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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CRESCENT REAL ESTATE EQUITIES COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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TEXAS 52-1862813
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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777 MAIN STREET, SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 321-2100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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GERALD W. HADDOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CRESCENT REAL ESTATE EQUITIES COMPANY
777 MAIN STREET, SUITE 2100
FORT WORTH, TEXAS 76102
TELEPHONE: (817) 321-2100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
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ROBERT B. ROBBINS, ESQ. DAVID M. DEAN, ESQ.
SYLVIA M. MAHAFFEY, ESQ. CRESCENT REAL ESTATE EQUITIES COMPANY
SHAW PITTMAN POTTS & TROWBRIDGE 777 MAIN STREET, SUITE 2100
2300 N STREET, N.W. FORT WORTH, TEXAS 76102
WASHINGTON, D.C. 20037
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after the effective date of the Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 of
the Securities Act of 1933, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TYPE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(1)
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Common Shares, par value $.01 per
share........................... 30,000,000 shares $31.125 $933,750,000 $275,456.25
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(g) of the rules and regulations under the Securities Act of
1933, as amended, based on the price at which the Common Shares will be
offered to the public.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
PROSPECTUS
SHARES
[CRESCENT LOGO]
COMMON SHARES
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The Company is distributing to record holders of its common shares of
beneficial interest (the "Common Shares"), transferable subscription rights (the
"Rights") to subscribe for and purchase up to Common Shares (the
"Underlying Shares"), for a purchase price of $31.125 per share (the "Rights
Offering"). Such shareholders will receive one Right for each Common Share held
by them as of the close of business on , 1998, which will be
subsequent to effectiveness of the merger of Station Casinos, Inc. (or its
successor) ("Station") with and into the Company (the "Merger") (the "Record
Date"). Holders of Rights ("Rights Holders") may purchase one Underlying Share
for every five Rights held. In the event that any Rights Holder holds a number
of Rights which is not divisible by five, such holder may purchase one
additional Underlying Share in excess of the full number of Underlying Shares
for which such holder is otherwise entitled. The Rights will be evidenced by
transferable certificates.
The Rights will expire at 5:00 p.m., Eastern time, on the 60th day following
the Record Date, unless earlier terminated or extended by the Company (such date
and time, the "Expiration Date") and thereafter will have no value. Accordingly,
Rights Holders are urged to either exercise or sell their Rights prior to the
Expiration Date.
The proceeds to the Company from the Rights Offering will be used to reduce
certain indebtedness of the Company, to fund future acquisitions and for general
corporate purposes.
The Common Shares are traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "CEI." It is anticipated that the Rights will trade on
the NYSE under the symbol "CEI RT" until the close of business on the last
trading day preceding the Expiration Date. There has, however, been no prior
public market for the Rights, and no assurance can be given that a market for
the Rights will develop or, if a market develops, that it will remain available
throughout the period ending with the Expiration Date, or as to the price at
which the Rights will trade. On June 12, 1998, the closing sales price of the
Common Shares on the NYSE was $31.125 per share.
SEE "RISK FACTORS" AT PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY RIGHTS HOLDERS AND PROSPECTIVE INVESTORS PRIOR TO
DECIDING TO EXERCISE OR SELL RIGHTS OR PURCHASE COMMON SHARES THROUGH THE RIGHTS
OFFERING.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
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Per Share $ $ 0 $
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Total $ $ 0 $
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(1) Before deducting expenses payable by the Company, estimated at $ .
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THE DATE OF THIS PROSPECTUS IS , 1998
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THE COMPANY
On December 31, 1996, Crescent Real Estate Equities Company, a Texas real
estate investment trust ("Crescent Equities"), became the successor to Crescent
Real Estate Equities, Inc., a Maryland corporation (the "Predecessor
Corporation"), through the merger of the Predecessor Corporation and CRE Limited
Partner, Inc., a subsidiary of the Predecessor Corporation, into Crescent
Equities. The term "Company" includes, unless the context otherwise requires,
Crescent Equities, the Predecessor Corporation, Crescent Real Estate Equities
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), Crescent Real Estate Equities, Ltd., a Delaware corporation which
is the sole general partner of the Operating Partnership ("CREE Ltd."), and the
other subsidiaries of Crescent Equities.
The Company is a fully integrated real estate company, operated as a real
estate investment trust for federal income tax purposes (a "REIT"), which owns a
portfolio of real estate assets (the "Properties") located primarily in 21
metropolitan submarkets in Texas and Colorado. The Properties include 88 office
properties (the "Office Properties") with an aggregate of approximately 31.3
million net rentable square feet, 89 behavioral healthcare facilities (the
"Behavioral Healthcare Facilities"), seven full-service hotels with a total of
2,276 rooms and two destination health and fitness resorts that can accommodate
up to 452 guests daily (collectively, the "Hotel Properties"), the real estate
mortgages relating to and non-voting common stock in five 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 with an aggregate of approximately 771,000 net
rentable square feet (the "Retail Properties"). The Company also owns an
indirect 38% interest in each of two corporations that currently own and/or
operate approximately 80 refrigerated warehouses with an aggregate of
approximately 394 million cubic feet (the "Refrigerated Warehouse Investment").
Such corporations have entered into agreements to acquire an additional 14
refrigerated warehouses with an aggregate of approximately 91.4 million cubic
feet. In addition, the Company has entered into an agreement relating to the
proposed acquisition (the "Pending Investment") of a corporation that owns four
full-service casino/hotels with a total of 1,995 rooms and two riverboat casinos
(collectively, the "Casino/Hotel Properties").
Upon completion of the Pending Investment, the Company will have completed
over $6.0 billion of real estate investments since the closing of the initial
public offering of its common shares (the "Common Shares") on May 5, 1994 (the
"Initial Offering"), approximately $2.2 billion of which will have been
completed since December 31, 1997.
The Company owns its assets and carries on its operations and other
activities, including providing management, leasing and development services for
certain of its Properties, through the Operating Partnership and its other
subsidiaries. The Company also has an economic interest in the development
activities of the Residential Development Corporations and the operating
activities of the Refrigerated Warehouse Investment. The structure of the
Company is designed 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 incur.
As of June 11, 1998, 120,104,648 Common Shares, 6,518,607 units of
ownership interest in the Operating Partnership ("Units") and 8,000,000 shares
of 6 3/4% Series A Convertible Cumulative Preferred Shares of beneficial
interest, par value $.01 per share (the "Series A Preferred Shares") were
outstanding.
The Company's executive offices are located at 777 Main Street, Suite 2100,
Fort Worth, Texas 76102, and its telephone number is (817) 321-2100.
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RECENT DEVELOPMENTS
PENDING INVESTMENT
The following briefly describes the Company's pending investment (the
"Pending Investment"). A more detailed description of the Pending Investment is
contained in the Company's Current Report on Form 8-K dated January 16, 1998 and
filed January 27, 1998, as amended on February 13, 1998, April 27, 1998 and June
10, 1998. The Pending Investment is subject to various closing conditions. There
is no assurance that this investment will be completed.
Station Casinos, Inc. On January 16, 1998, the Company entered into an
Agreement and Plan of Merger (as subsequently amended, the "Merger Agreement")
pursuant to which Station will merge with and into the Company (the "Merger").
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. The Merger Agreement also provides for certain alternative
structures to facilitate the combinations of the businesses of the Company and
Station. 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.
It is presently anticipated that, as part of the transactions associated
with the Merger, but immediately prior to the Merger, certain operating assets
and the employees of Station will be transferred to a new limited liability
company (the "Station Lessee"). The Station Lessee will be owned 50% by Crescent
Operating, Inc. or another entity designated by the Company, 24.9% by a newly
formed entity (the "Management Entity") owned by three of the existing directors
of Station (including its Chairman, President and Chief Executive Officer) and
25.1% by a separate newly formed entity (the "Secondary Management Entity")
owned by other members of Station management. It is anticipated that 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 Station Lessee will be required to
maintain the Casino/Hotel Properties in good condition at its 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 Casino/Hotel Properties, to be used from time to time to replace
furniture, fixtures and equipment. Under the lease, the Company also will have a
right of first refusal to acquire, and thereafter to include under the lease,
any additional casino and/or hotel properties which the Station Lessee desires
to acquire or operate.
The lease will provide for base and percentage rent but the amount of rent
has not yet been determined. It is anticipated, however, that total rental
payments under the lease will exceed 20% of total rental revenues on an
annualized basis. As a result of the percentage rent payments, the Company will
participate in the economic operations of the Casino/Hotel Properties only
through its indirect participation in gross revenues. To the extent that
operations of the Casino/Hotel Properties may affect the ability of the Station
Lessee to pay rent, the Company also may indirectly bear the risks associated
with any increases in expenses or decreases in revenues. The amount of rent
payable to the Company under the leases with respect to the Casino/Hotel
Properties will depend on the ability of the Station Lessee to maintain and
increase revenues from the Casino/Hotel Properties. Accordingly, the Company's
results of operations and its ability to meet its obligations will be affected
by such factors as changes in general and local economic conditions, the level
of demand for the services of the Casino/Hotel Properties, competition in the
hotel/casino industry and other factors related to the operation of the
Casino/Hotel Properties.
In order to effect the Merger, the Company will issue .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 Merger transaction, including the Company's issuance of Common Shares,
Preferred Shares in connection with consummation of the Merger and the Company's
assumption and/or refinancing of
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approximately $900 million in existing indebtedness of Station and its
subsidiaries, is currently valued at approximately $1.731 billion.
In connection with the transaction, the Company will also enter into a
right of first refusal and noncompetition agreement with the Station Lessee.
Under the agreement, the Company will grant the Station Lessee a right of first
refusal as to any lease arrangement (a "master lease") for a casino/hotel
property (defined as real estate on which hotel and casino or other
gaming-related operations are conducted) in which the operators of the business
conducted at the property prior to the date the property is owned or acquired by
the Company will cease to operate such business. The Station Lessee will grant
the Company a right of first refusal to invest, directly or indirectly, (i) in
casino/hotel properties (including the opportunity to provide services related
to real estate or to invest in a hotel property), real estate mortgages, real
estate derivatives, or entities that invest primarily in or have a substantial
portion of their assets in such types of real estate assets or (ii) any other
casino/hotel-related investments that can be structured as REIT-suitable
investments. In addition, without the prior written consent of the Management
Entity, the Company, Crescent Operating, Inc. and their affiliates may not own,
operate or otherwise engage in activities related to any casino/hotel properties
other than casino/hotel properties operated and leased by the Station Lessee or
an entity under its control, provided that the Company may own a casino/hotel
property if a master lease arrangement already exists at the property, if
casino/hotel activities conducted at the property are incidental to the primary
business operations at the property or if the sellers or operators desire to
enter into a master lease arrangement with the Company. Under the agreement,
without the prior written consent of the Company, neither the Management Entity,
the Secondary Management Entity, nor any of the affiliates of either, may own,
operate or otherwise engage in any activities related to casino/hotel properties
that are not operated and leased by the Station Lessee or an entity under its
control.
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. Certain individuals who own in the aggregate
approximately 41% of the outstanding capital stock of Station have agreed to
vote in favor of the Merger. There can be no assurance that the Merger will be
consummated on the terms described in this Prospectus or at all.
The Company will be entitled to receive a break-up fee of $54 million if
the Merger Agreement is terminated (i) by either the Company or the Board of
Directors of Station if any required approval of the Merger by the holders of
each class of capital stock of Station shall not have been obtained by reason of
the failure to obtain the required vote of stockholders, (ii) by the Company if
the Board of Directors of Station shall not recommend the Merger or shall
recommend a superior proposal or (iii) by the Board of Directors of Station if
it receives a superior proposal that the Company does not match or exceed.
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COMPLETED INVESTMENTS
The following briefly describes the Company's investments since March 31,
1998.
Datran Center. On May 1, 1998, the Company acquired, subject to a ground
lease, Datran Center, two Class A office buildings, containing approximately
472,000 net rentable square feet located in the South Dade/Kendall submarket of
Miami, Florida. The purchase price was approximately $71 million of which
approximately $47 million was funded through the assumption of two mortgage
notes encumbering the leasehold interests in the land and the building and the
remaining balance of approximately $24 million through a borrowing under the
Company's $550 million credit facility from a consortium of banks led by
BankBoston, N.A. (the "Credit Facility").
SERIES A PREFERRED STOCK OFFERING
On February 19, 1998, the Company completed a public offering of 8,000,000
Series A Preferred Shares in an aggregate principal amount of $200 million. The
Company used the net proceeds from the offering, equal to approximately $191.3
million, to repay certain amounts outstanding under the Credit Facility.
Distributions on the Series A Preferred Shares are cumulative from the date
of original issue and are payable quarterly in arrears on or about the fifteenth
day of February, May, August and November of each year, commencing May 15, 1998,
at the rate of 6 3/4% of the liquidation preference per annum (equivalent to
$1.6875 per annum per Series A Preferred Share).
The Series A Preferred Shares are convertible at any time, in whole or in
part, at the option of the holders thereof, into Common Shares 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. The Series A Preferred Shares generally are not redeemable prior
to February 18, 2003. On and after February 18, 2003, the Series A Preferred
Shares will be redeemable, in whole or in part, at the option of the Company, at
a redemption price of $25.00 per share, plus accrued and unpaid distributions,
if any. The Series A Preferred Shares have no stated maturity date and will not
be entitled to the benefit of any sinking fund or mandatory redemption
provisions.
The Series A Preferred Shares rank senior to the Common 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 Series A Preferred Shares have been listed on the NYSE under the symbol
"CEIPrA."
RISK FACTORS
Prospective investors should carefully consider the following summary
information in conjunction with the other information contained in this
Prospectus before purchasing Common Shares.
REGIONAL CONCENTRATION OF ASSETS INCREASES EFFECTS OF ADVERSE TRENDS IN CERTAIN
MARKETS
A significant portion of the Company's assets are, and revenues are derived
from, Properties located in the metropolitan areas of Dallas/Fort Worth and
Houston, Texas. Due to this geographic concentration, any deterioration in
economic conditions in the Dallas/Fort Worth or Houston metropolitan areas or
other geographic markets in which the Company in the future may acquire
substantial assets could have an adverse effect on the financial condition and
results of operations of the Company and on the Company's ability to satisfy its
obligations as they become due.
COMPANY DOES NOT FULLY CONTROL CERTAIN INVESTMENTS AND CONSEQUENTLY HAS NO
CONTROL OVER REVENUES FROM THE INVESTMENTS
Revenues from Hotels Dependent On Third-Party Operators and Hospitality
Industry. The Company has leased the Hotel Properties to subsidiaries of
Crescent Operating, Inc., and such subsidiaries, rather than the Company, are
entitled to exercise all rights of the owner of the respective hotel. The
Company will receive both base rent and a percentage of gross sales above a
certain minimum level pursuant to the leases, which expire between the years
2004 and 2012. As a result, the Company will participate in the economic
operations of the Hotel Properties only through its indirect participation in
gross sales. To the extent that operations of
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the Hotel Properties may affect the ability of such subsidiaries to pay rent,
the Company also may indirectly bear the risks associated with any increases in
expenses. Each of the Hotel Properties is managed pursuant to a management
agreement. The amount of rent payable to the Company under the leases with
respect to the Hotel Properties will depend on the ability of such subsidiaries
and the managers of the Hotel Properties to maintain and increase revenues from
the Hotel Properties. Accordingly, the Company's results of operations, and
ultimately its ability to meet its obligations, will be affected by such factors
as changes in general economic conditions, the level of demand for rooms and
related services at the Hotel Properties, the ability of such subsidiaries and
the managers of the Hotel Properties to maintain and increase gross revenues at
the Hotel Properties, competition in the hotel industry and other factors
relating to the operation of the Hotel Properties. In addition, the Company
expects, in accordance with the terms of the Intercompany Agreement (as defined
in "-- Conflicts of Interest -- Relationship with Crescent Operating, Inc."), to
lease any hotel properties that it may acquire in the future to Crescent
Operating, Inc. or any of its subsidiaries which, as lessees of any such hotel
properties, will be entitled to exercise all rights of the owner.
Lack of Control of Residential Development Corporations and Dividends. The
Company is not able to elect the boards of directors of the Residential
Development Corporations and does not have the authority to control the
management and operation of the Residential Development Corporations. As a
result, the Company does not have the right to control the timing or amount of
dividends paid by the Residential Development Corporations and, therefore, does
not have the authority to require that funds be distributed to it by any of
these entities. The inability of the Company to control its access to its
dividends from the Residential Development Corporations increases the likelihood
that such dividends might not be available to the Company, which may adversely
affect its results of operations and its ability to meet its obligations.
Americold and URS Partnerships Controlled by Third Parties. The Company
owns, through two subsidiaries (the "Crescent Subsidiaries"), a 38% interest in
each of two partnerships, one of which owns Americold Corporation ("Americold")
and the other of which owns URS Logistics, Inc. ("URS"). Crescent Operating,
Inc. owns a 2% interest in each of the partnerships. The remaining 60% interest
in the partnerships is owned by two subsidiaries of Vornado Realty Trust
(collectively, "Vornado"). The Company currently owns all of the non-voting
common stock, representing an approximately 95% economic interest, in each of
the Crescent Subsidiaries, and Crescent Operating, Inc. owns all of the voting
stock, representing an approximately 5% economic interest, in each of the
Crescent Subsidiaries. As a result, the Company is not able to elect the boards
of directors of the Crescent Subsidiaries and does not have the authority to
control the management or operation of the Crescent Subsidiaries. Under the
terms of the existing partnership agreements for each of the partnerships, the
Company does not have the right to participate in the decisions with respect to
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 Crescent Operating, Inc. and Vornado. The
partnership agreement for each of the partnerships provides for a buy-sell
arrangement upon a failure of Crescent Operating, Inc. and Vornado to agree on
any of the specified major decisions pursuant to which the entire interest of
Crescent Operating, Inc. and the Company or the entire interest of Vornado may
be purchased by the other party. Until November 1, 2000, the buy-sell
arrangement can only be exercised 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. There can be no assurance that Vornado or
Crescent Operating, Inc. will operate the partnerships in a way that will
maximize the Company's return on its investment. See "-- Real Estate Risks
Specific to the Company's Business -- Joint Ownership of Assets Limits Company's
Flexibility with Investments."
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Revenues from Proposed Casino/Hotel Investment Dependent on Third-Party
Operators and Casino/Hotel Industry. In connection with the proposed Merger, the
Company intends to lease the Casino/Hotel Properties to the Station Lessee which
will be owned 50% by former management of Station and 50% by Crescent Operating,
Inc. or one of its affiliates. The Company expects that it will receive both
base rent and a percentage of gross revenues above a certain minimum level
pursuant to the leases, which will expire in 2008, subject to one, five-year
renewal option. Although the rental payments have not yet been finally
determined, it is anticipated that base rental payments will exceed 20% of
current base rental revenues of the Company on an annual basis. As a result of
the percentage rent payments, the Company will participate in the economic
operations of the Casino/Hotel Properties only through its indirect
participation in gross revenues. The amount of rent payable to the Company under
the leases with respect to the Casino/Hotel Properties will depend on the
ability of the Station Lessee to maintain and increase revenues from the Casino/
Hotel Properties. Accordingly, the Company's results of operations and its
ability to meet its obligations will be affected by (i) changes in general and
local economic conditions and the level of demand for the services of the
Casino/Hotel Properties, a deterioration in either of which could adversely
affect the Company's results of operations and its ability to meet its
obligations, (ii) competition in the casino/hotel industry, an increase in which
could reduce the gross revenues at the Casino/Hotel Properties and adversely
affect the Company's results of operations and its ability to meet its
obligations, (iii) governmental regulation that limits the ability of the
Casino/Hotel Properties to continue conducting their business as presently
conducted, (iv) any decision by the Nevada Gaming Commission or the Missouri
Gaming Commission to suspend, revoke or not reissue a gaming license held by the
Company or one of its subsidiaries or the Station Lessee, which decision would
adversely affect the ability of the Station Lessee to continue making its lease
payments to the Company and (v) the temporary or permanent loss of a riverboat
or dockside facility due to casualty, mechanical failure or severe weather,
which could prevent the Station Lessee from deriving revenue from the affected
location and thereby decrease its ability to make lease payments to the Company.
REAL ESTATE RISKS SPECIFIC TO THE COMPANY'S BUSINESS
Risks Related to Investment Strategy. In implementing its investment
strategies, the Company has invested in a broad range of real estate assets, and
in the future, it may invest in additional types of real estate assets not
currently included in its portfolio. There can be no assurance, however, that
the Company will be able to implement its investment strategies successfully. As
a result of its real estate investments, the Company will be subject to risks,
in addition to general real estate risks, relating to the specific assets and
asset types in which it invests. The Company is subject to the risks that, upon
expiration, leases for space in the Office Properties and Retail Properties may
not be renewed, the space may not be re-leased, or the terms of renewal or
re-lease (including the cost of required renovations or concessions to tenants)
may be less favorable than current lease terms. Similarly, the Company is
subject to the risk that the success of its investment in the Hotel Properties
will be highly dependent upon such Properties' ability to compete in such
features as access, location, quality of accommodations, room rate structure
and, to a lesser extent, the quality and scope of other amenities such as food
and beverage facilities. In addition, the Company is subject to risks relating
to the Behavioral Healthcare Facilities, including the effect of any failure of
the lessee of the Behavioral Healthcare Facilities to make the required lease
payments (which equal more than 10% of the Company's current base rental
revenues); the effects of factors, such as regulation of the healthcare industry
and limitations on government reimbursement programs, on the ability of the
lessee to make the required lease payments; and the limited number of
replacement tenants in the event of a default under, or non-renewal of, the
lease. If any one or a combination of such risks were realized, the Company
could experience a material adverse change in its financial condition and
results of operations, which could lead to difficulty in meeting its
obligations.
Joint Ownership of Assets Limits Company's Flexibility With
Investments. The Company has the right to invest, and in certain cases has
invested, in properties and assets jointly with other persons or entities. Joint
ownership of properties, under certain circumstances, may involve risks not
otherwise present, including the possibility that the Company's partners or
co-investors might become bankrupt, that such partners or co-investors might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and that such
partners or co-investors may be in a position to take action contrary to the
instructions or the requests of the Company or contrary to the Company's
policies or
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<PAGE> 9
objectives. Because it gives a third party, which is not controlled by the
Company and which may have different goals and capabilities than the Company,
the opportunity to influence the return the Company can achieve on some of its
investments, joint ownership may adversely affect the ability of the Company to
meet its obligations. See "-- Company Does Not Fully Control Certain Investments
and Consequently Has No Control Over Revenues from the Investments -- Americold
and URS Partnerships Controlled by Third Parties."
Risk that Adequate Financing will not be Available to Refinance Station
Debt. Station currently has outstanding approximately $900 million of
indebtedness at rates in excess of the Company's current cost of capital. At the
time of the closing of the Merger, as a result of covenants of certain Station
indebtedness, the Company will be required to refinance an aggregate of
approximately $359 million of such outstanding indebtedness. In addition, the
Company intends to finance the transaction in part by incurring an additional
$135 million in debt primarily related to transaction costs. There are no
definitive agreements or arrangements for any such refinancing or the obtaining
of any new debt, and there can be no assurance that the Company will be able to
complete the refinancing or obtain the necessary financing or that the terms
thereof will be favorable to the Company.
CONFLICTS OF INTEREST
Common Management and Ownership. Richard E. Rainwater and John C. Goff are,
respectively, the Chairman of the Board and the Vice Chairman of the Board of
both the Company and Crescent Operating, Inc., and Gerald W. Haddock serves as
the President, Chief Executive Officer and a director of Crescent Operating,
Inc., CREE Ltd. and the Company. As a result, Messrs. Rainwater, Goff and
Haddock have fiduciary obligations to the Company, the Operating Partnership and
Crescent Operating, Inc. Messrs. Rainwater, Goff and Haddock, together with the
other management of the Company and CREE Ltd. with a rank of Vice President or
higher beneficially owned, as of April 13, 1998, an approximately 14.3% equity
interest in the Company, and approximately the same percentage of the
outstanding common stock of Crescent Operating, Inc. through their ownership of
shares of Crescent Operating, Inc. common stock. The common management and
ownership among these entities may lead to conflicts of interest in connection
with transactions between the Company, the Operating Partnership and Crescent
Operating, Inc., because management of the Company may not have the same
financial interests as the other shareholders or other investors in the Company.
Members of management of the Company who also own shares of Crescent Operating,
Inc. will have a financial interest in the success of Crescent Operating, Inc.
that will not be shared by shareholders of the Company or investors in the
Operating Partnership who do not also own shares of Crescent Operating, Inc.
There can be no assurance that, as a result of such conflicts, the Company will
not have less revenue available with which to satisfy its obligations when they
become due. These conflicts and the material risks associated with them are set
forth below.
Relationship with Crescent Operating, Inc. The Company has entered into an
agreement (the "Intercompany Agreement") with Crescent Operating, Inc., which
provides, subject to certain terms, that the Company will provide Crescent
Operating, Inc. with a right of first refusal to become the lessee of any real
property acquired by the Company if the Company determines that, consistent with
the Company's status as a REIT, it is required to enter into a master lease
arrangement, provided that Crescent Operating, Inc. and the Company negotiate a
mutually satisfactory lease arrangement and the Company determines, in its sole
discretion, that Crescent Operating, Inc. is qualified to be the lessee. As to
opportunities for Crescent Operating, Inc. to become the lessee of any assets
under a master lease arrangement, the Intercompany Agreement provides that the
Company must provide Crescent Operating, Inc. with written notice of the lessee
opportunity. During the 30 days following such notice, Crescent Operating, Inc.
has a right of first refusal with regard to the offer to become a lessee and the
right to negotiate with the Company on an exclusive basis regarding the terms
and conditions of the lease. If a mutually satisfactory agreement cannot be
reached within the 30-day period (or such longer period to which Crescent
Operating, Inc. and the Company may agree), the Company may offer the
opportunity to others, on terms not more favorable than those offered to
Crescent Operating, Inc., for a period of one year thereafter before it must
again offer the opportunity to Crescent Operating, Inc. in accordance with the
procedures specified above. The Company may, in its discretion, offer any
investment opportunity other than a lessee opportunity to Crescent Operating,
Inc. upon such notice and
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<PAGE> 10
other terms as the Company may determine. The certificate of incorporation of
Crescent Operating, Inc., as amended and restated, generally prohibits Crescent
Operating, Inc., 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.
Subsidiaries of Crescent Operating, Inc. are the lessees of each of the
Hotel Properties. Crescent Operating, Inc. owns a 50% interest in Charter
Behavioral Health Systems, LLC ("CBHS"), which is the lessee of the Behavioral
Healthcare Facilities and the Company's largest tenant in terms of base rental
revenues. On March 5, 1998, Crescent Operating, Inc. entered into a definitive
agreement to acquire from a subsidiary of Magellan Health Services, Inc.
("Magellan") the remaining 50% interest in CBHS. The Company owns all of the
non-voting stock and Crescent Operating, Inc. owns all of the voting stock of
the entities through which the Company made the Refrigerated Warehouse
Investment and its investments in the Desert Mountain and Woodlands Residential
Development Properties. In addition, it is anticipated that Crescent Operating,
Inc. will have the opportunity to own a 50% interest in the Station Lessee. The
Company expects to offer Crescent Operating, Inc. the opportunity to become a
lessee and operator of other assets in accordance with the Intercompany
Agreement.
Due to the common management and ownership between the Company and Crescent
Operating, Inc., management of the Company could experience conflicts of
interest in the event of a dispute relating to any of the leases in which
Crescent Operating, Inc. is the lessee or if there were a default by Crescent
Operating, Inc. under a lease. Conflicts of interest also could arise in
connection with the renegotiation or renewal of any lease or other agreement
with Crescent Operating, Inc.
Relationship with Magellan Health Services, Inc. Mr. Rainwater, along with
certain affiliates of and members of his family, owns approximately 19% of the
outstanding common stock of Magellan, a subsidiary of which is a 50% owner
(along with Crescent Operating, Inc.) of CBHS. Mr. Rainwater's spouse, Darla D.
Moore, is a member of the board of directors of Magellan. Through these
relationships, Mr. Rainwater may have the ability to influence decisions of
Magellan in a manner that may benefit Magellan to the detriment of Crescent
Operating, Inc. or the Company, or vice versa.
Joint Investments. The Company has in the past and may in the future
structure investments as joint investments with Crescent Operating, Inc. See "--
Relationship with Crescent Operating, Inc." The Company could experience
potential conflicts of interest in connection with the negotiation of the terms
of such joint investments due to its ongoing business relationship with Crescent
Operating, Inc. and the common management and common ownership among the
Company, the Operating Partnership and Crescent Operating, Inc.
Competition for Management Time. Messrs. Rainwater, Goff and Haddock
currently are engaged, and will in the future continue to engage, in the
management of other properties and business entities, including Crescent
Operating, Inc. Messrs. Rainwater, Goff and Haddock may experience conflicts of
interest in allocating management time, services and functions among the Company
and the various other business activities, including the operation of Crescent
Operating, Inc., in which any of them are or may become involved.
Legal Representation. Shaw Pittman Potts & Trowbridge, which has served as
securities and tax counsel to the Company, also serves as special counsel to
Crescent Operating, Inc. in connection with certain matters. In the event any
controversy arises in which the interests of the Company appear to be in
conflict with those of Crescent Operating, Inc., other counsel may be retained
for one or both parties.
RISK OF INABILITY TO MANAGE RAPID GROWTH AND ACQUISITION OF SUBSTANTIAL NEW
ASSETS EFFECTIVELY
From the time it commenced operations in May 1994 through March 31, 1998,
the Company has experienced rapid growth, increasing its total assets by
approximately 1,781%, after giving pro forma effect to the proposed Merger with
Station and investments completed after March 31, 1998. There can be no
assurance that the Company will be able to manage its growth effectively and the
failure to do so may have an adverse effect on the financial condition and
results of operations of the Company. If such an adverse effect were great
enough, the Company could have difficulty meeting its obligations when they
become due.
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<PAGE> 11
GENERAL REAL ESTATE RISKS AFFECTING THE COMPANY
The following paragraphs describe the material factors influencing the
general real estate risks to which the Company is subject.
Company's Inability to Control Certain Factors Affecting Performance and
Value. The economic performance and value of the Company's real estate assets
will be subject to the risks normally associated with changes in national,
regional and local economic and market conditions, as discussed below. The
principal markets in which the Company's Properties are located are Dallas/Fort
Worth, Houston and Austin, Texas and Denver, Colorado. The economic condition of
each of these markets is dependent on a limited number of industries, and an
economic downturn in some or all these industries could adversely affect the
Company's performance in that market. Other local economic conditions that may
affect the performance and value of the Company's Properties include excess
supply of office space and competition for tenants, including competition based
on rental rates, attractiveness and location of the property and quality of
maintenance and management services. These factors may adversely affect the
ability of the tenants to pay rent. In addition, other factors may affect the
performance and value of a Property adversely, including changes in laws and
governmental regulations (including those governing usage, zoning and taxes),
changes in interest rates (including the risk that increased interest rates may
result in decreased sales of lots in any Residential Development Property) and
the availability of financing. Any of these factors, each of which is beyond the
control of the Company, could reduce the income that the Company receives from
the Properties, thereby adversely affecting the Company's ability to meet its
obligations.
Real Estate Investments are Illiquid. Because real estate investments are
relatively illiquid, the Company's ability to vary its portfolio promptly in
response to economic or other conditions will be limited. In addition, certain
significant expenditures, such as debt service (if any), real estate taxes and
operating and maintenance costs, generally are not reduced in circumstances
resulting in a reduction in income from the investment. The foregoing and any
other factor or event that would impede the ability of the Company to respond to
adverse changes in the performance of its investments could have an adverse
effect on the Company's financial condition and results of operations and its
ability to meet its obligations.
Risk of Environmental Liability. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous or
toxic substances released on or in its property, as well as certain other costs
relating to hazardous or toxic substances. Such liability may be imposed without
regard to whether the owner or operator knew of, or was responsible for, the
release of such substances. The presence of, or the failure to remediate
properly, such substances, may adversely affect the owner's ability to sell the
affected real estate or to borrow using such real estate as collateral. Such
costs or liabilities could exceed the value of the affected real estate. The
Company has not been notified by any governmental authority of any
non-compliance, liability or other claim in connection with any of the
Properties and the Company is not aware of any other environmental condition
with respect to any of the Properties that management believes would have a
material adverse effect on the Company's business, assets or results of
operations. The application of environmental 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. Prior to the Company's acquisition of
its Properties, independent environmental consultants conducted or updated Phase
I environmental assessments (which generally do not involve invasive techniques
such as soil or ground water sampling) on the Properties. None of these Phase I
assessments or updates revealed any materially adverse environmental condition
not known to the Company or the independent consultants preparing the
assessments. There can be no assurance, however, that environmental liabilities
have not developed since such environmental assessments were prepared, or that
future uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability. If the Company were subject to environmental liability,
the liability could be so great that the Company could have difficulty meeting
its obligations when they become due.
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<PAGE> 12
FINANCIALLY DISTRESSED PROPERTIES ARE RISKIER INVESTMENTS THAN OTHER PROPERTIES
Implementation of the Company's strategy of investing in real estate assets
in distressed circumstances has resulted in the acquisition of certain
Properties from owners that were in poor financial condition, and such strategy
is expected to result in the purchase of additional properties under similar
circumstances in the future. In addition to general real estate risks,
properties acquired in distressed situations present risks related to inadequate
maintenance, negative market perception and continuation of circumstances which
precipitated the distress originally. If a Property has been inadequately
maintained, capital and maintenance expenditures may be significant. A negative
market perception of a Property may make the Property more difficult to lease
than originally expected, resulting in lower occupancy rates and lease revenues
for a longer period of time than the Company originally anticipated. A
continuation of factors precipitating distress, such as adverse regional
economic conditions, could adversely affect the Company's return on its
investment in the Property or asset and the amount of funds the Company has
available to meet its obligations.
CHANGE IN POLICIES
The Board of Trust Managers provides guidance to the senior management of
the Company regarding the Company's operating and financial policies and
strategies, including its policies and strategies with respect to acquisitions,
growth, operations, indebtedness, capitalization and distributions. These
policies and strategies may be revised, from time to time, without shareholder
approval. Changes in the Company's policies and strategies could adversely
affect the Company's financial condition and results of operations. In addition,
the Company has the right and intends to acquire additional real estate assets
pursuant to and consistent with its investment strategies and policies without
shareholder approval.
