remainder of the Term had such termination not occurred, less the net
proceeds, if any, of any re-letting of the Collective Leased Properties, after
deducting all expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days on which the Minimum Rent would have
been payable hereunder if this Agreement had not been so terminated.
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At any time after such termination, whether or not Landlord shall have
collected any such current damages, as liquidated final damages beyond the date
of such termination, at Landlord's election, Tenant shall pay to Landlord
either (a) an amount equal to the excess, if any, of the Rent and other charges
which would be payable hereunder from the date of such termination (assuming
that, for the purposes of this paragraph, annual payments by Tenant on account
of Impositions would be the same as payments required for the immediately
preceding twelve calendar months, or if less than twelve calendar months have
expired since the Commencement Date, the payments required for such lesser
period projected to an annual amount) for what would be the then unexpired term
of this Agreement if the same remained in effect, over the Fair Market Rental
for the same period, or (b) an amount equal to the lesser of (i) the Rent and
other charges that would have been payable for the balance of the Term had it
not been terminated, and (ii) the aggregate of the Rent and other charges
accrued in the twelve (12) months ended next prior to such termination (without
reduction for any free rent or other concession or abatement). In the event
this Agreement is so terminated prior to the expiration of the first full year
of the Term, the liquidated damages which Landlord may elect to recover
pursuant to clause (b)(ii) of this paragraph shall be calculated as if such
termination had occurred on the first anniversary of the Commencement Date.
Nothing contained in this Agreement shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency an amount equal to the maximum allowed by any statute or rule of law
in effect at the time when, and governing the proceedings in which, the damages
are to be proved, whether or not the amount be greater than, equal to, or less
than the amount of the loss or damages referred to above.
In case of any Event of Default, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (a) relet any
of the Collective Leased Properties or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms which may, at Landlord's
option, be equal to, less than or exceed the period which would otherwise have
constituted the balance of the Term and may grant concessions or free rent to
the extent that Landlord considers advisable and necessary to relet the same,
and (b) may make such reasonable alterations, repairs and decorations in any
applicable Leased Property or any portion thereof as Landlord, in its sole and
absolute discretion, considers advisable and necessary for the purpose of
reletting any such Leased Property; and the making of such alterations, repairs
and decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for any failure to relet all or any portion of the Collective
Leased Properties, or, in the event that any of the Collective Leased
Properties is relet, for failure to collect the rent under such reletting. To
the maximum extent permitted by law, Tenant hereby expressly waives any and all
rights of redemption granted under any present or future laws in the event of
Tenant being evicted or dispossessed, or in the event of Landlord obtaining
possession of any of the Collective Leased Properties, by reason of the
violation by Tenant of any of the covenants and conditions of this Agreement.
12.3 Tenant's Waiver.
IF THIS AGREEMENT IS TERMINATED PURSUANT TO SECTION 12.1 OR 12.2,
TENANT WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN
THE EVENT OF SUMMARY PROCEEDINGS TO ENFORCE THE
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REMEDIES SET FORTH IN THIS ARTICLE 12 AND THE BENEFIT OF ANY LAWS NOW OR
HEREAFTER IN FORCE EXEMPTING PROPERTY FROM LIABILITY FOR RENT OR FOR DEBT.
12.4 Application of Funds.
Any payments received by Landlord under any of the provisions of this
Agreement during the existence or continuance of any Default or Event of
Default (and any payment made to Landlord rather than Tenant due to the
existence of any Default or Event of Default) shall be applied to Tenant's
obligations under this Agreement in such order as Landlord may determine or as
may be prescribed by the laws of the State.
12.5 Landlord's Right to Cure Tenant's Default.
If an Event of Default shall have occurred and be continuing,
Landlord, after Notice to Tenant (which Notice shall not be required if
Landlord shall reasonably determine immediate action is necessary to protect
person or property), without waiving or releasing any obligation of Tenant and
without waiving or releasing any Event of Default, may (but shall not be
obligated to), at any time thereafter, make such payment or perform such act
for the account and at the expense of Tenant, and may, to the maximum extent
permitted by law, enter upon any of the Collective Leased Properties or any
portion thereof for such purpose and take all such action thereon as, in
Landlord's sole and absolute discretion, may be necessary or appropriate
therefor, including the management of the Facility located thereon by Landlord
or its designee, and Tenant hereby irrevocably appoints, in the event of such
election by Landlord, Landlord or its designee as manager of any such Facility
and its attorney in fact for such purpose, irrevocably and coupled with an
interest, in the name, place and stead of Tenant. No such entry shall be
deemed an eviction of Tenant. All reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees) incurred by Landlord in
connection therewith, together with interest thereon (to the extent permitted
by law) at the Overdue Rate from the date such sums are paid by Landlord until
repaid, shall be paid by Tenant to Landlord, on demand.
12.6 Landlord's Right to Assume Contracts.
In the event Landlord elects to terminate this Agreement or otherwise
obtains possession of the Collective Leased Properties following an Event of
Default, Landlord (or its designee) shall have the right, at its sole and
absolute discretion, upon Notice to Tenant within sixty (60) days after
Landlord terminates this Agreement or otherwise obtains possession following an
Event of Default, to assume all (but not less than all) of the contracts
utilized by Tenant in the operation of its business, including the Franchise
Agreement, and Tenant will cooperate in effecting such assumption. In no event
will Landlord (or its designee) have any liability under such contracts for
obligations or liabilities accruing under such contracts prior to the date of
such assumption by such party.
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ARTICLE 13
HOLDING OVER
Any holding over by Tenant after the expiration or sooner termination
of this Agreement shall be treated as a daily tenancy at sufferance at a rate
equal to two (2) times the Minimum Rent then in effect plus Additional Charges
and other charges herein provided (prorated on a daily basis). Tenant shall
also pay to Landlord all damages (direct or indirect) sustained by reason of
any such holding over. Otherwise, such holding over shall be on the terms and
conditions set forth in this Agreement, to the extent applicable. Nothing
contained herein shall constitute the consent, express or implied, of Landlord
to the holding over of Tenant after the expiration or earlier termination of
this Agreement.
ARTICLE 14
LANDLORD'S DEFAULT
If Landlord shall default in the performance or observance of any of
its covenants or obligations set forth in this Agreement and such default shall
continue for a period of thirty (30) days after Notice thereof from Tenant to
Landlord and any applicable Facility Mortgagee, or such additional period as
may be reasonably required to correct the same, Tenant may declare the
occurrence of a "Landlord Default" by a second Notice to Landlord and to such
Facility Mortgagee. Thereafter, Tenant may forthwith cure the same and,
subject to the provisions of the following paragraph, invoice Landlord for
costs and expenses (including reasonable attorneys' fees and court costs)
incurred by Tenant in curing the same, together with interest thereon from the
date Landlord receives Tenant's invoice, at the Overdue Rate. Tenant shall
have no right to terminate this Agreement for any default by Landlord hereunder
and no right, for any such default, to offset or counterclaim against any Rent
or other charges due hereunder.
If Landlord shall in good faith dispute the occurrence of any Landlord
Default and Landlord, before the expiration of the applicable cure period,
shall give Notice thereof to Tenant, setting forth, in reasonable detail, the
basis therefor, no Landlord Default shall be deemed to have occurred and
Landlord shall have no obligation with respect thereto until final adverse
determination thereof. If Tenant and Landlord shall fail, in good faith, to
resolve any such dispute within ten (10) days after Landlord's Notice of
dispute, either may submit the matter for resolution to a court of competent
jurisdiction.
ARTICLE 15
LANDLORD FINANCING
In the event that at any time during the Term, OpCo, or any Subsidiary
of OpCo, shall elect to obtain financing for any health care related facilities
owned or leased or to be owned or leased by OpCo, or such Subsidiary, OpCo
shall give (or cause such Subsidiary to give, as the case may be) Notice
thereof to Landlord, which notice shall set forth in reasonable detail the
terms of such financing, shall identify the source thereof and shall include a
copy of an applicable commitment letter. Landlord shall have the right,
exercisable by the giving of Notice to OpCo (or such Subsidiary, as the case
may be) within thirty (30) days after such Notice from
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OpCo (or such Subsidiary, as the case may be), to provide such financing on the
same terms and conditions as described in the Notice given to Landlord. In the
event that Landlord shall exercise such option, OpCo (or such Subsidiary, as
the case may be) shall be obligated to obtain such financing from Landlord on
the terms and conditions set forth in the Notice to Landlord. In the event
that Landlord shall decline to provide such financing or shall fail to give
such Notice to OpCo (or such Subsidiary, as the case may be), OpCo (or such
Subsidiary, as the case may be) shall be free to obtain such financing from the
party identified in, and on the terms and conditions set forth in, the Notice
given to Landlord with respect thereto. Notices to OpCo and any Subsidiary
shall be given as if a Notice to Tenant.