COMPANY'S SUCCESS DEPENDS ON KEY PERSONNEL
The Company is dependent on the efforts of senior management personnel of
the Company and the General Partner. These senior management personnel include
Richard E. Rainwater, Chairman of the Board of Trust Managers of the Company,
John C. Goff, Vice Chairman of the Board of Trust Managers of the Company, and
Gerald W. Haddock, President, Chief Executive Officer and Trust Manager of the
Company, and President, Chief Executive Officer and sole Director of the General
Partner. While the Company believes that it would be possible to find
replacements for these key executives, the loss of their services could have an
adverse effect on the operations of the Company. Mr. Rainwater has no employment
agreement with the Company and, therefore, is not obligated to remain with the
Company for any specified term. Each of Messrs. Goff and Haddock has entered
into employment agreements with the Company, and each of Messrs. Rainwater, Goff
and Haddock has entered into a noncompetition agreement with the Company.
Neither the Company nor CREE Ltd. has obtained key-man insurance for any of its
senior management personnel.
LIMITED RESTRICTIONS ON INCREASES IN DEBT
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's net operating income will be
insufficient to meet required payments of principal and interest, risks
associated with possible increases in variable interest rates, the risk that the
Company will not be able to refinance existing indebtedness or, if necessary, to
obtain additional financing for necessary capital expenditures such as
renovations and other improvements on favorable terms or at all. A default under
secured indebtedness could result in a transfer of the secured asset to the
mortgagee, with a consequent loss of income and asset value to the Company.
The Company's organizational documents do not limit the level or amount of
debt that it may incur. It is the Company's current policy to pursue a strategy
of conservative use of leverage, generally with a ratio of debt to total market
capitalization of the Company targeted at approximately 40 percent, although
this policy is subject to reevaluation and modification and could be increased
above 40 percent. The Company has based its debt policy on the relationship
between its debt and its total market capitalization, rather than the book value
of its assets or other historical measures that typically have been employed by
publicly traded REITs, because
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<PAGE> 13
management believes that market capitalization more accurately reflects the
ability of the Company to borrow money and to meet its debt service
requirements. Market capitalization is, however, more variable than book value
of assets or other historical measures. There can be no assurance that the ratio
of indebtedness to market capitalization (or any other measure of asset value)
or the incurrence of debt at any particular level would not adversely affect the
financial condition and results of operations of the Company and the ability to
meet its obligations.
USE OF PROCEEDS
Assuming the exercise of all Rights offered hereby, the Company intends to
use the net proceeds of the Rights Offering, estimated at $ million after
estimated expenses payable by the Company, to repay approximately $ million
of the amounts outstanding under the Credit Facility. The remaining net proceeds
will be used to reduce other indebtedness of the Company, to fund future
acquisitions and for other general corporate purposes.
The Credit Facility, which is unsecured and expires in June 2000, bears
interest at the Eurodollar rate plus 120 basis points.
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<PAGE> 14
THE RIGHTS OFFERING
The Company is distributing Rights directly to the record holders of its
outstanding Common Shares as of the close of business on the , 1998,
which will be subsequent to the effectiveness of the Merger (the "Record Date").
The Company will distribute, at no cost to such record holders, one Right for
each Common Shares held on the Record Date. The Rights will be evidenced by
transferable Subscription Certificates.
No Subscription Certificate may be divided in such a way as to permit a
holder of Common Shares to receive a greater number of Rights than the number to
which such Subscription Certificate entitles such holder, except that a
depository, bank, trust company or securities broker or dealer holding Common
Shares on the Record Date for more than one beneficial owner may, upon proper
showing to the Subscription Agent, exchange its Subscription Certificate to
obtain a Subscription Certificate for the number of Rights to which all such
beneficial owners in the aggregate would have been entitled had each been a
record holder of Common Shares on the Record Date.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., Eastern time, on the 60th day
following the Record Date, unless earlier terminated or extended by the Company.
After the Expiration Date, unexercised Rights will be null and void. The Company
will not be obligated to honor any purported exercise of Rights received by the
Subscription Agent after the Expiration Date, regardless of when the documents
relating to such exercise were sent, except pursuant to the "Guaranteed Delivery
Procedures" described below.
SUBSCRIPTION PRIVILEGE
Every five Rights held by a holder of Rights (a "Rights Holder") will
entitle such holder to receive, upon payment of the Subscription Price, one
Underlying Share (the "Subscription Privilege"). In the event that any Right
Holder holds a number of Rights that is not evenly divisible by five, such
Rights Holder may subscribe for one additional Underlying Share in excess of the
full number of Underlying Shares for which such holder is otherwise entitled.
Certificates representing Underlying Shares purchased pursuant to the
Subscription Privilege will be delivered by mail to subscribers as soon as
practicable after the exercise by the Rights Holder of their Subscription
Privileges and receipt of payment therefore by the Subscription Agent.
SUBSCRIPTION PRICE
The Subscription Price is $31.125, in cash, per Underlying Share purchased
pursuant to the Subscription Privilege. See "Determination of Subscription
Price."
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent on or prior
to 5:00 p.m., Eastern time, on the Expiration Date, the properly completed and
executed Subscription Certificate evidencing such Rights with any required
signature guaranties, together with payment in full of the Subscription Price
for each Underlying Share to be purchased pursuant to the Subscription
Privilege. Such payment in full must be (a) by check or bank draft drawn upon a
U.S. bank or postal, telegraphic or express money order to "Boston-
EquiServe, L.P., as Subscription Agent", or (b) by wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at
BostonEquiServe, L.P., , ABA No. , Account No. ,
[address], Attention: CEI Rights, [contact person]. The Subscription Price will
be deemed to have been received by the Subscription Agent only upon (i)
clearance of any uncertified check, (ii) receipt by the Subscription Agent or
any certified check or bank draft drawn upon a U.S. bank or of any postal,
telegraphic or express money order, or (iii) receipt of collected funds in the
Subscription Agent's account designated above. IF PAYING BY UNCERTIFIED PERSONAL
CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS
DAYS TO CLEAR. ACCORDINGLY, RIGHTS HOLDERS WHO WISH TO PAY THE SUBSCRIPTION
PRICE BY MEANS OF UNCER-
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<PAGE> 15
TIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE
AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR
MONEY ORDER OR BY WIRE TRANSFER OF FUNDS.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
<TABLE>
<S> <C>
If by mail: BostonEquiServe, L.P.
[Address]
Attention: ------------------------------
If by hand: BostonEquiServe, L.P.
c/o [contact person or department]
[Address]
If by overnight courier: BostonEquiServe, L.P.
[Address]
Attention: ------------------------------
</TABLE>
The Subscription Agent's telephone number is, toll free, (800)
- , and its telecopy number is ( ) - .
If a Rights Holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate(s) evidencing such Rights to reach
the Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
(a) such holder has caused payment in full of the Subscription Price
for each Underlying Share being purchased pursuant to the Subscription
Privilege to be received (in the manner set forth above) by the
Subscription Agent on or prior to the Expiration Date;
(b) the Subscription Agent receives, on or prior to the Expiration
Date, a notice of guaranteed delivery (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the "Instructions as to Use of
Subscription Certificates" (the "Instructions") distributed with the
Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., from a commercial bank or trust company having an office or
correspondent in the United States, or from a financial institution
acceptable to the Subscription Agent (each an "Acceptable Institution"),
stating the name of the exercising Rights Holder, the number of Rights
represented by the Subscription Certificate(s) held by such exercising
Rights Holder, the number of Underlying Shares being purchased pursuant to
the Subscription Privilege and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate(s) evidencing such
Rights within five NYSE trading days following the date of the Notice of
Guaranteed Delivery; and
(c) the properly completed Subscription Certificate(s) evidencing the
Rights being exercised, with any required signature guaranties, is received
by the Subscription Agent within five NYSE trading days following the date
of the Notice of Guaranteed Delivery relating thereto. The Notice of
Guaranteed Delivery may be delivered to the Subscription Agent in the same
manner as Subscription Certificates at the address set forth above, or may
be transmitted to the Subscription Agent by telegram or facsimile
transmission (telecopy no. - - ). Additional copies of the form of
Notice of Guaranteed Delivery are available upon request from the
Subscription Agent or the Information Agent, whose addresses and telephone
numbers are set forth below.
If an exercising Rights Holder does not indicate the number of Rights being
exercised, or does not forward full payment of the aggregate Subscription Price
for the number of Rights that the Rights Holder indicates are being exercised,
then the Rights Holder will be deemed to have exercised the Subscription
Privilege with respect to the maximum number of Rights that may be exercised for
the aggregate Subscription
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<PAGE> 16
Price payment delivered by the Rights Holder. To the extent that the aggregate
Subscription Certificates delivered by the Rights Holder (such excess being the
"Subscription Excess"), the Subscription Excess paid by that Rights Holder shall
be returned as soon as practicable by mail, without interest or deduction.
Unless a Subscription Certificate (i) provides that Underlying Shares to be
issued pursuant to the exercise of Rights represented thereby are to be
delivered to the holder of such Rights or (ii) is submitted for the account of
an Acceptable Institution, signatures on such Subscription Certificate must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program,
the Stock Exchange Medallion Signature Program or the New York Stock Exchange,
Inc. Medallion Signature Program.
Persons who hold Common Shares for the account of others, such as brokers,
trustees or depositaries for securities (each, a "Nominee Holder") should notify
the respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the Nominee Holder of such
Right should complete Subscription Certificates and submit them to the
Subscription Agent with the property payment. In addition, beneficial owners of
Common Shares or Rights held through such a Nominee Holder should contact the
Nominee Holder and request the Nominee Holder to effect transactions in
accordance with the beneficial owners' instructions.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions as to Use of Subscription Certificates or the Notice of Guaranteed
Delivery should be directed to the Subscription Agent, at its telephone number
and address set forth above.
NO REVOCATION
ONCE A RIGHTS HOLDER HAS EXERCISED THE SUBSCRIPTION PRIVILEGE, SUCH
EXERCISE OR SUBSCRIPTION MAY NOT BE REVOKED BY SUCH RIGHTS HOLDER.
METHODS OF TRANSFERRING RIGHTS
The Rights may be purchased or sold through usual investment channels. It
is anticipated that they will trade on the NYSE until the close of business on
the last NYSE trading day preceding the Expiration Date.
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<PAGE> 17
The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate of transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but not fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights Holder or, if the Rights Holder so
instructs, to an additional transferee.
The Rights evidenced by a Subscription Certificate may be sold, in whole or
in part (but not with respect to fractional Rights), through the Subscription
Agent by delivering to the Subscription Agent the Subscription Certificate
properly executed for sale by the Subscription Agent. If only a portion of the
Rights evidenced by a Single Subscription Certificate is to be sold by the
Subscription Agent, that Subscription Certificate must be accompanied by
instructions setting for the action to be taken with respect to the Rights that
are not to be sold. Promptly following the settlement of such sale, the
Subscription Agent will send the Rights Holder a check for the proceeds from the
sale of any Rights sold, less any applicable brokerage commissions, taxes and
other direct expenses of sales. Upon settlement, a Rights Holder for which the
Subscription Agent sells Rights on any given day will receive for each of its
Rights so sold the net weighted average sale price of all Rights sold on that
day by the Subscription Agent. The net weighted average sale price will be
calculated by dividing the total proceeds from all sales realized by the
Subscription Agent on the date of sale by the total number of Rights sold by the
Subscription Agent on that day and then subtracting a pro-rata portion of any
applicable brokerage commissions, taxes and other expenses. The Subscription
Agent shall not sell the Rights at a price which would result in a net loss to
the Subscription Agent after any applicable brokerage commissions, taxes or
other direct expenses of sale. No assurance, however, can be given that a market
will develop for the Rights, that the Subscription Agent will be able to sell
any Rights, or as to the price at which the Rights will trade. The Company will
pay the fees charged by the Subscription Agent for effecting such sales. Orders
to sell Rights must be received by the Subscription Agent at or prior to 11:00
a.m., Eastern time, at least two NYSE trading days preceding the Expiration
Date. The Subscription Agent's obligation to execute orders is subject to its
ability to find buyers. If the Rights cannot be sold by the Subscription Agent
by 5:00 p.m., Eastern time, two (2) NYSE trading days preceding the date on
which the Expiration Date occurs, they will be returned promptly by mail to the
Rights Holder or, if so arranged, held by the Subscription Agent for pickup.
Rights Holders wishing to transfer all or a portion of their Rights (but
not fractional Rights) should allow a sufficient amount of time prior to the
Expiration Date for (i) the transfer instructions to be received and processed
by the Subscription Agent, (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to the transferred
Rights, and to the transferor with respect to retained Rights, if any, and (iii)
the Rights evidenced by such new Subscription Certificates to be exercised or
sold by the recipients thereof. Neither the Company nor the Subscription Agent
shall have any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
Except for the fees charged by the Subscription Agent (which will be paid
by the Company as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with
the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Subscription Agent.
PROCEDURES FOR DTC PARTICIPANTS
The Company anticipates that the exercise of the Subscription Privilege may
be effected through the facilities of the Depository Trust Company.
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<PAGE> 18
AMENDMENT AND TERMINATION
The Company reserves the right to extend the Expiration Date and to amend
the terms and conditions of the Rights Offering, regardless of whether the
amended terms are more or less favorable to Rights Holders. If the Company
amends the terms of the Rights Offering, the Registration Statement of which
this Prospectus forms a part will be amended, and a new definitive Prospectus
will be distributed to all Rights Holders who have theretofore exercised Rights
and to holders of record of unexercised Rights on the date the Company amends
such terms. In addition, all Rights Holders who have theretofore exercised
Rights, or who exercise Rights within four business days after the mailing of
the new definitive Prospectus, shall be provided with a form to Consent to
Amended Rights Offering Terms, on which they can confirm their exercise of
Rights and their subscriptions under the terms of the Rights Offering as
amended; any Rights Holder who has theretofore exercised any Rights, or who
exercises Rights within four business days after the mailing of the new
definitive Prospectus, and who does not return such Consent within 10 business
days after the mailing of such Consent by the Company will be deemed to have
canceled his or her exercise of Rights, and the full amount of the Subscription
Price theretofore paid by such Rights Holder will be returned as soon as
possible by mail, without interest or deduction. Any completed Subscription
Certificate received by the Subscription Agent five or more business days after
the date of the amendment will be deemed to constitute the consent of the Rights
Holder who completed such Subscription Certificate to the amended terms.
The Company also reserves the right to terminate the Rights Offering prior
to the Expiration Date for the following reasons: (i) a suspension of trading in
the Company's Common Shares by the NYSE or suspension of trading of securities
generally on the NYSE, (ii) a "stop order" issued by the Securities and Exchange
Commission (the "Commission") suspending the effectiveness of the Company's
Registration Statement covering the Underlying Shares, (iii) entry of a judgment
or order by a court or other governmental authority restraining, prohibiting or
materially interfering with the Rights Offering and (iv) subject to compliance
with NYSE policies, the Company's determination (upon approval by the NYSE) that
continuation of the Rights Offering would not be in the Company's best interest.
Such termination would be effected by the Company by giving oral or written
notice of such termination to the Subscription Agent and making a public
announcement thereof. If the Rights Offering is so terminated, the Subscription
Price will be returned as soon as possible by mail to exercising Rights Holders,
without interest or deduction. Neither the Company nor any selling Rights
Holders will have any obligation to a purchaser of Rights, whether such purchase
was made through the Subscription Agent or otherwise, in the event that the
Rights Offering is terminated.
DETERMINATION OF SUBSCRIPTION PRICE
The Company believes that the Subscription Price reflects the Company's
objective of achieving the maximum net proceeds obtainable from the Rights
Offering while providing the holders of Common Shares with an opportunity to
make an additional investment in the Company, and thus avoid a dilution of their
ownership position in the Company.
In determining the structure of the Rights Offering and establishing the
Subscription Price, the Board of Trust Managers considered such factors as the
alternatives available to the Company for raising capital (including the costs
of such alternatives), the market price of the Common Shares, the business
prospects for the Company, the general condition of the securities markets at
the time of the meeting of the Board of Trust Managers at which the Rights
Offering was approved, a review of the subscription prices relative to market
prices in a number of rights offerings. There can be no assurance, however, that
the market price of the Common Shares will not decline during the subscription
period to a level equal to or below the Subscription Price, or that, following
the issuance of the Rights and of the Common Shares upon exercise of Rights, a
subscribing Rights Holder will be able to sell shares purchased in the Rights
Offering at a price equal to or greater than the Subscription Price.
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<PAGE> 19
SUBSCRIPTION AGENT
The Company has appointed Boston EquiServe, L.P. as Subscription Agent for
the Rights Offering. The Subscription Agent's addresses, which are the addresses
to which Subscription Certificates, subscription payments and a Notice of
Guaranteed Delivery must be delivered, are:
<TABLE>
<CAPTION>
<S> <C>
If by mail: BostonEquiServe, L.P.
[Address]
Attention:
If by hand: BostonEquiServe, L.P.
c/o [contact person or department]
[Address]
If by night courier: BostonEquiServe, L.P.
[Address]
Attention:
</TABLE>
The Subscription Agent's telephone number is, toll free, ( )
- , and its telecopy number is ( ) - .
The Company will pay the fees and expenses of the Subscription Agent and
has also agreed to indemnify the Subscription Agent from certain liabilities
which it may incur in connection with the Rights Offering.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Certificates will not be mailed to Rights Holders or to any
subsequent transferees of any Subscription Certificates whose addresses are
outside the United States or who have APO or FPO addresses or whose addresses
are in the states in which the Company has not filed a registration statement
pursuant to the relevant state "blue sky" laws, but will be held by the
Subscription Agent for such Holders' accounts. To exercise or sell their Rights,
such Holders must notify the Subscription Agent prior to 11:00 a.m., Eastern
time, at least two NYSE trading days preceding the Expiration Date, at which
time (if no contrary instructions have been received) the Rights represented
thereby will be sold, subject to the Subscription Agent's ability to find a
purchaser. Any such sales will be at prevailing market prices. See "The Rights
Offering -- Method of Transferring Rights." If the Rights can be sold, a check
for the proceeds from the sale of any Rights, less any applicable brokerage
commissions, taxes and other expenses, will be remitted to such Holders by mail.
The proceeds, if any, resulting from sales of Rights of Holders who addresses
are not known by the Subscription Agent or to whom delivery cannot be made will
be held by the Subscription Agent in a non-interest bearing account. Any amount
remaining unclaimed on the second anniversary of the Expiration Date will be
turned over by the Subscription Agent to the Company and, after such date, any
person claiming such proceeds will, as an unsecured general creditor of the
Company, be able to look only to the Company for payment thereof. The ability of
such Holders to exercise or sell Rights will expire on the Expiration Date.
NO BOARD RECOMMENDATION
An investment in the Common Shares must be made pursuant to each Rights
Holder's or prospective investor's evaluation of its, his or her best interests.
Accordingly, the Board of Trust Managers of the Company does not make any
recommendation to any Rights Holder or prospective investor regarding the
exercise of its, his or her Rights. The Board of Trust Managers does, however,
urge the Rights Holders to either exercise or sell their Rights prior to the
Expiration Date.
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<PAGE> 20
DESCRIPTION OF COMMON SHARES
GENERAL
The Declaration of Trust authorizes the Board of Trust Managers to issue up
to 250,000,000 Common Shares, as well as 250,000,000 Excess Shares, par value
$0.01 per share, issuable in exchange for Common Shares as described below at
"-- Ownership Limits and Restrictions on Transfer." The Common Shares are listed
on the NYSE under the symbol "CEI."
Subject to such preferential rights as may be granted by the Board of Trust
Managers in connection with the future issuance of Preferred Shares, holders of
Common Shares are entitled to one vote per share on all matters to be voted on
by shareholders and are entitled to receive ratably such distributions as may be
declared on the Common Shares by the Board of Trust Managers in its discretion
from funds legally available therefor. In the event of the liquidation,
dissolution or winding up of the Company, holders of Common Shares are entitled
to share ratably in all assets remaining after payment of all debts and other
liabilities and any liquidation preference of the holders of Preferred Shares.
Holders of Common Shares have no subscription, redemption, conversion or
preemptive rights. Matters submitted for shareholder approval generally require
a majority vote of the shares present and voting thereon.
OWNERSHIP LIMITS AND RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code (i) not more than 50%
in value of outstanding equity securities of all classes ("Equity Shares") may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year;
(ii) the Equity Shares must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year; and (iii) certain percentages of the Company's gross
income must come from certain activities.
To ensure that five or fewer individuals do not own more than 50% in value
of the outstanding Equity Shares, the Declaration of Trust provides generally
that no holder may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than 8.0% of the issued and outstanding Common
Shares (the "Common Share Ownership Limit") or more than 9.9% of the issued and
outstanding shares of any series of Preferred Shares (the "Preferred Shares
Ownership Limit"). In addition, the Declaration of Trust separately provides
that Mr. Rainwater, the Chairman of the Board of Trust Managers, and certain
related persons together may own, or be deemed to own, by virtue of certain
attribution provisions of the Code, up to 8.0% (the "Rainwater Ownership Limit")
of the issued and outstanding Common Shares (collectively, the "Ownership
Limit"). The Board of Trust Managers, upon receipt of a ruling from the IRS, an
opinion of counsel, or other evidence satisfactory to the Board of Trust
Managers, in its sole discretion, may waive or change, in whole or in part, the
application of the Ownership Limit with respect to any person that is not an
individual (as defined in Section 542(a)(2) of the Code). In connection with any
such waiver or change, the Board of Trust Managers may require such
representations and undertakings from such person or affiliates and may impose
such other conditions, as the Board deems necessary, advisable or prudent, in
its sole discretion, to determine the effect, if any, of the proposed
transaction or ownership of Equity Shares on the Company's status as a REIT for
federal income tax purposes.
In addition, the Board of Trust Managers, from time to time, may increase
the Common Shares Ownership Limit, except that (i) the Common Shares Ownership
Limit may not be increased and no additional limitations may be created if,
after giving effect thereto, the Company would be "closely held" within the
meaning of Section 856(h) of the Code and (ii) the Common Shares Ownership Limit
may not be increased to a percentage that is greater than 9.9%. Under the
Declaration of Trust, neither the Preferred Shares Ownership Limit nor the
Rainwater Ownership Limit may be increased. The Board of Trust Managers may
reduce the Rainwater Ownership Limit, with the written consent of Mr. Rainwater,
after any transfer permitted by the Declaration of Trust. Prior to any
modification of the Ownership Limit or the Rainwater Ownership Limit, the Board
of Trust Managers will have the right to require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary, advisable or
prudent, in its sole discretion, in order to determine or ensure the Company's
status as a REIT.
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<PAGE> 21
Under the Declaration of Trust, the Ownership Limit will not be
automatically removed even if the REIT provisions of the Code are changed so as
to no longer contain any ownership concentration limitation or if the ownership
concentration limit is increased. In addition to preserving the Company's status
as a REIT for federal income tax purposes, the Ownership Limit may prevent any
person or small group of persons from acquiring control of the Company.
The Declaration of Trust of the Company also provides that if an issuance,
transfer or acquisition of Equity Shares (i) would result in a holder exceeding
the Ownership Limit, (ii) would cause the Company to be beneficially owned by
less than 100 persons, (iii) would result in the Company being "closely held"
within the meaning of Section 856(h) of the Code or (iv) would otherwise result
in the Company failing to qualify as a REIT for federal income tax purposes,
such issuance, transfer or acquisition shall be null and void to the intended
transferee or holder, and the intended transferee or holder will acquire no
rights to the shares. Pursuant to the Declaration of Trust, Equity Shares owned,
transferred or proposed to be transferred in excess of the Ownership Limit or
which would otherwise jeopardize the Company's status as a REIT under the Code
will automatically be converted to Excess Shares. A holder of Excess Shares is
not entitled to distributions, voting rights and other benefits with respect to
such shares except the right to payment of the purchase price for the shares and
the right to certain distributions upon liquidation. Any dividend or
distribution paid to a proposed transferee on Excess Shares pursuant to the
Company's Declaration of Trust will be required to be repaid to the Company upon
demand. Excess Shares will be subject to repurchase by the Company at its
election. The purchase price of any Excess Shares will be equal to the lesser of
(i) the price in such proposed transaction or (ii) either (a) if the shares are
then listed on the NYSE, the fair market value of such shares reflected in the
average closing sales prices for the shares on the 10 trading days immediately
preceding the date on which the Company or its designee determines to exercise
its repurchase right; or (b) if the shares are not then so listed, such price
for the shares on the principal exchange (including the Nasdaq National Market)
on which such shares are listed; or (c) if the shares are not then listed on a
national securities exchange, the latest quoted price for the shares; or (d) if
not quoted, the average of the high bid and low asked prices if the shares are
then traded over-the-counter, as reported by the Nasdaq Stock Market; or (e) if
such system is no longer in use, the principal automated quotation system then
in use; or (f) if the shares are not quoted on such system, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the shares; or (g) if there is no such market maker or such closing
prices otherwise are unavailable, the fair market value, as determined by the
Board of Trust Managers in good faith, on the last trading day immediately
preceding the day on which notice of such proposed purchase is sent by the
Company. The Declaration of Trust also establishes certain restrictions relating
to transfers of any Exchange Shares that may be issued. If such transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the Company will have the option to
deem the intended transferee of any Excess Shares to have acted as an agent on
behalf of the Company in acquiring such Excess Shares and to hold such Excess
Shares on behalf of the Company.
Under the Declaration of Trust, the Company has the authority at any time
to waive the requirement that Excess Shares be issued or be deemed outstanding
in accordance with the provisions of the Declaration of Trust if the issuance of
such Excess Shares or the fact that such Excess Shares is deemed to be
outstanding would, in the opinion of nationally recognized tax counsel,
jeopardize the status of the Company as a REIT for federal income tax purposes.
All certificates issued by the Company representing Equity Shares will bear
a legend referring to the restrictions described above.
The Declaration of Trust of the Company also provides that all persons who
own, directly or by virtue of the attribution provisions of the Code, more than
5.0% of the outstanding Equity Shares (or such lower percentage as may be set by
the Board of Trust Managers), must file an affidavit with the Company containing
information specified in the Declaration of Trust no later than January 31 of
each year. In addition, each shareholder, upon demand, shall be required to
disclose to the Company in writing such information with respect to the direct,
indirect and constructive ownership of shares as the trust managers deem
necessary to comply with the provisions of the Code, as applicable to a REIT, or
to comply with the requirements of an authority or governmental agency.
20
<PAGE> 22
The ownership limitations described above may have the effect of precluding
acquisitions of control of the Company by a third party. See "Certain Provisions
of the Declaration of Trust, Bylaws and Texas Law."
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Shares is BankBoston, N.A.
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST, BYLAWS AND TEXAS LAW
The Declaration of Trust and the Bylaws of the Company contain certain
provisions that may inhibit or impede acquisition or attempted acquisition of
control of the Company by means of a tender offer, a proxy contest or otherwise.
These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trust
Managers. The Company believes that these provisions increase the likelihood
that proposals initially will be on more attractive terms than would be the case
in their absence and increase the likelihood of negotiations, which might
outweigh the potential disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals might result in improvement of
terms. The description set forth below is only a summary of the terms of the
Declaration of Trust and Bylaws (copies of which have been incorporated by
reference as exhibits to the Registration Statement of which this Prospectus
forms a part). See "Description of Common Shares -- Ownership Limits and
Restrictions on Transfer."
STAGGERED BOARD OF TRUST MANAGERS
The Declaration of Trust and the Bylaws provide that the Board of Trust
Managers will be divided into three classes of trust managers, each class
constituting approximately one-third of the total number of trust managers, with
the classes serving staggered three-year terms. The classification of the Board
of Trust Managers will have the effect of making it more difficult for
shareholders to change the composition of the Board of Trust Managers, because
only a minority of the trust managers are up for election, and may be replaced
by vote of the shareholders, at any one time. The Company believes, however,
that the longer terms associated with the classified Board of Trust Managers
will help to ensure continuity and stability of the Company's management and
policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the Company's capital shares or
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and some, or a majority, of its shareholders.
Accordingly, under certain circumstances shareholders could be deprived of
opportunities to sell their shares of Common Shares at a higher price than might
otherwise be available.
NUMBER OF TRUST MANAGERS; REMOVAL; FILLING VACANCIES
Subject to any rights of holders of Preferred Shares to elect additional
trust managers under specified circumstances ("Preferred Holders' Rights"), the
Declaration of Trust provides that the number of trust managers will be fixed
by, or in the manner provided in, the Bylaws, but must not be more than 25 nor
less than one. In addition, the Bylaws provide that, subject to any Preferred
Holders' Rights, the number of trust managers will be fixed by the Board of
Trust Managers, but must not be more than 25 or less than three. In addition,
the Bylaws provide that, subject to any Preferred Holders' Rights, and unless
the Board of Trust Managers otherwise determines, any vacancies (other than
vacancies created by an increase in the total number of trust managers) will be
filled by the affirmative vote of a majority of the remaining trust managers,
although less than a quorum, and any vacancies created by an increase in the
total number of trust managers may be filled by a majority of the entire Board
of Trust Managers. Accordingly, the Board of Trust Managers could temporarily
prevent any shareholder from enlarging the Board of Trust Managers and then
filling the new trust manager position with such shareholder's own nominees.
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<PAGE> 23
The Declaration of Trust and the Bylaws provide that, subject to any
Preferred Holders' Rights, trust managers may be removed only for cause upon the
affirmative vote of holders of at least 80% of the entire voting power of all
the then-outstanding shares entitled to vote generally in the election of trust
managers, voting together as a single class.
RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF TRUST MANAGERS
The Declaration of Trust provides that, in determining what is in the best
interest of the Company in evaluating a "business combination," "change in
control" or other transaction, a trust manager of the Company shall consider all
of the relevant factors. These factors may include (i) the immediate and
long-term effects of the transaction on the Company's shareholders, including
shareholders, if any, who do not participate in the transaction; (ii) the social
and economic effects of the transaction on the Company's employees, suppliers,
creditors and customers and others dealing with the Company and on the
communities in which the Company operates and is located; (iii) whether the
transaction is acceptable, based on the historical and current operating results
and financial condition of the Company; (iv) whether a more favorable price
would be obtained for the Company's stock or other securities in the future; (v)
the reputation and business practices of the other party or parties to the
proposed transaction, including its or their management and affiliates, as they
would affect employees of the Company; (vi) the future value of the Company's
securities; (vii) any legal or regulatory issues raised by the transaction; and
(viii) the business and financial condition and earnings prospects of the other
party or parties to the proposed transaction including, without limitation, debt
service and other existing financial obligations, financial obligations to be
incurred in connection with the transaction, and other foreseeable financial
obligations of such other party or parties. Pursuant to this provision, the
Board of Trust Managers may consider subjective factors affecting a proposal,
including certain nonfinancial matters, and, on the basis of these
considerations, may oppose a business combination or other transaction which,
evaluated only in terms of its financial merits, might be attractive to some, or
a majority, of the Company's shareholders.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Bylaws provide for an advance notice procedure for shareholders to make
nominations of candidates for trust manager or bring other business before an
annual meeting of shareholders of the Company (the "Shareholder Notice
Procedure").
Pursuant to the Shareholder Notice Procedure (i) only persons who are
nominated by, or at the direction of, the Board of Trust Managers, or by a
shareholder who has given timely written notice containing specified information
to the Secretary of the Company prior to the meeting at which trust managers are
to be elected, will be eligible for election as trust managers of the Company
and (ii) at an annual meeting, only such business may be conducted as has been
brought before the meeting by, or at the direction of, the Chairman or the Board
of Trust Managers or by a shareholder who has given timely written notice to the
Secretary of the Company of such shareholder's intention to bring such business
before such meeting. In general, for notice of shareholder nominations or
proposed business to be conducted at an annual meeting to be timely, such notice
must be received by the Company not less than 70 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting.
The purpose of requiring shareholders to give the Company advance notice of
nominations and other business is to afford the Board of Trust Managers a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Trust Managers, to inform shareholders
and make recommendations about such nominees or business, as well as to ensure
an orderly procedure for conducting meetings of shareholders. Although the
Bylaws do not give the Board of Trust Managers power to block shareholder
nominations for the election of trust managers or proposal for action, the
Shareholder Notice Procedure may have the effect of discouraging a shareholder
from proposing nominees or business, precluding a contest for the election of
trust managers or the consideration of shareholder proposals if procedural
requirements are not met, and deterring third parties from soliciting proxies
for a non-management proposal or slate of trust managers, without regard to the
merits of such proposal or slate.
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<PAGE> 24
PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trust Managers to
establish one or more series of Preferred Shares and to determine, with respect
to any series of Preferred Shares, the preferences, rights and other terms of
such series. The Company believes that the ability of the Board of Trust
Managers to issue one or more series of Preferred Shares will provide the
Company with increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs. The authorized Preferred
Shares are available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded at the time of issuance or proposed issuance.
The Board of Trust Managers could, in the future, issue a series of Preferred
Shares which, due to its terms, could impede a merger, tender offer or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their best interests or in which shareholders might receive a
premium over then-prevailing market prices for their Common Shares.
AMENDMENT OF DECLARATION OF TRUST
The Declaration of Trust provides that it may be amended only by the
affirmative vote of the holders of not less than two-thirds of the votes
entitled to be cast, except that the provisions of the Declaration of Trust
relating to "business combinations" or "control shares" (as described below
under "-- Business Combinations" and "-- Control Share Acquisitions") may be
amended only with the affirmative vote of 80% of the votes entitled to be cast,
voting together as a single class.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Declaration of Trust authorizes the Board of Trust Managers, subject to
any rights of holders of any series of Preferred Shares, to create and issue
rights entitling the holders thereof to purchase from the Company Equity Shares
or other securities or property. The times at which and terms upon which such
rights are to be issued are within the discretion of the Board of Trust
Managers. This provision is intended to confirm the authority of the Board of
Trust Managers to issue share purchase rights which could have terms that would
impede a merger, tender offer or other takeover attempt, or other rights to
purchase securities of the Company or any other entity.
BUSINESS COMBINATIONS
The Declaration of Trust establishes special requirements with respect to
"business combinations" (including a merger, consolidation, share exchange, or,
in certain circumstances, an asset transfer or issuance of reclassification of
equity securities) between the Company and any person who beneficially owns,
directly or indirectly, 10% or more of the voting power of the Company's shares
(an "Interested Shareholder"), subject to certain exemptions. In general, the
Declaration of Trust provides that an Interested Shareholder or any affiliate
thereof may not engage in a "business combination" with the Company for a period
of five years following the date he becomes an Interested Shareholder.
Thereafter, pursuant to the Declaration of Trust, such transactions must be (i)
approved by the Board of Trust Managers of the Company and (ii) approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders of
voting shares other than voting shares held by the Interested Shareholder with
whom the business combination is to be effected, unless, among other things, the
holders of Equity Shares receive a minimum price (as defined in the Declaration
of Trust) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for his shares. These
provisions of the Declaration of Trust do not apply, however, to business
combinations that are approved or exempted by the Board of Trust Managers of the
Company prior to the time that the Interested Shareholder becomes an Interested
Shareholder.
CONTROL SHARE ACQUISITIONS
The Declaration of Trust provides that "control shares" of the Company
acquired in a control share acquisition have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to
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be cast by the holders of Equity Shares, excluding shares as to which the
acquiror, officers of the Company and employees of the Company who are also
trust managers have the right to vote or direct the vote. "Control shares" are
Equity Shares which, if aggregated with all other Equity Shares previously
acquired which the person is entitled to vote, would entitle the acquiror to
vote (i) 20% or more but less than one-third; (ii) one-third or more but less
than a majority; or (iii) a majority of the outstanding voting shares of the
Company. Control shares do not include Equity Shares that the acquiring person
is entitled to vote on the basis of prior shareholder approval. A "control share
acquisition" is defined as the acquisition of control shares, subject to certain
exemptions enumerated in the Declaration of Trust.
The Declaration of Trust provides that a person who has made or proposed to
make a control share acquisition and who has obtained a definitive financing
agreement with a responsible financial institution providing for any amount of
financing not to be provided by the acquiring person may compel the Board of
Trust Managers of the Company to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the Equity
Shares. If no request for a meeting is made, the Declaration of Trust permits
the Company itself to present the question at any shareholders' meeting.
Pursuant to the Declaration of Trust, if voting rights are not approved at
a shareholders' meeting or if the acquiring person does not deliver an acquiring
person statement as required by the Declaration of Trust, then, subject to
certain conditions and limitations set forth in the Declaration of Trust, the
Company will have the right to redeem any or all of the control shares, except
those for which voting rights have previously been approved, for fair value
determined, without regard to the absence of voting rights of the control
shares, as of the date of the last control share acquisition or of any meeting
of shareholders at which the voting rights of such shares are considered and not
approved. Under the Declaration of Trust, if voting rights for control shares
are approved at a shareholders' meeting and, as a result, the acquiror would be
entitled to vote a majority of the Equity Shares entitled to vote, all other
shareholders will have the rights of dissenting shareholders under the Texas
Real Estate Investment Trust Act (the "TRA"). The Declaration of Trust provides
that the fair value of the Equity Shares for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition, and that certain limitations and restrictions of the
TRA otherwise applicable to the exercise of dissenters' rights do not apply.
These provisions of the Declaration of Trust do not apply to Equity Shares
acquired in a merger, consolidation or share exchange if the Company is a party
to the transaction, or if the acquisition is approved or excepted by the
Declaration of Trust or Bylaws of the Company prior to a control share
acquisition.
OWNERSHIP LIMIT
The limitation on ownership of shares of Common Shares set forth in the
Company's Declaration of Trust, as well as the provisions of the TRA, could have
the effect of discouraging offers to acquire the Company and of increasing the
difficulty of consummating any such offer. See "Description of Common
Shares -- Ownership Limits and Restrictions on Transfer."
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FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following is a summary of the material federal income tax
considerations associated with an investment in the Common Shares offered
hereby, as well as certain anticipated federal income tax consequences to
holders of Common Shares upon the issuance of Rights and to Rights Holders upon
exercise and disposition of the Rights, prepared by Shaw Pittman Potts &
Trowbridge, tax counsel to Crescent Equities ("Tax Counsel"). This discussion is
based upon the laws, regulations and reported rulings and decisions in effect as
of the date of this Prospectus, all of which are subject to change,
retroactively or prospectively, and to possibly differing interpretations. This
discussion does not purport to deal with the federal income or other tax
consequences applicable to all investors in light of their particular investment
circumstances or to all categories of investors, some of whom may be subject to
special rules (including, for example, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States). No ruling on
the federal, state or local tax considerations relevant to the operation of
Crescent Equities or the Operating Partnership or to the purchase, ownership or
disposition of the Common Shares or the Rights is being requested from the
Internal Revenue Service (the "IRS") or from any other tax authority. Tax
Counsel has rendered certain opinions discussed herein and believes that if the
IRS were to challenge the conclusions of Tax Counsel, such conclusions would
prevail in court. However, opinions of counsel are not binding on the IRS or on
the courts, and no assurance can be given that the conclusions reached by Tax
Counsel would be sustained in court.
EACH RIGHTS HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE COMMON SHARES OR THE RIGHTS IN AN ENTITY ELECTING TO BE TAXED
AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF CRESCENT EQUITIES
Crescent Equities has made an election to be treated as a real estate
investment trust under Sections 856 through 860 of the Code (as used in this
section, a "REIT"), commencing with its taxable year ended December 31, 1994.
Crescent Equities believes that it was organized and has operated in such a
manner so as to qualify as a REIT, and Crescent Equities intends to continue to
operate in such a manner, but no assurance can be given that it has operated in
a manner so as to qualify, or will operate in a manner so as to continue to
qualify as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the applicable Code sections, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
In the opinion of Tax Counsel, Crescent Equities qualified as a REIT under
the Code with respect to its taxable years ending on or before December 31,
1997, and is organized in conformity with the requirements for qualification as
a REIT, its manner of operation has enabled it to meet the requirements for
qualification as a REIT as of the date of this Prospectus Supplement, and its
proposed manner of operation will enable it to meet the requirements for
qualification as a REIT in the future. It must be emphasized that this opinion
is based on various assumptions relating to the organization and operation of
Crescent Equities and the Operating Partnership and is conditioned upon certain
representations made by Crescent Equities and the Operating Partnership as to
certain relevant factual matters, including matters related to the organization,
expected operation, and assets of Crescent Equities and the Operating
Partnership. Moreover, continued qualification as a REIT will depend upon
Crescent Equities' ability to meet, through actual annual operating results, the
distribution levels, stock ownership requirements and the various qualification
tests and other requirements imposed under the Code, as discussed below.
Accordingly, no assurance can be given that the
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actual stock ownership of Crescent Equities, the mix of its assets, or the
results of its operations for any particular taxable year will satisfy such
requirements. For a discussion of the tax consequences of failing to qualify as
a REIT, see "-- Taxation of Crescent Equities -- Failure to Qualify," below.
If Crescent Equities qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on its net income that is
currently distributed to shareholders. This treatment substantially eliminates
the "double taxation" (at the corporate and shareholder levels) that generally
results from investments in a corporation. However, Crescent Equities will be
subject to federal income tax in the following circumstances. First, Crescent
Equities will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including undistributed net capital
gains. Second, under certain circumstances, Crescent Equities may be subject to
the "alternative minimum tax" on its items of tax preference. Third, if Crescent
Equities has "net income from foreclosure property," it will be subject to tax
on such income at the highest corporate rate. "Foreclosure property" generally
means real property and any personal property incident to such real property
which is acquired as a result of a default either on a lease of such property or
on indebtedness which such property secured and with respect to which an
appropriate election is made, except that property ceases to be foreclosure
property (i) after a three-year period (which in certain cases may be extended
by the IRS) or, if earlier, (ii) when the REIT engages in construction on the
property (other than for completion of certain improvements) or for more than 90
days uses the property in a business conducted other than through an independent
contractor. "Net income from foreclosure property" means (a) the net gain from
disposition of foreclosure property which is held primarily for sale to
customers in the ordinary course of business or (b) other net income from
foreclosure property which would not satisfy the 75% gross income test
(discussed below). Property is not eligible for the election to be treated as
foreclosure property if the loan or lease with respect to which the default
occurs (or is imminent) was made, entered into or acquired by the REIT with an
intent to evict or foreclose or when the REIT knew or had reason to know that
default would occur. Fourth, if Crescent Equities has "net income derived from
prohibited transactions," such income will be subject to a 100% tax. The term
"prohibited transaction" generally includes a sale or other disposition of
property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of business. Fifth, if Crescent Equities should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which
Crescent Equities fails the 75% or 95% test. Sixth, if, during each calendar
year, Crescent Equities fails to distribute at least the sum of (i) 85% of its
"real estate investment trust ordinary income" for such year, (ii) 95% of its
"real estate investment trust capital gain net income" for such year, and (iii)
any undistributed taxable income from prior periods, Crescent Equities will be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if Crescent Equities acquires any asset
from a C corporation (i.e., a corporation generally subject to full corporate
level tax) in a transaction in which the basis of the asset in Crescent
Equities' hands is determined by reference to the basis of the asset (or any
other property) in the hands of the corporation, and Crescent Equities
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by Crescent Equities,
then, to the extent of such property's "built-in" gain (the excess of the fair
market value of such property at the time of acquisition by Crescent Equities
over the adjusted basis in such property at such time), such gain will be
subject to tax at the highest regular corporate rate applicable (as provided in
regulations promulgated by the United States Department of Treasury under the
Code ("Treasury Regulations") that have not yet been promulgated). (The results
described above with respect to the recognition of "built-in gain" assume that
Crescent Equities will make an election pursuant to IRS Notice 88-19.)
Requirements of Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held (without
reference to any rules of attribution) by 100 or more persons; (6) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by
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five or fewer individuals (as defined in the Code); and (7) which meets certain
other tests, described below, regarding certain distributions and the nature of
its income and assets and properly files an election to be treated as a REIT.
The Code provides that conditions (1) through (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of 12 months (or during a proportionate part of a taxable
year of less than 12 months).
Crescent Equities issued sufficient Common Shares pursuant to the Initial
Offering to satisfy the requirements described in (5) and (6) above. While the
existence of the rights granted to the Limited Partners to exchange their Units
for Common Shares (the "Exchange Rights") may cause limited partners of the
Operating Partnership ("Limited Partners") to be deemed to own the Common Shares
they could acquire through the Exchange Rights, the amount of Common Shares that
can be acquired at any time through the Exchange Rights is limited to an amount
which, together with any other Common Shares actually or constructively deemed,
under the Declaration of Trust, to be owned by any person, does not exceed the
Ownership Limit. See "Description of Common Shares -- Ownership Limits and
Restrictions on Transfer." Moreover, the ownership of Common Shares generally is
limited under the Ownership Limit to no more than 8.0% of the outstanding Common
Shares. In addition, the Declaration of Trust provides for restrictions
regarding the ownership or transfer of Common Shares in order to assist Crescent
Equities in continuing to satisfy the share ownership requirements described in
(5) and (6) above. See "Description of Common Shares -- Ownership Limits and
Restrictions on Transfer."
If a REIT owns a "qualified REIT subsidiary," the Code provides that the
qualified REIT subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities and items of income, deduction and credit of the
qualified REIT subsidiary are treated as assets, liabilities and such items of
the REIT itself. A qualified REIT subsidiary is a corporation all of the capital
stock of which has been owned by the REIT from the commencement of such
corporation's existence. CREE Ltd., CRE Management I Corp. ("Management I"), CRE
Management II Corp. ("Management II"), CRE Management III Corp. ("Management
III"), CRE Management IV Corp. ("Management IV"), CRE Management V Corp.
("Management V"), CRE Management VI Corp. ("Management VI"), CRE Management VII
Corp. ("Management VII"), CresCal Properties, Inc. and Crescent Commercial
Realty Corp. are qualified REIT subsidiaries, and thus all of the assets (i.e.,
the respective partnership interests in the Operating Partnership, Funding I,
Funding II, Funding III, Funding IV, Funding V, Funding VI, Funding VII, CresCal
Properties, L.P. and Crescent Commercial Realty Holdings, L.P.), liabilities and
items of income, deduction and credit of CREE Ltd., Management I, Management II,
Management III, Management IV, Management V, Management VI, Management VII,
CresCal Properties, Inc. and Crescent Commercial Realty Corp. are treated as
assets and liabilities and items of income, deduction and credit of Crescent
Equities. Unless otherwise required, all references to Crescent Equities in this
"Federal Income Tax Considerations" section refer to Crescent Equities and its
qualified REIT subsidiaries.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership attributed to the REIT shall
retain the same character as in the hands of the partnership for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
assets tests described below. Thus, Crescent Equities' proportionate share of
the assets, liabilities and items of income of the Operating Partnership and its
subsidiary partnerships are treated as assets, liabilities and items of income
of Crescent Equities for purposes of applying the requirements described herein.
Income Tests. In order for Crescent Equities to achieve and maintain its
qualification as a REIT, there are currently two requirements relating to
Crescent Equities' gross income that must be satisfied annually. First, at least
75% of Crescent Equities' gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of temporary investment income
or of certain defined categories of income derived directly or indirectly from
investments relating to real property or mortgages on real property. These
categories include, subject to various limitations, rents from real property,
interest on mortgages on real property, gains from the sale or other disposition
of real property (including interests in real property and in mortgages on real
property) not primarily held for sale to customers in the ordinary course of
business, income
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from foreclosure property, and amounts received as consideration for entering
into either loans secured by real property or purchases or leases of real
property. Second, at least 95% of Crescent Equities' gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
from income qualifying under the 75% test and from dividends, other types of
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. In addition, for each taxable year before
1998, gain from the sale or other disposition of stock or securities held for
less than one year, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must have represented
less than 30% of Crescent Equities' gross income (including gross income from
prohibited transactions) for such taxable year. Crescent Equities, through its
partnership interests in the Operating Partnership and all subsidiary
partnerships, believes it satisfied all three of these income tests for 1994,
1995, 1996 and 1997 and expects to satisfy the two current tests for subsequent
taxable years.
The bulk of the Operating Partnership's income is currently derived from
rents with respect to the Office Properties, the Behavioral Healthcare
Facilities, the Hotel Properties and the Retail Properties. Rents received by
Crescent Equities will qualify as "rents from real property" in satisfying the
gross income requirements for a REIT described above only if several conditions
are met. First, the amount of rent must not be based in whole or in part on the
income or profits of any person. An amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. Second,
the Code provides that rents received from a tenant will not qualify as "rents
from real property" if the REIT, or an owner of 10% or more of the REIT,
directly or constructively, owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents to qualify as
"rents from real property," a REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
except that a REIT may directly perform services which are "usually or
customarily rendered" in connection with the rental of space for occupancy,
other than services which are considered to be rendered to the occupant of the
property. However, a REIT is currently permitted to earn up to one percent of
its gross income from tenants, determined on a property-by-property basis, by
furnishing services that are noncustomary or provided directly to the tenants,
without causing the rental income to fail to qualify as rents from real
property.
Crescent Equities, based in part upon opinions of Tax Counsel as to whether
various tenants, including CBHS and the lessees of the Hotel Properties,
constitute Related Party Tenants, believes that the income it received in 1994,
1995, 1996 and 1997 and will receive in subsequent taxable years from (i)
charging rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of being based on a percentage or
percentages of receipts or sales, as described above); (ii) charging rent for
personal property in an amount greater than 15% of the total rent received under
the applicable lease; (iii) directly performing services considered to be
rendered to the occupant of property or which are not usually or customarily
furnished or rendered in connection with the rental of real property; or (iv)
entering into any lease with a Related Party Tenant, will not cause Crescent
Equities to fail to meet the gross income tests. Opinions of counsel are not
binding upon the IRS or any court, and there can be no assurance that the IRS
will not assert a contrary position successfully.
The Operating Partnership will also receive fixed and contingent interest
on the Residential Development Property Mortgages. Interest on mortgages secured
by real property satisfies the 75% and 95% gross income tests only if it does
not include any amount the determination of which depends in whole or in part on
the income of any person, except that (i) an amount is not excluded from the
term "interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales and (ii) income derived from a shared
appreciation provision in a mortgage is treated as gain recognized from the sale
of the secured property. Certain of the Residential Development Property
Mortgages contain provisions for contingent interest based upon property sales.
In the opinion of Tax Counsel, each of the Residential Development Property
Mortgages constitutes debt for federal income tax purposes, any contingent
interest derived therefrom will be treated as
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being based on a fixed percentage of sales, and therefore all interest derived
therefrom will constitute interest received from mortgages for purposes of the
75% and 95% gross income tests. If, however, the contingent interest provisions
were instead characterized as shared appreciation provisions, any resulting
income would, because the underlying properties are primarily held for sale to
customers in the ordinary course, be subject to a 100% tax.
In connection with the 1997 distribution by Crescent Equities of the common
stock of Crescent Operating, Inc., Crescent Equities was required to recognize
gain equal to the excess, if any, of the fair market value of the assets
distributed over the basis of Crescent Equities in them. In the opinion of Tax
Counsel, such gain constituted gain on the sale of stock or securities for
purposes of the gross income tests. Opinions of counsel are not binding upon the
IRS or any court, and there can be no assurance that the IRS will not assert a
contrary position successfully.
In applying the 95% and 75% gross income tests to Crescent Equities, it is
necessary to consider the form in which certain of its assets are held, whether
that form will be respected for federal income tax purposes, and whether, in the
future, such form may change into a new form with different tax attributes (for
example, as a result of a foreclosure on debt held by the Operating
Partnership). For example, the Residential Development Properties are primarily
held for sale to customers in the ordinary course of business, and the income
resulting from such sales, if directly attributed to Crescent Equities, would
not qualify under the 75% and 95% gross income tests. In addition, such income
would be considered "net income from prohibited transactions" and thus would be
subject to a 100% tax. The income from such sales, however, will be earned by
the Residential Development Corporations rather than by the Operating
Partnership and will be paid to the Operating Partnership in the form of
interest and principal payments on the Residential Development Property
Mortgages or distributions with respect to the stock in the Residential
Development Corporations held by the Operating Partnership. In similar fashion,
the income earned by the Hotel Properties, if directly attributed to Crescent
Equities, would not qualify under the 75% and 95% gross income tests because it
would not constitute "rents from real property." Such income is, however, earned
by the lessees of these Hotel Properties and what the Operating Partnership
receives from the lessees of these Hotel Properties is rent. Comparable issues
are raised by the Operating Partnership's acquisition of subordinated debt
secured by a Florida hotel and by the acquisition of an interest in the
partnership which owns the hotel by Crescent Development Management Corporation
("CDMC"), one of the Residential Development Corporations. If such debt were
recharacterized as equity, or if the ownership of the partnership were
attributed from CDMC to the Operating Partnership, the Operating Partnership
would be treated as receiving income from hotel operations rather than interest
income on the debt or dividend income from CDMC. Furthermore, if Crescent
Operating, Inc. were treated for federal income tax purposes as not separate
from or an agent of either Crescent Equities or the Operating Partnership, or if
Crescent Equities and Crescent Operating, Inc. were treated as a "stapled
entity," the income, assets and activities of Crescent Operating, Inc. would be
considered to be the income, assets and activities of Crescent Equities, with
the result that Crescent Equities would fail to meet the 95% and 75% gross
income tests or the asset tests discussed below. A similar consequence might
follow if the loan of approximately $35.9 million from the Operating Partnership
to Crescent Operating, Inc. does not constitute debt for federal income tax
purposes.
Tax Counsel is of the opinion that (i) the Residential Development
Properties or any interest therein will be treated as owned by the Residential
Development Corporations, (ii) amounts derived by the Operating Partnership from
the Residential Development Corporations under the terms of the Residential
Development Property Mortgages will qualify as interest or principal, as the
case may be, paid on mortgages on real property for purposes of the 75% and 95%
gross income tests, (iii) amounts derived by the Operating Partnership with
respect to the stock of the Residential Development Corporations will be treated
as distributions on stock (i.e., as dividends, a return of capital, or capital
gain, depending upon the circumstances) for purposes of the 75% and 95% gross
income tests, (iv) the leases of the Hotel Properties will be treated as leases
for federal income tax purposes, and the rent payable thereunder will qualify as
"rents from real property," (v) the subordinated debt secured by the Florida
hotel will be treated as debt for federal income tax purposes, the income
payable thereunder will qualify as interest, and CDMC's ownership of the
partnership interest in the partnership which owns the hotel will not be
attributed to the Operating Partnership, (vi) Crescent Operating, Inc. will be
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treated for federal income tax purposes as a corporate entity separate from and
not an agent of either Crescent Equities or the Operating Partnership, and
Crescent Operating, Inc. and Crescent Equities will not be treated as a stapled
entity for federal income tax purposes; and (vii) the loan of approximately
$35.9 million from the Operating Partnership to Crescent Operating, Inc. will
constitute debt for federal income tax purposes. Tax Counsel has provided
opinions similar to those provided with respect to the Operating Partnership's
investment in the Residential Development Corporations with respect to its
investments in certain other entities through non-voting securities and secured
debt. Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving transactions
with terms substantially the same as those with respect to the Residential
Development Corporations, the leases of the Hotel Properties and the
relationship among Crescent Equities, the Operating Partnership and Crescent
Operating, Inc. Therefore, the opinions of Tax Counsel with respect to these
matters are based upon all of the facts and circumstances and upon rulings and
judicial decisions involving situations that are considered to be analogous.
Opinions of counsel are not binding upon the IRS or any court, and there can be
no assurance that the IRS will not assert successfully a contrary position. If
one or more of the leases of the Hotel Properties is not a true lease, part or
all of the payments that the Operating Partnership receives from the respective
lessee may not satisfy the various requirements for qualification as "rents from
real property," or the Operating Partnership might be considered to operate the
Hotel Properties directly. In that case, Crescent Equities likely would not be
able to satisfy either the 75% or 95% gross income tests and, as a result,
likely would lose its REIT status. Similarly, if the IRS were to challenge
successfully the arrangements with the Residential Development Corporations or
Crescent Operating, Inc., Crescent Equities' qualification as a REIT could be
jeopardized.
If any of the Residential Development Properties were to be acquired by the
Operating Partnership as a result of foreclosure on any of the Residential
Development Property Mortgages, or if any of the Hotel Properties were to be
operated directly by the Operating Partnership or a subsidiary partnership as a
result of a default by the lessee under the lease, such property would
constitute foreclosure property for three years following its acquisition (or
for up to an additional three years if an extension is granted by the IRS),
provided that (i) the Operating Partnership or its subsidiary partnership
conducts sales or operations through an independent contractor; (ii) the
Operating Partnership or its subsidiary partnership does not undertake any
construction on the foreclosed property other than completion of improvements
which were more than 10% complete before default became imminent; and (iii)
foreclosure was not regarded as foreseeable at the time Crescent Equities
acquired the Residential Development Property Mortgages or leased the Hotel
Properties. For so long as any of these properties constitutes foreclosure
property, the income from such sales would be subject to tax at the maximum
corporate rates and would qualify under the 75% and 95% gross income tests.
However, if any of these properties does not constitute foreclosure property at
any time in the future, income earned from the disposition or operation of such
property will not qualify under the 75% and 95% gross income tests.
With regard to the sale of Common Shares to an affiliate of Union Bank of
Switzerland as well as the sale of Common Shares to Merrill Lynch International,
it is possible that Crescent Equities may receive certain payments in Common
Shares, depending on the market price of the Common Shares upon settlement of
the forward share purchase agreements. In the opinion of Tax Counsel, such
payments will not constitute gross income and therefore will not be taken into
account in the application of gross income tests.
Crescent Equities anticipates that it will have certain income which will
not satisfy the 75% or the 95% gross income test. For example, income from
dividends on the stock of the Residential Development Corporations and any gain
recognized upon the distribution of the common stock of Crescent Operating, Inc.
will not satisfy the 75% gross income test. Furthermore, the amount of gain
Crescent Equities recognized upon this distribution depended upon the fair
market value of the common stock of Crescent Operating, Inc. at the time of the
distribution. Prior to the distribution, the Board of Trust Managers of Crescent
Equities determined that the value of this stock was $.99 per share, but there
can be no assurance that the IRS will agree with this determination in light of
various factors including subsequent trading prices. It is also possible that
certain income resulting from the use of creative financing or acquisition
techniques would not satisfy the 75% or 95% gross income tests. Crescent
Equities believes, however, that the aggregate amount of
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nonqualifying income will not cause Crescent Equities to exceed the limits on
nonqualifying income under the 75% or 95% gross income tests.
If Crescent Equities fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if Crescent Equities'
failure to meet such tests is due to reasonable cause and not to willful
neglect, Crescent Equities attaches a schedule of the sources of its income to
its tax return, and any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether in
all circumstances Crescent Equities would be entitled to the benefit of these
relief provisions. As discussed above, even if these relief provisions apply, a
tax equal to approximately 100% of the corresponding net income would be imposed
with respect to the excess of 75% or 95% of Crescent Equities' gross income over
Crescent Equities' qualifying income in the relevant category, whichever is
greater.
Asset Tests. Crescent Equities, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of Crescent Equities' total assets must be represented
by real estate assets (including (i) its allocable share of real estate assets
held by the Operating Partnership, any partnerships in which the Operating
Partnership owns an interest, or qualified REIT subsidiaries of Crescent
Equities and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of Crescent Equities), cash, cash items and government
securities. Second, not more than 25% of Crescent Equities' total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by Crescent Equities may not exceed 5% of the value of Crescent
Equities' total assets, and Crescent Equities may not own more than 10% of any
one issuer's outstanding voting securities. The 25% and 5% tests generally must
be met for any quarter in which Crescent Equities acquires securities of an
issuer. Thus, this requirement must be satisfied not only on the date Crescent
Equities first acquires corporate securities, but also each time Crescent
Equities increases its ownership of corporate securities (including as a result
of increasing its interest in the Operating Partnership either with the proceeds
of the Offering or by acquiring Units from Limited Partners upon the exercise of
their Exchange Rights).
The Operating Partnership owns 100% of the non-voting stock of each
Residential Development Corporation. In addition, the Operating Partnership owns
the Residential Development Property Mortgages. As stated above, in the opinion
of Tax Counsel each of these mortgages will constitute debt for federal income
tax purposes and therefore will be treated as a real estate asset; however, the
IRS could assert that such mortgages should be treated as equity interests in
their respective issuers, which would not qualify as real estate assets. By
virtue of its ownership of partnership interests in the Operating Partnership,
Crescent Equities will be considered to own its pro rata share of these assets.
Neither Crescent Equities nor the Operating Partnership, however, will directly
own more than 10% of the voting securities of any Residential Development
Corporation at the end of any quarter of Crescent Equities' taxable year, and,
in the opinion of Tax Counsel, Crescent Equities will not be considered to own
any of such voting securities. In addition, Crescent Equities and its senior
management believe that Crescent Equities' pro rata shares of the value of the
securities of each Residential Development Corporation do not separately exceed
5% of the total value of Crescent Equities' total assets. This belief is based
in part upon its analysis of the estimated values of the various securities
owned by the Operating Partnership relative to the estimated value of the total
assets owned by the Operating Partnership. No independent appraisals will be
obtained to support this conclusion, and Tax Counsel, in rendering its opinion
as to the qualification of Crescent Equities as a REIT, is relying on the
conclusions of Crescent Equities and its senior management as to the value of
the various securities and other assets. There can be no assurance, however,
that the IRS might not contend that the values of the various securities held by
Crescent Equities through the Operating Partnership separately exceed the 5%
value limitation or, in the aggregate, exceed the 25% value limitation or that
the voting securities of the Residential Development Corporations should be
considered to be owned by Crescent Equities. Finally, if the Operating
Partnership were treated for tax purposes as a corporation rather than as a
partnership, Crescent Equities would violate the 10% of voting securities and 5%
of value limitations, and the treatment of any of the
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Operating Partnership's subsidiary partnerships as a corporation rather than as
a partnership could also violate one or the other, or both, of these
limitations. In the opinion of Tax Counsel, for federal income tax purposes the
Operating Partnership and all the subsidiary partnerships will be treated as
partnerships and not as either associations taxable as corporations or publicly
traded partnerships. See "-- Tax Aspects of the Operating Partnership and the
Subsidiary Partnerships" below.
As noted above, the 5% and 25% value requirements must be satisfied not
only on the date Crescent Equities first acquires corporate securities, but also
each time Crescent Equities increases its ownership of corporate securities
(including as a result of increasing its interest in the Operating Partnership
either with the proceeds of the Offering or by acquiring Units from Limited
Partners upon the exercise of their Exchange Rights). Although Crescent Equities
plans to take steps to ensure that it satisfies the 5% and 25% value tests for
any quarter with respect to which retesting is to occur, there can be no
assurance that such steps (i) will always be successful; (ii) will not require a
reduction in Crescent Equities' overall interest in the various corporations; or
(iii) will not restrict the ability of the Residential Development Corporations
to increase the sizes of their respective businesses, unless the value of the
assets of Crescent Equities is increasing at a commensurate rate.
Annual Distribution Requirements. In order to qualify as a REIT, Crescent
Equities is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
"real estate investment trust taxable income" of Crescent Equities (computed
without regard to the dividends paid deduction and Crescent Equities' net
capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) certain excess noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before Crescent Equities timely files its tax
return for such year, and if paid on or before the date of the first regular
dividend payment after such declaration. To the extent that Crescent Equities
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its "real estate investment trust taxable income," as
adjusted, it will be subject to tax thereon at regular capital gains and
ordinary corporate tax rates. Furthermore, if Crescent Equities should fail to
distribute, during each calendar year, at least the sum of (i) 85% of its "real
estate investment trust ordinary income" for such year; (ii) 95% of its "real
estate investment trust capital gain income" for such year; and (iii) any
undistributed taxable income from prior periods, Crescent Equities would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.
Crescent Equities believes that it has made and intends to make timely
distributions sufficient to satisfy all annual distribution requirements. In
this regard, the limited partnership agreement of the Operating Partnership (the
"Operating Partnership Agreement") authorizes CREE Ltd., as general partner, to
take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit Crescent Equities to
meet these distribution requirements. It is possible, however, that, from time
to time, Crescent Equities may experience timing differences between (i) the
actual receipt of income and actual payment of deductible expenses and (ii) the
inclusion of such income and deduction of such expenses in arriving at its "real
estate investment trust taxable income." Issues may also arise as to whether
certain items should be included in income. For example, Tax Counsel has opined
that the Operating Partnership should include in income only its share of the
interest income actually paid on the two mortgage notes secured by Spectrum
Center and Three Westlake Park, respectively, and the two mortgage notes secured
by Trammell Crow Center, all of which were acquired at a substantial discount,
rather than its share of the amount of interest accruing pursuant to the terms
of these investments, but opinions of counsel are not binding on the IRS or the
courts. In this regard, the IRS has taken a contrary view in a recent technical
advice memorandum concerning the accrual of original issue discount. The Company
believes, however, that even if the Operating Partnership were to include in
income the full amount of interest income accrued on these notes, and the
Operating Partnership were not allowed any offsetting deduction for the amount
of such interest to the extent it is uncollectible, the Company nonetheless
would be able to satisfy the 95% distribution requirement without borrowing
additional funds or distributing stock dividends (as discussed below). In
addition, it is possible that certain creative financing or creative acquisition
techniques used by the Operating Partnership may result in income (such as
income from cancellation of indebtedness or gain upon the receipt of assets in
foreclosure
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whose fair market value exceeds the Operating Partnership's basis in the debt
which was foreclosed upon) which is not accompanied by cash proceeds. In this
regard, the modification of a debt can result in taxable gain equal to the
difference between the holder's basis in the debt and the principal amount of
the modified debt. Tax Counsel has opined that the four mortgage notes secured
by Spectrum Center, Three Westlake Park and Trammell Crow Center, were not
modified in the hands of the Operating Partnership. Based on the foregoing,
Crescent Equities may have less cash available for distribution in a particular
year than is necessary to meet its annual 95% distribution requirement or to
avoid tax with respect to capital gain or the excise tax imposed on certain
undistributed income for such year. To meet the 95% distribution requirement
necessary to qualify as a REIT or to avoid tax with respect to capital gain or
the excise tax imposed on certain undistributed income, Crescent Equities may
find it appropriate to arrange for borrowings through the Operating Partnership
or to pay distributions in the form of taxable share dividends.
Under certain circumstances, Crescent Equities may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in Crescent
Equities' deduction for dividends paid for the earlier year. Thus, Crescent
Equities may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, Crescent Equities will be required to pay interest based
upon the amount of any deduction taken for deficiency dividends.
Ownership Information. Pursuant to applicable Treasury Regulations, in
order to be treated as a REIT, Crescent Equities must maintain certain records
and request certain information from its shareholders designed to disclose the
actual ownership of its Equity Shares (as defined in the accompanying
Prospectus). Crescent Equities believes that it has complied and intends to
continue to comply with such requirements.
Failure to Qualify. If Crescent Equities fails to qualify as a REIT in any
taxable year and the relief provisions do not apply, Crescent Equities will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which Crescent Equities fails to qualify as a REIT will not be deductible by
Crescent Equities; nor will they be required to be made. If Crescent Equities
fails to qualify as a REIT, then, to the extent of Crescent Equities' current
and accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, Crescent Equities
will also be disqualified from electing to be treated as a REIT for the four
taxable years following the year during which it ceased to qualify as a REIT. It
is not possible to state whether in all circumstances Crescent Equities would be
entitled to such statutory relief.
Pending Legislation. On February 2, 1998, President Clinton released a
proposed budget for fiscal year 1999. The budget proposal contained a variety of
proposed income tax changes, four of which pertain to REITs. First, a regular
corporation with a fair market value of more than $5,000,000 which elects REIT
status or merges into a REIT would be treated as if it had liquidated and
distributed all its assets to its shareholders, and its shareholders had then
contributed the assets to the electing or existing REIT. This deemed liquidation
would cause the regular corporation to be taxed as if it had sold its assets for
fair market value and would cause its shareholders to be taxed as if they had
sold their stock for fair market value. The proposal would be effective for
elections that are first effective for a taxable year beginning after January 1,
1999, and for mergers after December 31, 1998. Second, five REITs were allowed
to continue as stapled entities with regular corporations (i.e., the stock of
the REIT is traded together with the stock of the regular corporation) despite
the general prohibition of this structure under Section 269A of the Code,
enacted in 1984. For any properties acquired on or after the first date of
congressional committee action with respect to the budget proposal (the
"Committee Action Date"), where the stapled regular corporation undertakes
activities or services relating to the properties, the REITs would be made
subject to Section 269A. Third, under current law, REITs may not own more than
10% of the voting stock of a regular corporation. Under the proposal, they also
would not be permitted to own more than 10% of the value of all classes of stock
of a corporation. This prohibition would apply to stock acquired on or after the
Committee Action Date. REITs would continue to be allowed to own corporations
whose stock they owned prior to the Committee Action Date, but this
grandfathered status would terminate if, after the Committee Action Date, the
corporation engaged in a new trade or business or acquired substantial new
assets or the REIT acquired additional stock in a corporation. Fourth, a new
ownership
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restriction would be imposed on REITs, prohibiting any one person from owning
more than 50% of the total combined voting power of all voting stock or more
than 50% of the total value of shares of all classes of stock of the REIT.