ARTICLE 16
SUBLETTING AND ASSIGNMENT
16.1 Subletting and Assignment.
Except as provided in Sections 16.3 and 16.5 below, Tenant shall not,
without the prior written consent of Landlord (which consent may be given or
withheld in its sole and absolute discretion), assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer this Agreement or sublease (which
term shall be deemed to include the granting of concessions, licenses and the
like), all or any part of the Collective Leased Properties or suffer or permit
this Agreement or the leasehold estate created hereby or any other rights
arising under this Agreement to be assigned, transferred, mortgaged, pledged,
hypothecated or encumbered, in whole or in part, whether voluntarily,
involuntarily or by operation of law, or permit the use or occupancy of any of
the Collective Leased Properties by anyone other than Tenant, or any of the
Collective Leased Properties to be offered or advertised for assignment or
subletting. For purposes of this Section 16.1, an assignment of this Agreement
shall be deemed to include any Change in Control of Tenant.
If this Agreement is assigned or if any of the Collective Leased
Properties or any part thereof are sublet (or occupied by anybody other than
Tenant and its employees) in contravention of this Agreement, Landlord may
collect the rents from such assignee, subtenant or occupant, as the case may
be, and apply the net amount collected to the Rent herein reserved, but no such
collection shall be deemed a waiver of the provisions set forth in the first
paragraph of this Section 16.1, the acceptance by Landlord of such assignee,
subtenant or occupant, as the case may be, as a tenant, or a release of Tenant
from the future performance by Tenant of its covenants, agreements or
obligations contained in this Agreement.
No subletting or assignment shall in any way impair the continuing
primary liability of Tenant hereunder, and no consent to any subletting or
assignment in a particular instance shall be deemed to be a waiver of the
prohibition set forth in this Section 16.1. No assignment, subletting or
occupancy shall affect any Primary Intended Use. Any subletting, assignment or
other transfer of Tenant's interest under this Agreement in contravention of
this Section 16.1 shall be voidable at Landlord's option.
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16.2 Required Sublease Provisions.
Any sublease of all or any portion of any of the Collective Leased
Properties shall provide (a) that it is subject and subordinate to this
Agreement and to the matters to which this Agreement is or shall be subject or
subordinate; (b) that in the event of termination of this Agreement or reentry
or dispossession of Tenant by Landlord under this Agreement, Landlord may, at
its option, terminate such sublease or take over all of the right, title and
interest of Tenant, as sublessor under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that neither Landlord nor any Facility
Mortgagee, as holder of a mortgage or as Landlord under this Agreement, if such
mortgagee succeeds to that position, shall (i) be liable for any act or
omission of Tenant under such sublease, (ii) be subject to any credit,
counterclaim, offset or defense which theretofore accrued to such subtenant
against Tenant, (iii) be bound by any previous modification of such sublease
not consented to in writing by Landlord or by any previous prepayment of more
than one (1) month's Rent, (iv) be bound by any covenant of Tenant to undertake
or complete any construction of such Leased Property or any portion thereof,
(v) be required to account for any security deposit of the subtenant other than
any security deposit actually delivered to Landlord by Tenant, (vi) be bound by
any obligation to make any payment to such subtenant or grant any credits,
except for services, repairs, maintenance and restoration provided for under
the sublease that are to be performed after the date of such attornment, (vii)
be responsible for any monies owing by Tenant to the credit of such subtenant,
or (viii) be required to remove any Person occupying any portion of the
Collective Leased Properties; and (c), in the event that such subtenant
receives a written Notice from Landlord or any Facility Mortgagee stating that
an Event of Default has occurred and is continuing, such subtenant shall
thereafter be obligated to pay all rentals accruing under such sublease
directly to the party giving such Notice or as such party may direct. All
rentals received from such subtenant by Landlord or the Facility Mortgagee, as
the case may be, shall be credited against the amounts owing by Tenant under
this Agreement and such sublease shall provide that the subtenant thereunder
shall, at the request of Landlord, execute a suitable instrument in
confirmation of such agreement to attorn. An original counterpart of each such
sublease and assignment and assumption, duly executed by Tenant and such
subtenant or assignee, as the case may be, in form and substance reasonably
satisfactory to Landlord, shall be delivered promptly to Landlord upon request
and (a) in the case of an assignment, the assignee shall assume in writing and
agree to keep and perform all of the terms of this Agreement on the part of
Tenant to be kept and performed and shall be, and become, jointly and severally
liable with Tenant for the performance thereof and (b) in case of either an
assignment or subletting, Tenant shall remain primarily liable, as principal
rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Tenant hereunder.
The provisions of this Section 16.2 shall not be deemed a waiver of
the provisions set forth in the first paragraph of Section 16.1.
16.3 Permitted Assignments and Subleases.
Notwithstanding the requirements set forth in Section 16.1 that
Landlord's prior written consent be obtained in connection with any assignment,
mortgage, pledge, encumbrance or other transfer of this Lease or any sublease
of all or any part of the Collective Leased Properties, but subject to the
provisions of Section 16.4 and any other express conditions or limitations set
forth
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in this Article 16, Tenant may, in each instance, (x) after Notice to Landlord,
sublease any or all of the Collective Leased Properties, or assign this
Agreement, to any Qualified Affiliate and (y) sublease space at any of the
Collective Leased Properties for laundry, commissary, child care or medical
office or other purposes in furtherance of the applicable Primary Intended Use,
so long as such sublease will not violate or affect any Legal Requirement or
Insurance Requirement, and Tenant shall provide such additional insurance
coverage applicable to the activities to be conducted in such subleased space
as Landlord may require. In connection with any sublease of any Leased
Property, or assignment of this Agreement, any and all Facilities affected by
or the subject of such transaction shall continue to be operated under and
pursuant to the Franchise Agreement, and Tenant shall provide to Landlord, upon
request, documentation confirming that the operation thereof, in such manner,
has the approval and consent of Franchisor.
16.4 Sublease Limitation.
Anything contained in this Agreement to the contrary notwithstanding,
Tenant shall not sublet any of the Collective Leased Properties on any basis
such that all or any part of the Rent would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto. This limitation shall include, but not be limited
to, situations where (a) the rental to be paid by any sublessee thereunder
would be based, in whole or in part, on the income or profits derived by the
business activities of such sublessee, or (b) the sublessee would have a
relationship to Crescent Real Estate Equities, Inc., described in Section
856(d)(2)(B) of the Code, or any similar or successor provision thereto.
16.5 Tenant's Right to Mortgage its Leasehold.
Tenant may, subject to Article 15 and Section 6.6 hereof, assign its
interest in this Agreement to a Lending Institution as collateral for
Indebtedness, provided, however, any security interests in any property of
Tenant, including without limitation Tenant's leasehold interest in the
Collective Leased Properties, shall be expressly and fully subordinated to this
Agreement and to the interest of Landlord in the Collective Leased Properties
and to the rights of any then or thereafter existing Facility Mortgagee.
ARTICLE 17
ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
17.1 Estoppel Certificates.
At any time and from time to time, upon not less than ten (10) days
prior Notice by Landlord, Tenant shall furnish to Landlord an Officer's
Certificate certifying that this Agreement is unmodified and in full force and
effect (or that this Agreement is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid,
that no Default or an Event of Default has occurred and is continuing or, if a
Default or an Event of Default shall exist, specifying in reasonable detail the
nature thereof, and the steps being taken to remedy the same, and such
additional information as Landlord may reasonably request. Any such
certificate furnished pursuant to this Section 17.1 may be relied upon by
Landlord, any
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Facility Mortgagee and any prospective purchaser or mortgagee of any of the
Collective Leased Properties.
17.2 Financial Statements.
OpCo shall furnish the following statements to Landlord:
(a) within forty-five (45) days after each of the first three
quarters of any Fiscal Year, the most recent Financials and the most
recent unaudited financial statements of OpCo accompanied by the
Financial Officer's Certificate;
(b) within one hundred twenty (120) days after the end of each
Fiscal Year, the most recent Financials for such Fiscal Year,
including the most recent financial statements of OpCo audited and
reported upon by an independent certified public accountant reasonably
satisfactory to Landlord and accompanied by a Financial Officer's
Certificate;
(c) within thirty (30) days after the end of each calendar month,
an unaudited statement of income of OpCo, accompanied by a Financial
Officer's Certificate;
(d) promptly after the sending or filing thereof, copies of all
periodic reports which OpCo files with the SEC or any stock exchange
on which its shares are listed or traded;
(e) promptly after the delivery thereof to OpCo, a copy of any
management letter or written report prepared by the certified public
accountants with respect to the financial condition, operations,
business or prospects of OpCo, as the case may be; and
(f) at the expense of Landlord, at any time and from time to time
upon not less than forty-five (45) days Notice from Landlord, any
Financials or any other financial reporting information required to be
filed by Landlord with any securities and exchange commission, the SEC
or any successor agency, or any other governmental authority, or
required pursuant to any order issued by any court, governmental
authority or arbitrator in any litigation to which Landlord is a
party, for purposes of compliance therewith, promptly, upon Notice
from Landlord, such other information concerning the business,
financial condition and affairs of Tenant as Landlord may reasonably
request from time to time.