Current law already contains ownership restrictions applicable to individuals;
this new limitation would affect owners other than individuals. It would be
effective for entities electing REIT status for taxable years beginning on or
after the Committee Action Date.
The Chairmen of the House Ways and Means Committee and the Senate Finance
Committee have introduced legislation to enact the proposal concerning stapled
REITs effective March 26, 1998, and such legislation (but not any of the other
proposals) is currently part of the IRS restructuring legislation that was
passed by the Senate on May 7, 1998. It is not clear whether any of the other
proposals will be introduced or enacted and, if they are, their effective dates.
Additional proposals affecting REITs may be made by the President or his
administration or by members of Congress. It is impossible to predict the nature
of those proposals, whether they would be enacted, and their effect on Crescent
Equities. There can be no assurance, however, that changes in legislation would
not have a material adverse effect on Crescent Equities.
TAXATION OF THE RIGHTS
Issuance of the Rights. Holders of Common Shares will not recognize taxable
income, for federal income tax purposes, in connection with the receipt of the
Rights.
Basis and Holding Period of the Rights. Unless a shareholder elects
otherwise (as provided in (ii) below), if the fair market value of the Rights on
the date of the Rights Offering is less than 15% of the fair market value of the
Common Shares with respect to which the Rights are received, the basis of the
Rights received by a shareholder as a distribution with respect to the
shareholder's Common Shares will be zero. If, however, either (i) the fair
market value of the Rights on the date of the Rights Offering is 15% or more of
the fair market value of the Common Shares with respect to which the Rights are
received or (ii) the shareholder elects, in his or her federal income tax return
for the taxable year in which the Rights are received, to allocate part of the
basis of such Common Shares to the Rights, then upon exercise or transfer of the
Rights, the shareholder will allocate his or her basis in such Common Shares
between the Common Shares and the Rights in proportion to the fair market values
of each on the date of the Rights Offering of the Rights, except that, in either
case, no allocation of basis will be made to the Rights if the Rights expire
unexercised. The holding period of a shareholder with respect to the Rights
received as a distribution on such shareholder's Common Shares will include the
shareholder's holding period for the Common Shares with respect to which the
Rights were issued. With respect to a purchaser of Rights, the tax basis of such
Rights will be equal to the purchase price paid therefor, and the holding period
for such Rights will begin on the day following the date of purchase.
Transfer of the Rights. Holders of Common Shares who sell the Rights
received in the Rights Offering prior to exercise will recognize gain or loss
equal to the difference between the sale proceeds and the basis of such
shareholder, if any, in the Rights sold. Such gain or loss will be capital gain
or loss if gain or loss from a sale of Common Shares held by such shareholder
would be characterized as capital gain or loss at the time of such sale. Any
gain or loss recognized on a sale of Rights acquired by purchase will be capital
gain or loss if Common Shares would, if acquired by the seller, be a capital
asset in the hands of such seller.
Expiration of the Rights. Upon the expiration of any of the Rights received
by Rights Holders in the Rights Offering, such Rights Holders will not recognize
any gain or loss, and no adjustment will be made to the basis of the Common
Shares, if any, owned by such Rights Holders. Upon the expiration of any Rights
purchased by purchasers of the Rights, such purchasers will be entitled to a
loss equal to their tax basis in the Rights.
Exercise of the Rights; Basis and Holding Period of the Common Shares
Acquired through Exercise. Rights Holders will not recognize any gain or loss
upon the exercise of such Rights. The basis of the Common Shares acquired
through the exercise of the Rights will be equal to the sum of the Exercise
Price therefor and any basis of the Rights Holder in such Rights. The holding
period for the Common Shares acquired through exercise of the Rights will
commence on the date Rights are exercised.
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TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
For purposes of this summary, a "U.S. Shareholder" means a beneficial owner
of Common Shares who or that is for U.S. federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation created or
organized in or under the laws of the United States or any state or political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, (iv) a trust if a court
within the United States is able to exercise primary jurisdiction over
administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust, or (v) a partnership to the
extent the interest therein is owned by any of the persons described in clauses
(i), (ii), (iii), or (iv) above. As used herein, the term "Non-U.S. Shareholder"
means a beneficial owner of Common Shares that is not a U.S. Shareholder.
Any distribution declared by Crescent Equities in October, November or
December of any year payable to a shareholder of record on a specified date in
any such month shall be treated as both paid by Crescent Equities and received
by the shareholder on December 31 of such year, provided that the distribution
is actually paid by Crescent Equities during January of the following calendar
year. As long as Crescent Equities qualifies as a REIT, distributions made to
Crescent Equities' taxable U.S. Shareholders out of Crescent Equities' current
or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. Shareholders as ordinary
income and, for corporate U.S. Shareholders, will not be eligible for the
dividends received deduction. Distributions that are properly designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed Crescent Equities' actual net capital gain for the taxable
year) without regard to the period for which the U.S. Shareholder has held its
Common Shares. However, corporate U.S. Shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income. In addition,
Crescent Equities may elect to retain and pay income tax on its net long-term
capital gains. If Crescent Equities so elects, each U.S. Shareholder will take
into income the U.S. Shareholder's share of the retained capital gain as
long-term capital gain and will receive a credit or refund for that U.S.
Shareholder's share of the tax paid by Crescent Equities. The U.S. Shareholder
will increase the basis of such U.S. Shareholder's shares by an amount equal to
the excess of the retained capital gain included in the U.S. Shareholder's
income over the tax deemed paid by such U.S. Shareholder. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
U.S. Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of such
shares. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a U.S. Shareholder's Common
Shares, such distributions will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less)
assuming the shares are a capital asset in the hands of the U.S. Shareholder.
U.S. Shareholders may not include any net operating losses or capital losses of
Crescent Equities in their respective income tax returns.
In general, any loss upon a sale or exchange of shares by a U.S.
Shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from Crescent Equities required to be treated by such
U.S. Shareholder as long-term capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Most tax-exempt employees' pension trusts are not subject to federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
Common Shares with "acquisition indebtedness" within the meaning of the Code and
the Common Shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity. In addition, certain pension trusts that own more than
10% of a "pension-held REIT" must report a portion of the dividends that they
receive from such a REIT as UBTI. The Company has not been and does not expect
to be treated as a pension-held REIT for purposes of this rule.
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TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of Non-U.S.
Shareholders are complex, and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Shareholders should consult
with their own tax advisors to determine the impact of federal, state and local
tax laws with regard to an investment in Common Shares or Rights, including any
reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
Crescent Equities of United States real property interests and not designated by
Crescent Equities as capital gain dividends will be treated as dividends of
ordinary income to the extent that they are made out of current or accumulated
earnings and profits of Crescent Equities. Such distributions ordinarily will be
subject to a withholding tax equal to 30% of the gross amount of the
distribution, unless an applicable tax treaty reduces that tax. A number of U.S.
tax treaties that reduce the rate of withholding tax on corporate dividends do
not reduce, or reduce to a lesser extent, the rate of withholding applied to
dividends from a REIT. Crescent Equities expects to withhold U.S. income tax at
the rate of 30% on the gross amount of any such distribution made to a Non-U.S.
Shareholder unless (i) a lower treaty rate applies (and, with regard to payments
on or after January 1, 1999, the Non-U.S. Shareholder (1) files IRS Form W-8
with Crescent Equities and, (2) if the Common Shares or Series A Preferred
Shares are not traded on an established securities market, acquires a taxpayer
identification number from the IRS) or (ii) the Non-U.S. Shareholder has filed
an IRS Form 4224 (or, with respect to payments on or after January 1, 1999,
files IRS Form W-8) with Crescent Equities claiming that the distribution is
effectively connected with the Non-U.S. Shareholder's conduct of a U.S. trade or
business. Distributions in excess of Crescent Equities' current and accumulated
earnings and profits will be treated as a return of capital to the extent of the
adjusted basis of a Non-U.S. Shareholder's shares and thereafter as capital
gain, which will be taxable to the extent that the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of the
Common Shares, as described below. Distributions in excess of current and
accumulated earnings and profits are currently subject to withholding at the
same 30% or lower treaty rate applicable to ordinary income dividends, but a
Non-U.S. Shareholder may seek a refund of amounts of tax withheld in excess of
the Non-U.S. Shareholder's actual U.S. tax liability, provided the required
information is furnished to the IRS. Beginning with payments made on or after
January 1, 1999, Crescent Equities will be permitted, but not required, to make
reasonable estimates of the extent to which distributions exceed current and
accumulated earnings and profits. Such distributions will generally be subject
to a 10% withholding tax, which may be refunded to the extent it exceeds the
shareholder's actual U.S. tax liability, provided the required information is
furnished to the IRS.
For any year in which Crescent Equities qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by Crescent Equities of
United States real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of United States real property interests are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate shareholder, subject to
possible exemption or rate reduction under an applicable tax treaty. Crescent
Equities is required to withhold 35% of any distribution that could be
designated by Crescent Equities as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Shares
generally will not be taxed under FIRPTA if Crescent Equities is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the shares was held directly
or indirectly by foreign persons. Crescent Equities believes that it is, and
currently expects to continue to be, a "domestically controlled REIT," and in
such case the sale of Common Shares or Rights would not be subject to taxation
under FIRPTA. However, gain not subject to FIRPTA nonetheless will be taxable to
a Non-U.S. Shareholder if (i) investment in the Common Shares or Rights is
treated as effectively connected with the Non-U.S. Shareholder's U.S. trade or
business or (ii) the Non-U.S. Shareholder is a nonresident alien
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individual who was present in the United States for 183 days or more during the
taxable year and certain other conditions are met. Effectively connected gain
realized by a foreign corporate shareholder may be subject to an additional 30%
branch profits tax, subject to possible exemption or rate reduction under an
applicable tax treaty. If the gain on the sale of Common Shares or Rights is
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
the same treatment as U.S. Shareholders with respect to such gain (subject to
the additional 30% branch profits tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of the Common
Shares or Rights would be required to withhold and remit to the IRS 10% of the
purchase price.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE SUBSIDIARY PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable solely to Crescent Equities' investment in the
Operating Partnership and its subsidiary partnerships and represents the views
of Tax Counsel. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification of the Operating Partnership and its Subsidiary Partnerships
for Tax Purposes. In the opinion of Tax Counsel, based on the provisions of the
Operating Partnership Agreement and the partnership agreements of the various
subsidiary partnerships, certain factual assumptions and certain representations
described in the opinion, the Operating Partnership and the subsidiary
partnerships will each be treated as a partnership and neither an association
taxable as a corporation for federal income tax purposes, nor a "publicly traded
partnership" taxable as a corporation. Unlike a ruling from the IRS, however, an
opinion of counsel is not binding on the IRS or the courts, and no assurance can
be given that the IRS will not challenge the status of the Operating Partnership
and its subsidiary partnerships as partnerships for federal income tax purposes.
If for any reason the Operating Partnership were taxable as a corporation rather
than as a partnership for federal income tax purposes, Crescent Equities would
fail to qualify as a REIT because it would not be able to satisfy the income and
asset requirements. See "-- Taxation of Crescent Equities," above. In addition,
any change in the Operating Partnership's status for tax purposes might be
treated as a taxable event, in which case Crescent Equities might incur a tax
liability without any related cash distributions. See "-- Taxation of Crescent
Equities," above. Further, items of income and deduction for the Operating
Partnership would not pass through to the respective partners, and the partners
would be treated as shareholders for tax purposes. The Operating Partnership
would be required to pay income tax at regular corporate tax rates on its net
income, and distributions to partners would constitute dividends that would not
be deductible in computing the Operating Partnership's taxable income.
Similarly, if any of the subsidiary partnerships were taxable as a corporation
rather than as a partnership for federal income tax purposes, such treatment
might cause Crescent Equities to fail to qualify as a REIT, and in any event
such partnership's items of income and deduction would not pass through to its
partners, and its net income would be subject to income tax at regular corporate
rates.
Income Taxation of the Operating Partnership and its Subsidiary
Partnerships. A partnership is not a taxable entity for federal income tax
purposes. Rather, Crescent Equities will be required to take into account its
allocable share of the Operating Partnership's income, gains, losses, deductions
and credits for any taxable year of such Partnership ending within or with the
taxable year of Crescent Equities, without regard to whether Crescent Equities
has received or will receive any cash distributions. The Operating Partnership's
income, gains, losses, deductions and credits for any taxable year will include
its allocable share of such items from its subsidiary partnerships.
Tax Allocations with Respect to Pre-Contribution Gain. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
property that is contributed to a partnership in exchange for an interest in the
partnership must be allocated for federal income tax purposes in a manner such
that the contributor is charged with the unrealized gain associated with the
property at the time of the contribution. The amount of such unrealized gain is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (the "Book-Tax Difference"). In
general, the fair market value of the properties initially contributed to the
Operating Partnership were substantially in excess of their adjusted tax bases.
The Operating Partnership Agreement requires that allocations attributable to
each item of initially contributed
37
<PAGE> 39
property be made so as to allocate the tax depreciation available with respect
to such property first to the partners other than the partner that contributed
the property, to the extent of, and in proportion to, such partners' share of
book depreciation, and then, if any tax depreciation remains, to the partner
that contributed the property. Accordingly, the depreciation deductions
allocable will not correspond exactly to the percentage interests of the
partners. Upon the disposition of any item of initially contributed property,
any gain attributable to an excess at such time of basis for book purposes over
basis for tax purposes will be allocated for tax purposes to the contributing
partner and, in addition, the Operating Partnership Agreement provides that any
remaining gain will be allocated for tax purposes to the contributing partners
to the extent that tax depreciation previously allocated to the noncontributing
partners was less than the book depreciation allocated to them. These
allocations are intended to be consistent with Section 704(c) of the Code and
with Treasury Regulations thereunder. The tax treatment of properties
contributed to the Operating Partnership subsequent to its formation is expected
generally to be consistent with the foregoing.
In general, the contributing partners will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on sale by the Operating Partnership of one or more of the contributed
properties. These tax allocations will tend to reduce or eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) of the Code do not always entirely rectify
the Book-Tax Difference on an annual basis. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership will cause Crescent
Equities to be allocated lower depreciation and other deductions. This may cause
Crescent Equities to recognize taxable income in excess of cash proceeds, which
might adversely affect Crescent Equities' ability to comply with the REIT
distribution requirements. See "-- Taxation of Crescent Equities," above.
SALE OF PROPERTY
Generally, any gain realized by the Operating Partnership on the sale of
real property, if the property is held for more than one year, will be long-term
capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture.
Crescent Equities' share of any gain realized on the sale of any property
held by the Operating Partnership as inventory or other property held primarily
for sale to customers in the ordinary course of the Operating Partnership's
business, however, will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "-- Taxation of Crescent Equities," above.
Such prohibited transaction income will also have an adverse effect upon
Crescent Equities' ability to satisfy the income tests for status as a REIT for
federal income tax purposes. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of the
Operating Partnership's business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold its properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning and operating the properties, and to make such occasional sales of
properties as are consistent with these investment objectives.
TAXATION OF THE RESIDENTIAL DEVELOPMENT CORPORATIONS
A portion of the amounts to be used to fund distributions to shareholders
is expected to come from the Residential Development Corporations through
dividends on non-voting common stock thereof held by the Operating Partnership
and interest on the Residential Development Property Mortgages held by the
Operating Partnership. The Residential Development Corporations will not qualify
as REITs and will pay federal, state and local income taxes on their taxable
incomes at normal corporate rates, which taxes will reduce the cash available
for distribution by Crescent Equities to its shareholders. Crescent Equities
anticipates that, initially, deductions for interest and amortization will
largely offset the otherwise taxable income of the Residential Development
Corporations, but there can be no assurance that this will be the case or that
the IRS will not challenge such deductions. Any federal, state or local income
taxes that the Residential Development Corporations are required to pay will
reduce the cash available for distribution by Crescent Equities to its
shareholders.
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<PAGE> 40
STATE AND LOCAL TAXES
Crescent Equities and its shareholders may be subject to state and local
tax in various states and localities, including those states and localities in
which it or they transact business, own property, or reside. The tax treatment
of Crescent Equities and the shareholders in such jurisdictions may differ from
the federal income tax treatment described above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of state
and local tax laws upon an investment in the Common Shares.
In particular, the State of Texas imposes a franchise tax upon corporations
and limited liability companies that do business in Texas. The Texas franchise
tax is imposed on each such entity with respect to the entity's "net taxable
capital" and its "net taxable earned surplus" (generally, the entity's federal
taxable income, with certain adjustments). The franchise tax on net taxable
capital is imposed at the rate of 0.25% of an entity's net taxable capital. The
franchise tax rate on "net taxable earned surplus" is 4.5%. The Texas franchise
tax is generally equal to the greater of the tax on "net taxable capital" and
the tax on "net taxable earned surplus." The Texas franchise tax is not applied
on a consolidated group basis. Any Texas franchise tax that Crescent Equities is
indirectly required to pay will reduce the cash available for distribution by
Crescent Equities to shareholders. Even if an entity is doing business in Texas
for Texas franchise tax purposes, the entity is subject to the Texas franchise
tax only on the portion of the taxable capital or taxable earned surplus
apportioned to Texas.
As a Texas real estate investment trust, Crescent Equities will not be
subject directly to the Texas franchise tax. However, Crescent Equities will be
subject indirectly to the Texas franchise tax as a result of its interests in
CREE Ltd., Management I, Management II, Management III, Management IV,
Management V and Management VII, which will be subject to the Texas franchise
tax because they are general partners of the Operating Partnership, Funding I,
Funding II, Funding III, Funding IV, Funding V and Funding VII, and the
Operating Partnership, Funding I, Funding II, Funding III, Funding IV, Funding V
and Funding VII will be doing business in Texas.
It is anticipated that Crescent Equities' Texas franchise tax liability
will not be substantial because CREE Ltd., Management I, Management II,
Management III, Management IV, Management V and Management VII are allocated
only a small portion of the taxable income of the Operating Partnership, Funding
I, Funding II, Funding III, Funding IV, Funding V and Funding VII. In addition,
Management VI and Funding VI are not anticipated to be subject to the Texas
franchise tax.
The Operating Partnership, Funding I, Funding II, Funding III, Funding IV,
Funding V and Funding VII will not be subject to the Texas franchise tax, under
the laws in existence at the time of this Prospectus Supplement because they are
partnerships instead of corporations. There is no assurance, however, that the
Texas legislature will not expand the scope of the Texas franchise tax to apply
to limited partnerships such as the Operating Partnership, Funding I, Funding
II, Funding III, Funding IV, Funding V and Funding VII or enact other
legislation which may result in subjecting Crescent Equities to the Texas
franchise tax. Any statutory change by the Texas legislature may be applied
retroactively.
In addition, it should be noted that three of the Residential Development
Corporations will be doing business in Texas and will be subject to the Texas
franchise tax. Further, Crescent/301, L.L.C. will be subject to the Texas
franchise tax because it is doing business in Texas and limited liability
companies are subject to Texas franchise tax. However, this franchise tax should
not be substantial because Crescent/301, L.L.C. owns a 1% interest in 301
Congress Avenue, L.P. Other entities that will be subject to the Texas franchise
tax include CresTex Development, LLC and its member CresCal Properties, Inc. and
any other corporations or limited liability companies doing business in Texas
with Texas receipts. It is expected that the franchise tax liability of these
entities will not be substantial.
The Texas legislature considered in its 1997 regular session proposals for
property tax relief in Texas. Such relief would have required increasing the
proportion of education funding costs paid by the State of Texas and reducing
the proportion paid by local property taxes. Alternatives for increasing State
of Texas revenues that have been considered include broadening the franchise tax
base to include other entities such as partnerships and real estate investment
trusts, enactment of a new gross receipts tax, enactment of a new
39
<PAGE> 41
business activity tax, an increase in the sales tax and/or broadening the sales
tax base. The Texas House of Representatives and the Texas Senate both passed
different bills that would have broadened the franchise tax base to apply the
franchise tax to business trusts such as Crescent Equities and partnerships such
as the Operating Partnership, Funding I, Funding II, Funding III, Funding IV,
Funding V and Funding VII. However, the conference committee was not able to
work out the differences between these two bills and the Texas legislature
adjourned the 1997 regular session without adopting such legislation. There can
be no assurance that the Texas legislature will not enact similar legislation in
its next regular session, beginning in 1999. A committee of the Texas House of
Representatives is currently studying alternative methods and formulas to fund
education in anticipation of the next regular session.
Locke Purnell Rain Harrell (A Professional Corporation), special tax
counsel to the Company ("Special Tax Counsel"), has reviewed the discussion in
this section with respect to Texas franchise tax matters and is of the opinion
that, based on the current structure of Crescent Equities and based upon current
law, it accurately summarizes the Texas franchise tax matters expressly
described herein. Special Tax Counsel expresses no opinion on any other tax
considerations affecting Crescent Equities or a holder of Common Shares,
including, but not limited to, other Texas franchise tax matters not
specifically discussed above.
Tax Counsel has not reviewed the discussion in this section with respect to
Texas franchise tax matters and has expressed no opinion with respect thereto.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Such
reports, proxy statements and other information can be inspected at the Public
Reference Section maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and the following regional
offices of the Commission: Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site (http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
In addition, the Company's Common Shares are listed on the NYSE and such
reports, proxy statements and other information concerning the Company can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission the Registration Statement, of
which this Prospectus is a part, under the Securities Act, with respect to the
Common Shares. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other documents are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or documents filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Shares, reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
40
<PAGE> 42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed under the Exchange Act by the
Company (Exchange Act file number 1-13038) with the Commission and are
incorporated herein by reference:
(1) The Registration Statement on Form 8-B filed on March 24, 1997 registering
the Common Shares of the Company under Section 12(b) of the Exchange Act.
(2) The Proxy Statement in connection with the Company's 1998 Annual Meeting
of Stockholders.
(3) The Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended on May 15, 1998.
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
(5) The Company's Current Report on Form 8-K dated January 29, 1997 and filed
on March 24, 1997, as amended on April 9, 1997, April 24, 1997, May 23,
1997 and July 2, 1997.
(6) The Company's Current Report on Form 8-K dated December 22, 1997 and filed
March 4, 1998.
(7) The Company's Current Report on Form 8-K dated January 6, 1998 and filed
January 6, 1998.
(8) The Company's Current Report on Form 8-K dated January 16, 1998 and filed
January 27, 1998, as amended on February 13, 1998, April 27, 1998 and June
10, 1998.
(9) The Company's Current Report on Form 8-K dated February 12, 1998 and filed
February 23, 1998.
(10) The Company's Current Report on Form 8-K dated February 13, 1998 and filed
February 18, 1998.
(11) The Company's Current Report on Form 8-K dated February 13, 1998 and filed
February 18, 1998.
(12) The Company's Current Report on Form 8-K dated April 17, 1998 and filed
April 28, 1998.
(13) The Company's Current Report on Form 8-K dated April 23, 1998 and filed
April 27, 1998.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of Shares to which this Prospectus relates shall be deemed to be
incorporated by reference in this Prospectus and shall be part hereof from the
date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), or in any other
subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. Subject to the
foregoing, all information appearing in this Prospectus is qualified in its
entirety by the information appearing in the documents incorporated by
reference.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
in this Prospectus (other than exhibits and schedules thereto, unless such
exhibits or schedules are specifically incorporated by reference into the
information that this Prospectus incorporates). Written or telephonic requests
for copies should be directed to Crescent Real Estate Equities Company, 777 Main
Street, Suite 2100, Fort Worth, Texas, 76102, Attention: Company Secretary
(telephone number: (817) 321-2100).
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<PAGE> 43
EXPERTS
The financial statements and schedule incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements incorporated in this Prospectus by reference to
the Company's Current Reports on Form 8-K (i) dated January 29, 1997 and filed
on March 24, 1998, as amended on April 9, 1997, April 24, 1997, May 23, 1997 and
July 2, 1997, (ii) dated December 22, 1997 and filed on March 4, 1998, and (iii)
dated January 16, 1998 and filed on January 27, 1998, as amended on February 13,
1998, April 27, 1998 and June 10, 1998, respectively, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
LEGAL MATTERS
The legality of the issuance of the Shares will be passed upon for the
Company by Shaw Pittman Potts & Trowbridge.
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<PAGE> 44
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Company........................... 2
Recent Developments................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
The Rights Offering................... 13
Description of Common Shares.......... 19
Certain Provisions of the Declaration
of Trust, Bylaws and Texas Law...... 21
Federal Income Tax Considerations..... 25
Available Information................. 40
Incorporation of Certain Documents by
Reference........................... 41
Experts............................... 42
Legal Matters......................... 42
</TABLE>
======================================================
======================================================
SHARES
[CRESCENT LOGO]
COMMON SHARES
PROSPECTUS
, 1998
======================================================
<PAGE> 45
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the issuance and
distribution of the Common Shares covered by this Registration Statement, all of
which will be paid by the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee....................................... $287,625
Printing, Engraving and Filing Expenses................ $ *
Accounting Fees and Expenses........................... $ *
Legal Fees and Expenses................................ $ *
Miscellaneous.......................................... $ *
--------
Total.................................................. $ *
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF TRUST MANAGERS AND OFFICERS.
The Company's Restated Declaration of Trust (the "Declaration of Trust")
provides that no trust manager shall be liable to the Company for any act,
omission, loss, damage, or expense arising from the performance of his duties to
the Company save only for his own willful misfeasance or willful malfeasance or
gross negligence. In addition to, but in no respect whatsoever in limitation of
the foregoing, the liability of each trust manager for monetary damages shall be
eliminated to the fullest extent permitted by applicable law. The Declaration of
Trust also provides that no amendment thereto may limit or eliminate this
limitation of liability with respect to events occurring prior to the effective
date of such amendment.
The Company's Declaration of Trust provides that the trust managers and
officers shall be indemnified to the maximum extent permitted by Texas law.
Under current Texas law, the trust will indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a trust manager or officer if it is determined that the
person (i) conducted himself in good faith; (ii) reasonably believed: (a) in the
case of conduct in his official capacity as a trust manager or officer of the
real estate investment trust, that his conduct was in the real estate investment
trust's best interests; and (b) in all other cases, that his conduct was at
least not opposed to the real estate investment trust's best interests; and
(iii) in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful. Except to the extent provided in the following
sentence, a trust manager or officer may not be indemnified (i) in respect of a
proceeding in which the person is found liable on the basis that personal
benefit was improperly received by him, whether or not the benefit resulted from
an action taken in the person's official capacity; or (ii) in which the person
is found liable to the real estate investment trust. Notwithstanding the
foregoing, a person may be indemnified against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; provided that if the
person is found liable to the real estate investment trust or is found liable on
the basis that personal benefit was improperly received by the person, the
indemnification (i) is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and (ii) shall not be made in respect
of any proceeding in which the person shall have been found liable for willful
or intentional misconduct in the performance of his duty to the real estate
investment trust. In addition, the Company's Declaration of Trust and Bylaws
require it to pay or reimburse, in advance of the final disposition of a
proceeding, reasonable expenses incurred by a present or former trust manager or
officer made a party to a proceeding by reason of his status as a trust manager
or officer, provided that the Company shall have received (i) a written
affirmation by the trust manager or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. The Company's Declaration
of Trust and Bylaws also permit the Company
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<PAGE> 46
to provide indemnification, payment or reimbursement of expenses to any employee
or agent of the Company in such capacity. The Company's Declaration of Trust and
Bylaws also permit the Company to indemnify a person who was or who agreed to
appear as a witness or other participant in a proceeding at a time when he is
not named a defendant or respondent in the proceeding. Any indemnification,
payment or reimbursement of the expenses permitted by the Declaration of Trust
and Bylaws shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Texas Real Estate
Investment Trust Act for trust managers.
The limited partnership agreement of the Operating Partnership (the
"Operating Partnership Agreement") contains indemnification provisions
comparable to those contained in the Declaration of Trust.
The Company carries insurance that purports to insure officers and trust
managers of the Company against certain liabilities incurred by them in the
discharge of their official functions.
The Company and the Operating Partnership have entered into indemnification
agreements with each of the Company's executive officers and trust managers. The
indemnification agreements require, among other things, that the Company and the
Operating Partnership indemnify such officers and trust managers to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company and the Operating Partnership also
must indemnify and advance expenses incurred by officers and directors seeking
to enforce their rights under the indemnification agreements and cover officers
and directors under the Company's and Operating Partnership's directors' and
officers' liability insurance, if any. Although the indemnification agreements
offer substantially the same scope of coverage afforded by provisions in the
Declaration of Trust, the Company's Bylaws and Operating Partnership Agreement,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Trust Managers or by the
stockholders to alter, limit or eliminate the rights they provide.
ITEM 16. EXHIBITS.
The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-3, including those incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4.01 Restated Declaration of Trust of the Registrant (filed as Exhibit No. 4.01 to the
Registrant's Registration Statement on Form S-3 (File No. 333-21905) (the "1997 Form
S-3") and incorporated herein by reference)
4.02 Amended and Restated Bylaws of the Registrant (filed as Exhibit 4.02 to the
Registrant's Registration Statement on Form S-3 (File No. 333-23005) and incorporated
herein by reference)
4.03 Form of Common Share Certificate (filed as Exhibit No. 4.03 to the 1997 Form S-3 and
incorporated herein by reference)
4.04 Second Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership dated November 1, 1997, as amended (filed herewith)
4.05 Form of Certificate of 6 3/4% Series A Convertible Cumulative Preferred Shares of the
Company (filed as Exhibit 4.05 to the Company's Current Report on Form 8-K dated
February 13, 1998 and filed February 18, 1998 and incorporated herein by reference)
*4.06 Form of Subscription Certificate.
*4.07 Form of Agreement between the Registrant and Boston EquiServe, L.P., as Subscription
Agent.
*5.01 Opinion of Shaw Pittman Potts & Trowbridge as to the legality of the securities being
registered by Crescent Real Estate Equities Company
*8.01 Opinion of Shaw Pittman Potts & Trowbridge regarding certain material tax issues
relating to the Registrant
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
*8.02 Opinion of Locke Purnell Rain Harrell (A Professional Corporation) regarding certain
Texas franchise tax matters
*23.01 Consent of Shaw Pittman Potts & Trowbridge (included in its opinions filed as Exhibits
5.01 and 8.01 to this Registration Statement)
*23.02 Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in its
opinion filed as Exhibit 8.02 to this Registration Statement).
23.03 Consent of Arthur Andersen LLP (Dallas), Certified Public Accountants, dated June 11,
1998 (filed herewith)
23.04 Consent of Arthur Andersen LLP (Atlanta), Certified Public Accountants, dated May 28,
1998 (filed herewith)
23.05 Consent of Arthur Andersen LLP (Las Vegas), Certified Public Accountants, dated June
11, 1998 (filed herewith)
24.01 Powers of Attorney (filed herewith)
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in the Registration
Statement shall
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<PAGE> 48
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth, State of Texas, on the 15th day of June,
1998.
CRESCENT REAL ESTATE EQUITIES COMPANY
By: /s/ GERALD W. HADDOCK
-------------------------------------
Gerald W. Haddock
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ RICHARD E. RAINWATER* Trust Manager and Chairman of the June 15, 1998
- ----------------------------------------------------- Board
Richard E. Rainwater
/s/ JOHN C. GOFF* Trust Manager and Vice Chairman of June 15, 1998
- ----------------------------------------------------- the Board
John C. Goff
/s/ GERALD W. HADDOCK Trust Manager, President and Chief June 15, 1998
- ----------------------------------------------------- Executive Officer (Principal
Gerald W. Haddock Executive Officer)
/s/ DALLAS E. LUCAS Senior Vice President and Chief June 15, 1998
- ----------------------------------------------------- Financial Officer (Principal
Dallas E. Lucas Financial and Accounting
Officer)
/s/ ANTHONY M. FRANK* Trust Manager June 15, 1998
- -----------------------------------------------------
Anthony M. Frank
/s/ MORTON H. MEYERSON* Trust Manager June 15, 1998
- -----------------------------------------------------
Morton H. Meyerson
/s/ WILLIAM F. QUINN* Trust Manager June 15, 1998
- -----------------------------------------------------
William F. Quinn
/s/ PAUL E. ROWSEY, III* Trust Manager June 15, 1998
- -----------------------------------------------------
Paul E. Rowsey, III
/s/ MELVIN ZUCKERMAN* Trust Manager June 15, 1998
- -----------------------------------------------------
Melvin Zuckerman
</TABLE>
*By: /s/ GERALD W. HADDOCK
----------------------------------
Gerald W. Haddock
Attorney-In-Fact
II-5
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4.01 Restated Declaration of Trust of the Registrant (filed as Exhibit No. 4.01 to the
Registrant's Registration Statement on Form S-3 (File No. 333-21905) (the "1997 Form
S-3") and incorporated herein by reference)
4.02 Amended and Restated Bylaws of the Registrant (filed as Exhibit 4.02 to the
Registrant's Registration Statement on Form S-3 (File No. 333-23005) and incorporated
herein by reference)
4.03 Form of Common Share Certificate (filed as Exhibit No. 4.03 to the 1997 Form S-3 and
incorporated herein by reference)
4.04 Second Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership dated November 1, 1997, as amended (filed herewith)
4.05 Form of Certificate of 6 3/4% Series A Convertible Cumulative Preferred Shares of the
Company (filed as Exhibit 4.05 to the Company's Current Report on Form 8-K dated
February 13, 1998 and filed February 18, 1998 and incorporated herein by reference)
*4.06 Form of Subscription Certificate.
*4.07 Form of Agreement between the Registrant and Boston EquiServe, L.P., as Subscription
Agent.
*5.01 Opinion of Shaw Pittman Potts & Trowbridge as to the legality of the securities being
registered by Crescent Real Estate Equities Company
*8.01 Opinion of Shaw Pittman Potts & Trowbridge regarding certain material tax issues
relating to the Registrant
*8.02 Opinion of Locke Purnell Rain Harrell (A Professional Corporation) regarding certain
Texas franchise tax matters
*23.01 Consent of Shaw Pittman Potts & Trowbridge (included in its opinions filed as Exhibits
5.01 and 8.01 to this Registration Statement)
*23.02 Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in its
opinion filed as Exhibit 8.02 to this Registration Statement).