Landlord may at any time, and from time to time, provide any Facility
Mortgagee with copies of any of the foregoing statements, provided that such
Facility Mortgagee has executed and delivered a confidentiality agreement
reasonably satisfactory to Tenant.
17.3 General Operations.
Tenant covenants and agrees to furnish to Landlord within thirty (30)
days after written request therefor:
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17.3.1 Reimbursement, Licensure, Etc.
Within thirty (30) days after receipt or modification thereof:
(a) copies of all material licenses and certificates of need
authorizing Tenant to operate each Facility for its Primary Intended
Use;
(b) a list of all Medicare and Medicaid certifications and all
related participating provider agreements; and
(c) copies of all reports of surveys, statements of deficiencies,
plans of correction, and all material correspondence relating thereto,
including, without limitation, all reports and material correspondence
concerning compliance with or enforcement of licensure,
Medicare/Medicaid, and accreditation requirements, including physical
environment and Life Safety Code survey reports (excluding, however,
correspondence which may be subject to any attorney-client privilege).
Upon Notice from Landlord from time to time, Tenant shall make
available for inspection and copying by Landlord, where such records
are kept and maintained in the normal course of business:
(d) all Medicare and Medicaid certifications, together with all
participating provider agreements and all material correspondence
relating thereto with respect to each Facility (excluding, however,
correspondence which may be subject to any attorney-client privilege);
and
(e) such other confirmation as to the licensure and Medicare and
Medicaid participation of Tenant as Landlord may reasonably request
from time to time.
17.3.2 Annual Budgets.
Not less than sixty (60) days after the commencement of any
Fiscal Year, proposed annual income and ordinary expense and capital
improvement budgets setting forth projected income and costs and expenses
projected to be incurred by Tenant in managing, owning, maintaining and
operating the Facilities during the next succeeding Fiscal Year.
ARTICLE 18
LANDLORD'S RIGHT TO INSPECT
Tenant shall permit Landlord and its authorized representatives to
inspect the Collective Leased Properties during usual business hours upon not
less than twenty-four (24) hours' notice (provided that no such notice shall be
required if Landlord shall reasonably determine immediate action is necessary
to protect person or property), and to make such repairs as Landlord is
permitted or required to make pursuant to the terms of this Agreement, provided
that any inspection or repair by Landlord or its representatives will not
unreasonably interfere with
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Tenant's use and operation of the applicable Leased Property and further
provided that in the event of an emergency, as determined by Landlord in its
sole discretion, prior Notice shall not be necessary.
ARTICLE 19
APPRAISAL
In the event that it becomes necessary to determine the Fair Market
Value or Fair Market Rental of any of the Collective Leased Properties for any
purpose of this Agreement and the parties cannot agree thereon, such Fair
Market Value or Fair Market Rental, as the case may be, shall be determined
upon the written demand of either party in accordance with the following
procedure.
The party requesting an appraisal, by Notice given to the other, shall
propose and unilaterally approve a Qualified Appraiser. The other party, by
Notice given within fifteen (15) days after receipt of such Notice appointing
the first Qualified Appraiser, may appoint a second Qualified Appraiser. If
the other party fails to appoint the second Qualified Appraiser within such
fifteen (15)-day period, such party shall have waived its right to appoint a
Qualified Appraiser, the first Qualified Appraiser shall appoint a second
Qualified Appraiser within fifteen (15) days thereafter, and the Fair Market
Value or Fair Market Rental, as the case may be, shall be determined by the
Qualified Appraisers as set forth below.
The two Qualified Appraisers shall thereupon endeavor to agree upon
the Fair Market Value or Fair Market Rental, as the case may be. If the two
Qualified Appraisers so named cannot agree upon such value or rental, as the
case may be, within thirty (30) days after the designation of the second such
appraiser, each such appraiser shall, within five (5) days after the expiration
of such thirty (30)-day period, submit his appraisal of fair market value to
the other appraiser in writing, and if the fair market values set forth in such
appraisals vary by five percent (5%) or less of the greater value, the fair
market value shall be determined by calculating the average of the two fair
market values determined by the two appraisers.
If the fair market values set forth in the two appraisals vary by more
than five percent (5%) of the greater value, the two Qualified Appraisers shall
select a third Qualified Appraiser within an additional fifteen (15) days
following the expiration of the aforesaid five (5)-day period. If the two
appraisers are unable to agree upon the appointment of a third appraiser within
such fifteen (15)-day period, either party may, upon written notice to the
other, request that such appointment be made by the then President (or
equivalent officer) of the State's Chapter of the American Institute of Real
Estate Appraisers, or his or her designee or, if there is no such organization
or if such individual declines to make such appointment, by any state or
Federal court of competent jurisdiction for the State.
In the event that all three of the appraisers cannot agree upon Fair
Market Value or Fair Market Rental, as the case may be, within twenty (20) days
following the selection of the third appraiser, each appraiser shall, within
ten (10) days thereafter, submit his appraisal of fair market value to the
other two appraisers in writing, and the fair market value shall be determined
by
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calculating the average of the two numerically closest values (or, if the
values are equidistant, the average of all three values) determined by the
three appraisers.
In the event that any appraiser appointed hereunder does not or is
unable to perform his or her obligation hereunder, then the party or the
appraisers appointing such appraiser shall have the right to propose and
approve unilaterally a substitute Qualified Appraiser, but if the party or the
appraisers who have the right to appoint a substitute Qualified Appraiser fail
to do so within ten (10) days after written notice from the other party (or
either party in the event such appraiser was appointed by the other
appraisers), either party may, upon written notice to the party having the
right to appoint a substitute Qualified Appraiser, request that such
appointment be made by such officer of the American Institute of Real Estate
Appraisers or court of competent jurisdiction as described above; provided,
however, that a party who has the right to appoint an appraiser or a substitute
appraiser shall have the right to make such appointment only up until the time
such appointment is made by such officer or court.
In connection with the appraisal process, Tenant shall provide the
appraisers full access during normal business hours to examine the applicable
Leased Property, the books, records and files of Tenant and all agreements,
leases and other operating agreements relating to the applicable Leased
Property.
The costs (other than Landlord's counsel fees) of each such appraisal
shall be borne by Tenant and shall be included as part of the Additional
Charges. Upon determining such value, the appraisers shall promptly notify
Landlord and Tenant in writing of such determination. If any party shall fail
to appear at the hearings appointed by the appraisers, the appraisers may act
in the absence of such party.
The determination of the Qualified Appraisers made in accordance with
the foregoing provisions shall be final and binding upon the parties, such
determination may be entered as an award in arbitration in a court of competent
jurisdiction, and judgment thereon may be entered.
Notwithstanding anything in this Agreement to the contrary, (x) the
parties agree that the Minimum Rent for the Fixed Term provided for in Section
1.64 hereof shall not be evidence of the Fair Market Rental for any Extended
Term, and (y) if Minimum Rent for any Extended Term as determined by appraisal
pursuant to this Article 19 is not satisfactory to Landlord, in Landlord's sole
discretion, or Franchisor elects to void Tenant's extension of the Franchise
Agreement with respect to such Extended Term pursuant to the Franchise
Agreement, then Landlord shall have the right to render void Tenant's election
to extend the Term with respect to such Extended Term upon Notice given to
Tenant no later than thirty (30) days following the later of the determination
of the Minimum Rent pursuant to this Article 19, or Franchisor's election to
render void the extension of the Franchise Agreement pursuant to the Franchise
Agreement, in which event this Agreement shall expire on the last day of the
Fixed Term or the then current Extended Term, as applicable.
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ARTICLE 20
FACILITY MORTGAGES
20.1 Landlord May Grant Liens.
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth in this Section 20.1, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement ("ENCUMBRANCE") upon any of the Collective Leased
Properties, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Any such Encumbrance
shall include the right to prepay (whether or not subject to a prepayment
penalty) and shall provide (subject to Section 20.2 below) that it is subject
to the rights of Tenant under this Agreement.
20.2 Subordination of Lease.
Subject to Section 20.1, this Agreement, any and all rights of Tenant
hereunder, are and shall be subject and subordinate to any ground or master
lease, and all renewals, extensions, modifications and replacements thereof,
and to all mortgages and deeds of trust, which may now or hereafter affect the
Collective Leased Properties, or any of them, or any improvements thereon
and/or any of such leases, whether or not such mortgages or deeds of trust
shall also cover other lands and/or buildings and/or leases, to each and every
advance made or hereafter to be made under such mortgages and deeds of trust,
and to all renewals, modifications, replacements and extensions of such leases
and such mortgages and deeds of trust and all consolidations of such mortgages
and deeds of trust. This section shall be self-operative and no further
instrument of subordination shall be required. In confirmation of such
subordination, (i) Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the holder of any
such mortgage or the trustee or beneficiary of any deed of trust or any of
their respective successors in interest may reasonably request to evidence such
subordination, and (ii) the lessor under any such lease or the holder of any
such mortgage or the trustee or beneficiary of any such deed of trust shall
execute and deliver to Tenant a Non-Disturbance Agreement reasonably
satisfactory to Tenant (taking into account, however, the reasonable
requirements of the lessor or lender, including a lender becoming such in
connection with a non-recourse securitized loan), including provisions with
respect to insurance and casualty matters.