23.03 Consent of Arthur Andersen LLP (Dallas), Certified Public Accountants, dated June 11,
1998 (filed herewith)
23.04 Consent of Arthur Andersen LLP (Atlanta), Certified Public Accountants, dated May 28,
1998 (filed herewith)
23.05 Consent of Arthur Andersen LLP (Las Vegas), Certified Public Accountants, dated June
11, 1998 (filed herewith)
24.01 Powers of Attorney (filed herewith)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.04
------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
------------------------------------
Dated as of November 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINED TERMS .................................................................. 2
ARTICLE II ORGANIZATIONAL MATTERS ........................................................ 17
Section 2.1 Continuation of Partnership ............................................. 17
Section 2.2 Name .................................................................... 17
Section 2.3 Principal Office and Registered Agent ................................... 17
Section 2.4 Power of Attorney ....................................................... 17
Section 2.5 Term .................................................................... 19
ARTICLE III PURPOSE ...................................................................... 19
Section 3.1 Purpose and Business .................................................... 19
Section 3.2 Powers .................................................................. 19
ARTICLE IV CAPITAL CONTRIBUTIONS ......................................................... 20
Section 4.1 Capital Contributions of the Partners ................................... 20
Section 4.2 Additional Funding ...................................................... 21
Section 4.3 Issuance of Additional Partnership Interests ............................ 23
Section 4.4 No Preemptive Rights .................................................... 25
Section 4.5 No Interest on Capital .................................................. 26
Section 4.6 Stock Incentive Plans ................................................... 26
Section 4.7 Other Equity Compensation Plans ......................................... 27
ARTICLE V DISTRIBUTIONS .................................................................. 28
Section 5.1 Initial Partnership Distributions ....................................... 28
Section 5.2 Requirement and Characterization of Distributions ....................... 28
Section 5.3 Amounts Withheld ........................................................ 28
Section 5.4 Distributions in Kind ................................................... 29
Section 5.5 Distributions Upon Liquidation .......................................... 29
ARTICLE VI ALLOCATIONS ................................................................... 29
Section 6.1 Allocations For Capital Account Purposes ................................ 29
Section 6.2 Allocation of Nonrecourse Debt .......................................... 30
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS ........................................ 30
Section 7.1 Management .............................................................. 30
Section 7.2 Certificate of Limited Partnership ...................................... 34
Section 7.3 Restrictions on General Partner's Authority ............................. 34
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
Section 7.4 Reimbursement of the Crescent Group ..................................... 35
Section 7.5 Outside Activities of the Crescent Group ................................ 35
Section 7.6 Contracts with Affiliates ............................................... 36
Section 7.7 Indemnification ......................................................... 36
Section 7.8 Liability of the General Partner ........................................ 39
Section 7.9 Other Matters Concerning the General Partner ............................ 39
Section 7.10 Title to Partnership Assets ............................................ 40
Section 7.11 Reliance by Third Parties .............................................. 40
Section 7.12 Limited Partner Representatives ........................................ 41
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS .................................. 41
Section 8.1 Limitation of Liability ................................................. 41
Section 8.2 Management of Business .................................................. 41
Section 8.3 Outside Activities of Limited Partners .................................. 42
Section 8.4 Return of Capital ....................................................... 42
Section 8.5 Rights of Limited Partners Relating to the Partnership .................. 42
Section 8.6 Exchange Rights ......................................................... 43
Section 8.7 Covenants Relating to the Exchange Rights ............................... 44
Section 8.8 Other Matters Relating to the Exchange Rights ........................... 45
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS ........................................ 45
Section 9.1 Records and Accounting .................................................. 45
Section 9.2 Fiscal Year ............................................................. 46
Section 9.3 Reports ................................................................. 46
ARTICLE X TAX MATTERS .................................................................... 46
Section 10.1 Preparation of Tax Returns ............................................. 46
Section 10.2 Tax Elections .......................................................... 46
Section 10.3 Tax Matters Partner .................................................... 47
Section 10.4 Organizational Expenses ................................................ 48
Section 10.5 Withholding ............................................................ 48
ARTICLE XI TRANSFERS AND WITHDRAWALS ..................................................... 49
Section 11.1 Transfer ............................................................... 49
Section 11.2 Transfer of Partnership Interests of the General Partner ............... 49
Section 11.3 Transfer of Partnership Interests of Limited Partners Other Than
Crescent Equities ................................................................. 50
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
Section 11.4 Substituted Limited Partners ........................................... 51
Section 11.5 Assignees .............................................................. 52
Section 11.6 General Provisions ..................................................... 52
Section 11.7 Acquisition of Partnership Interest by Partnership ..................... 53
ARTICLE XII ADMISSION OF PARTNERS ........................................................ 53
Section 12.1 Admission of Substituted General Partner ............................... 53
Section 12.2 Admission of Additional or Employee Limited Partners ................... 54
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership .......... 55
ARTICLE XIII DISSOLUTION AND LIQUIDATION ................................................. 55
Section 13.1 Dissolution ............................................................ 55
Section 13.2 Winding Up ............................................................. 56
Section 13.3 Compliance with Timing Requirements of Regulations ..................... 57
Section 13.4 Deemed Distribution and Recontribution ................................. 58
Section 13.5 Rights of Limited Partners ............................................. 58
Section 13.6 Documentation of Liquidation ........................................... 58
Section 13.7 Reasonable Time for Winding-Up ......................................... 58
Section 13.8 Liability of the Liquidator ............................................ 59
Section 13.9 Waiver of Partition .................................................... 59
ARTICLE XIV AMENDMENT OF AGREEMENT ....................................................... 59
Section 14.1 Amendments ............................................................. 59
ARTICLE XV PARTNER REPRESENTATIONS AND WARRANTIES ........................................ 60
Section 15.1 Representations and Warranties ......................................... 60
ARTICLE XVI ARBITRATION OF DISPUTES ...................................................... 62
Section 16.1 Arbitration ............................................................ 62
Section 16.2 Procedures ............................................................. 62
Section 16.3 Binding Character ...................................................... 63
Section 16.4 Exclusivity ............................................................ 63
Section 16.5 No Alteration of Agreement ............................................. 63
ARTICLE XVII GENERAL PROVISIONS .......................................................... 63
Section 17.1 Addresses and Notice ................................................... 63
Section 17.2 Titles and Captions .................................................... 64
Section 17.3 Pronouns and Plurals ................................................... 64
Section 17.4 Further Action ......................................................... 64
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
Section 17.5 Binding Effect ......................................................... 64
Section 17.6 Creditors .............................................................. 64
Section 17.7 Waiver ................................................................. 64
Section 17.8 No Agency .............................................................. 65
Section 17.9 Entire Understanding ................................................... 65
Section 17.10 Counterparts .......................................................... 65
Section 17.11 Applicable Law ........................................................ 65
Section 17.12 Invalidity of Provisions .............................................. 65
Section 17.13 Guaranty by Crescent Equities ......................................... 65
Section 17.14 Restriction on Sale of Sonoma Property ................................ 66
</TABLE>
Exhibit A -- Partners, Partnership Units and Partnership Interests
Exhibit B -- Capital Account Maintenance
Exhibit C -- Special Tax Allocation Rules
Exhibit D -- Notice of Exchange
Exhibit E -- Listing of Approved Substituted Limited Partners
(iv)
<PAGE> 6
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of November 1, 1997, is entered into by and among Crescent Real
Estate Equities, Ltd., a Delaware corporation, as general partner (the "General
Partner"), and those parties who are Limited Partners as listed on Exhibit A
hereto or who are admitted from time to time as Limited Partners as herein
provided.
W I T N E S S E T H:
WHEREAS, Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Partnership"), was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement was amended and restated in its entirety
by that certain First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 5, 1994, as
amended by the First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of May 16, 1994, the Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of April 11, 1995, the Third Amendment to the First
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 11, 1995, the Fourth Amendment
to the First Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of May 3, 1995, the Fifth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 31, 1995, the
Sixth Amendment to the First Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1995, the Seventh Amendment to the First Amended and Restated Agreement
of Limited Partnership of Crescent Real Estate Equities Limited Partnership,
dated as of August 23, 1995, the Eighth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of December 31, 1995, the Restatement of Ninth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of February 16,
1996, the Supplemental Amendment to the Restatement of Ninth Amendment to the
First Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of June 30, 1996, the Tenth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of July 26, 1996,
the Eleventh Amendment to the First Amended and Restated
<PAGE> 7
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 4, 1996, the Twelfth Amendment to the First
Amended and Restated Agreement of Limited Partnership, dated as of December 31,
1996, the Thirteenth Amendment to the First Amended and Restated Agreement of
Limited Partnership, dated as of April 29, 1997 and the Fourteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 30, 1997 (hereinafter referred to collectively as the "First Amended
Agreement");
WHEREAS, the General Partner desires to amend and restate in its
entirety the First Amended Agreement pursuant to its authority under Sections
2.4 and 14.1.B of the First Amended Agreement and the powers of attorney granted
to the General Partner by the Limited Partners in order to (i) combine all of
the provisions of the First Amended Agreement into one document, and (ii) make
changes to provisions of the First Amended Agreement in accordance with Section
14.1.B(3) of the First Amended Agreement;
WHEREAS, the General Partner desires to correct the Capital
Contribution amounts set forth in Paragraph 1 of the Thirteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 29, 1997, to the following amounts: (i) $134,100 as of February 11, 1997,
in connection with the exercise of David M. Dean's options to purchase 2,400
REIT Shares; (ii) $420,000 as of February 21, 1997, in connection with the
exercise of Dallas E. Lucas' option to purchase 7,500 REIT Shares;
(iii) $58,625 as of March 5, 1997, in connection with the exercise of James E.
Wassel's option to purchase 1,000 REIT Shares; (iv) $59,000 as of March 6,
1997, in connection with the exercise of Jeffrey L. Fitzgerald's option to
purchase 1,000 REIT Shares; (v) $15,375 as of March 11, 1997, in connection
with the exercise of Charlene J. McNeil's option to purchase 250 REIT Shares;
(vi) $24,250 as of March 14, 1997, in connection with the exercise of John P.
Pittman's option to purchase 400 REIT Shares; and (vii) $72,750 as of March 14,
1997, in connection with the exercise of Alan C. Powers' option to purchase
1,200 REIT Shares;
WHEREAS, the General Partner desires to correct the description of the
March 15, 1997 assignment by FW-Irving Partners, Ltd. set forth in the Recitals
to the Fourteenth Amendment to the First Amended Agreement, dated as of April
30, 1997, to read as follows: FW-Irving Partners, Ltd. assigned legal title to
its entire 1.176019% Limited Partnership Interest (including 635,668
Partnership Units) to its partners as follows: (i) a .001177% Limited
Partnership Interest, including 636 Partnership Units, to Rainwater, Inc.,
(ii) a .704906% Limited Partnership Interest, including 381,020 Partnership
Units, to John C. Goff, and (iii) a .469936% Limited Partnership Interest,
including 254,012 Partnership Units, to Gerald W. Haddock;
WHEREAS, on May 4, 1997, Joseph W. Autem exercised his Exchange Right
with respect to 1,805 Partnership Units;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name;
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Charlene J. McNeil 5/12/97 300 1994 Plan $7,837.50
Charlene J. McNeil 5/12/97 800 1995 Plan $20,900.00
Paul E. Rowsey, III 6/10/97 30,000 1994 Plan $795,000.00
6/10/97 2,800 First Amended and $74,200.00
Restated 1995 Plan
Jennifer L. Miller 6/16/97 400 1995 Plan $11,500.00
John M. Walker, Jr. 6/16/97 6,000 1995 Plan $172,500.00
Suzanne Stevens 7/11/97 800 1995 Plan $25,350.00
Carlton Jordan 7/17/97 200 1995 Plan $6,600.00
Kurtis D. Adams 7/17/97 200 1995 Plan $6,600.00
Michael A. Howell 7/17/97 200 1995 Plan $6,600.00
Henry L. Cosby 7/17/97 200 1995 Plan $6,600.00
John R. Leathers 7/17/97 200 1995 Plan $6,600.00
Ramon Cortez 7/17/97 200 1995 Plan $6,600.00
Becky Rainwater 7/17/97 200 1995 Plan $6,600.00
J. Mike Williams 7/17/97 200 1995 Plan $6,600.00
</TABLE>
-2-
<PAGE> 8
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Elizabeth M. Frankowski 7/17/97 200 1995 Plan $6,600.00
Daniel Thompson 7/18/97 200 1995 Plan $6,537.50
Mark Stanfield 7/22/97 1,200 1995 Plan $39,150.00
Angela Petrucci 7/22/97 200 1995 Plan $6,525.00
Michael Musack 7/22/97 200 1995 Plan $6,525.00
Sidney Schneider 7/22/97 200 1995 Plan $6,525.00
Rodney Leach 7/22/97 200 1995 Plan $6,525.00
Vicki Rowell 7/22/97 200 1995 Plan $6,525.00
Debbie Hall 7/24/97 200 1995 Plan $6,600.00
Christopher Crisman 7/24/97 200 1995 Plan $6,600.00
Debra Garrison 7/24/97 100 First Amended and $3,300.00
Restated 1995 Plan
Teresa Shiller 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
Nelda Casbon 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
William Garcia 8/4/97 200 First Amended and $6,137.50
Restated 1995 Plan
Raymond Cuellar 8/6/97 200 First Amended and $6,575.00
Restated 1995 Plan
Jerry Crenshaw 8/14/97 1,600 1994 Plan $53,000.00
Jerry Crenshaw 8/14/97 1,800 1995 Plan $59,625.00
Priscilla Nunez 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
David Hagar 8/18/97 192 First Amended and $6,216.00
Restated 1995 Plan
Richard Flusche 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
Charles Lucabaugh 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
James Dockal II 8/18/97 800 1995 Plan $25,900.00
James Dockal II 8/18/97 440 First Amended and $14,245.00
Restated 1995 Plan
</TABLE>
-3-
<PAGE> 9
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Willie E. Hollie, Jr. 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Amelia K. Davis 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Anthony Tillman 9/5/97 200 First Amended and $6,250.00
Restated 1995 Plan
Cheryl Dillon 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
L. Blair Tillery 9/10/97 160 First Amended and $5,440.00
Restated 1995 Plan
Eric Painter 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
Elizabeth Hays 9/11/97 200 First Amended and $7,200.00
Restated 1995 Plan
Jeff Fitzgerald 9/12/97 6,000 1995 Plan $216,750.00
David M. Dean 9/15/97 400 1994 Plan $14,500.00
Joseph D. Ambrose, III 9/16/97 2,000 1994 Plan $70,375.00
Joseph D. Ambrose, III 9/16/97 8,000 1995 Plan $281,500.00
Philip Webster 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Brad Russell 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Johnny Jarrin 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Alan Connelly 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Sharon Simmons 10/22/97 500 1995 Plan $18,781.25
Jim Petrie 10/22/97 200 First Amended and $7,512.50
Restated 1995 Plan
</TABLE>
WHEREAS, on May 14, 1997, Crescent Equities issued 500,000 REIT Shares
in a public stock offering at a cash price of $25.875 per share, which cash
proceeds were contributed to the Partnership by Crescent Equities pursuant to
Section 4.2 of the First Amended Agreement;
-4-
<PAGE> 10
WHEREAS, on June 30, 1997, (i) the Partnership issued 1,046 Partnership
Units valued at $66,421 to Texas Greenbrier Associates, Inc. ("Greenbrier")
pursuant to a Consultant Unit Agreement dated August 15, 1995 between Greenbrier
and the Partnership; and (ii) Greenbrier immediately exercised its Exchange
Right with respect to such 1,046 Partnership Units;
WHEREAS, on July 8, 1997, Crescent Equities issued 217 REIT Shares to
each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in payment
of trust managers' fees and, in connection therewith, Crescent Equities shall
receive credit for an aggregate Capital Contribution to the Partnership
of $20,018.25;
Whereas, On July 25, 1997, Crescent Equities issued 351,185 REIT Shares
in a public offering at a cash price of $28.475 per share, which cash proceeds
were contributed to the Partnership by Crescent Equities pursuant to Section 4.2
of the First Amended Agreement;
WHEREAS, on August 12, 1997, Crescent Equities issued 4,700,000 REIT
Shares to UBS Securities (Portfolio) LLC at a price of $31.5625 per share,
pursuant to that certain Purchase Agreement, dated as of August 11, 1997, by and
among Crescent Equities, UBS Securities (Portfolio) LLC and Union Bank of
Switzerland, London Branch, acting through its agent UBS Securities LLC, which
cash proceeds were contributed to the Partnership by Crescent Equities pursuant
to Section 4.2 of the First Amended Agreement;
WHEREAS, effective August 29, 1997, Crescent Equities granted (i) 33
REIT Shares to Tommy Ellis; (ii) 33 REIT Shares to Alan Friedman; (iii) 34 REIT
Shares to Shannon Gilbert; (iv) 34 REIT Shares to Jana Irwin; (v) 33 REIT Shares
to John Walker; and (vi) 33 REIT Shares to John Zogg, in accordance with
resolutions of the Board of Trust Managers of Crescent Equities, dated as of
August 29, 1997 and, in connection therewith, Crescent Equities shall receive
credit for an aggregate Capital Contribution to the Partnership of $6,325.00;
WHEREAS, on August 31, 1997, Crescent Equities rescinded 177,604
Partnership Units held by Canyon Ranch, Inc. pursuant to Article II of that
certain Contribution Agreement dated July 26, 1996 between the Partnership and
Canyon Ranch, Inc.
WHEREAS, on September 8, 1997, Gerald W. Haddock exercised his Exchange
Right with respect to 8,900 Partnership Units;
WHEREAS, on September 22, 1997, Crescent Equities issued 307,831 REIT
Shares in a public offering at a cash price of $32.485 per share, which cash
proceeds were contributed to the Partnership by Crescent Equities pursuant to
Section 4.2 of the First Amended Agreement;
WHEREAS, on October 1, 1997, Greenbrier exercised options to
purchase 25,500 REIT Shares pursuant to the 1994 stock option plan of Crescent
Equities and, in connection therewith, Crescent Equities shall receive credit
for a Capital Contribution to the Partnership of $1,012,031.25;
WHEREAS, on October 7, 1997, Crescent Equities issued 138 REIT Shares
to each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for an aggregate Capital Contribution to the Partnership of
$16,767;
WHEREAS, on October 8, 1997, Crescent Equities issued 10,000,000 REIT
Shares in a public stock offering at a cash price of $39.00 per share, which
cash proceeds were contributed to the Partnership by Crescent Equities pursuant
to Section 4.2 of the First Amended Agreement;
-5-
<PAGE> 11
WHEREAS, on October 23, 1997, Christopher J. O'Brien exercised his
Exchange Right with respect to 18,155 Partnership Units;
WHEREAS, on October 24, 1997, Peter M. Joost exercised his Exchange
Right with respect to 25,000 Partnership Units; and
WHEREAS, the General Partner desires to amend Exhibit A to reflect the
transactions described above.
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:
ARTICAL I
DEFINED TERMS
Except as otherwise herein expressly provided, the following terms and
phrases shall have the meanings set forth below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Funds" has the meaning set forth in Section 4.2.A hereof.
"Additional Limited Partner" has the meaning set forth in Section 4.3
hereof.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is treated as being obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant fiscal year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 1.D of Exhibit B hereof. Once an Adjusted
Property is deemed distributed by, and recontributed to, the Partnership for
federal income tax purposes upon a termination thereof pursuant to Section 708
of the Code, such property shall thereafter constitute a
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Contributed Property until the Carrying Value of such property is further
adjusted pursuant to Section 1.D of Exhibit B hereof.
"Adjustment Date" has the meaning set forth in Section 4.2.A(2) hereof.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Amstar" means Amstar Continental Plaza Limited Partnership, a Colorado
limited partnership.
"Amstar Required Cash Payment" means the "Required Cash Payment" as
defined in Article III of that certain Contribution Agreement dated February 8,
1994 between Amstar and the Partnership.
"Assignee" means a Person to whom a Limited Partnership Interest has
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Sections 8.6, 11.3.A and 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (i) the sum of:
A. the Partnership's Net Income or Net Loss, as the case may be,
for such period (without regard to adjustments resulting from
allocations described in Section 1.A-E of Exhibit C),
B. Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
C. the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(f) below (including, without limitation,
reductions resulting because the General Partner determines such
amounts are no longer necessary),
D. the excess of proceeds from the sale, exchange, disposition,
or refinancing of Partnership property during such period over the gain
(or loss, as the case may be) recognized from such sale, exchange,
disposition, or refinancing during such period (excluding Terminating
Capital Transactions) as such items of gain or loss are determined in
accordance with Section 1.B of Exhibit B, and
E. all other cash received by the Partnership for such period,
including cash contributions and loan proceeds (other than refinancing
proceeds described in (d) above), that was not included in determining
Net Income or Net Loss for such period;
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(ii) less the sum of:
(a) all principal debt payments made during such period by
the Partnership,
(b) capital expenditures made by the Partnership during such
period,
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clauses (ii)(a) or (b),
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period,
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period, and
(f) the amount of any increase in reserves (including,
without limitation, working capital accounts or other cash or similar
balances) established during such period which the General Partner
determines are necessary or appropriate in its sole and absolute
discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Bankruptcy" of a Person shall be deemed to have occurred when (a) the
Person commences a voluntary proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect, (b) the Person is adjudged as bankrupt or insolvent, or a
final and nonappealable order for relief under any bankruptcy, insolvency or
similar law now or hereafter in effect has been entered against the Person, (c)
the Person executes and delivers a general assignment for the benefit of the
Person's creditors, (d) the Person files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against the
Person in any proceeding of the nature described in clause (b) above, (e) the
Person seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Person or for all or any substantial part of the
Person's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within one hundred twenty (120) days
after the commencement thereof, (g) the appointment without the Person's consent
or acquiescence of a trustee, receiver or liquidator has not been vacated or
stayed within ninety (90) days of such appointment, or (h) an appointment
referred to in clause (g) is not vacated within ninety (90) days after the
expiration of any such stay.
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"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Canyon Contribution Agreement" means that certain Contribution
Agreement, dated July 26, 1996, by and between the Partnership and Canyon Ranch.
"Canyon Ranch" means Canyon Ranch, Inc. an Arizona corporation.
"Canyon Ranch Property" means the property and assets specified in the
Canyon Contribution Agreement.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Net Asset Value of Contributed Property which such
Partner contributes to the Partnership.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the Gross Asset Value of such property reduced (but not below
zero) by all Depreciation with respect to such property charged to the Partners'
Capital Accounts and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Exhibit B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for improvements and
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash Amount" means an amount of cash equal to the Value, as of the
date of receipt by Crescent Equities of a Notice of Exchange, of the REIT Shares
Amount. Notwithstanding the foregoing, if the Crescent Group raises the Cash
Amount through an offering of securities, borrowings or otherwise, the Cash
Amount shall be reduced by an amount equal to the expenses incurred by the
Crescent Group in connection with raising such funds (to the extent that such
expenses are allocable to funds used to pay the Cash Amount); provided, however,
that the total reduction of the Cash Amount for such expenses shall not exceed
five percent (5%) of the total Cash Amount as determined prior to reduction for
such expenses.
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"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of Delaware, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consultant Unit Agreement" means that certain Consultant Unit
Agreement, dated August 15, 1995, by and between Greenbrier and the Partnership.
"Contributed Funds" has the meaning set forth in Section 4.2.A(2)
hereof.
"Contributed Property" means each property or other asset (but
excluding cash), in such form as may be permitted by the Act, contributed to the
Partnership or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code. Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 1.D of Exhibit B
hereof, such property shall no longer constitute a Contributed Property for
purposes of Exhibit B hereof, but shall be deemed an Adjusted Property for such
purposes.
"Contribution Date" has the meaning set forth in Section 4.3 hereof.
"Crescent Equities" means Crescent Real Estate Equities Company, a
Texas real estate investment trust.
"Crescent Group" means Crescent Equities, the General Partner, and any
wholly owned subsidiaries of Crescent Equities or the General Partner.
"Crescent Loan" has the meaning set forth in Section 4.2.A(1) hereof.
"Declaration of Trust" means the Declaration of Trust of Crescent
Equities, as it may be amended, supplemented or restated from time to time.
"Deemed Partnership Interest Value" as of any date shall mean, with
respect to a Partner, the product of (i) the Deemed Value of the Partnership as
of such date, multiplied by (ii) such Partner's Partnership Interest as of such
date.
"Deemed Value of the Partnership" as of any date shall mean the
quotient of the following amounts:
(i) the product of (a) the Value of a REIT Share as of such date,
multiplied by (b) the total number of REIT Shares issued and
outstanding as of the close of business on such date
(excluding treasury shares and, for purposes of Section 4.2
hereof, excluding any REIT Shares issued in exchange for
Contributed Funds to be
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contributed to the Partnership by Crescent Equities on the
Adjustment Date for which the calculation is being made),
divided by
(ii) the aggregate Partnership Interest of Crescent Equities and
the General Partner as of such date.
"Demand Notice" has the meaning set forth in Section 16.2 hereof.
"Depreciation" means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Employee Limited Partner" has the meaning set forth in Section 4.7.C
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Factor" means 1.0, provided that in the event that Crescent
Equities (i) pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Exchange
Factor shall be adjusted by multiplying the Exchange Factor by a fraction, the
numerator of which shall be the number of REIT Shares that would be issued and
outstanding on the record date for such event if such dividend, distribution,
subdivision or combination had occurred as of such date, and the denominator of
which shall be the actual number of REIT Shares issued and outstanding on the
record date for such dividend, distribution, subdivision or combination. Any
adjustment of the Exchange Factor shall become effective immediately after the
effective date of such event retroactive to the record date for such event;
provided, however, that if Crescent Equities receives a Notice of Exchange after
the record date, but prior to the effective date, of any such event, the
Exchange Factor shall be determined as if Crescent Equities had received the
Notice of Exchange immediately prior to the record date for such event.
"Exchange Right" has the meaning set forth in Section 8.6 hereof.
"Exchanging Person" has the meaning set forth in Section 8.6.A hereof.
"Falcon Point Property" means the Falcon Point single family
residential development located in Houston, Texas.
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"First Amended Agreement" has the meaning set forth in the recitals to
this Agreement.
"Funding Loan Proceeds" means the net cash proceeds received by the
Crescent Group in connection with any Funding Loan, after deduction of all costs
and expenses incurred by the Crescent Group in connection with such Funding
Loan.
"Funding Loan(s)" means any borrowing or refinancing of borrowings by
or on behalf of the Crescent Group from any lender for the purpose of causing
Crescent Equities to advance the proceeds thereof to the Partnership as a loan
pursuant to Section 4.2.A(1) hereof.
"General Partner" means Crescent Real Estate Equities, Ltd. (formerly
known as CRE General Partner, Inc.), a Delaware corporation which is a wholly
owned subsidiary of Crescent Equities, its duly admitted successors and assigns
and any other Person who is a General Partner at the time of reference thereto.
"General Partnership Interest" means the Partnership Interest held by
the General Partner.
"Greenbrier" means Texas Greenbrier Associates, Inc., a Texas
corporation.
"Greenbrier Agreement" means that certain Agreement of Acceptance of
the Partnership Agreement executed by Greenbrier and delivered to the General
Partner.
"Gross Asset Value" of any Contributed Property or Properties
contributed by a Partner to the Partnership in connection with the execution of
this Agreement means the Net Asset Value of such Contributed Property or
Properties as set forth in Exhibit A hereof, increased by any liabilities either
treated as assumed by the Partnership upon the contribution of such property or
properties or to which such property or properties are treated as subject when
contributed pursuant to the provisions of Section 752 of the Code. The Gross
Asset Value of any other Contributed Property or Properties means the fair
market value of such property or properties at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt. The General Partner shall, in its sole and absolute discretion,
use such method as it deems reasonable and appropriate to allocate the aggregate
of the Gross Asset Value of Contributed Properties contributed in a single or
integrated transaction among the separate properties on a basis proportional to
their respective fair market values.
"HA Development Corporation" means Houston Area Development Corp., a
Texas corporation that will own the Falcon Point Property and the Huntington
Woods Property.
"Huntington Woods Property" means the Huntington Woods single family
residential development located in Houston, Texas.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry of an order by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii)
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<PAGE> 18
as to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the Bankruptcy of such Partner.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of his status as (A) a member of the Crescent Group, (B) a director or
officer of the Partnership or of a member of the Crescent Group, or (C) an
attorney-in-fact of the General Partner acting pursuant to Section 7.9.C, and
(ii) such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Initial Agreement" has the meaning set forth in the recitals to this
Agreement.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Lien" means any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances, pledges, options, rights of first offer or first
refusal and any other rights or interests of any kind or nature, actual or
contingent, or other similar encumbrances of any nature whatsoever.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to time, or
any Substituted Limited Partner, Additional Limited Partner, or Employee Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement.
"Liquidating Event(s)" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"Management Company" means Crescent Development Management Corp., a
Texas corporation that will provide management services to the Mira Vista
Property, the Falcon Point Property, the Huntington Woods Property, and certain
other properties that may be acquired by the Partnership in the future. The
Partnership will own one (1) share of voting common stock and nine thousand
eight hundred and ninety-nine (9,899) shares of nonvoting common stock of the
Management Company.
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"Mira Vista Property" means the single family residential development
located in Fort Worth, Texas, and a ninety-eight percent (98%) interest in the
limited liability company that owns the adjacent Mira Visa Golf Club.
"MV Development Corporation" means Mira Vista Development Corp., a
Texas corporation that will own the Mira Vista Property.
"Net Asset Value" in the case of any Contributed Property contributed
by a Partner to the Partnership in connection with the execution of this
Agreement shall be determined on an aggregate basis with respect to all of the
properties contributed by such Partner to the Partnership, and means the
aggregate Gross Asset Values of such properties, reduced by any liabilities
either treated as assumed by the Partnership upon the contribution of such
properties or to which such properties are treated as subject when contributed
pursuant to the provisions of Section 752 of the Code. The aggregate Net Asset
Values of the properties contributed by each Partner to the Partnership in
connection with the execution of this Agreement are set forth in Exhibit A. In
the case of any other Contributed Property and as of the time of its
contribution to the Partnership, Net Asset Value means the Gross Asset Value of
such property, reduced by any liabilities either treated as assumed by the
Partnership upon such contribution or to which such property is treated as
subject when contributed pursuant to Section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Exhibit C, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to the
special allocation rules in Exhibit C, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such items.
"New Interests" has the meaning set forth in Section 8.7.C hereof.
"New Securities" has the meaning set forth in Section 8.7.C hereof.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
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"Non-Unitholder Partnership Interest" means a Limited Partnership
Interest that does not have Partnership Units associated therewith.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a fiscal
year shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit D to this Agreement.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. The Partnership Interest of each Partner shall be expressed as a
percentage of the total Partnership Interests owned by all of the Partners, as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time. All Partnership Interests shall be calculated to the nearest one
millionth of one percent (0.000000%), with amounts equal to or greater than
0.0000005% being rounded up to the next one millionth of one percent, and with
amounts less than 0.0000005% being rounded down to the next one millionth of one
percent.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or
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decrease in Partnership Minimum Gain, for a fiscal year shall be determined in
accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.3
hereof, which record date shall be the same as the record date established by
Crescent Equities or otherwise pursuant to the Texas Act for a distribution to
its shareholders of some or all of its portion of such distribution.
"Partnership Unit" means a unit representing the Exchange Rights
associated with the Partnership Interests issued to certain of the Limited
Partners pursuant to the terms of this Agreement, which unit may be exchanged
for REIT Shares or cash through the exercise of the Exchange Rights set forth in
Sections 8.6. The number of Partnership Units of each Limited Partner shall be
as specified in Exhibit A attached hereto, as such Exhibit may be amended from
time to time. The Partnership Units may be evidenced by certificates as set
forth in Section 4.1.C hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Qualified Individual" has the meaning set forth in Section 16.2
hereof.
"RainAm Investors" means RainAm Investment Properties Ltd., a Texas
limited partnership.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Regulations" means the income tax regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 1.H of
Exhibit C hereof.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT Share" means a common share of beneficial interest of Crescent
Equities.
"REIT Shares Amount" means a number of REIT Shares equal to the product
of (i) the number of Partnership Units to be exchanged by an Exchanging Person
pursuant to Section 8.6, multiplied by (ii) the Exchange Factor; provided that
in the event Crescent Equities issues to all holders of REIT Shares rights,
options, warrants or convertible or exchangeable securities entitling the
shareholders to subscribe for or purchase REIT Shares, or any other securities
or
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<PAGE> 22
property (collectively, the "rights"), then the REIT Shares Amount shall also
include such rights that a holder of that number of REIT Shares would be
entitled to receive.
"Representative" has the meaning set forth in Section 7.12 hereof.
"Requesting Party" has the meaning set forth in Section 16.2 hereof.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocable
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Responding Party" has the meaning set forth in Section 16.2 hereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Sonoma" means Rahn Sonoma, Ltd., a Florida limited partnership.
"Sonoma Contribution Agreement" means that certain Contribution
Agreement, dated September 13, 1996, by and among Crescent Real Estate Equities,
Inc., the Partnership, Sonoma, Peter H. Roberts and John H. Anderson.
"Sonoma Property" means the property and assets specified in the Sonoma
Contribution Agreement.
"Specified Exchange Date" means the tenth Business Day after receipt by
Crescent Equities of a Notice of Exchange, unless applicable law requires a
later date. Notwithstanding the foregoing, if Crescent Equities elects to pay
all or any portion of the consideration to an Exchanging Person in cash, the
Specified Exchange Date may be extended for an additional period to the extent
required for the Crescent Group to raise the funds required to pay the cash
consideration to the Exchanging Person.
"Stock Incentive Plan" means The 1994 Crescent Real Estate Equities,
Inc. Stock Incentive Plan, as amended from time to time, or any other stock
incentive plan adopted by Crescent Equities.
"Subsidiary Development Corporation(s)" means MV Development
Corporation and HA Development Corporation, and either of them.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
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"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Texas Act" means the Texas Real Estate Investment Trust Act, as the
same may be amended from time to time, or any successor statute thereto.
"Trading Day" means a day on which the principal national securities
exchange on which the REIT Shares are listed or admitted to trading is open for
the transaction of business or, if the REIT Shares are not listed or admitted to
trading, means a Business Day.
"Transaction" has the meaning set forth in Section 11.2.C hereof.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B hereof) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made on such date pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made on such date pursuant
to Exhibit B hereof) as of such date, over (ii) the fair market value of such
property (as determined under Exhibit B hereof) as of such date.
"Value" means, with respect to a REIT Share as of any date, the average
of the "closing price" for the ten (10) consecutive Trading Days immediately
preceding such date (except as provided to the contrary in Sections 4.2, 4.3 and
4.6 hereof). The "closing price" for each such Trading Day means the last sale
price, regular way on such day, or, if no such sale takes place on that day, the
average of the closing bid and asked prices 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 if the REIT Shares 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 (including
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System) on which the REIT Shares are listed or admitted
to trading or, if the REIT Shares are not so listed or admitted to trading, the
last quoted price or, if not quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal automated quotation system then in use or, if the
REIT Shares are not so quoted by any such system, the average of the closing bid
and asked prices as furnished by a professional market maker selected by the
board of directors of the General Partner making a market in the REIT Shares,
or, if there is no such market maker or such closing prices otherwise are not
available, the fair market value of the REIT Shares as of such day, as
determined by the board of directors of the General Partner in its sole
discretion. In the event Crescent Equities issues to all holders of REIT Shares
rights, options, warrants or convertible or exchangeable securities entitling
the shareholders to subscribe for or purchase REIT Shares or any other property,
then the Value of a
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REIT Share shall include the value of such rights, as determined by the board of
directors of the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Continuation of Partnership
The Partners hereby continue the Partnership as a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement. Except as expressly provided herein to the contrary,
the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership is Crescent Real Estate Equities Limited
Partnership. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P." "Ltd."
or similar words or letters shall be included in the Partnership's name where
necessary for purposes of complying with the laws of any jurisdiction that so
requires. The General Partner in its sole and absolute discretion may change the
name of the Partnership at any time and from time to time and shall notify the
Limited Partners of such change in the regular communication to the Limited
Partners next succeeding the effectiveness of the change of name.
Section 2.3 Principal Office and Registered Agent
The principal office of the Partnership is 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, or such other place as the General Partner may from
time to time designate. The registered agent of the Partnership is The
Prentice-Hall Corporation System, Inc., located at 1013 Centre Road, in the city
of Wilmington, County of New Castle, Delaware 19805, or such other Person as the
General Partner may from time to time designate. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner constitutes and appoints the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of each,
and each of those acting singly, in each case with full power of substitution,
as its true and lawful agent and attorney-in-fact, with full power and authority
in its name, place and stead to:
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(1) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates,
documents and other instruments (including, without
limitation, the Certificate and all amendments or
restatements of this Agreement or the Certificate) that
the General Partner or the Liquidator deems appropriate
or necessary to qualify or continue the existence or
qualification of the Partnership as a limited partnership
(or a partnership in which the limited partners have
limited liability) in the State of Delaware and in all
other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the
General Partner deems appropriate or necessary to reflect
any amendment, change, modification or restatement of
this Agreement made in accordance with its terms; (c) all
conveyances and other instruments or documents that the
General Partner or Liquidator, as the case may be, deems
appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a
certificate of cancellation; and (d) all instruments
relating to the Capital Contribution of any Partner or
the admission, withdrawal, removal or substitution of any
Partner made pursuant to the terms of this Agreement; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner, to make,
evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary, in
the sole discretion of the General Partner, to effectuate
the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive and not be affected by the
subsequent Incapacity of any Limited Partner or the transfer of all or any
portion of such Limited Partner's Partnership Interest and shall extend to such
Limited Partner's heirs, successors, assigns and personal representatives. Each
such Limited Partner hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner,
taken in good faith under such power of attorney. Each Limited Partner shall
execute and deliver to the General Partner or the Liquidator, within fifteen
(15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the
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Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership commenced on February 9, 1994, and shall
continue until December 31, 2093, unless it is dissolved sooner pursuant to the
provisions of Article 13 or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, including, without
limitation, to acquire, hold, own, develop, construct, improve, maintain,
operate, sell, lease, transfer, encumber, convey, exchange, and otherwise
dispose of or deal with real and personal property of all kinds; to acquire
stock ownership interests in and to exercise all of the powers of a stockholder
in the Subsidiary Development Corporations and the Management Company; (ii) to
enter into any partnership, joint venture or other similar arrangement to engage
in any of the foregoing or the ownership of interests in any entity engaged in
any of the foregoing; and to exercise all of the powers of an owner in any such
entity; and (iii) to do anything necessary, appropriate, proper, advisable,
desirable, convenient or incidental to the foregoing; provided, however, that
such business shall be limited to and conducted in such a manner as to permit
Crescent Equities at all times to qualify as a REIT, unless Crescent Equities
voluntarily terminates its REIT status pursuant to its Declaration of Trust. In
connection with the foregoing, and without limiting Crescent Equities' right in
its sole discretion to cease qualifying as a REIT, the Partners acknowledge that
Crescent Equities' current status as a REIT inures to the benefit of all the
Partners and not solely the Crescent Group.
Section 3.2 Powers
Subject to all of the terms, covenants, conditions and limitations
contained in this Agreement and any other agreement entered into by the
Partnership, the Partnership shall have full power and authority to do any and
all acts and things necessary, appropriate, proper, advisable, desirable,
incidental to or convenient for the furtherance and accomplishment of the
purposes and business described herein and for the protection and benefit of the
Partnership, including, without limitation, full power and authority, directly
or through its ownership interest in other entities, to enter into, perform and
carry out contracts of any kind, borrow money and issue evidences of
indebtedness, whether or not secured by mortgage, deed of trust, pledge or other
lien, acquire and develop real property, and lease, sell, transfer or otherwise
dispose of real property; provided, however, that the Partnership shall not
take, or refrain from taking, any action which, in the judgment of General
Partner, in its sole and absolute discretion, (i) could adversely affect the
ability of Crescent Equities to achieve or maintain qualification as a REIT,
(ii) could subject Crescent
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Equities to any additional taxes under Section 857 or Section 4981 of the Code,
or (iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over Crescent Equities or its securities, unless such action
(or inaction) shall have been specifically consented to by the General Partner
in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
A. Each Partner listed in Exhibit A has previously made a
Capital Contribution to the Partnership as specified in the First Amended
Agreement or in the Recitals portion of this Agreement, as the case may be, in
exchange for its Partnership Units and Partnership Interest set forth in
Exhibit A.
B. The Partners shall own Partnership Units in the amounts
set forth in Exhibit A and shall have Partnership Interests in the Partnership
as set forth in Exhibit A, which Partnership Units and Partnership Interests
shall be adjusted in Exhibit A from time to time by the General Partner to the
extent necessary to reflect accurately the exercise of Exchange Rights, Capital
Contributions, transfers of Partnership Interests, admissions of Additional
Limited Partners or Employee Limited Partners, or similar events. Except as
provided in Section 10.5, or as a result of directly paying any Partnership
debt, the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership.
C. The interest of each Limited Partner in Partnership Units
may be evidenced by one or more certificates in such form as the General Partner
may from time to time prescribe. Upon surrender to the General Partner of a
certificate evidencing the ownership of Partnership Units accompanied by proper
evidence of authority to transfer, the General Partner shall cancel the old
certificate, issue a new certificate to the Person entitled thereto and record
the transaction upon its books. The transfer of Partnership Units may be
effectuated only in connection with a transfer of a Limited Partnership Interest
pursuant to the terms of Section 8.6 or Article 11 hereof. The General Partner
may issue a new certificate or certificates in place of any certificate or
certificates previously issued, which previously-issued certificate or
certificates are alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the owner claiming the certificate or
certificates to be lost, stolen or destroyed. When issuing such new certificate
or certificates, the General Partner may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or its legal representative, to give the
Partnership a bond in such sum as the General Partner may direct as indemnity
against any claim that may be made against the Partnership with respect to the
certificate or certificates alleged to have been lost, stolen or destroyed.
Section 4.2 Additional Funding
A. If the General Partner determines that it is in the best
interests of the Partnership to provide for additional Partnership funds
("Additional Funds") for any Partnership purpose in excess of any other funds
determined by the General Partner to be available to the
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Partnership, the General Partner (i) may cause the Partnership to obtain such
funds from outside borrowings, (ii) may cause the Partnership to obtain such
funds by the admission of Additional Limited Partners pursuant to Section 4.3
hereof, or (iii) may elect to have Crescent Equities provide such Additional
Funds to the Partnership. On any date that Crescent Equities provides Additional
Funds to the Partnership (the "Funding Date"):
(1) to the extent the General Partner elects to borrow all or
any portion of the Additional Funds through a Funding
Loan, the General Partner shall cause Crescent Equities
to lend (the "Crescent Loan") to the Partnership the
Funding Loan Proceeds on comparable terms and conditions,
including interest rate, repayment schedule and costs and
expenses, as shall be applicable with respect to or
incurred in connection with the Funding Loan; or
(2) to the extent the General Partner does not elect to
borrow all or any portion of the Additional Funds by
entering into a Funding Loan, the General Partner shall
cause Crescent Equities to contribute to the Partnership
as an additional Capital Contribution the amount of the
Additional Funds not loaned to the Partnership as a
Crescent Loan (the "Contributed Funds") (hereinafter,
each Funding Date on which Crescent Equities so
contributes Contributed Funds pursuant to this
subparagraph (2) is referred to as an "Adjustment Date").
The Crescent Group may raise such Contributed Funds
through a private placement or public offering of REIT
Shares or otherwise. The Partnership shall assume or pay
the expenses, including any applicable underwriting
discounts incurred by the Crescent Group in connection
with raising such Contributed Funds through a private
placement or public offering of its securities or
otherwise (i.e., Crescent Equities shall be treated as
contributing to the Partnership as Contributed Funds the
gross amount of funds raised, and the Partnership shall
be charged with the cost of raising such funds, with such
cost allocated to all of the Partners in accordance with
Article VI of the Agreement).
B. Effective on each Adjustment Date, Crescent Equities
shall receive an additional Partnership Interest (and the Partnership Interest
of each Limited Partner other than Crescent Equities shall be reduced) such
that:
(1) the Partnership Interest of each Limited Partner not
owning Partnership Units (other than Crescent Equities) shall be equal to a
fraction, the numerator of which is equal to the Deemed Partnership Interest
Value of such Limited Partner (computed as of the Business Day immediately
preceding the Adjustment Date) and the denominator of which is equal to the sum
of (i) the Deemed Value of the Partnership (computed as of the Business Day
immediately preceding the Adjustment Date) and (ii) the amount of Contributed
Funds contributed by Crescent Equities on such Adjustment Date;
(2) the combined Partnership Interest of Crescent Equities
and the General Partner shall be equal to a fraction, the numerator of which is
equal to the sum of (i) the
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combined Deemed Partnership Interest Value of Crescent Equities and the General
Partner (computed as of the Business Day immediately preceding the Adjustment
Date) and (ii) the amount of the Contributed Funds contributed by Crescent
Equities on such Adjustment Date and the denominator of which is equal to the
sum of (x) the Deemed Value of the Partnership (computed as of the Business Day
immediately preceding the Adjustment Date) and (y) the amount of the Contributed
Funds contributed by Crescent Equities on such Adjustment Date. The Partnership
Interest of the General Partner shall remain one percent (1%), and the
Partnership Interest of Crescent Equities shall be equal to the combined
Partnership Interest determined in clause (2) of the preceding sentence, reduced
by one percentage point (1%); and
(3) the Partnership Interest of each Limited Partner owning
Partnership Units shall be equal to the product of the following: (i) the
difference obtained from subtracting (x) the sum of the combined Partnership
Interest of Crescent Equities and the General Partner as calculated in Section
4.2.B(2) hereof, plus the aggregate Non-Unitholder Partnership Interests as
calculated in Section 4.2.B(1) hereof, from (y) one hundred percent (100%), and
(ii) a fraction, the numerator of which is equal to the number of Partnership
Units held by such Limited Partner on such Adjustment Date, and the denominator
of which is equal to the total number of Partnership Units held by all Limited
Partners on such Adjustment Date.
The General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the increase in the Partnership
Interest of Crescent Equities and the corresponding reduction of the Partnership
Interests of the other Limited Partners in accordance with the provisions of
this Section 4.2. The number of Partnership Units owned by the Limited Partners
and Assignees shall not be decreased in connection with any additional
contribution of funds to the Partnership by Crescent Equities pursuant to this
Section 4.2. Notwithstanding anything to the contrary contained in this
Agreement, for purposes of calculating the "Deemed Value of the Partnership" and
the "Deemed Partnership Interest Value" under this Section 4.2.B with respect to
cash amounts raised by Crescent in a private placement or public offering of
REIT Shares and contributed to the Partnership as Contributed Funds, the "Value"
of a REIT Share shall be the gross offering price (prior to deduction of any
expenses, including without limitation selling commissions or underwriting
discounts) per REIT Share sold in the private placement or public offering.
C. The Partners hereby acknowledge and agree that any Additional
Funds provided by the Crescent Group (through Crescent Equities) to the
Partnership pursuant to this Section 4.2 may be in the form of real property or
an interest therein rather than cash. In the event that real property or an
interest therein is contributed by Crescent Equities to the Partnership pursuant
to this Section 4.2:
(1) to the extent that the consideration given in exchange for
such real property or interest therein is in the form of indebtedness, Crescent
Equities shall be deemed to have made a Crescent Loan to the Partnership
pursuant to Section 4.2.A(1) hereof in an amount equal to the amount of such
indebtedness; and
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(2) to the extent that the consideration given in exchange for
such real property or interest therein is in the form of cash or REIT Shares,
(i) Crescent Equities shall be deemed to have contributed Contributed Funds to
the Partnership pursuant to Section 4.2.A(2) hereof in an amount equal to the
amount of cash or the Value (computed as of the Business Day immediately
preceding the date on which such real property or interest therein is
contributed to the Partnership) of the REIT Shares given as consideration, and
(ii) the Partnership Interests of the Limited Partners shall be adjusted as set
forth in Section 4.2.B hereof.
To the extent that the consideration given for such real property or interest
therein is New Securities, the provisions of Section 8.7.C hereof shall apply to
the contribution of the real property or interest therein by Crescent Equities
to the Partnership.
Section 4.3 Issuance of Additional Partnership Interests
At any time after the date hereof, without the consent of any Partner,
but subject to the provisions of Section 12.2 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests is
in the best interests of the Partnership, cause the Partnership to issue
Partnership Interests to and admit as a limited partner in the Partnership, any
Person (the "Additional Limited Partner") in exchange for the contribution by
such Person of cash and/or property in such amounts as is determined appropriate
by the General Partner to further the purposes of the Partnership under Section
3.1 hereof. In the event that an Additional Limited Partner is admitted to the
Partnership pursuant to this Section 4.3:
(1) if the Additional Limited Partner does not receive any
Partnership Units in connection with the receipt of his
or its Partnership Interest, the Partnership Interest of
such Additional Limited Partner shall be equal to a
fraction, the numerator of which is equal to the total
dollar amount of the cash contributed and/or the Net
Asset Value of the property contributed by the Additional
Limited Partner as of the date of contribution to the
Partnership (the "Contribution Date") and the denominator
of which is equal to the sum of (i) the Deemed Value of
the Partnership (computed as of the Business Day
immediately preceding the Contribution Date) and (ii) the
total dollar amount of the cash contributed and/or the
Net Asset Value of the property contributed by the
Additional Partner as of the Contribution Date;
(2) the Partnership Interest of Crescent Equities shall be
reduced, as of the Contribution Date, such that the
combined Partnership Interest of Crescent Equities and
the General Partner shall be equal to a fraction, the
numerator of which is equal to the combined Deemed
Partnership Interest Value of Crescent Equities and the
General Partner (computed as of the Business Day
immediately preceding the Contribution Date) and the
denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership (computed as of the
Business Day immediately preceding the Contribution Date)
and (ii) the total dollar amount of the cash contributed
and/or the Net Asset Value of the property contributed by
the Additional Limited Partner as of
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the Contribution Date (with the Partnership Interest of
the General Partner remaining at one percent (1%), and
the Partnership Interest of Crescent Equities equal to
the combined Partnership Interest determined above in
this Section 4.3(2), reduced by one percentage point
(1%));
(3) the Partnership Interest of each existing Limited Partner
not owning Partnership Units (other than Crescent
Equities) shall be reduced, as of the Contribution Date,
such that the Partnership Interest of each such Limited
Partner shall be equal to a fraction, the numerator of
which is equal to the Deemed Partnership Interest Value
of such Limited Partner (computed as of the Business Day
immediately preceding the Contribution Date) and the
denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership (computed as of the
Business Day immediately preceding the Contribution Date)
and (ii) the total dollar amount of the cash contributed
and/or the Net Asset Value of the property contributed by
the Additional Limited Partner as of the Contribution
Date; and
(4) The Partnership Interest of each existing Limited Partner
owning Partnership Units and of the Additional Limited
Partner, if such Additional Partner receives Partnership
Units in connection with the receipt of his or its
Partnership Interest, shall be equal to the product of
the following: (i) the difference obtained from
subtracting (x) the sum of the combined Partnership
Interest of Crescent Equities and the General Partner as
calculated in Section 4.3(2) hereof, plus the aggregate
Non-Unitholder Partnership Interests as calculated in
Sections 4.2(1) and (3) hereof, from (y) one hundred
percent (100%), and (ii) a fraction, the numerator of
which is equal to the number of Partnership Units held by
such Limited Partner on such Contribution Date, and the
denominator of which is equal to the total number of
Partnership Units held by all Limited Partners (including
the Additional Limited Partner) on such Contribution
Date.
The General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the admission of any Additional
Limited Partner and any reduction of the Partnership Interests of the other
Limited Partners in accordance with the provisions of this Section 4.3.
The number of Partnership Units owned by the Limited Partners and
Assignees shall not be decreased in connection with any admission of an
Additional Limited Partner pursuant to this Section 4.3. The General Partner may
(but is not required to) grant to an Additional Limited Partner Partnership
Units, which Partnership Units shall enable the Additional Limited Partner to
participate in the Exchange Rights, upon such terms and conditions as are deemed
appropriate by the General Partner. Notwithstanding anything to the contrary
contained in this Agreement, if the value of the Partnership Units granted to an
Additional Limited Partner is determined based on the average of the "closing
price" of a REIT Share for a period of time other than the ten (10)-day period
specified in the Article I definition of "Value" (including, without limitation,
a
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determination based on the "closing price" of a REIT Share for the Trading Day
immediately preceding the admission of such Additional Limited Partner), then
such other time period shall be used in calculating the "Value" of a REIT Share
for purposes of calculating the "Deemed Value of the Partnership" and the
"Deemed Partnership Interest Value" under this Section 4.3 with respect to the
admission of such Additional Limited Partner.
Section 4.4 No Preemptive Rights
Except as otherwise set forth in Section 4.2.A, no Person shall have
any preemptive, preferential or other similar right with respect to the making
of additional Capital Contributions or loans to the Partnership.
Section 4.5 No Interest on Capital
No Partner shall be entitled to interest on its Capital Contribution or
its Capital Account.
Section 4.6 Stock Incentive Plans
A. Grants of REIT Shares. If grants of REIT Shares are made
in connection with a Stock Incentive Plan,
(1) Crescent Equities shall, as soon as practicable after such
grant, contribute to the capital of the Partnership an amount equal to the price
(if any) paid to Crescent Equities by the party receiving the grant of REIT
Shares;
(2) Crescent Equities shall, as of the date on which the grant
of REIT Shares is made, be deemed to have contributed to the Partnership as
Contributed Funds pursuant to Section 4.2.A(2) hereof an amount equal to the
fair market value (computed using the "closing price" (as such term is defined
in the definition of the term "Value" in Article I hereof) as of the date on
which the grant of REIT Shares is made) of the REIT Shares delivered by Crescent
Equities to such party; and
(3) the General Partner's Partnership Interest shall remain
unchanged, and the Partnership Interests of Crescent Equities and the other
Limited Partners shall be adjusted as set forth in Section 4.2, based on the
amount deemed to be contributed, determined pursuant to Section 4.6.A(2);
provided that, for purposes of calculating the "Deemed Value of the Partnership"
and the "Deemed Partnership Interest Value" under Section 4.2, the "Value" of a
REIT Share shall be the "closing price" (as such term is defined in the
definition of the term "Value" in Article I hereof) of a REIT Share as of the
date on which the grant of REIT Shares is made.
B. Exercise of Stock Options. If stock options granted in connection
with a Stock Incentive Plan are exercised:
(1) Crescent Equities shall, as soon as practicable after such
exercise, contribute to the capital of the Partnership an amount equal to the
exercise price paid to Crescent Equities by the exercising party;
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(2) Crescent Equities shall, as of the date on which the
purchase of the REIT Shares is consummated by such exercising party, be deemed
to have contributed to the Partnership as Contributed Funds pursuant to Section
4.2.A(2) hereof an amount equal to the fair market value (computed using the
"closing price" (as such term is defined in the definition of "Value" in Article
I hereof) as of the date on which such purchase of REIT Shares is consummated by
such exercising party) of the REIT Shares delivered by Crescent Equities to such
exercising party; and
(3) the General Partner's Partnership Interest shall remain
unchanged, and the Partnership Interests of Crescent Equities and the other
Limited Partners shall be adjusted as set forth in Section 4.2, based on the
amount deemed to be contributed, determined pursuant to Section 4.6.B(2);
provided that, for purposes of calculating the "Deemed Value of the Partnership"
and the "Deemed Partnership Interest Value" under Section 4.2, the "Value" of a
REIT Share shall be the "closing price" (as such term is defined in the
definition of the term "Value" in Article I hereof) of a REIT Share as of the
date on which the purchase of REIT Shares is consummated by the exercising
party.
Section 4.7 Other Equity Compensation Plans
A. The Partnership may adopt a compensation plan for its
employees, agents or consultants pursuant to which the Partnership may grant
Limited Partnership Interests (including Partnership Units, which Partnership
Units shall enable the Limited Partner to participate in the Exchange Rights),
or options to acquire Limited Partnership Interests (including Partnership
Units, which Partnership Units shall enable the Limited Partner to participate
in the Exchange Rights), to one or more of its employees, agents or consultants
upon such terms and conditions as may be deemed necessary or appropriate by the
General Partner.
B. The Management Company may adopt a compensation plan for
its employees, agents or consultants pursuant to which the Management Company
may grant Limited Partnership Interests (including Partnership Units, which
Partnership Units shall enable the Limited Partner to participate in the
Exchange Rights), or options to acquire Limited Partnership Interests (including
Partnership Units, which Partnership Units shall enable the Limited Partner to
participate in the Exchange Rights), to one or more of its employees, agents or
consultants. The Partnership may sell Limited Partnership Interests (including
Partnership Units, which Partnership Units shall enable the Limited Partner to
participate in the Exchange Rights) to the Management Company for delivery to
its employees, agents or consultants. The price at which the Partnership shall
sell such Partnership Interests to the Management Company shall be the fair
market value of such Partnership Interests, as determined by the General Partner
in its reasonable discretion.
C. Upon any admission of an employee, agent or consultant of
the Partnership or the Management Company as an additional Limited Partner (an
"Employee Limited Partner") pursuant to Section 4.7.A or 4.7.B above, the
Partnership Interests of the other Partners shall be diluted, on a pro rata
basis, in proportion to their respective Partnership Interests, to reflect the
admission of the Employee Limited Partner. Notwithstanding the foregoing, the
Partnership Interest of the General Partner shall not be diluted upon the
admission of the Employee Limited Partner; any dilution that would otherwise
occur with respect to the Partnership Interest of the
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General Partner in accordance with the terms of the preceding sentence shall be
allocated instead to Crescent Equities. The number of Partnership Units owned by
the Limited Partners and Assignees shall not be decreased in connection with any
admission of an Employee Limited Partner.
D. In addition to the compensation plans described in
Sections 4.6, 4.7.A and 4.7.B hereof, the General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans or other
incentive compensation plans (including, without limitation, plans granting REIT
Shares or options to purchase REIT Shares, plans granting Partnership Interests
(including Partnership Units) or options to purchase Partnership Interests
(including Partnership Units), "phantom" equity plans or other plans in which
compensation is tied to revenue or income amounts, or based on increases in the
market value of equity ownership interests) for the benefit of employees, agents
or consultants of any member of the Crescent Group, the Partnership, the
Management Company, the Subsidiary Development Corporation(s) or any Affiliate
of the foregoing in respect of services performed, directly or indirectly, for
the benefit of the Crescent Group, the Partnership, the Management Company or
the Subsidiary Development Corporation(s).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Initial Partnership Distributions
Upon execution of the First Amended and Restated Agreement, the
Partnership made (i) a distribution of one million five hundred thousand dollars
($1,500,000) to RainAm Investors, and (ii) a distribution in an amount equal to
the Amstar Required Cash Payment to Amstar. In addition, the Partnership
returned to the General Partner, CRE Limited Partner, Inc. and Gerald W. Haddock
the initial capital contributions of one dollar ($1), seventy-four dollars ($74)
and twenty-five dollars ($25), respectively, previously made by such Persons to
the Partnership.
Section 5.2 Requirement and Characterization of Distributions
The General Partner shall cause the Partnership to distribute quarterly
all, or such portion deemed appropriate by the General Partner, of Available
Cash generated by the Partnership during such quarter to the Partners who are
Partners on the Partnership Record Date with respect to such quarter in
accordance with their respective Partnership Interests on such Partnership
Record Date. The General Partner shall take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with the
qualification of Crescent Equities as a REIT, to distribute Available Cash to
the Limited Partners so as to preclude any such distribution or portion thereof
from being treated as part of a sale of property to the Partnership by a Limited
Partner under Section 707 of the Code or the Regulations thereunder; provided
that the General Partner and the Partnership shall not have any liability to a
Limited Partner under any circumstances as a result of any distribution to a
Limited Partner being so treated. Notwithstanding the foregoing, the General
Partner shall use its best efforts to cause the Partnership to distribute
sufficient amounts to enable Crescent Equities to pay shareholder dividends that
will (i) allow Crescent Equities to
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achieve and maintain qualification as a REIT, and (ii) avoid the imposition of
any additional taxes under Section 857 or Section 4981 of the Code.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to a Partner shall be treated as amounts distributed to
such Partner pursuant to Section 5.2 for all purposes under this Agreement.
Section 5.4 Distributions In Kind
Pursuant to Section 17-605 of the Act, the General Partner has the
authority to make in-kind distributions of assets to the Partners. Any such
distributions in kind shall be distributed among the Partners in the same manner
as set forth in Section 5.2 with respect to Available Cash (provided that
distributions in kind made after commencement of the liquidation of the
Partnership shall be distributed to the Partners in accordance with Section
13.2). The General Partner shall determine the fair market value of any assets
distributed in kind using such reasonable method of valuation as it may adopt.
Section 5.5 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to
the General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Partnership Interests.
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Losses shall be allocated to the
Partners in accordance with their
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respective Partnership Interests, provided that Net Losses shall not be
allocated to any Limited Partner pursuant to this Section 6.1.B to the extent
that such allocation would cause such Limited Partner to have an Adjusted
Capital Account Deficit at the end of such taxable year (or increase any
existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. Allocations to Reflect Issuance of New Interests. In the
event that the Partnership issues New Interests to Crescent Equities pursuant to
Section 8.7.C, the General Partner shall make such revisions to Sections 6.1.A
and B above as it determines are necessary to reflect the issuance of such New
Interests.
Section 6.2 Allocation of Nonrecourse Debt
For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with their
respective Partnership Interests.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things and perform all acts specified in this
Agreement or otherwise deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all Partnership powers set forth in
Section 3.2 hereof and to effectuate the Partnership purposes set forth in
Section 3.1 hereof (to the extent consistent with allowing Crescent Equities at
all times to qualify as a REIT, unless Crescent Equities voluntarily terminates
its REIT status pursuant to the Declaration of Trust), including, without
limitation, to:
(1) acquire interests in real or personal property of any
kind and type, and any and all kinds of interests
therein, and determine the manner in which title thereto
is to be held; manage, insure against loss, protect and
subdivide any such property; improve, develop or
redevelop any such property; dedicate for public use,
vacate any such property subdivisions or parts thereof,
or resubdivide such property or any part thereof; lease,
renew or extend leases, amend, change or modify the terms
and provisions of leases, and grant options to lease and
options to renew leases and options to purchase;
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partition, sell or otherwise dispose of all or any
portion of such property; exchange all or any portion of
such property for other real or personal property; grant
easements or charges of any kind; release, convey or
assign any right, title or interest in or about or
easement appurtenant to such property or any part
thereof; construct and reconstruct, remodel, alter,
repair, add to or take from buildings on such property;
insure any Person having an interest in or responsibility
for the care, management or repair of such property;
direct the trustee of any land trust to mortgage, lease,
convey or contract to convey the real estate held in such
land trust or to execute and deliver deeds, mortgages,
notes, and any and all documents pertaining to the
property subject to such land trust or in any matter
regarding such trust; and execute assignments of all or
any part of the beneficial interest in such land trust;
(2) employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed
necessary by the General Partner for the operation and
management of the Partnership business, including, but
not limited to, employees, including employees having
such titles as the General Partner may from time to time
specify, such as "chairman of the board," "chief
executive officer," chief operating officer,"
"president," "vice president," "secretary," "treasurer";
contractors; subcontractors; engineers; architects;
surveyors; mechanics; consultants; accountants;
attorneys; insurance brokers; real estate brokers; and
others;
(3) make expenditures, borrow money, procure loans and
advances from any Person for Partnership purposes
(including, without limitation, borrow money to permit
the Partnership to make distributions in such amounts as
will permit Crescent Equities (so long as Crescent
Equities elects to qualify as a REIT) to avoid the
payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the
Code) and to make distributions to its shareholders
sufficient to permit Crescent Equities to maintain REIT
status) and apply for and secure, from any Person, credit
or accommodations; contract, assume or guarantee
liabilities and obligations, direct or contingent and of
every kind and nature with or without security; and
repay, prepay, discharge, settle, adjust, compromise, or
liquidate any such loan, advance, credit, obligation or
liability;
(4) pledge, hypothecate, mortgage, assign, deposit, deliver,
enter into sale and leaseback arrangements or otherwise
give as security or as additional or substitute security,
any and all Partnership property, tangible or intangible,
including, but not limited to, real estate and beneficial
interests in land trusts, and make substitutions thereof,
and receive any proceeds thereof upon the release or
surrender thereof; sign, execute and deliver any and all
assignments, deeds and other contracts and instruments in
writing; authorize, give, make, procure, accept and
receive moneys, payments, property,
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notices, demands, vouchers, receipts, releases,
compromises and adjustments; waive notices, demands,
protests and authorize and execute waivers of every kind
and nature; negotiate, execute, deliver and receive
written agreements, undertakings and instruments of
every kind and nature; give oral instructions and make
oral agreements; and generally to do any and all other
acts and things incidental to any of the foregoing;
(5) acquire and enter into any contract of insurance which
the General Partner deems necessary or appropriate for
the protection of the Partnership and the Partners, for
the conservation of the Partnership's assets or for any
purpose convenient or beneficial to the Partnership;
(6) conduct any and all banking transactions on behalf of the
Partnership; adjust and settle checking, savings, and
other accounts with such institutions as the General
Partner shall deem appropriate; draw, sign, execute,
accept, endorse, guarantee, deliver, receive and pay any
checks, drafts, bills of exchange, acceptances, notes,
obligations, undertakings and other instruments for or
relating to the payment of money in, into, or from any
account in the Partnership's name; execute, procure,
consent to and authorize extensions and renewals of the
same; and make deposits and withdraw the same and
negotiate or discount commercial paper, acceptances,
negotiable instruments, bills of exchange and dollar
drafts;
(7) demand, sue for, receive, and otherwise take steps to
collect or recover all debts, rents, proceeds, interests,
dividends, goods, chattels, income from property, damages
and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership
from any Person; commence, prosecute or enforce, or
defend, answer or oppose, contest and abandon all legal
proceedings in which the Partnership is or may hereafter
be interested; settle, compromise or submit to
arbitration any accounts, debts, claims, disputes and
matters which may arise between the Partnership and any
other Person and grant an extension of time for the
payment or satisfaction thereof on any terms, with or
without security; and indemnify any Indemnitees against
liabilities and contingencies in accordance with the
provisions of Section 7.7 of this Agreement or otherwise;
(8) take all reasonable measures necessary to insure
compliance by the Partnership with applicable laws, and
other contractual obligations and arrangements entered
into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic
reports as required to lenders; and use all due diligence
to insure that the Partnership is in compliance with its
contractual obligations;
(9) form, acquire a debt or equity ownership interest in, and
contribute or loan property to, any further corporations,
limited or general partnerships, joint
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ventures, real estate investment trusts, or other
entities upon such terms and conditions as General
Partner deems appropriate;
(10) invest assets of the Partnership on a temporary basis in
commercial paper, government securities, checking or
savings accounts, money market funds, or any other highly
liquid investments deemed appropriate by the General
Partner; make loans, including participating or
convertible loans, to other Persons (including, without
limitation, the Subsidiary Development Corporation(s) and
the Management Company) upon such terms and conditions,
and for such security, as deemed appropriate by the
General Partner; repay obligations of any Person in which
the Partnership has an equity investment (including,
without limitation, the Subsidiary Development
Corporation(s) and the Management Company); and purchase
existing debt obligations held by other Persons,
including participating or convertible debt obligations,
upon such terms and conditions, and for such security, as
deemed appropriate by the General Partner;
(11) negotiate, execute and perform any contracts, conveyance
or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's
powers under this Agreement;
(12) distribute Partnership cash or other assets in accordance
with this Agreement;
(13) maintain the Partnership's books and records;
(14) prepare and deliver all financial, regulatory, tax and
other filings or reports to governmental or other
agencies having jurisdiction over the Partnership; and
(15) take any action in connection with the Partnership's
direct or indirect investment in any other Person.
B. Each of the Limited Partners agrees that the General
Partner is authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the Partners, notwithstanding any other provisions of
this Agreement (except as provided in Section 7.3), the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
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C. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain working capital
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the
General Partner may, but shall be under no obligation to, take into account the
tax consequences to any Partner of any action taken by it. The General Partner
and the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
To the extent that such action is determined by the General Partner to
be necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate and do all things necessary or appropriate to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other jurisdiction in which the Partnership may elect to do business or
own property. Subject to the terms of Section 8.5.A(3) hereof, the General
Partner shall not be required, before or after filing, to deliver or mail a copy
of the Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other jurisdiction in which the Partnership may elect to do
business or own property.