Any lease to which this Agreement is, at the time referred to, subject
and subordinate is herein called "SUPERIOR LEASE" and the lessor of a Superior
Lease or its successor in interest at the time referred to, is herein called
"SUPERIOR LANDLORD" and any mortgage or deed of trust to which this Agreement
is, at the time referred to, subject and subordinate, is herein called
"SUPERIOR MORTGAGE" and the holder, trustee or beneficiary of a Superior
Mortgage is herein called "SUPERIOR MORTGAGEE."
If any Superior Landlord or Superior Mortgagee or the nominee or
designee of any Superior Landlord or Superior Mortgagee shall succeed to the
rights of Landlord under this Agreement with respect to one or more of the
Collective Leased Properties, whether through possession or foreclosure action
or delivery of a new lease or deed, or otherwise, then at the
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request of such party so succeeding to Landlord's rights (herein called
"SUCCESSOR LANDLORD") and upon such Successor Landlord's written agreement to
accept Tenant's attornment, Tenant shall attorn to and recognize such Successor
Landlord as Tenant's landlord under this Agreement with respect to one or more
of the Collective Leased Properties, and shall promptly execute and deliver any
instrument that such Successor Landlord may reasonably request to evidence such
attornment. Upon such attornment, this Agreement shall continue in full force
and effect as a direct lease between the Successor Landlord and Tenant upon all
of the terms, conditions and covenants as are set forth in this Agreement,
except that the Successor Landlord (unless formerly the landlord under this
Agreement or its nominee or designee) shall not be (a) liable in any way to
Tenant for any act or omission, neglect or default on the part of Landlord
under this Agreement, (b) responsible for any monies owing by or on deposit
with Landlord to the credit of Tenant, (c) subject to any counterclaim or
setoff which theretofore accrued to Tenant against Landlord, (d) bound by any
modification of this Agreement subsequent to such Superior Lease or Mortgage,
or by any previous prepayment of Minimum Rent or Additional Rent for more than
one (1) month, which was not approved in writing by the Superior Landlord or
the Superior Mortgagee thereto, (e) liable to Tenant beyond the Successor
Landlord's interest in the applicable Leased Property and the rents, income,
receipts, revenues, issues and profits issuing from such Leased Property, (f)
responsible for the performance of any work to be done by the Landlord under
this Agreement to render the applicable Leased Property ready for occupancy by
Tenant, or (g) required to remove any Person occupying the applicable Leased
Property or any part thereof, except if such person claims by, through or under
the Successor Landlord. Tenant agrees at any time and from time to time to
execute a suitable instrument in confirmation of Tenant's agreement to attorn,
as aforesaid.
20.3 Notice to Mortgagee and Ground Landlord.
Subsequent to the receipt by Tenant of notice from any Person that it
is a Facility Mortgagee or that it is the ground lessor under a lease with
Landlord, as ground lessee, which includes the applicable Leased Property as
part of the demised premises, no notice from Tenant to Landlord as to the
applicable Leased Property shall be effective unless and until a copy of the
same is given to such Facility Mortgagee or ground lessor, and the curing of
any of Landlord's defaults by such Facility Mortgagee or ground lessor shall be
treated as performance by Landlord.
ARTICLE 21
ADDITIONAL COVENANTS OF TENANT
21.1 Conduct of Business.
Tenant shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect and in good standing its corporate
existence and its rights and licenses necessary to conduct such business.
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21.2 Maintenance of Accounts and Records.
Tenant shall keep records and books of account in which full, true and
correct entries in all material respects will be made of dealings and
transactions in relation to the business and affairs of Tenant.
21.3 Payments to Franchisor.
All payments by Tenant of Franchise Fees under the Franchise Agreement
shall be subordinated to payments of Rent (other than Non-Priority Additional
Rent) due to Landlord to the extent and on the terms provided in the Franchise
Subordination Agreement, and Tenant shall not make any payment of the Franchise
Fees, directly or indirectly, or set apart any sum or property therefor, or
agree to do so, other than as permitted in and by the Franchise Subordination
Agreement.
21.4 Management of Collective Leased Properties.
Tenant shall not enter into any Management Agreement unless the terms
thereof have been previously approved in writing by Landlord, which approval
may be given or withheld in Landlord's sole and absolute discretion, except for
Management Agreements between OpCo and a Facility Subsidiary. All management
fees, payments in connection with any extension of credit and fees for services
provided in connection with the operation of the applicable Leased Property,
payable by Tenant or any Affiliated Person as to Tenant shall be subordinated
to all of the obligations of Tenant due under this Agreement pursuant to a
Subordination Agreement. Tenant shall not agree to any change in the Manager
of any of the Collective Leased Properties and/or any Facility, to any change
in any Management Agreement, terminate any Management Agreement or permit any
Manager to assign any Management Agreement without the prior written approval
of Landlord in each instance, which approval may be given or withheld in
Landlord's sole and absolute discretion. Any Management Agreement shall
provide that Landlord shall be provided notice of any defaults thereunder and,
at Landlord's option, an opportunity to cure such defaults and shall otherwise
be in form and substance satisfactory to Landlord in its sole and absolute
discretion. If Landlord shall cure any of Tenant's defaults under any
Management Agreement, the cost of such cure shall be payable upon demand by
Tenant to Landlord with interest accruing from the demand date at the Overdue
Rate and Landlord shall have the same rights and remedies for failure to pay
such costs on demand as for Tenant's failure to pay Minimum Rent. Tenant shall
deliver to Landlord any instrument requested by Landlord to implement the
intent of the foregoing provision.
21.5 Liens and Encumbrances.
Except as permitted by Sections 7.1 and 16.5, Tenant shall not create
or incur or suffer to be created or incurred or to exist any Lien on this
Agreement or Tenant's Personal Property now or at any time hereafter owned,
other than:
(a) Security interests securing the purchase price of equipment or
personal property acquired after the Commencement Date; provided,
however, that (i) such Lien shall at all times be confined solely to
the asset in question; and (ii) the aggregate
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principal amount of Indebtedness secured by any such Lien shall not
exceed the cost of acquisition or construction of the property subject
thereto; and
(b) Permitted Encumbrances.
ARTICEL 22
MISCELLANEOUS
22.1 Limitation on Payment of Rent.
All agreements between Landlord and Tenant herein are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of Rent, or otherwise, shall the Rent or any other amounts payable
to Landlord under this Agreement exceed the maximum permissible under
applicable law, the benefit of which may be asserted by Tenant as a defense,
and if, from any circumstance whatsoever, fulfillment of any provision of this
Agreement, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, or if from any
circumstances Landlord should ever receive as fulfillment of such provision
such an excessive amount, then, ipso facto, the amount which would be excessive
shall be applied to the reduction of the installment(s) of Minimum Rent next
due and not to the payment of such excessive amount. This provision shall
control every other provision of this Agreement and any other agreements
between Landlord and Tenant.
22.2 No Waiver.
No failure by Landlord to insist upon the strict performance of any
term hereof or to exercise any right, power or remedy consequent upon a breach
thereof, and no acceptance of full or partial payment of Rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term. To the maximum extent permitted by law, no waiver of any
breach shall affect or alter this Agreement, which shall continue in full force
and effect with respect to any other then existing or subsequent breach.
22.3 Remedies Cumulative.
To the maximum extent permitted by law, each legal, equitable or
contractual right, power and remedy of Landlord, now or hereafter provided
either in this Agreement or by statute or otherwise, shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Landlord of any one or more of
such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Landlord of any or all of such other rights, powers and
remedies.
22.4 Severability.
Any clause, sentence, paragraph, section or provision of this
Agreement held by a court of competent jurisdiction to be invalid, illegal or
ineffective shall not impair, invalidate or nullify the remainder of this
Agreement, but rather the effect thereof shall be confined to the clause,
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<PAGE> 66
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be construed as if such invalid, illegal
or ineffective provisions had never been contained therein.
22.5 Acceptance of Surrender.
No surrender to Landlord of this Agreement or of any of the Collective
Leased Properties or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Landlord and no
act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.
22.6 No Merger of Title.
It is expressly acknowledged and agreed that it is the intent of the
parties that there shall be no merger of this Agreement or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly this Agreement or the leasehold estate
created hereby and the fee estate or ground landlord's interest in any of the
Collective Leased Properties.