Section 7.3 Restrictions on General Partner's Authority
The General Partner shall not have the authority to:
A. take any action in contravention of this Agreement or
which would make it impossible to carry on the ordinary business of the
Partnership;
B. possess Partnership property, or assign any rights in
specific Partnership property, for other than a Partnership purpose;
C. do any act in contravention of applicable law; or
D. perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability except
as provided herein or under the Act.
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Section 7.4 Reimbursement of the Crescent Group
A. Except as provided in this Section 7.4 and elsewhere in
this Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments, and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
B. The Crescent Group shall be reimbursed on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses the Crescent Group incurs relating to the
ownership and operation of, or for the benefit of, the Partnership, provided
that the amount of any such reimbursement shall be reduced by any interest paid
to the Crescent Group with respect to bank accounts or other instruments held by
it as permitted in Section 7.5. The Limited Partners acknowledge that the
Crescent Group's sole business is the ownership of interests in and operation of
the Partnership, and that all of the Crescent Group's operating expenses
(including, without limitation, costs and expenses relating to the formation and
continuity of existence of the Crescent Group, costs and expenses associated
with compliance with the periodic reporting requirements and all other rules and
regulations of the SEC or any other federal, state or local regulatory body,
salaries payable to officers and employees of the Crescent Group, fees and
expenses payable to directors of the Crescent Group, and all other operating or
administrative costs of the Crescent Group) are incurred for the benefit of the
Partnership and shall be reimbursed by the Partnership. Such reimbursements
shall be in addition to any reimbursement to the Crescent Group as a result of
indemnification pursuant to Section 7.7 hereof. If and to the extent any
reimbursements to the Crescent Group are determined for federal income tax
purposes not to constitute payment of expenses of the Partnership, the amounts
so determined shall constitute guaranteed payments within the meaning of Section
707(c) of the Code, shall be treated consistently therewith by the Partnership
and all Partners, and shall not be treated as distributions for purposes of
computing the Partners' Capital Accounts.
Section 7.5 Outside Activities of the Crescent Group
The Crescent Group shall not directly or indirectly enter into or
conduct any business, other than in connection with the ownership, acquisition
and disposition of Partnership Interests and the management of the business of
the Partnership, and such activities as are incidental thereto. The Crescent
Group shall not own any assets other than Partnership Interests in the
Partnership, and such bank accounts or similar instruments as it deems necessary
to carry out its responsibilities contemplated under this Agreement and the
Declaration of Trust. The Crescent Group shall not borrow funds for the purpose
of making distributions to the shareholders of any member of the Crescent Group
unless such borrowing is effectuated through the Partnership. Notwithstanding
anything to the contrary contained above in this Section 7.5, Crescent Equities
may form additional direct or indirect wholly owned subsidiary entities to serve
as general partners of partnerships or managing members of limited liability
companies in which the Partnership also owns a direct or indirect ownership
interest, provided that (i) the General Partner determines that the formation of
the subsidiary entities is necessary or appropriate to further the business
objectives of the Partnership and (ii) the subsidiary entities (a) make capital
contributions in exchange for their ownership interests in the partnerships and
limited liability companies on a pro
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rata basis with the Partnership and (b) do not own more than one percent (1%) of
the total ownership interests in any such partnership or limited liability
company.
Section 7.6 Contracts with Affiliates
A. The Partnership may contribute assets and loan funds to
joint ventures, other partnerships, corporations or other business entities in
which it is or thereby becomes a participant upon such terms and subject to such
conditions consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, deems advisable. The foregoing
authority shall not create any right or benefit in favor of any such other
business entities.
B. Except as expressly permitted by this Agreement, no
Partner or Affiliate of a Partner shall sell, transfer or convey any property
to, purchase any property from, lend or borrow funds, provide services to, or
enter into any other transaction with the Partnership, directly or indirectly,
except pursuant to transactions that are on terms that are fair and reasonable
and no less favorable to the Partnership than could be obtained from an
unaffiliated third party.
C. The General Partner is expressly authorized to enter into,
in the name and on behalf of the Partnership, noncompetition agreements and
other conflict avoidance agreements for its benefit with various Affiliates of
the Partnership and its Partners, on such terms as the General Partner, in its
sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. The Partnership shall indemnify each Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys' fees and other legal fees
and expenses), judgments, fines, settlements, and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the
Partnership as set forth in this Agreement in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceedings and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise, for any indebtedness of the Partnership or any subsidiary
entity (including, without limitation, any indebtedness which the Partnership or
any subsidiary entity has assumed or taken subject to), and the General Partner
is hereby authorized and empowered, on behalf of the Partnership, to enter into
one or more indemnity agreements consistent with the provisions of this Section
7.7 in favor of any Indemnitee having or potentially having liability for any
such indebtedness. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7.A. The termination
of any proceeding by conviction of an Indemnitee or upon a plea
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of nolo contendre or its equivalent by an Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A with respect to the subject matter of such proceeding.
B. The right to indemnification conferred in this Section 7.7
shall be a contract right and shall include the right of each Indemnitee to be
paid by the Partnership the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the Partnership of (i) a written affirmation of the Indemnitee
of his or her good faith belief that the standard of conduct necessary for
indemnification by the Partnership pursuant to this Section 7.7 has been met,
and (ii) a written undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced if it shall ultimately be determined that the standard of
conduct has not been met.
C. The indemnification provided pursuant to this Section 7.7
shall continue as to a Person who has ceased to have the status of an Indemnitee
pursuant to clause (i) of the definition of "Indemnitee" set forth in Article I
hereof and shall inure to the benefit of the heirs, successors, assigns,
executors and administrators of any such Person, or to a Person whose status as
an Indemnitee was originally established pursuant to clause (ii) of such
definition and was later terminated for any reason other than the affirmative
decision of the General Partner to terminate such status; provided, however,
that except as provided in Section 7.7.D with respect to proceedings seeking to
enforce rights to indemnification, the Partnership shall indemnify any such
Person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such Person only if such proceeding (or part thereof) was
authorized by the General Partner.
D. If a claim under Sections 7.7.A, 7.7.B or 7.7.C is not
paid in full by the Partnership within thirty (30) calendar days after a written
claim has been received by the Partnership, the Indemnitee making such claim may
at any time thereafter (but prior to payment of the claim) bring suit against
the Partnership to recover the unpaid amount of the claim and, if successful, in
whole or in part, such Indemnitee shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Partnership) that the Indemnitee has not met
the standards of conduct set forth above which make it permissible for the
Partnership to indemnify the Indemnitee for the amount claimed, but the burden
of proving such defense shall be on the Partnership. Neither the failure of the
Partnership to have made a determination prior to the commencement of such
action that indemnification of the Indemnitee is proper in the circumstances
because he or she has met the applicable standard of conduct set forth herein
nor an actual determination by the Partnership that the Indemnitee has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct.
E. Following any "change in control" of Crescent Equities of
the type required to be reported under Item 1 of Form 8-K promulgated under the
Exchange Act, any
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determination as to entitlement to indemnification shall be made by independent
legal counsel selected by the Indemnitee, which such independent legal counsel
shall be retained by the General Partner on behalf of the Partnership and at the
expense of the Partnership.
F. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Section 7.7 shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute or agreement, or pursuant to any
vote of the Partners, or otherwise.
G. The Partnership may purchase and maintain insurance, at
its expense, on its own behalf and on behalf of any Indemnitee and of such other
Persons as the General Partner shall determine, against any liability (including
expenses) that may be asserted against and incurred by such Person in connection
with the Partnership's activities pursuant to this Agreement, whether or not the
Partnership would have the power to indemnify such Person against such liability
under the terms of this Agreement. In addition, the Partnership may, together
with Crescent Equities, enter into indemnification agreements with one or more
of the Indemnitees pursuant to which the Partnership and Crescent Equities shall
jointly and severally agree to indemnify such Indemnitee(s) to the fullest
extent permitted by law, and advance to such Indemnitee(s) all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted.
H. Any indemnification pursuant to this Section 7.7 shall be
made only out of assets of the Partnership, and neither the General Partner nor
any Limited Partner shall have any obligation to contribute to the capital of
the Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
I. No Limited Partner shall be liable for the obligations of
the Partnership by reason of the indemnification provisions set forth in this
Agreement.
J. An Indemnitee shall not be denied indemnification in whole
or in part pursuant to this Section 7.7 because such Indemnitee has an interest
in the transaction to which the indemnification relates if the transaction
otherwise was permitted by the terms of this Agreement.
K. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns, executors and administrators,
and shall not be deemed to create any rights for the benefit of any other
Person. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for
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losses sustained or liabilities incurred as a result of errors in judgment or of
any act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the shareholders of
Crescent Equities collectively, that the General Partner is under no obligation
to consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions, and that the
General Partner shall not be liable to the Partnership or to any Partner for
monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner
set forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely, and shall be protected in
acting or refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which such
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith.
C. The General Partner shall have the right, in respect of
any of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every act
and duty which is permitted or required to be done by the General Partner
hereunder.
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D. Notwithstanding any other provision of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of Crescent Equities
to achieve or maintain qualification as a REIT or (ii) to avoid the incurring by
Crescent Equities of any taxes under Section 857 or Section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners, to the extent such approval may be necessary.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
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Section 7.12 Limited Partner Representatives
Any Limited Partner may (but shall not be required to) appoint a
representative (the "Representative") who shall have full power and authority to
exercise all rights, including consent rights, of such Limited Partner under
this Agreement. Any such appointment shall be made in a writing delivered by the
Limited Partner to the General Partner. The same Person may serve as
Representative for more than one Limited Partner. Any action taken by a
Representative on behalf of a Limited Partner shall be fully binding on such
Limited Partner. The General Partner shall be entitled to rely on the actions
taken by a Representative without further evidence of its authority or further
action by the Limited Partner who appointed such Representative. Any appointment
of a Representative shall remain effective until rescinded in a writing
delivered by the Limited Partner to the General Partner. A Limited Partner may
revoke its designation of a Representative, or replace a designated
Representative with a different Representative, at any time by delivering
written notice of such action to the General Partner.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
Section 8.2 Management of Business
No Limited Partner (other than any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in his, her or its capacity as such) shall take part in the
operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to Section 7.5 hereof, and subject to any agreements entered
into pursuant to Section 7.6.C hereof and any other agreements entered into by a
Limited Partner or its Affiliates with the Partnership, any Limited Partner and
any officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct competition with the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner. None
of the Limited Partners nor any other Person shall have the rights by virtue of
this
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Agreement or the partnership relationship established hereby in any business
ventures of any other Person, other than the Crescent Group, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital
Except pursuant to the Exchange Rights set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of his Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. No Limited
Partner shall have priority over any other Limited Partner either as to the
return of Capital Contributions or, except to the extent provided by Exhibit C
hereof or as permitted by Section 8.7.C, or otherwise expressly provided in this
Agreement, as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the Partnership's federal, state and
local income tax returns for each fiscal year;
(2) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
provided, however, that the General Partner may require,
as a condition of providing such list to the Limited
Partner, that the Limited Partner confirm in writing to
the General Partner that the names of the Partners and
other information provided by the list will be held in
strictest confidence and no distribution of the list will
be made;
(3) to obtain a copy of this Agreement and the Certificate,
and all amendments to the Agreement and the Certificate,
together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all
amendments to the Agreement and the Certificate have been
executed; and
(4) to obtain true and full information regarding the amount
of cash and a description and statement of any other
property or services contributed by each Partner and which
each Partner has agreed to contribute in the future, and
the date on which each became a Partner.
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B. The Partnership shall notify each Limited Partner in
writing of any change made to the Exchange Factor. Such written notification
shall be included with the quarterly financial statements that are sent to each
Limited Partner pursuant to Section 9.3 hereof.
C. Notwithstanding any other provision of this Section 8.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership, or (ii) the Partnership is required by law or
by agreements with unaffiliated third parties to keep confidential.
Section 8.6 Exchange Rights
A. Subject to the limitations set forth herein, in Section
8.6.B below and in Exhibit A, each Limited Partner or Assignee owning
Partnership Units shall have the right (the "Exchange Right") to require
Crescent Equities to exchange on any Specified Exchange Date all or any portion
of the Partnership Units owned by such Limited Partner or Assignee (an
"Exchanging Person") for consideration consisting of (i) an amount of cash equal
to the Cash Amount, (ii) a number of REIT Shares equal to the REIT Shares
Amount, or (iii) any combination of (i) or (ii) above, with the decision as to
the type of consideration to be given to the Exchanging Person to be made by
Crescent Equities, in its sole and absolute discretion. The Exchange Right shall
be exercised pursuant to a Notice of Exchange delivered to Crescent Equities by
the Exchanging Person, accompanied by any certificate or certificates evidencing
the Partnership Units to be exchanged. If Crescent Equities elects to pay all or
any portion of the consideration to an Exchanging Person in cash, the Crescent
Group agrees to use its best efforts to raise any required funds as quickly as
possible after receipt of the Notice of Exchange.
B. Notwithstanding anything to the contrary contained in
Section 8.6.A above, to the extent that the delivery of REIT Shares to an
Exchanging Person pursuant to Section 8.6.A above would cause the Exchanging
Person to violate the applicable "Ownership Limit" or the "Existing Holder
Limit" set forth in the Declaration of Trust, Crescent Equities may not deliver
REIT Shares to such Exchanging Person but may, in its sole and absolute
discretion, elect to either (1) pay the consideration to the Exchanging Person
in the form of the Cash Amount, or (2) refuse, in whole or in part, to accept
the Notice of Exchange.
Section 8.7 Covenants Relating to the Exchange Rights
A. Crescent Equities shall at all times reserve for issuance
such number of REIT Shares as may be necessary to enable it to issue such REIT
Shares in full satisfaction of the Exchange Rights with respect to all
Partnership Units which are from time to time outstanding.
B. As long as Crescent Equities shall be obligated to file
periodic reports under the Exchange Act, Crescent Equities shall use its best
efforts to file such reports in such manner as shall enable any recipient of
REIT Shares issued pursuant to Section 8.6 in reliance upon an
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exemption from registration under the Securities Act to continue to be eligible
to utilize Rule 144 promulgated by the SEC pursuant to the Securities Act, or
any successor rule or regulation or statute thereunder, for the resale thereof.
C. Crescent Equities shall not issue any additional REIT
Shares (other than REIT Shares contemplated by Sections 4.2 and 8.6 and REIT
Shares issued pursuant to a Stock Incentive Plan) other than on a pro rata basis
to all holders of REIT Shares. Crescent Equities shall not issue any preferred
stock or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares ("New Securities")
other than to all holders of REIT Shares unless (i) the General Partner shall
cause the Partnership to issue to Crescent Equities preferred equity ownership
interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership ("New Interests") having designations, preferences and other
rights, all such that the economic interests are substantially similar to those
of the New Securities, and (ii) Crescent Equities contributes the proceeds from
the issuance of such New Securities and from the exercise of rights contained in
such New Securities to the Partnership. The Partners hereby acknowledge and
agree that the proceeds received by Crescent Equities in exchange for the
issuance of New Securities may be cash or real property or an interest therein.
If any New Securities are subsequently converted or exchanged for REIT Shares,
(i) Crescent Equities shall, as of the date on which the conversion or exchange
is consummated, be deemed to have contributed to the Partnership as Contributed
Funds pursuant to Section 4.2.A(2) hereof an amount equal to the Value (computed
as of the Business Day immediately preceding the date on which such conversion
or exchange of the New Securities is consummated) of the REIT Shares delivered
by Crescent Equities to such holder of New Securities, and (ii) the Partnership
Interests of Crescent Equities and the other Limited Partners shall be adjusted
as set forth in Section 4.2. The number of Partnership Units held by the Limited
Partners shall not be decreased in connection with the issuance of any New
Securities or in connection with any subsequent conversion or exchange of any
New Securities for REIT Shares.
D. Each Limited Partner and Assignee covenants and agrees
that all Partnership Units delivered for exchange pursuant to Section 8.6 hereof
shall be delivered to Crescent Equities free and clear of all Liens and,
notwithstanding anything herein contained to the contrary, Crescent Equities
shall be under no obligation to acquire Partnership Units which are or may be
subject to any Liens. Each Limited Partner and Assignee further agrees that, in
the event any state or local property transfer tax is payable as a result of the
transfer of its Partnership Units to Crescent Equities, such Limited Partner or
Assignee shall assume and pay such transfer tax.
E. In the event Crescent Equities purchases REIT Shares, then
the General Partner shall cause the Partnership to purchase from Crescent
Equities a portion of its Partnership Interest on the same terms that Crescent
Equities purchased such REIT Shares.
Section 8.8 Other Matters Relating to the Exchange Rights
A. Any Partnership Units transferred to Crescent Equities in
connection with the exercise of the Exchange Rights shall be canceled.
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B. Upon any transfer of Partnership Units by an Exchanging
Person to Crescent Equities pursuant to Section 8.6 above, the Partnership
Interest of such Limited Partner or Assignee shall be decreased (and the
Partnership Interest of Crescent Equities shall be correspondingly increased) as
provided in this Section 8.8.B. The Partnership Interest of such Limited Partner
or Assignee subsequent to the exchange event shall be equal to the product of
the following: (i) the Partnership Interest of such Limited Partner or Assignee
immediately prior to the exchange event, multiplied by (ii) a fraction, the
numerator of which is the total Partnership Units owned by such Limited Partner
or Assignee immediately after the exchange event, and the denominator of which
is the total number of Partnership Units owned by such Limited Partner or
Assignee immediately prior to the exchange event. Notwithstanding the foregoing,
if a Limited Partner or Assignee owns Partnership Units and also owns
Partnership Interests issued pursuant to Section 4.3 or 4.7 above, which
Partnership Interests were not associated with Partnership Units, the portion of
the Partnership Interest of such Limited Partner or Assignee that represents the
Partnership Interests issued pursuant to Section 4.3 or 4.7 shall not be subject
to reduction pursuant to the provisions of this Section 8.8.B.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 8.5 hereof. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
As soon as practicable after the close of each fiscal quarter (other
than the last quarter of the fiscal year), the General Partner shall cause to be
mailed to each Limited Partner a quarterly report containing financial
statements of the Partnership, or of the Crescent Group if such statements are
prepared solely on a consolidated basis with the Crescent Group, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Crescent Group
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if such statements are prepared solely on a consolidated basis with the Crescent
Group, for such fiscal year, presented in accordance with generally accepted
accounting principles. The annual financial statements shall be audited by a
nationally recognized firm of independent public accountants selected by the
General Partner.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal, state and local income tax
purposes, and the delivery to the Limited Partners of all tax information
reasonably required by the Limited Partners for federal, state and local income
tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
or choose any available reporting method pursuant to the Code or state or local
tax law; provided, however, that the General Partner shall make the election
under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) or change any reporting method upon the General Partner's determination in
its sole and absolute discretion that such revocation is in the best interests
of all of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profits interest of
each of the Limited Partners, provided that such information is provided to the
Partnership by the Limited Partners.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the
tax matters partner may expressly state that such
agreement shall bind all Partners, except that such
settlement agreement shall not bind
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any Partner (i) who (within the time prescribed pursuant
to the Code and Regulations) files a statement with the
IRS providing that the tax matters partner shall not
have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice
partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required
to be taken into account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax matters partner,
to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with
the Tax Court or the United States Claims Court, or the
filing of a complaint for refund with the District Court
of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is
not allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with respect
to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any
item required to be taken into account by a Partner for
tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable
law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of Indemnitees
set forth in Section 7.7 of this Agreement shall be fully applicable to the tax
matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for
its services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder.
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Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60)-month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner, or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and, until repayment of such loan, shall succeed to
all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer," when used in this Article 11 with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which the General Partner purports
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to assign its General Partnership Interest to another Person or by which a
Limited Partner purports to assign its Limited Partnership Interest to another
Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
The term "transfer" when used in this Article 11 does not include any exchange
of Partnership Units by a Limited Partner pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of Partnership Interests of the General Partner
A. The General Partner shall not withdraw from the
Partnership or transfer all or any portion of its interest in the Partnership
except in connection with a transaction described in Section 11.2.B or 11.2.C.
B. Crescent Equities shall not engage in any merger,
consolidation or other combination with or into another Person, or sale of all
or substantially all of its assets, or any reclassification, or recapitalization
or change of outstanding REIT Shares (other than a reincorporation, a
reorganization primarily for the purpose of changing domicile or converting to
corporate form, a change in par value, or from par value to no par value, or as
a result of a subdivision or combination as described in the definition of
"Exchange Factor," which require no consent of the Limited Partners under this
Agreement) ("Transaction"), unless the Transaction either:
(1) includes a merger of the Partnership or sale of
substantially all of the assets of the Partnership, as a
result of which all Limited Partners will receive for each
Partnership Unit an amount of cash, securities, or other
property equal to the product of the Exchange Factor and
the greatest amount of cash, securities or other property
paid to a holder of one REIT Share in consideration of one
REIT Share at any time during the period from and after
the date on which the Transaction is consummated, provided
that if, in connection with the Transaction, a purchase,
tender or exchange offer shall have been made to and
accepted by the holders of more than fifty percent (50%)
of the outstanding REIT Shares, the holders of Partnership
Units shall receive the greatest amount of cash,
securities, or other property which a Limited Partner
would have received had it exercised the Exchange Right
and received REIT Shares in exchange for all of its
Partnership Units immediately prior to the expiration of
such purchase, tender or exchange offer; or
(2) provides that the Partnership shall continue as a separate
entity and grants to the Limited Partners exchange rights
with respect to the ownership interests in the new entity
that are substantially equivalent to the Exchange Rights
provided for in Section 8.6.
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C. Crescent Equities shall not transfer all or any portion
of its ownership interest in the General Partner; provided, however, that
Crescent Equities may liquidate the General Partner.
Section 11.3 Transfer of Partnership Interests of Limited Partners
Other Than Crescent Equities
A. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.3.F and 11.3.G hereof, any Limited Partner other than Crescent
Equities may freely transfer all or any portion of its Partnership Interest. Any
transferee of a Limited Partnership Interest (whether such transferee is a
Substituted Limited Partner or an Assignee) shall also become the owner of any
Partnership Units associated with such Limited Partnership Interest, and shall
be entitled to exercise the Exchange Rights with respect to such Partnership
Units in accordance with the terms and conditions set forth in Section 8.6
above.
B. If a Limited Partner is Incapacitated, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise
permitted under this Section 11.3 by a Limited Partner of its Partnership
Interest if, in the opinion of legal counsel to the Partnership, such transfer
would require filing of a registration statement under the Securities Act or
would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Interest.
D. No transfer by a Limited Partner of its Partnership
Interest may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation for federal income tax purposes, or result
in a termination of the Partnership for federal income tax purposes, (ii) in the
opinion of the legal counsel for the Partnership, it would adversely affect the
ability of Crescent Equities to continue to qualify as a REIT or subject
Crescent Equities to any additional taxes under Section 857 or Section 4981 of
the Code, or (iii) the General Partner determines that such transfer is
effectuated through or, together with other similar transfers, could result in
the creation of an "established securities market" or a "secondary market (or
the substantial equivalent thereof)" or otherwise increase the likelihood that
the Partnership would be treated as a "publicly traded partnership" within the
meaning of Code Section 7704 and the related Notice 88-75, 1988-2 C.B. 386, and
Treasury Regulations Section 1.7704-1.
E. No transfer by a Limited Partner of its Partnership
Interest may be made (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest, (ii) in violation of any provision of
any mortgage or trust deed (or the note or bond secured thereby) constituting a
Lien against an asset of the Partnership, (iii) in violation of applicable law,
or (iv) if
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such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor regulations section 2510.2-101.
F. No transfer of a Limited Partnership Interest may be made
to a lender to the Partnership or any Person who is related (within the meaning
of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, except with the consent of the General
Partner, which consent may be granted or withheld in the sole and absolute
discretion of the General Partner.
Section 11.4 Substituted Limited Partners
A. Except as otherwise expressly provided in the last
sentence of this Section 11.4.A, no Limited Partner shall have the right to
substitute a transferee as a Limited Partner in its place without the consent of
the General Partner, which consent may be granted or withheld by the General
Partner in its sole and absolute discretion. The General Partner's failure or
refusal to permit a transferee of a Limited Partnership Interest to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner. Notwithstanding anything to the contrary
contained above in this Section 11.4.A, if the transferee of a Limited
Partnership Interest is a Person listed on Exhibit E attached hereto, the
General Partner shall be required to admit such transferee as a Substituted
Limited Partner, provided that (i) the transfer of the Limited Partnership
Interest to such Person is not prohibited under the provisions of Sections
11.3.C through G hereof, and (ii) such transferee complies with the provisions
of the second sentence of Section 11.4.B hereof.
B. A transferee who has been admitted as a Substituted
Limited Partner in accordance with this Article 11 shall have all the rights and
powers and be subject to all the restrictions and liabilities of a Limited
Partner under this Agreement. The admission of any transferee as a Substituted
Limited Partner shall be subject to the transferee executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement (including, without limitation, the provisions of Section 2.4) and
such other documents or instruments as may be required to effect the admission.
C. Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Partnership Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any
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other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Interest transferred to such transferee, but
shall not be entitled to vote such Partnership Interest on any matter presented
to the Limited Partners for a vote (such Partnership Interest being deemed to
have been voted on such matter in the same proportion as all other Partnership
Interests held by the Limited Partners are voted). In the event any such
transferee desires to make a further transfer of any such Partnership Interest,
such transferee shall be subject to all of the provisions of this Article 11 to
the same extent and in the same manner as any Limited Partner desiring to make a
transfer of a Partnership Interest.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's
Partnership Interest in accordance with this Article 11 or pursuant to an
exchange of its Partnership Interest under Section 8.6.
B. Any Limited Partner who shall transfer all of its
Partnership Interest in a permitted transfer pursuant to this Article 11 or
pursuant to an exchange of all of its Partnership Units under Section 8.6 shall
cease to be a Limited Partner.
C. If any Partnership Interest is exchanged pursuant to
Section 8.6 or transferred pursuant to this Article 11 at any time other than
the end of a fiscal year, Net Income, Net Loss, each item thereof and all other
items attributable to such interest for such fiscal year shall be allocated
between the transferor Partner and the transferee Partner in the same ratio as
the number of days in such fiscal year before and after such transfer, except
that gain or loss attributable to the sale or other disposition of all or any
substantial portion of the Partnership assets or to other extraordinary
non-recurring items shall be allocated to the owner of the Partnership Interest
as of the date of closing of the sale or other disposition, or, with respect to
other extraordinary non-recurring items, the date the profit is realized or the
loss is incurred, as the case may be. Solely for purposes of the allocations to
be made under the preceding sentence (but not for any other purpose), (i) any
Partnership Interest that is exchanged or otherwise transferred prior to the
eighth day of a month shall receive allocations under the preceding sentence as
if it had been transferred on the first day of the month, (ii) any Partnership
Interest that is exchanged or otherwise transferred on or after the eighth day
of a month and prior to the twenty-third day of such month shall receive
allocations under the preceding sentence as if it had been transferred on the
fifteenth day of the month, and (iii) any Partnership Interest that is exchanged
or otherwise transferred on or after the twenty-third day of a month shall
receive allocations under the preceding sentence as if it had been transferred
on the first day of the next succeeding month. All distributions of Available
Cash with respect to which the Partnership Record Date is before the date of
such transfer or exchange shall be made to the transferor Partner, and all
distributions of Available Cash thereafter shall be made to the transferee
Partner.
Section 11.7 Acquisition of Partnership Interest by Partnership
The Partnership may acquire, by purchase, redemption or otherwise, any
Partnership Interest or other interest of a Partner in the Partnership. Any
Partnership Interest or other interest
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so acquired by the Partnership shall be deemed canceled. In the event that a
Partnership Interest is acquired by the Partnership pursuant to this Section
11.7, the Partnership Interest of each other existing Partner shall be
increased, as of the date of acquisition of such Partnership Interest by the
Partnership, such that the Partnership Interest of each Partner shall be equal
to the sum of (a) each Partner's existing Partnership Interest, plus (b) the
product obtained by multiplying (i) each Partner's existing Partnership Interest
by (ii) a fraction, the numerator of which is equal to the Partnership Interest
acquired by the Partnership and the denominator of which is equal to the result
obtained by subtracting (A) one minus (B) the Partnership Interest acquired by
the Partnership.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Substituted General Partner
A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
substituted General Partner shall be admitted to the Partnership as the General
Partner, effective simultaneously with such transfer. Any such transferee shall
carry on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the substituted General Partner executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement and such other documents or instruments as may be required to
effect the admission.
Section 12.2 Admission of Additional or Employee Limited Partners
A. After the admission to the Partnership of the Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with Section 4.3 hereof or receives a Limited
Partnership Interest pursuant to Section 4.7 hereof shall be admitted to the
Partnership as an Additional Limited Partner or Employee Limited Partner, as the
case may be, only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner or Employee
Limited Partner, as the case may be. The admission of any Person as an
Additional Limited Partner or Employee Limited Partner, as the case may be,
shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
B. If any Additional Limited Partner or Employee Limited
Partner is admitted to the Partnership at any time other than the end of a
fiscal year, Net Income, Net Loss, each item thereof and all other items for
such fiscal year shall be allocated among such Additional Limited Partner or
Employee Limited Partner and all other Partners by taking into account their
varying interests during such fiscal year in accordance with Section 706(d) of
the Code. For this purpose, Net Income, Net Loss, each item thereof and all
other items for such fiscal year shall be prorated based on the portion of the
taxable year that has elapsed prior to the admission of such Additional
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Limited Partner or Employee Limited Partner, except that gain or loss
attributable to the sale or other disposition of all or any substantial portion
of the Partnership assets or to other extraordinary non-recurring items shall be
allocated to the Partners who own Partnership Interests as of the date of
closing of the sale or other disposition, or, with respect to other
extraordinary non-recurring items, the date the profit is realized or the loss
is incurred, as the case may be. All distributions of Available Cash with
respect to which the Partnership Record Date is before the date of admission of
such Additional Limited Partner or Employee Limited Partner shall be made solely
to Partners other than the Additional Limited Partner or Employee Limited
Partner, and all distributions of Available Cash thereafter shall be made to all
Partners including the Additional Limited Partner or Employee Limited Partner.
C. Greenbrier has executed and delivered to the General
Partner the Greenbrier Agreement. The General Partner, exercising its discretion
pursuant to Section 12.2.A hereof, hereby agrees that the Greenbrier Agreement
is the sole document required to effectuate the admission to the Partnership of
Greenbrier as an Additional Limited Partner. The Greenbrier Agreement contains
an "evergreen" provision so that it shall be deemed reexecuted and delivered to
the General Partner by Greenbrier if, as and whenever it shall acquire future
installments of Partnership Units under the Consultant Unit Agreement if, prior
to the acquisition of any such future installment, it shall have exchanged all
of its Partnership Units and consequently ceased to be a Limited Partner
pursuant to Section 11.6.B hereof. Accordingly, if, as and whenever Greenbrier
receives Partnership Units pursuant to the terms of the Consultant Unit
Agreement, the General Partner shall automatically admit Greenbrier as an
Additional Limited Partner without requiring any additional documentation from
Greenbrier, even if Greenbrier is not at that time a Limited Partner of the
Partnership.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner in accordance with
the provisions of this Agreement, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners, Additional Limited Partners or Employee Limited Partners, or
by the admission of a substituted General Partner in accordance with the terms
of this Agreement. Upon the withdrawal of the General Partner, any substituted
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following ("Liquidating Events"):
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A. the expiration of its term as provided in Section 2.5
hereof;
B. an event of withdrawal of the General Partner, as defined
in the Act (other than (i) a liquidation of the General Partner into Crescent
Equities, in which event Crescent Equities shall become the General Partner, or
(ii) an event of Bankruptcy), unless within ninety (90) days after the
withdrawal remaining Partners owning a majority-in-interest of the total
Partnership Interests of the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective immediately prior
to the date of withdrawal, of a substitute General Partner;
C. an election to dissolve the Partnership made in writing by
the General Partner;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and
properties of the Partnership, unless the General Partner elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of other consideration to be received in exchange
for the assets of the Partnership (which activities shall be deemed to be part
of the winding up of the Partnership); or
F. a final and non-appealable judgment is entered by a court
with appropriate jurisdiction ruling that either Crescent Equities or the
General Partner is bankrupt or insolvent, or a final and non-appealable order
for relief is entered by a court with appropriate jurisdiction against either
Crescent Equities or the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in effect, unless prior
to the entry of such order or judgment remaining Partners owning a
majority-in-interest of the total Partnership Interests of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substituted General Partner.
Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets (subject to the provisions of Section
13.2.B below), and satisfying the claims of its creditors and Partners. No
Partner shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Partnership's business and affairs. The
General Partner (or, in the event there is no remaining General Partner, any
Person elected by Limited Partners owning a majority-in-interest of the total
Partnership Interests of the Limited Partners (the "Liquidator")) shall be
responsible for overseeing the winding up and dissolution of the Partnership and
shall take full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair market value thereof, and the proceeds
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therefrom (which may, to the extent determined by the General Partner, include
shares of stock in Crescent Equities) shall be applied and distributed in the
following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other
than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their positive Capital Account
balances, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. As part of the liquidation and winding-up of the
Partnership, a proper accounting shall be made of the Capital Account of each
Partner, including an analysis of changes to the Capital Account from the date
of the last previous accounting. Financial statements presenting such accounting
shall include a report of an independent certified public accountant selected by
the Liquidator.
D. As part of the liquidation and winding-up of the
Partnership, the Liquidator may sell Partnership assets (or assets owned by the
Subsidiary Corporations, the Management Company, or any other entity in which
the Partnership is an owner), at the best price and on the best terms and
conditions as the Liquidator in good faith believes are reasonably available at
the time.
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Section 13.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in its Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever. In
the discretion of the Liquidator, a pro rata portion of the distributions that
would otherwise be made to the General Partner and Limited Partners pursuant to
this Article 13 may be:
(i) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General Partner and Limited Partners
pursuant to this Agreement; or
(ii) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provisions of this Article 13, in the event
the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Partnership
property in kind to the General Partner and Limited Partners, who shall be
deemed to have assumed and taken such property subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership property in kind to the Partnership, which
shall be deemed to have assumed and taken such property subject to all such
liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contribution and shall have no right or power to demand or receive property
other than cash from the Partnership. No Limited Partner
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shall have priority over any other Limited Partner as to the return of its
Capital Contributions, distributions, or allocations, except as permitted by
Section 8.7.C or otherwise expressly provided in this Agreement.