22.7 Conveyance by Landlord.
If Landlord or any successor owner of all or any portion of any of the
Collective Leased Properties shall convey all or any portion of the Collective
Leased Properties in accordance with the terms hereof other than as security
for a debt, and the grantee or transferee of such of the Collective Leased
Properties shall expressly assume all obligations of Landlord hereunder arising
or accruing from and after the date of such conveyance or transfer, Landlord or
such successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Landlord under this Agreement with
respect to such of the Collective Leased Properties arising or accruing from
and after the date of such conveyance or other transfer and all such future
liabilities and obligations shall thereupon be binding upon the new owner.
22.8 Quiet Enjoyment.
So long as Tenant shall pay the Rent as the same becomes due and shall
comply with all of the terms of this Agreement, Tenant shall peaceably and
quietly have, hold and enjoy the Collective Leased Properties for the Term,
free of hindrance or molestation by Landlord or anyone claiming by, through or
under Landlord, but subject to (a) any Encumbrance permitted under Article 20
or otherwise permitted to be created by Landlord hereunder, (b) all Permitted
Encumbrances, (c) liens as to obligations of Landlord that are either not yet
due or which are being contested in good faith and by proper proceedings, and
(d) liens that have been consented to in writing by Tenant. Except as
otherwise provided in this Agreement, no failure by Landlord to comply with the
foregoing covenant shall give Tenant any right to cancel or terminate this
Agreement or abate, reduce or make a deduction from or offset against the Rent
or any other sum payable under this Agreement, or to fail to perform any other
obligation of Tenant hereunder.
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<PAGE> 67
22.9 Landlord's Consent.
Where provision is made in this Agreement for Landlord's consent and
Landlord shall fail or refuse to give such consent, Tenant shall not be
entitled to any damages for any withholding by Landlord of its consent, it
being intended that Tenant's sole remedy shall be an action for specific
performance or injunction, and that such remedy shall be available only in
those cases where Landlord has expressly agreed in writing not unreasonably to
withhold its consent.
22.10 Memorandum of Lease.
Neither Landlord nor Tenant shall record this Agreement. However,
Landlord and Tenant shall promptly, upon the request of the other, enter into a
short form memorandum of this Agreement, in form suitable for recording under
the laws of the State in which reference to this Agreement, and all options
contained herein, shall be made. Tenant shall pay all costs and expenses of
recording such memorandum.
22.11 Notices.
(a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same
shall be delivered either in hand, by telecopier with written
acknowledgment of receipt, or by mail or Federal Express or similar
expedited commercial carrier, addressed to the recipient of the
notice, postpaid and registered or certified with return receipt
requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).
(b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the
date of acknowledged receipt, in the case of a notice by telecopier,
and, in all other cases, upon the date of receipt or refusal, except
that whenever under this Agreement a notice is either received on a
day which is not a Business Day or is required to be delivered on or
before a specific day which is not a Business Day, the day of receipt
or required delivery shall automatically be extended to the next
Business Day.
(c) All such notices shall be addressed:
if to Landlord to:
Gerald W. Haddock, Esq.
Chief Executive Officer and President
CRE Management VII Corp.
777 Main Street
Suite 2100
Forth Worth, Texas 76102
Facsimile: (817) 878-0429
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<PAGE> 68
with copies to:
David M. Dean, Esq.
Senior Vice President, Law
CRE Management VII Corp.
777 Main Street
Suite 2100
Forth Worth, Texas 76102
Facsimile: (817) 878-0429
and
Wendelin A. White, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, DC 20037
Facsimile: (202) 663-8007
If to Tenant to:
Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
with a copy to:
Robert W. Miller, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile: (404) 572-5100
(d) By notice given as herein provided, the parties hereto and
their respective successor and assigns shall have the right from time
to time and at any time during the term of this Agreement to change
their respective addresses effective upon receipt by the other parties
of such notice and each shall have the right to specify as its address
any other address within the United States of America.
22.12 Construction.
Anything contained in this Agreement to the contrary notwithstanding,
all claims against, and liabilities of, Tenant or Landlord arising prior to any
date of termination or expiration of this
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<PAGE> 69
Agreement with respect to any of the Collective Leased Properties shall survive
such termination or expiration. In no event shall Landlord be liable for any
consequential damages suffered by Tenant as the result of a breach of this
Agreement by Landlord. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party to be charged. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Each term or provision of this
Agreement to be performed by Tenant shall be construed as an independent
covenant and condition. Time is of the essence with respect to the exercise of
any rights of Tenant under this Agreement. Except as otherwise set forth in
this Agreement, any obligations of Tenant and Landlord (including without
limitation, any monetary, repair and indemnification obligations) shall survive
the expiration or sooner termination of this Agreement.
22.13 Counterparts; Headings.
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but which, when taken together, shall
constitute but one instrument and shall become effective as of the date hereof
when copies hereof, which, when taken together, bear the signatures of each of
the parties hereto shall have been signed. Headings in this Agreement are for
purposes of reference only and shall not limit or affect the meaning of the
provisions hereof.
22.14 Applicable Law, Etc.
This Agreement shall be interpreted, construed, applied and enforced
in accordance with the laws of the State of Delaware applicable to contracts
between residents of Delaware which are to be performed entirely within
Delaware, regardless of (i) where this Agreement is executed or delivered; or
(ii) where any payment or other performance required by this Agreement is made
or required to be made; or (iii) where any breach of any provision of this
Agreement occurs, or any cause of action otherwise accrues; or (iv) where any
action or other proceeding is instituted or pending; or (v) the nationality,
citizenship, domicile, principal place of business, or jurisdiction of
organization or domestication of any party; or (vi) whether the laws of the
forum jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Delaware; or (vii) any combination of the foregoing.
Notwithstanding the foregoing, the laws of the State shall apply to the
perfection and priority of liens upon and the disposition of and disposition
with respect to any of the Collective Leased Properties.
To the maximum extent permitted by applicable law, any action to
enforce, arising out of, or relating in any way to, any of the provisions of
this Agreement may be brought and prosecuted in such court or courts located in
the State of Delaware as is provided by law; and the parties consent to the
jurisdiction of said court or courts located in the State of Delaware and to
service of process by registered mail, return receipt requested, or by any
other manner provided by law.
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<PAGE> 70
22.15 Substitution of Leased Properties.
Provided no Default or Event of Default has occurred and is continuing
at the time of exercise of the right provided for in this Section 22.15, Tenant
shall have the right, from time to time, to substitute for a Designated Leased
Property another parcel of improved real property meeting criteria hereinafter
set forth and otherwise acceptable to Landlord (the "SUBSTITUTE LEASED
PROPERTY"). If Tenant makes such election, Tenant shall give Notice to
Landlord of Tenant's intention proposing a substitution closing date (the
"SUBSTITUTION DATE") not less than sixty (60) days or more than one-hundred
twenty (120) days from the date of such Notice and offering to Landlord a
proposed Substitute Leased Property meeting the following criteria: the
Substitute Leased Property shall be improved with a Comparable Facility; shall
have a total value equal to or greater than the total value of the Designated
Leased Property to Landlord (each as reasonably determined by Landlord); shall
be freely transferable to Landlord unencumbered by any existing lease,
mortgage, or other encumbrance; and shall be subject to no other exceptions to
title except those approved by Landlord, which approval shall not be
unreasonably withheld. Tenant shall convey the Substitute Leased Property to
Landlord in exchange for the Designated Leased Property, Landlord shall
simultaneously exchange the Designated Leased Property, for the Substitute
Leased Property, and the parties shall simultaneously execute and deliver an
amendment to this Lease. The Landlord shall have thirty (30) days following
receipt of such Notice within which to accept or reject such offer; provided,
however, that Landlord shall have at least ten (10) days following receipt of
any appraisal of the Substitute Leased Property or the Designated Leased
Property (or both) requested by Landlord within which to accept or reject such
offer. If Landlord accepts the proposed Substitute Leased Property, the
substitution shall proceed in a manner (a) intended to qualify such
substitution as a "like-kind" exchange within the meaning of Section 1031 of
the Internal Revenue Code of 1986, as amended (the "CODE") with respect to
Landlord, and (b) which will satisfy Landlord's requirements related to
taxation as a real estate investment trust. Landlord may demand, at Tenant's
expense, a reasonably acceptable opinion of counsel or private letter ruling
from the Internal Revenue Service indicating that the substitution will have no
material adverse tax consequences to Landlord. After closing, the Substitute
Leased Property shall be deemed a Leased Property for all purposes.
Substitution hereunder and the closing shall be made on the following terms and
shall be subject to the following conditions:
(a) on the Substitution Date, Tenant shall execute, acknowledge and
deliver to Landlord a warranty deed in the customary form for the
relevant jurisdiction conveying to Landlord, free and clear of any
title exceptions except those approved by Landlord as set forth above,
title to the Substitute Leased Property, and Landlord shall
simultaneously execute, acknowledge and deliver to Tenant a warranty
deed conveying to Tenant, free and clear of title exceptions, except
Permitted Encumbrances and those approved by Tenant (based on the same
criteria for approval as for Landlord), title to the Designated Leased
Property; provided, however, that in no event shall Landlord have any
obligation to cure or remove title exceptions affecting the Designated
Leased Property, Tenant's only recourse being to designate an
alternative Designated Leased Property for substitution or to rescind
its Notice of election to substitute a Substitute Leased Property.
(b) on or prior to the Substitution Date, Landlord and Tenant shall
have executed, acknowledged and delivered an amendment to this Lease
(the "AMENDMENT TO LEASE") (the Lease, as amended, herein referred to
as the "AMENDED LEASE") which shall provide
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<PAGE> 71
for the deletion of the legal description of the Designated Leased
Property and the substitution of the legal description of the
Substitute Leased Property therefor.
(c) Tenant shall have provided Landlord, at Tenant's sole cost,
with a title insurance policy satisfactory in form and substance to
Landlord, effective on the date of exchange, covering the Substitute
Leased Property and containing no exceptions to title to the
Substitute Leased Property other than encumbrances approved by
Landlord as provided herein, and having such affirmative insurance and
endorsements as may be required by Landlord.
(d) Tenant shall have provided Landlord with representations and
warranties with respect to the Substitute Leased Property reasonably
satisfactory to Landlord (unless otherwise reasonably required,
generally similar to the representations and warranties contained in
Section 6.1 of that certain Real Estate Purchase and Sale Agreement
dated as of January 29, 1997, as amended through the date hereof by
and between Magellan Health Services, Inc., as seller, and Crescent
Real Estate Equities Limited Partnership, predecessor in interest of
Landlord, as purchaser (the "PURCHASE AGREEMENT")), such
representations and warranties shall survive the closing and Landlord
shall have the same remedies for breach thereof as are provided for in
the Purchase Agreement.
(e) Tenant shall provide Landlord with documentation satisfactory
to Landlord confirming that Tenant has the right to operate the
Substitute Leased Property in accordance with the Primary Intended Use
and under and pursuant to the Franchise Agreement.
(f) Tenant shall reimburse Landlord, as Additional Charges, for any
and all costs and expenses incurred by Landlord, including Landlord's
reasonable attorneys' fees, in effecting the substitution proposed
(whether or not closing occurs).
Landlord and Tenant hereby covenant that once the Notice of intent to
substitute a Substitute Leased Property for the Designated Leased Property
described therein has been delivered and Landlord accepts the Substitute Leased
Property identified therein, each party will promptly perform all acts and
deliver all documents required on its part to be delivered or to satisfy the
conditions of closing set forth herein. In the event that the Substitute
Leased Property has not been exchanged for the Designated Leased Property
within thirty (30) days after the Substitution Date specified in Tenant's
Notice of its intention to substitute by reason of the acts or omissions of one
party, then the other party shall have the right to elect not to proceed with
the substitution.
Tenant covenants that, following the closing of the exchange of the
Substitute Leased Property, neither it nor any of its Affiliated Persons will
use the Designated Leased Property as a facility having as its primary use the
Primary Intended Use for at least one year after the Substitution Date.
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<PAGE> 72
22.16 No Broker.
Each party hereby represents and warrants to the other that it has not
engaged, dealt with or otherwise discussed this transaction with any broker,
agent or finder. Each party agrees to indemnify and hold the other harmless
from and against any claim arising out of a breach of the foregoing agreement
and representation and warranty.
22.17 Confidentiality.
Landlord shall maintain the confidentiality of information provided by
Tenant pursuant to Sections 17.2 and 17.3 hereof or otherwise under this
Agreement. Landlord may, however, disclose such information to its attorneys,
consultants, partners, directors, officers and employees, and lenders and
purchasers (actual and potential). As a condition of such disclosure to any
lender or purchaser (actual or potential), such lender or purchaser shall be
obligated to execute a Confidentiality Agreement reasonably satisfactory to
Tenant. The provisions of this Section 22.18 shall not be applicable to
disclosure of information required by applicable law, rule or regulation or the
order of any court.
IN WITNESS WHEREOF, the parties have executed this Agreement as a
sealed instrument as of the date above first written.
LANDLORD:
CRESCENT REAL ESTATE FUNDING VII, L.P.
Attest: By: CRE Management VII Corp.
/s/ Sylvia M. Mahaffey By: /s/David M. Dean
Name: Sylvia M. Mahaffey David M. Dean
Title: Assistant Secretary Senior Vice President, Law
- 65 -
<PAGE> 73
TENANT:
Attest: CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
/s/ Jay P. Moran By: /s/ Mark Ford
Name: Jay P. Moran Name: Mark Ford
Title: Title: Secretary
Attest: FACILITY SUBSIDIARIES
/s/ Jay P. Moran By: /s/ John R. Hamilton III
Name: Jay P. Moran John R. Hamilton III
Title: Executive Vice President of each
of the Limited Liability Companies
and of each Sole General Partner
of each of the Limited Partnerships
listed on Exhibit B attached
hereto, on behalf of each of the
said Limited Liability Companies
and Limited Partnerships
- 66 -
<PAGE> 74
EXHIBIT A
The Land
[Exhibit omitted]
- 67 -
<PAGE> 75
EXHIBIT B
Facility Subsidiaries
[Exhibit omitted]
- 68 -
<PAGE> 76
FIRST AMENDMENT TO MASTER LEASE AGREEMENT
This First Amendment to Master Lease Agreement (this "Amendment No. 1")
is entered into as of the 30th day of September, 1997 by and between CRESCENT
REAL ESTATE FUNDING VII, L.P., a Delaware limited partnership ("LANDLORD") and
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC, a Delaware limited liability company
("OPCO"), and each of the entities listed on Exhibit A attached hereto (the
"Facility Subsidiaries").
W I T N E S S E T H:
WHEREAS, by the Master Lease Agreement dated June 16, 1997 (the "MASTER
LEASE"), Landlord leased to OpCo and each of the Facility Subsidiaries the
collective leased properties (as defined therein); and
WHEREAS, pursuant to that letter agreement dated September 29, 1997 (the
"LETTER AGREEMENT") among OpCo, Charter Sioux Falls Behavioral Health System,
LLC, being one of the Facility Subsidiaries ("CHARTER SIOUX FALLS"), and
Landlord, OpCo and Charter Sioux Falls instructed and authorized Landlord, and
Landlord agreed, to sell one of the Collective Leased Properties, being that
described on Exhibit A to the Master Lease (the "PROPERTY EXHIBIT") as No. 75,
2812 South Louise Avenue, Sioux Falls, South Dakota (the "SIOUX FALLS
PROPERTY"); and
WHEREAS, pursuant to the Letter Agreement, Landlord entered into that
certain Agreement of Purchase and Sale (the "PURCHASE AGREEMENT") dated as of
September 29, 1997 with Sioux Valley Hospital ("SVH") with respect to the Sioux
Falls Property; and
WHEREAS, pursuant to the Purchase Agreement, the closing for the sale of
the Sioux Falls Property to SVH is to occur on September 30, 1997; and
WHEREAS, in connection with the sale of the Sioux Falls Property, the
parties desire to amend the Master Lease to exclude the Sioux Falls Property
therefrom effective as of the date hereof;
WHEREAS, pursuant to that Assignment and Assumption of Master Lease
Agreement, dated July 30, 1997 (the "PTC ASSIGNMENT"), by and between OpCo, each
of the Facility Subsidiaries (collectively, "ASSIGNOR"), and Charter Behavioral
Health System at Pinellas Treatment Center, LP ("PTC ASSIGNEE"), Assignor
assigned to PTC Assignee all of Assignor's right, title and interest in the
Master Lease with respect to that portion of the Collective Leased Properties
located at 12895 Seminole Boulevard, Largo, Florida, identified as No. 23 on the
Property Exhibit (the "PTC PROPERTY"), pursuant to the terms and conditions set
forth in the PTC Assignment, a copy of which is attached hereto as Exhibit B;
and
WHEREAS, pursuant to that Assignment and Assumption of Master Lease
Agreement, dated August 14, 1997 (the "LAUREL HEIGHTS ASSIGNMENT"), by and
between Assignor
<PAGE> 77
and Schizophrenia Treatment and Rehabilitation, LLC ("STAR ASSIGNEE"), Assignor
assigned to STAR Assignee all of Assignor's right, title and interest in the
Master Lease with respect to those portions of the Collective Leased Properties
located at: (i) 204 Church Street, Decatur, Georgia; (ii) 1332 Weston Drive,
Decatur, Georgia; and (iii) 450 S. Susan Creek Drive, Stone Mountain, Georgia,
identified as Nos. 34, 35 and 36, respectively (collectively, the "LAUREL
HEIGHTS PROPERTIES"), pursuant to the terms and conditions set forth in the
Laurel Heights Assignment, a copy of which is attached hereto as Exhibit C; and
WHEREAS, in connection with the PTC Assignment and the Laurel Heights
Assignment, the parties hereto desire to amend the Master Lease to reflect such
assignments;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined terms used herein with an initial capital letter(s) and
not otherwise defined herein shall have the meanings given them in the Master
Lease.