Section 13.6 Documentation of Liquidation
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken. The Liquidator shall have the authority to execute and record
any and all documents or instruments required to effect the dissolution,
liquidation and termination of the Partnership.
Section 13.7 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.8 Liability of the Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership from and against any and all claims, demands, liabilities, costs,
damages and causes of action of any nature whatsoever arising out of or
incidental to the Liquidator's taking of any action authorized under or within
the scope of this Agreement; provided, however, that the Liquidator shall not be
entitled to indemnification, and shall not be held harmless, where the claim,
demand, liability, cost, damage or cause of action at issue arises out of:
(1) a matter entirely unrelated to the Liquidator's action or
conduct pursuant to the provisions of this Agreement; or
(2) the proven willful misconduct or gross negligence of the
Liquidator.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to a partition of the Partnership
property.
ARTICLE XIV
AMENDMENT OF AGREEMENT
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the
General Partner. Except as provided in Section 14.1.B or 14.1.C, a proposed
amendment shall be adopted and be
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effective as an amendment hereto if it is approved by the General Partner and
Limited Partners owning a majority-in-interest of the total Percentage Interests
of the Limited Partners.
B. Notwithstanding Section 14.1.A, the General Partner shall
have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for the
benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement
(including, without limitation, adjustments to Exhibit A
to reflect such events, as set forth in Section 4.1.B
hereof); and
(3) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any
material respect, or to cure any ambiguity, correct or
supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with
the provisions of this Agreement.
C. Notwithstanding anything to the contrary contained in
Section 14.1.A hereof, this Agreement shall not be amended without the prior
written consent of each Partner adversely affected if such amendment would (i)
convert a Limited Partner's interest in the Partnership into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii) alter
rights of the Partner to receive distributions pursuant to Article 5, or the
allocations specified in Article 6 (except as permitted pursuant to Sections
4.2, 4.3, 4.6, 4.7, 8.7 and Section 14.1.B(3) hereof), (iv) alter or modify the
Exchange Rights set forth in Section 8.6, or the right set forth in Section
11.2.C, (v) cause the termination of the Partnership prior to the time set forth
in Sections 2.5 or 13.1, or (vi) amend this Section 14.1.C. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth in Section 7.3 without the consent of all Limited Partners.
ARTICLE XV
PARTNER REPRESENTATIONS AND WARRANTIES
Section 15.1 Representations and Warranties
A. Each Partner represents and warrants severally and not
jointly, and solely on behalf of itself, to the Partnership and the other
Partners as follows:
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(1) Organization. If such Partner is not a natural person,
such Partner is duly formed and validly existing and is qualified to do business
and in good standing in the jurisdictions in which it does business.
(2) Due Authorization; Binding Agreement. This Agreement
has been duly executed and delivered by such Partner, or an authorized
representative of such Partner, and constitutes a legal, valid and binding
obligation of such Partner, enforceable against such Partner in accordance with
the terms hereof.
(3) Consents and Approvals. No consent, waiver, approval
or authorization of, or filing, registration or qualification with, or notice
to, any governmental unit or any other person is required to be made, obtained
or given by such Partner in connection with the execution, delivery and
performance of this Agreement other than consents, waivers, approvals or
authorizations which have been obtained prior to the date hereof.
(4) No Conflict with Other Documents or Violation of Law.
The execution of this Agreement by such Partner and such Partner's performance
of the transactions contemplated herein will not violate any document,
instrument, agreement, stipulation, judgment, order, or any applicable federal,
state or local law, ordinance or regulation to which such Partner is a party or
by which such Partner is bound.
B. Each Limited Partner represents and warrants that its
Limited Partnership Interest is being acquired for its own account and not with
a view to the distribution or other sale thereof, except in a transaction which
is exempt from registration under the Securities Act or registered thereunder.
Any distribution or other sale of the Limited Partnership Interest of such
Limited Partner shall be subject to the provisions of Section 11.3 hereof. Such
Limited Partner further represents and warrants to the Partnership and the other
Partners as follows:
(1) If such Limited Partner is a corporation, partnership
or a Massachusetts business trust or similar business trust, it has not been
formed for the specific purpose of acquiring the Limited Partnership Interest,
and has total assets in excess of Five Million Dollars ($5,000,000);
(2) If such Limited Partner is an individual, he or she
had an individual income in excess of $200,000 in each of the two most recent
tax years or joint income with his or her spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching at least the same
income level in the current year;
(3) Such Limited Partner is a sophisticated investor with
the capacity to protect its own interests in investments of this nature, and is
capable of evaluating the merits and risks of an investment in the Limited
Partnership Interest;
(4) Such Limited Partner has had an opportunity to ask
questions and receive answers concerning the investment in the Limited
Partnership Interest, and has all of the information deemed by it to be
necessary or appropriate to evaluate the investment in the Limited Partnership
Interest and the risks and merits thereof;
(5) Such Limited Partner is aware of the following:
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(i) An investment in the Limited Partnership Interest
is speculative, with no assurance of any income therefrom;
(ii) No federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(iii) Transferability of the Limited Partnership
Interest is restricted and, accordingly, it may not be possible for such Limited
Partner to liquidate the Limited Partnership Interest in case of emergency; and
(iv) With respect to the tax aspects of an investment
in the Limited Partnership Interest, such Limited Partner in making this
acquisition is not relying to any degree upon the advice of Crescent Equities or
the Partnership, or any Person affiliated therewith, but rather solely upon its
own legal, financial and tax advisors.
ARTICLE XVI
ARBITRATION OF DISPUTES
Section 16.1 Arbitration
Notwithstanding anything to the contrary contained in this Agreement,
all claims, disputes and controversies between the parties hereto (including,
without limitation, any claims, disputes and controversies between the
Partnership and any one or more of the Partners and any claims, disputes and
controversies among any two or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in the State of Texas, in
accordance with this Article 16 and, to the extent not inconsistent herewith,
the Expedited Procedures and Commercial Arbitration Rules of the American
Arbitration Association.
Section 16.2 Procedures
Any arbitration called for by this Article 16 shall be conducted in
accordance with the following procedures:
(1) The Partnership or any partner (the "Requesting Party")
may demand arbitration pursuant to Section 16.1 hereof at any time by giving
written notice of such demand (the "Demand Notice") to all other Partners and
(if the Requesting Party is not the Partnership) to the Partnership, which
Demand Notice shall describe in reasonable detail the nature of the claim,
dispute or controversy.
(2) Within fifteen (15) days after the giving of a Demand
Notice, the Requesting Party, on the one hand, and each of the other Partners
and/or the Partnership against whom the claim has been made or with respect to
which a dispute has arisen (collectively, the "Responding Party"), on the other
hand, shall select and designate in writing to the other party one reputable,
disinterested individual deemed competent to arbitrate the claim, dispute or
controversy (a
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"Qualified Individual") willing to act as an arbitrator of the claim, dispute or
controversy. Within fifteen (15) days after the foregoing selections have been
made, the arbitrators so selected shall jointly select a third Qualified
Individual willing to act as an arbitrator of the claim, dispute or controversy.
In the event that the two arbitrators initially selected are unable to agree on
a third arbitrator within the second fifteen (15) day period referred to above,
then, on the application of either party, the American Arbitration Association
shall promptly select and appoint a Qualified Individual to act as the third
arbitrator. The three arbitrators selected pursuant to this Section 16.2(2)
shall constitute the arbitration panel for the arbitration in question.
(3) The presentations of the parties hereto in the arbitration
proceeding shall be commenced and completed within sixty (60) days after the
selection of the arbitration panel pursuant to Section 16.2(2) above, and the
arbitration panel shall render its decision in writing within thirty (30) days
after the completion of such presentations. Any decision concurred in by any two
(2) of the arbitrators shall constitute the decision of the arbitration panel,
and unanimity shall not be required.
(4) The arbitration panel shall have the discretion to include
in its decision a direction that all or part of the attorneys' fees and costs of
any party or parties and/or the costs of such arbitration be paid by any other
party or parties. On the application of a party before or after the initial
decision of the arbitration panel, and proof of its attorneys' fees and costs,
the arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
(5) Notwithstanding anything to the contrary contained above
in this Section 16.2, if either party fails to select a Qualified Individual to
act as an arbitrator for such party with the fifteen (15) day time period set
forth in the first sentence of Section 16.2(2), the Qualified Individual
selected by the other party shall serve as sole arbitrator under this Section
16.2 in lieu of the arbitration panel. Such sole arbitrator shall have all of
the rights and duties of the arbitration panel set forth above in this Section
16.2.
Section 16.3 Binding Character
Any decision rendered by the arbitration panel pursuant to this Article
16 shall be final and binding on the parties hereto, and judgment thereon may be
entered by any state or federal court of competent jurisdiction
Section 16.4 Exclusivity
Arbitration shall be the exclusive method available for resolution of
claims, disputes and controversies described in Section 16.1 hereof, and the
Partnership and its Partners stipulate that the provisions hereof shall be a
complete defense to any suit, action, or proceeding in any court or before any
administrative or arbitration tribunal with respect to any such claim,
controversy or dispute. The provisions of this Article 16 shall survive the
dissolution of the Partnership.
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Section 16.5 No Alteration of Agreement
Nothing contained herein shall be deemed to give the arbitrators any
authority, power or right to alter, change, amend, modify, add to, or subtract
from any of the provisions of this Agreement.
ARTICLE XVII
GENERAL PROVISIONS
Section 17.1 Addresses and Notice
All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A or at such other
address as the Partner shall notify the General Partner in writing. Such
communications shall be deemed sufficiently given, served, sent or received for
all purposes at such time as delivered to the addressee (with the return receipt
or delivery receipt being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
Section 17.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, (i) references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and (ii) references
to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit
attached hereto and referred to herein is hereby incorporated by reference.
Section 17.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa. Any references in this Agreement to "including" shall be deemed to mean
"including without limitation."
Section 17.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.
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<PAGE> 70
Section 17.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 17.6 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
Section 17.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 17.8 No Agency
Nothing contained herein shall be construed to constitute any partner
the agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.
Section 17.9 Entire Understanding
This Agreement constitutes the entire agreement and understanding among
the Partners and supersedes any prior understanding and/or written or oral
agreements among them respecting the subject matter herein.
Section 17.10 Counterparts
This Agreement 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 Agreement immediately
upon affixing its signature hereto.
Section 17.11 Applicable Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law. The laws of the State of Delaware shall be applied in construing the
Agreement in connection with all arbitration proceedings under Article XVI;
provided that, to the extent that the laws of another jurisdiction are otherwise
applicable as to procedural requirements relating to the arbitration, the
procedural requirements of such other jurisdiction shall be complied with.
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<PAGE> 71
Section 17.12 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respects, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 17.13 Guaranty by Crescent Equities
Crescent Equities unconditionally and irrevocably guarantees to the
Limited Partners the performance by the General Partner of the obligations of
the General Partner under this Agreement. This guaranty is exclusively for the
benefit of the Limited Partners and shall not extend to the benefit of any
creditor of the Partnership.
Section 17.14 Restriction on Sale of Sonoma Property
The General Partner hereby acknowledges that the Partnership's ability
to sell or otherwise transfer the Sonoma Property is subject to certain
restrictions under the Sonoma Contribution Agreement for a period of seven (7)
years after the date of the Sonoma Contribution Agreement, or as otherwise set
forth at the end of Article II of the Sonoma Contribution Agreement.
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<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
LIMITED PARTNERS:
as set forth in Exhibit A hereto:
By: CRESCENT REAL ESTATE EQUITIES,
LTD., as attorney-in-fact
pursuant to Sections 2.4 and
14.1.B of the Agreement
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
[EXHIBITS OMITTED]
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<PAGE> 73
FIRST AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of February 19, 1998, is entered into by and among Crescent Real Estate
Equities, Ltd., a Delaware corporation, on its own behalf as sole general
partner (the "General Partner") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997, hereinafter referred
to as the "Effective Agreement."
WITNESSETH:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware, and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Stock Option Plan Contribution
-------------- ------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Julie C. Carey 11/10/97 800 1995 Plan $ 28,350.00
Anna Dean 11/24/97 200 First Amended and $ 7,562.50
Restated 1995 Plan
Howard Lovett 12/4/97 3,000 1995 Plan $117,000.00
Howard Lovett 12/4/97 2,000 First Amended and $ 78,000.00
Restated 1995 Plan
Bobby Vann 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
Bret Angle 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C> <C> <C>
Howard Lovett 12/19/97 200 1995 Plan $ 7,737.50
Lynn B. Sonsel 1/5/98 200 First Amended and $ 7,937.50
Restated 1995 Plan
Fred Hoeckstra 1/21/98 200 First Amended and $ 7,237.50
Restated 1995 Plan
Anthony M. Frank 2/2/98 2,800 First Amended and $ 97,125.00
Restated 1995 Plan
</TABLE>
WHEREAS, the individuals and entities set forth in the following table
exercised their Exchange Rights with respect to the respective number of
Partnership Units, on the respective date indicated opposite each such
individual's or entity's name:
<TABLE>
<CAPTION>
Number of
Partnership Units
Individual or Entity Exercise Date Exchanged
------------------------------ -------------------- --------------------
<S> <C> <C>
Gerald W. Haddock 12/12/97 5,000
Pridemore Asset Trust UA 1/1/98 8,064
Scott Asset Trust UA 1/1/98 8,064
Peter G. Henry 1/2/98 7,149
University of Arizona 1/5/98 61,250
Foundation
The Joost Family Living Trust 1/6/98 2,110
Scott Asset Trust UA 1/16/98 1,364
Pridemore Asset Trust UA 1/16/98 1,364
Robert J. Stirk 1/19/98 2,000
Peter G. Henry 1/28/98 10,000
The Lone Star Trust 1/29/98 4,220
</TABLE>
WHEREAS, on December 8, 1997, Richard E. Rainwater assigned 1,300
Partnership Units to Darla D. Moore;
WHEREAS, on December 19, 1997, Crescent Equities issued 5,375,000 REIT
Shares in a public stock offering at a cash price of $38.125 per share, which
cash proceeds aggregating $204,921,875 were contributed to the Partnership by
Crescent Equities pursuant to Section 4.2 of the Effective Agreement;
WHEREAS, effective as of December 31, 1997, Crescent Equities issued
30,933 REIT Shares to Senterra Real Estate Group, L.L.C. ("Senterra") in
satisfaction of certain obligations of the Partnership to Senterra, and, in
connection therewith, Crescent Equities shall receive credit for a Capital
Contribution to the Partnership of $1,200,000;
WHEREAS, on January 5, 1998, Canyon Ranch, Inc. assigned 61,250
Partnership Units to the University of Arizona Foundation;
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<PAGE> 75
WHEREAS, on January 8, 1998. Crescent Equities issued 196 REIT Shares to
each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for a Capital Contribution to the Partnership of $20,064;
WHEREAS, on January 16, 1998, Darla D. Moore assigned 682 Partnership
Units to the Scott Asset Trust UA and 682 Partnership Units to the Pridemore
Asset Trust UA;
WHEREAS, on January 16, 1998, Richard E. Rainwater assigned 682
Partnership Units to the Scott Asset Trust UA and 682 Partnership Units to the
Pridemore Asset Trust UA;
WHEREAS, on February 19,1998, Crescent Equities issued 8,000,000 6-3/4%
Series A Convertible Cumulative Preferred Shares ("Series A Preferred Shares")
and, in connection therewith, the General Partner, pursuant to Section 8.7.C of
the Effective Agreement, is required to cause the Partnership to issue to
Crescent Equities preferred equity ownership interests in the Partnership
("Series A Preferred Partnership Units"), and, pursuant to its authority under
Sections 6.1.C and 8.7.C of the Effective Agreement, desires to make such
revisions to the Agreement as are necessary to reflect the issuance of the
Series A Preferred Partnership Units; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
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. In order to reflect (i) the Capital Contributions of Crescent Equities
aggregating $366,500 in connection with the exercise of options to purchase
REIT Shares by Julie C. Carey, Anna Dean, Howard Lovett, Bobby Vann, Bret
Angle, Lynn B. Sonsel, Fred Hoeckstra and Anthony M. Frank, as more fully set
forth above, (ii) the exercise by Gerald W. Haddock, the Pridemore Asset Trust
UA, the Scott Asset Trust UA, Peter G. Henry, the University of Arizona
Foundation, The Joost Family Living Trust, Robert J. Stirk, and the Lone Star
Trust of their Exchange Rights with respect to Partnership Units, as more fully
set forth above, (iii) the assignment by Richard E. Rainwater of 1,300
Partnership Units to Darla D. Moore, (iv) the Capital Contribution by Crescent
Equities on December 19, 1997 of $204,921,875 in connection with the public
stock offering of 5,375,000 REIT Shares at $38,125 per share, (v) the
assignment by Canyon Ranch, Inc. of 61,250 Partnership Units to the University
of Arizona Foundation, (vi) the Capital Contribution by Crescent Equities on
December 31, 1997, of $1,200,000 in connection with the issuance OF 30,933 REIT
Shares to Senterra in satisfaction of certain obligations of the Partnership to
Senterra, (vii) the Capital Contribution by Crescent Equities on January 8,
1998, of $20,064 in connection with the issuance of 196 REIT shares to each of
Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment of
trust managers' fees, (viii) the assignment by Darla D. Moore of 682
Partnership Units to each of the Scott Irrevocable Asset Trust and the
Pridemore Irrevocable Asset Trust, and (ix) the assignment by Richard E.
Rainwater of 682 Partnership Units to each of the Scott Irrevocable Asset Trust
and the Pridemore Irrevocable Asset Trust, Exhibit A to the Effective Agreement
is hereby deleted in its entirety and replaced with the Exhibit A attached to
this First Amendment and made a part hereof.
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<PAGE> 76
2. Pursuant to Section 8.7.C of the Effective Agreement, effective as of
February 19, 1998, the issuance date of Series A Preferred Shares by Crescent
Equities, the Partnership hereby issues 8,000,000 Series A Preferred
Partnership Units to Crescent Equities.
(a) Crescent Equities shall have a zero percentage Partnership Interest
with respect to such Series A Preferred Partnership Units and shall have no
voting rights other than the right to vote on any amendment to the Effective
Agreement if such amendment would (i) convert the Series A Preferred Partnership
Units into a general partner's interest, (ii) modify the limited liability of
Crescent Equities with respect to the Series A Preferred Partnership Units, or
(iii) alter the distribution, redemption, conversion or liquidation rights of
the Series A Preferred Partnership Units as set forth in paragraphs 2(b) through
(e) below.
(b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to
any distributions of Available Cash under such provision, the General Partner
shall cause distributions of Available Cash to be made 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 November 15, 1998,
(or on any other date on which Crescent Equities makes a distribution of
accrued, unpaid quarterly distributions to the holders of Series A Preferred
Shares) to Crescent Equities in an amount equal to the amount that is required
to be distributed by Crescent Equities on that date to the holders of Series A
Preferred Shares.
(c) Notwithstanding Sections 6.1.A and B of the Effective Agreement
(i) Each year, after giving effect to the special allocations set
forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the
Partnership shall be allocated first to Crescent Equities until the cumulative
amount allocated under this paragraph 2(c)(i) to Crescent Equities for the
current year and all prior years is equal to the cumulative amount for the
current year and all prior years of the distributions made to Crescent Equities
under paragraph 2(b) above and the portion of the distributions made to Crescent
Equities under paragraph 2(d) below (if any) that exceeds $25 per Series A
Preferred Partnership Unit. Any remaining Net Profits or Net Losses (other than
gain or loss from a sale or other disposition of all or substantially all of the
assets of the Partnership, which shall be allocated as set forth in paragraphs
2(c)(ii) and (iii) below) shall be allocated as set forth in Sections 6.1.A and
B of the Effective Agreement.
(ii) The gain of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to Crescent Equities in the amount
necessary to cause its Capital Account balance to be equal to the liquidation
preference payable by Crescent Equities on the outstanding Series A Preferred
Shares (the "Liquidation Preference") (i.e., a liquidation payment of $25 per
Series A Preferred Partnership Unit, necessary, plus and accrued, unpaid
quarterly distribution thereon), (B) second, to the Partners in the amounts
necessary, and in the ratio of such amounts, to cause the Capital Account
balance of Crescent Equities in excess of the liquidation Preference and the
Capital Account of each other Partner to be in the same ratio as their
respective Partnership Interests, and (iii) thereafter, to all of the Partners
in proportion to their respective Partnership Interests
(iii) The loss of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to the Partners, if any, having
positive Capital Account balances, in the amounts necessary, and in the ratio of
such amounts, so as to cause the positive Capital Account Balance of Crescent
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<PAGE> 77
Equities to equal the Liquidation Preference and the positive Capital Account
balance of each other Partner to equal zero (or, if there is insufficient loss
to accomplish this result, loss shall be allocated in a manner so as to cause
the positive Capital Account balance of Crescent Equities in excess of the
Liquidation Preference and the positive Capital Account balance of each other
Partner to be in the same ratio as their respective Partnership Interests), (B)
second, to Crescent Equities, until its positive Capital Account balance equals
zero, and (C) thereafter, to the Partners in proportion to their respective
Partnership Interests.
(d) In the event that Crescent Equities exercises its redemption right
with respect to the Series A Preferred Shares, the Partnership shall
concurrently redeem a corresponding amount of Series A Preferred Partnership
Units at the same redemption price paid by Crescent Equities for the Series A
Preferred Shares (i.e., a redemption payment of $25 per Series A Preferred
Partnership Unit, plus any accrued, unpaid quarterly distribution thereon).
(e) Upon exercise of any conversion right with respect to Series A
Preferred Shares, (i) Crescent Equities shall, as of the date on which the
conversion is consummated, be deemed to have contributed to the Partnership as
Contributed Funds pursuant to Section 4.2.A(2) of the Effective Agreement an
amount equal to the Value (computed as of the Business Day immediately
preceding the date on which such conversion is consummated) of the REIT Shares
delivered by Crescent Equities to such holder of Series A Preferred Shares, (ii)
the Partnership Interests of Crescent Equities and the other Limited Partners
shall be adjusted as set forth in Section 4.2 of the Effective Agreement, and
(iii) a corresponding portion of Series A Preferred Partnership Units shall be
retired.
3. Except as the context may otherwise require, any terms used in this
First Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this First Amendment as in the Effective
Agreement.
4. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
-----------------------------
Name: David M. Dean
-----------------------------
Title: Senior Vice President, Law
-----------------------------
[EXHIBITS OMITTED]
-5-
<PAGE> 78
SECOND AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SECOND AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of March 2, 1998, is entered into by and among Crescent Real Estate Equities,
Ltd., a Delaware corporation, on its own behalf as sole general partner (the
"General Partner") of Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership (the "Partnership"), and as attorney-in-fact for
each of the existing limited partners (the "Limited Partners") of the
Partnership pursuant to Sections 2.4 and 14.1.B of the Second Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of November 1, 1997, as amended by the First
Amendment to the Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as of February
19, 1998, hereinafter referred to as the "Effective Agreement."
WITNESSETH:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated,
was amended and restated in its entirety by the Effective Agreement:
WHEREAS, on March 2, 1998, the Partnership issued Limited Partnership
Interest including 125,155 Partnership Units to Senterra Real Estate Group,
L.L.C. ("Senterra") in exchange for the contribution by Senterra to the
Partnership of the property and assets, including providing noncompetition
agreements (the "Property"), specified in that certain Asset Contribution
Agreement dated as of October 7, 1996, as amended on December 31, 1997, and
March 2, 1998 (the "Contract");
WHEREAS, Senterra immediately distributed 83,441, 20,857 and 20,857
Partnership Units to Senterra Corporation, a Texas corporation, Myron G.
Blalock III ("Blalock"), and Neil H. Tofsky ("Tofsky"), respectively; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
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> 79
1. In order to reflect the issuance of a Limited Partnership interest
including 125,155 Partnership Units to Senterra and Senterra's immediate
distribution of 83,441, 20,857 and 20,857 Partnership Units to Senterra
Corporation, Blalock, and Tofsky, respectively, Exhibit A to the Effective
Agreement is hereby deleted in its entirety and replaced with the Exhibit A
attached to this Second Amendment and made a part hereof.
2. Each of Senterra Corporation, Blalock, and Tofsky hereby
acknowledges that it acquired a Limited Partnership Interest in exchange for a
Capital Contribution by Senterra of the Property, which Capital Contribution
has a Net Asset Value of $8,521,500.
3. Each of Senterra Corporation, Blalock, and Tofsky hereby
acknowledges its acceptance of all of the terms and conditions of the Effective
Agreement, including without limitation the power of attorney granted in Section
2.4 of the Effective Agreement, and all of the terms and conditions hereof.
4. Except as the context may otherwise require, any terms used in this
Second Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this Second Amendment as in the Effective
Agreement.
5. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this Second Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
--------------------------------
Name: DAVID M. DEAN
--------------------------------
Title: Senior Vice President, Law
--------------------------------
[EXHIBITS OMITTED]
-2-
<PAGE> 80
NEW LIMITED PARTNERS:
/s/ MYRON G. BLALOCK, III
---------------------------------------
Myron G. Blalock, III
/s/ NEIL H. TOFSKY
---------------------------------------
Neil H. Tofsky
SENTERRA CORPORATION, a Texas
corporation
By: /s/ DOUGLAS W. SCHNITZER
-----------------------------------
Name: Douglas W. Schnitzer
Title: President
The undersigned is executing this Second Amendment for the sole purpose
of evidencing its contribution to the Partnership of the property and assets
specified in the Contract in exchange for a Limited Partnership Interest
including 123,155 Partnership Units, and its immediate withdrawal as a Partner
in connection with the distribution of 20,857 Partnership Units to each of
Blalock and Tofsky, and 83,441 Partnership Units to Senterra Corporation.
SENTERRA REAL ESTATE GROUP, L.L.C., a
Texas limited liability company
By: /s/ NEIL H. TOFSKY
-----------------------------------
Name: Neil H. Tofsky
Title: President
[EXHIBITS OMITTED]
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<PAGE> 81
THIRD AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP (this
"Third Amendment"), dated as of April 27, 1998, is entered into by and among
Crescent Real Estate Equities, Ltd., a Delaware corporation, on its own behalf
as sole general partner (the "General Partner") of Crescent Real Estate Equities
Limited Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997, as amended by the
First Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
February 19, 1998, and the Second Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of March 2, 1998, hereinafter referred to as the
"Effective Agreement."
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, Armada/Hoffler Holding Company, a Virginia corporation
("AHHC"), and Lano International, Inc., a Delaware corporation ("Lano"), as
assignor, and the Partnership, as assignee, entered into that certain Assignment
and Assumption Agreement dated as of the 20th day of March, 1998, as amended by
a First Amendment dated March 23, 1998, and a Second Amendment dated April 27,
1998, (hereinafter referred to collectively as the "Assignment and Assumption
Agreement");
WHEREAS, under the Assignment and Assumption Agreement, (i) AHHC has
agreed to contribute to the Partnership its interest in that certain Agreement
of Sale dated May 30, 1997 by and between Rosewood Georgetown Joint Venture, a
Texas joint venture, as seller, and Lano and AHHC, as purchaser (the "Contract")
in exchange for a Limited Partnership Interest in the Partnership, and (ii) Lano
has agreed to transfer a portion of its interest in the Contract to the
Partnership in exchange for cash and to contribute the remainder of its interest
in the Contract to the
<PAGE> 82
Partnership in exchange for the issuance of a Limited Partnership Interest to
Alan R. Novak ("Novak"), the sole shareholder of Lano;
WHEREAS, the General Partner desires to reflect the admission of AHHC
and Novak as Additional Limited Partners, in exchange for the Capital
Contributions described above, pursuant to Section 4.3 of the Effective
Agreement, upon the terms and conditions set forth herein;
WHEREAS, the General Partner further desires to grant Partnership Units
(as defined in Article I of the Effective Agreement) to Novak and AHHC pursuant
to Section 4.3 of the Effective Agreement upon the terms and conditions set
forth herein; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
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. In exchange for the Capital Contribution of AHHC described above
(which Capital Contribution has a Net Asset Value of $4,940,095), the
Partnership hereby admits AHHC as an Additional Limited Partner effective as of
the date hereof, pursuant to Section 4.3 of the Effective Agreement, with AHHC
having the Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite its name.
2. In exchange for the Capital Contribution of Lano described above
(which Capital Contribution has a Net Asset Value of $2,509,905), the
Partnership hereby admits Novak as an Additional Limited Partner effective as of
the date hereof, pursuant to Section 4.3 of the Effective Agreement, with Novak
having the Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite its name.
3. Each of Novak and AHHC hereby acknowledges its acceptance of all of
the terms and conditions of the Effective Agreement, including without
limitation the power of attorney granted in Section 2.4 of the Effective
Agreement, and all of the terms and conditions hereof.
4. Novak and AHHC, each for itself, hereby irrevocably constitutes and
appoints the General Partner, with full power of substitution, its true and
lawful attorney for each of Novak and AHHC and in the name, place, and stead of
each of them, and for each of their use and benefit, to execute a future
amendment to the Effective Agreement and such other documents and instruments,
and to take such actions, as the General Partner deems necessary, desirable or
appropriate to effect the issuance of additional Partnership Units or, as the
case may be, the retirement and cancellation of Partnership Units pursuant to
the provisions of the Assignment and Assumption Agreement. Each of Novak and
AHHC agrees that this power of attorney is a power coupled with an interest and
shall survive and not be effected by the termination of this Third
- 2 -
<PAGE> 83
Amendment (unless and until replaced by a power of attorney granting at least
the same rights to the General Partner) or by the transfer of all or any portion
of either Novak's or AHHC's Limited Partnership Interest and shall extend to the
successors and assigns of Novak and AHHC. Each of Novak and AHHC hereby agrees
to be bound by any representation made by the General Partner, acting in good
faith under this power of attorney, and each of Novak and AHHC hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner, taken in good faith under this power of attorney.
5. Neither Novak nor AHHC may sell, assign, transfer, convey, or
otherwise dispose of its Partnership Units for twelve (12) months from the date
of this Third Amendment.
6. Notwithstanding anything to the contrary contained in Section 2.C of
Exhibit C to the Effective Agreement, for purposes of Section 2.B(1)(a) of such
Exhibit C, the General Partner shall have the authority, in its sole and
absolute discretion, to elect the method to be used under Treasury Regulations
section 1.704-3 to take into account the variation between the fair market value
and the adjusted tax basis of the Contract as of the date of its contribution to
the Partnership.
7. In order to reflect the issuance of a Limited Partnership Interest
including 36,185 Partnership Units to Novak and a Limited Partnership Interest
including 71,222 Partnership Units to AHHC, Exhibit A to the Effective Agreement
is hereby deleted in its entirety and replaced with the Exhibit A attached to
this Third Amendment and made a part hereof.
8. Except as the context may otherwise require, any terms used in this
Third Amendment which are defined in the Effective Agreement shall have the same
meaning for purposes of this Third Amendment as in the Effective Agreement.
9. This Third Amendment may be executed in several counterparts, each
of which will be deemed an original, and all of which will constitute but one
and the same instrument.
10. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all respects.
- 3 -
<PAGE> 84
IN WITNESS WHEREOF, the undersigned has executed this Third Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation, on
its own behalf and as
attorney-in-fact for the Limited
Partners pursuant to Sections 2.4
and 14.1.B of the Effective
Agreement
By: /s/ David M. Dean
-------------------------------
Name: David M. Dean
-----------------------------
Title: Senior Vice President, Law
----------------------------
NEW LIMITED PARTNERS:
/s/ Alan R. Novak
----------------------------------
Alan R. Novak
ARMADA/HOFFLER HOLDING COMPANY, a
Virginia corporation
By: /s/ A. Russell Kirk
-------------------------------
Name: A. Russell Kirk
-----------------------------
Title: Vice Chairman
----------------------------
[EXHIBITS OMITTED]
- 4 -
<PAGE> 1
EXHIBIT 23.03
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of our report dated
January 23, 1998 included in Crescent Real Estate Equities Company's Form 10-K
for the year ended December 31, 1997, and of our reports dated December 4, 1997
on Energy Centre, January 16, 1998 on Post Oak Central, and January 16, 1998 on
Washington Harbour included in Crescent Real Estate Equities Company's Forms
8-K and to all references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
June 11, 1998
<PAGE> 1
EXHIBIT 23.04
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of our report dated
November 7, 1996 on the Provider Segment of Magellan Health Services, Inc.
included in Crescent Real Estate Equities Company's Form 8-K dated January 29,
1997, as amended by Form 8-K/A on July 2, 1997, and to all references to our
Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 28, 1998
<PAGE> 1
EXHIBIT 23.05
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of our report dated
April 23, 1997 (except for Note 5 as to which the date is June 27, 1997 and
Note 14 as to which the date is January 16, 1998), with respect to the
consolidated financial statements of Station Casinos, Inc. as of March 31, 1997
and 1996 and for each of the three years in the period ended March 31, 1997,
included in Crescent Real Estate Equities Company's Form 8-K/A filed February
13, 1998 and to all references to our Firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
June 11, 1998
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ RICHARD E. RAINWATER
----------------------------------------------
Richard E. Rainwater
Trust Manager and Chairman of the Board
</TABLE>
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ JOHN C. GOFF
----------------------------------------------
John C. Goff
Trust Manager and Vice Chairman of the Board
</TABLE>
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ GERALD W. HADDOCK
----------------------------------------------
Gerald W. Haddock
Trust Manager, President and
Chief Executive Officer
</TABLE>
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ DALLAS E. LUCAS
----------------------------------------------
Dallas E. Lucas
Senior Vice President and Chief Financial
Officer
</TABLE>
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ ANTHONY M. FRANK
----------------------------------------------
Anthony M. Frank
Trust Manager
</TABLE>
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ MORTON H. MEYERSON
----------------------------------------------
Morton H. Meyerson
Trust Manager
</TABLE>
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ WILLIAM F. QUINN
----------------------------------------------
William F. Quinn
Trust Manager
</TABLE>
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ PAUL E. ROWSEY, III
----------------------------------------------
Paul E. Rowsey, III
Trust Manager
</TABLE>
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints each Gerald W. Haddock, Dallas E. Lucas and David M. Dean, and each of
them, as his true and lawful attorney-in-fact and agent, each with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, with full power to act alone, to sign any or all
documents (including both pre- and post-effective amendments to this
Registration Statement on Form S-3) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as each said attorney-in-fact and agent might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or any substitute or substitutes for any of them, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: June 15, 1998 /s/ MELVIN ZUCKERMAN
----------------------------------------------
Melvin Zuckerman
Trust Manager
</TABLE>