2. Effective as of September 30, 1997 (the "PARTIAL TERMINATION
DATE"), the Master Lease shall be and is hereby terminated solely with respect
to the Sioux Falls Property, so that the Master Lease shall be of no further
force and effect thereafter solely with respect to the Sioux Falls Property,
subject to the conditions otherwise set forth herein. Effective as of the
Partial Termination Date, the defined term "Collective Leased Properties" shall
not include the Sioux Falls Property. Accordingly, the Property Exhibit shall be
and is hereby amended to delete all references to the Sioux Falls Property. An
amended copy of the Property Exhibit is attached hereto as Exhibit D. Tenant
shall remain responsible for all obligations relating to the Sioux Falls
Property pursuant to the Master Lease accruing or arising through the Partial
Termination Date. The Master Lease shall remain in full force and effect with
respect to all of the other Collective Leased Properties.
3. Exhibit B to the Master Lease (the "FACILITY SUBSIDIARIES
EXHIBIT") shall be and is hereby amended to reflect (i) PTC Assignee as the
lessee, in conjunction with Assignor, of the PTC Property pursuant to the terms
and conditions set forth in the PTC Assignment and (ii) STAR Assignee as the
lessee, in conjunction with Assignor, of the Laurel Heights Properties pursuant
to the terms and conditions set forth in the Laurel Heights Assignment.
Assignor, PTC Assignee and Star Assignee are all jointly and severally liable
for all of Tenant's obligations under the Master Lease. An amended copy of the
Facility Subsidiaries Exhibit is attached hereto as Exhibit E.
4. Except as amended hereby, the Master Lease remains in full force
and effect, including, without limitation, those provisions relating to the
payment of Minimum Rent. If any provision of the original Master Lease conflicts
with this Amendment No. 1, this Amendment No. 1 shall control.
<PAGE> 78
5. The provisions of this Amendment No. 1 shall be binding upon and
inure to the benefit of the parties hereto and each of their respective
successors and assigns.
6. This Amendment No. 1 may be executed in counterpart copies, each
complete set of which shall constitute an original instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as a sealed instrument as of the date first above written.
LANDLORD:
CRESCENT REAL ESTATE FUNDING VII, L.P.
Attest: By: CRE Management VII Corp.
/s/ Shannon Gilbert By: /s/ Bruce A. Picker
Name: Shannon Gilbert Name: Bruce A. Picker
Title: Assistant General Counsel Title: Vice President, Treasurer
TENANT:
Attest: CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
/s/ Mark Ford By: /s/ Ramie Little
Name: Mark Ford Name: Ramie Little
Title: Secretary Title: Vice President,
Business Development
Attest: FACILITY SUBSIDIARIES
/s/ Joseph M. Coburn By: /s/ John R. Hamilton III
Name: Joseph M. Coburn John R. Hamilton
Title: Assistant Secretary Executive Vice President of each of
the Limited Liability Companies and
of each sole General Partner of each
of the Limited Partnerships listed on
Exhibit A attached hereto, PTC
Assignee and STAR Assignee, on behalf
of each of the said Limited Liability
companies and Limited Partnerships
<PAGE> 79
EXHIBIT A
Facility Subsidiaries
[Exhibit omitted]
<PAGE> 80
EXHIBIT B
PTC Assignment
[Exhibit omitted]
<PAGE> 81
EXHIBIT C
Laurel Heights Assignment
[Exhibit omitted]
<PAGE> 82
EXHIBIT D
Amended Property Exhibit
[Exhibit omitted]
<PAGE> 83
EXHIBIT E
Amended Facilities Exhibit
[Exhibit omitted]
<PAGE> 84
SECOND AMENDMENT TO MASTER LEASE AGREEMENT
This Second Amendment to Master Lease Agreement (this "Amendment No. 2")
is entered into as of the 30th day of December, 1997 by and between CRESCENT
REAL ESTATE FUNDING VII, L.P., a Delaware limited partnership ("LANDLORD") and
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC, a Delaware limited liability company
("OPCO"), and each of the entities listed on Exhibit A attached hereto (the
"Facility Subsidiaries").
W I T N E S S E T H:
WHEREAS, by the Master Lease Agreement dated June 16, 1997, as amended
by the First Amendment to Master Lease Agreement dated September 30, 1997 (the
"MASTER LEASE"), Landlord leased to OpCo and each of the Facility Subsidiaries
the collective leased properties (as defined therein); and
WHEREAS, pursuant to that letter agreement dated October 28, 1997 (the
"LETTER AGREEMENT") among OpCo, Charter Behavioral Health System of Lake
Charles, LLC, being one of the Facility Subsidiaries ("CHARTER LAKE CHARLES"),
and Landlord, OpCo and Charter Lake Charles instructed and authorized Landlord,
and Landlord agreed, to sell one of the Collective Leased Properties, being that
described on Exhibit A to the Master Lease (the "PROPERTY EXHIBIT") as No. 53,
Lake Charles, 4250 Fifth Avenue, South, Lake Charles, Calcasieu County,
Louisiana (the "LAKE CHARLES PROPERTY"); and
WHEREAS, pursuant to the Letter Agreement, Landlord entered into that
certain Agreement of Purchase and Sale (the "PURCHASE AGREEMENT") dated as of
November 3, 1997 with St. Patrick Hospital of Lake Charles ("SPH") with respect
to the Lake Charles Property; and
WHEREAS, pursuant to the Purchase Agreement, the closing for the sale of
the Lake Charles Property to SPH is to occur on or before December 30, 1997; and
WHEREAS, in connection with the sale of the Lake Charles Property, the
parties desire to amend the Master Lease to exclude the Lake Charles Property
therefrom effective as of the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined terms used herein with an initial capital letter(s) and
not otherwise defined herein shall have the meanings given them in the Master
Lease.
2. Effective as of December 30, 1997 (the "PARTIAL TERMINATION
DATE"), the Master Lease shall be and is hereby terminated solely with respect
to the Lake
<PAGE> 85
Charles Property, so that the Master Lease shall be of no further force and
effect thereafter solely with respect to the Lake Charles Property, subject to
the conditions otherwise set forth herein. Effective as of the Partial
Termination Date, the defined term "Collective Leased Properties" shall not
include the Lake Charles Property. Accordingly, the Property Exhibit shall be
and is hereby amended to delete all references to the Lake Charles Property.
Tenant shall remain responsible for all obligations relating to the Lake Charles
Property pursuant to the Master Lease accruing or arising through the Partial
Termination Date. The Master Lease shall remain in full force and effect with
respect to all of the other Collective Leased Properties.
3. Except as amended hereby, the Master Lease remains in full force
and effect, including, without limitation, those provisions relating to the
payment of Minimum Rent. If any provision of the original Master Lease conflicts
with this Amendment No. 2, this Amendment No. 2 shall control.
4. The provisions of this Amendment No. 2 shall be binding upon and
inure to the benefit of the parties hereto and each of their respective
successors and assigns.
5. This Amendment No. 2 may be executed in counterpart copies, each
complete set of which shall constitute an original instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 2 as a sealed instrument as of the date first above written.
LANDLORD:
CRESCENT REAL ESTATE FUNDING VII, L.P.
Attest: By: CRE Management VII Corp.
/s/ David M. Dean By: /s/ Bruce A. Picker
Name: David M. Dean Name: Bruce A. Picker
Title: Senior Vice President, Law Title: Vice President, Treasurer
TENANT:
Attest: CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
/s/ Mark Ford By: /s/ Ramie C. Little
Name: Mark Ford Name: Ramie C. Little
Title: Vice President Title: Vice President
Attest: FACILITY SUBSIDIARIES
/s/ Mark Ford By: /s/ John R. Hamilton III
Name: Mark Ford John R. Hamilton
Title: Vice President Executive Vice President of each of
the Limited Liability Companies and
of each sole General Partner of each
of the Limited Partnerships listed on
Exhibit A attached hereto
<PAGE> 86
EXHIBIT A
Facility Subsidiaries
[Exhibit omitted]
<PAGE> 1
CRESCENT REAL ESTATE EQUITIES COMPANY
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Pretax Income from Continuing Operations 135,024 $ 47,951 $ 36,358
Interest Expense 86,441 42,926 18,781
Amortization of Deferred Financing Costs 3,499 2,812 2,500
---------- ---------- ----------
Earnings 224,964 $ 93,689 $ 57,639
========== ========== ==========
Interest Expense 86,441 42,926 18,781
Capitalized Interest 2,030 946 916
Amortization of Deferred Financing Costs 3,499 2,812 2,500
---------- ---------- ----------
Fixed Charges 91,970 $ 46,684 $ 22,197
========== ========== ==========
Ratio of Earnings to Fixed Charges 2.45 2.01 2.60
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES
1. Crescent Real Estate Equities, Ltd., a Delaware corporation
2. Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership
3. CRE Management I Corp., a Delaware corporation
4. CRE Management II Corp., a Delaware corporation
5. CRE Management III Corp., a Delaware corporation
6. CRE Management IV Corp., a Delaware corporation
7. CRE Management V Corp., a Delaware corporation
8. CRE Management VI Corp., a Delaware corporation
9. CRE Management VII Corp., a Delaware corporation
10. Crescent Real Estate Funding I, L.P., a Delaware limited partnership
11. Crescent Real Estate Funding II, L.P., a Delaware limited partnership
12. Crescent Real Estate Funding III, L.P., a Delaware limited partnership
13. Crescent Real Estate Funding IV, L.P., a Delaware limited partnership
14. Crescent Real Estate Funding V, L.P., a Delaware limited partnership
15. Crescent Real Estate Funding VI, L.P., a Delaware limited partnership
16. Crescent Real Estate Funding VII, L.P., a Delaware limited partnership
17. Crescent Entertainment Company, L.P., a Texas limited partnership
18. Crescent Entertainment Management L.L.C., a Texas limited liability
company
19. CEC Management, L.L.C., a Texas limited liability company
20. Crescent Duddlesten Hotel Partnership, L.P., a Texas limited partnership
21. CresCal Properties, L.P., a Delaware limited partnership
22. CresCal Properties, Inc., a Delaware corporation
23. Woodlands Office Equities - '95 Limited, a Texas limited partnership
24. Woodlands Retail Equities - '96 Limited, a Texas limited partnership
25. CresWood Development, L.L.C. - a Texas limited liability company
26. 301 Congress Avenue, L.P., a Delaware limited partnership
27. Crescent/301, LLC, a Delaware limited liability company
28. Crescent Commercial Realty Corp., a Delaware corporation
<PAGE> 2
29. Crescent Commercial Realty Holdings, L.P., a Delaware limited partnership
30. CresTex Development L.L.C., a Delaware limited liability company
31. G/C Waterside Associates LLC, a Texas limited liability company
32. Crescent 1717 Main, L.L.C., a Texas limited liability company
33. Crescent E&M, L.L.C., a Texas limited liability company
34. Crescent Ervay & Main, L.P., a Texas limited partnership
35. Main Street Partners, L.P., a Texas limited partnership
36. Spectrum Mortgage Associates, L.P., a Delaware limited partnership
37. Crescent Washington Harbour, LLC, a Delaware limited partnership
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 23, 1998 included in this Form 10-K into
Crescent Real Estate Equities Company's previously filed Registration
Statements File No. 33-91438, No. 33-92548, No. 333-03450, No. 333-03452, No.
333-08454, No. 333-13521, No. 333-21905, No. 333-23005, No. 333-33893, No.
333-37273, No. 333-38071, No. 333-37565, No. 333-41049, No. 333-37553, No.
333-47563, and No. 333-42417.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 42 AND
43 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 66,622
<SECURITIES> 0
<RECEIVABLES> 69,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 898,655
<PP&E> 3,423,130
<DEPRECIATION> (278,194)
<TOTAL-ASSETS> 4,179,980
<CURRENT-LIABILITIES> 127,258
<BONDS> 1,710,124
0
0
<COMMON> 1,179
<OTHER-SE> 2,197,317
<TOTAL-LIABILITY-AND-EQUITY> 4,179,980
<SALES> 0
<TOTAL-REVENUES> 447,373
<CGS> 0
<TOTAL-COSTS> 249,651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,441
<INCOME-PRETAX> 117,341
<INCOME-TAX> 0
<INCOME-CONTINUING> 117,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,341
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES
3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 20,365
<SECURITIES> 0
<RECEIVABLES> 39,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 142,891
<PP&E> 1,024,617
<DEPRECIATION> (180,473)
<TOTAL-ASSETS> 987,035
<CURRENT-LIABILITIES> 19,745
<BONDS> 484,121
0
0
<COMMON> 236
<OTHER-SE> 400,804
<TOTAL-LIABILITY-AND-EQUITY> 987,035
<SALES> 0
<TOTAL-REVENUES> 43,060
<CGS> 0
<TOTAL-COSTS> 26,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,159
<INCOME-PRETAX> 8,563
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,980
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,681
<SECURITIES> 0
<RECEIVABLES> 24,149
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,277
<PP&E> 1,098,901
<DEPRECIATION> (188,812)
<TOTAL-ASSETS> 1,053,366
<CURRENT-LIABILITIES> 22,103
<BONDS> 534,408
<COMMON> 236
0
0
<OTHER-SE> 394,912
<TOTAL-LIABILITY-AND-EQUITY> 1,053,366
<SALES> 0
<TOTAL-REVENUES> 88,059
<CGS> 0
<TOTAL-COSTS> 52,998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,018
<INCOME-PRETAX> 14,599
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,599
<DISCONTINUED> 0
<EXTRAORDINARY> 1,306
<CHANGES> 0
<NET-INCOME> 13,293
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,367
<SECURITIES> 0
<RECEIVABLES> 23,670
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 135,275
<PP&E> 1,238,417
<DEPRECIATION> (198,517)
<TOTAL-ASSETS> 1,213,212
<CURRENT-LIABILITIES> 30,312
<BONDS> 664,483
0
0
<COMMON> 236
<OTHER-SE> 388,056
<TOTAL-LIABILITY-AND-EQUITY> 1,213,212
<SALES> 0
<TOTAL-REVENUES> 137,427
<CGS> 0
<TOTAL-COSTS> 82,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,861
<INCOME-PRETAX> 20,877
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,877
<DISCONTINUED> 0
<EXTRAORDINARY> 1,306
<CHANGES> 0
<NET-INCOME> 19,571
<EPS-PRIMARY> .42
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 30 AND
31 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,592
<SECURITIES> 0
<RECEIVABLES> 31,546
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 149,966
<PP&E> 1,732,626
<DEPRECIATION> (208,808)
<TOTAL-ASSETS> 1,730,922
<CURRENT-LIABILITIES> 48,462
<BONDS> 667,808
0
0
<COMMON> 361
<OTHER-SE> 865,160
<TOTAL-LIABILITY-AND-EQUITY> 1,730,922
<SALES> 0
<TOTAL-REVENUES> 208,861
<CGS> 0
<TOTAL-COSTS> 121,834
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,926
<INCOME-PRETAX> 38,441
<INCOME-TAX> 0
<INCOME-CONTINUING> 38,441
<DISCONTINUED> 0
<EXTRAORDINARY> 1,306
<CHANGES> 0
<NET-INCOME> 37,135
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,692
<SECURITIES> 0
<RECEIVABLES> 39,335
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 160,495
<PP&E> 1,965,812
<DEPRECIATION> (221,730)
<TOTAL-ASSETS> 1,986,604
<CURRENT-LIABILITIES> 43,356
<BONDS> 934,767
0
0
<COMMON> 723
<OTHER-SE> 859,559
<TOTAL-LIABILITY-AND-EQUITY> 1,986,604
<SALES> 0
<TOTAL-REVENUES> 84,074
<CGS> 0
<TOTAL-COSTS> 50,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,744
<INCOME-PRETAX> 20,245
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,751
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGES 3 AND 4
OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN
RESTATED TO REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 55,589
<SECURITIES> 0
<RECEIVABLES> 40,590
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 291,776
<PP&E> 2,628,792
<DEPRECIATION> (236,967)
<TOTAL-ASSETS> 2,779,780
<CURRENT-LIABILITIES> 62,206
<BONDS> 1,132,496
0
0
<COMMON> 970
<OTHER-SE> 1,437,094
<TOTAL-LIABILITY-AND-EQUITY> 2,779,780
<SALES> 0
<TOTAL-REVENUES> 183,203
<CGS> 0
<TOTAL-COSTS> 104,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,612
<INCOME-PRETAX> 49,431
<INCOME-TAX> 0
<INCOME-CONTINUING> 49,431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,845
<EPS-PRIMARY> .52
<EPS-DILUTED> .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOUND ON PAGE 3 AND 4 OF
THE COMPANY'S FORM 10-Q FOR THE YEAR TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE HAS BEEN RESTATED TO
REFLECT THE EFFECT OF FASB #128, EARNINGS PER SHARE.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 47,082
<SECURITIES> 0
<RECEIVABLES> 54,659
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 652,753
<PP&E> 3,113,743
<DEPRECIATION> (256,204)
<TOTAL-ASSETS> 3,612,033
<CURRENT-LIABILITIES> 88,230
<BONDS> 1,776,904
0
0
<COMMON> 1,024
<OTHER-SE> 1,606,831
<TOTAL-LIABILITY-AND-EQUITY> 3,612,033
<SALES> 0
<TOTAL-REVENUES> 303,260
<CGS> 0
<TOTAL-COSTS> 167,425
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,687
<INCOME-PRETAX> 84,266
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,248
<EPS-PRIMARY> .83
<EPS-DILUTED> .79
</TABLE>
