<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Crescent Real Estate Equities Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held June 7, 1999
The Annual Meeting of Shareholders (the "Meeting") of Crescent Real Estate
Equities Company, a Texas real estate investment trust (the "Company"), will be
held at The Crescent Court Hotel, 400 Crescent Court, Dallas, Texas, on June 7,
1999, at 10:00 a.m., Central Daylight Savings Time, for the following purposes:
1. To elect two trust managers of the Company to serve three-year terms, or
until their respective successors are elected and qualified.
2. To approve the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999.
3. To approve the amendment of the Restated Declaration of Trust of the
Company to allow the Board of Trust Managers to increase the limit on the
percentage of the issued and outstanding common shares that Mr. Rainwater,
Chairman of the Board of Trust Managers of the Company, and related persons may
own, or be deemed to own, to 9.5%.
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement, which is attached and made a part of this Notice.
The Board of Trust Managers has fixed the close of business on April 23,
1999, as the record date for determining the shareholders entitled to notice of
and to vote at the Meeting and any adjournment or postponement thereof.
Shareholders are cordially invited to attend the Meeting in person.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION AND THE
PRESENCE OF A QUORUM AT THE MEETING. IF YOU SEND IN YOUR PROXY CARD AND THEN
DECIDE TO ATTEND THE MEETING TO VOTE YOUR SHARES IN PERSON, YOU MAY STILL DO
SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE
PROXY STATEMENT.
By Order of the Board of Trust Managers,
April 30, 1999 David M. Dean
Fort Worth, Texas Secretary
<PAGE> 3
CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held On June 7, 1999
This Proxy Statement is furnished to shareholders of Crescent Real Estate
Equities Company, a Texas real estate investment trust (the "Company"), in
connection with the solicitation of proxies by the board of trust managers of
the Company (the "Board of Trust Managers") for use at the 1999 Annual Meeting
of Shareholders of the Company (the "Meeting") to be held on Monday, June 7,
1999, at 10:00 a.m., Central Daylight Savings Time, for the purposes set forth
in the Notice of Annual Meeting. This Proxy Statement and the accompanying form
of proxy are first being sent or given to shareholders on or about April 30,
1999.
The Company owns its assets and conducts its operations through Crescent
Real Estate Equities Limited Partnership (the "Operating Partnership"), a
Delaware limited partnership, and its other subsidiaries. The sole general
partner of the Operating Partnership is Crescent Real Estate Equities, Ltd.
(the "General Partner"), a Delaware corporation, which is a wholly owned
subsidiary of the Company.
RECORD DATE AND OUTSTANDING CAPITAL SHARES
The record date for determination of the shareholders entitled to notice of
and to vote at the Meeting is the close of business on April 23, 1999 (the
"Record Date"). At the close of business on the Record Date, the Company had
125,907,893 common shares of beneficial interest, par value $.01 per share
("Common Shares") issued, outstanding and entitled to vote at the Meeting.
PROCEDURAL MATTERS
Any proxy, if received in time, properly signed and not revoked, will be
voted at the Meeting in accordance with the directions of the shareholder. If
no directions are specified, the proxy will be voted FOR each of the proposals
set forth in this Proxy Statement. If any other matter or business is brought
before the Meeting or any adjournment thereof, the proxy holders may vote the
proxy at their discretion. The Board of Trust Managers does not know of any
such matter or business to be presented for consideration.
A proxy may be revoked by (i) delivering a written statement to the
Secretary of the Company stating that the proxy is revoked, (ii) presenting at
the Meeting a subsequent proxy executed by the person executing the prior
proxy, or (iii) attending the Meeting and voting in person.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
Common Shares outstanding as of the Record Date is necessary to constitute a
quorum for the transaction of business at the Meeting. In deciding all
questions, a holder of Common Shares is entitled to one vote, in person or by
proxy, for each Common Share held in his or her name on the Record Date.
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<PAGE> 4
REQUIRED AFFIRMATIVE VOTE AND VOTING PROCEDURES
The vote required to elect the nominees as trust managers is a majority of
the votes cast in favor of the nominees at the Meeting by the holders of Common
Shares entitled to vote in the election of trust managers. The vote required to
ratify appointment of independent auditors is the affirmative vote of the
holders of a majority of the votes cast by the holders of Common Shares
entitled to vote on the matter. The vote required to amend the Company's
Restated Declaration of Trust ("Declaration of Trust") is two-thirds of the
Common Shares outstanding and entitled to vote on the amendment. Common Shares
held by shareholders present at the Meeting in person who do not vote and
ballots marked "abstain" or "withhold authority" will be counted as present at
the Meeting for quorum purposes. Under the Company's Declaration of Trust,
Amended and Restated Bylaws, as amended (the "Bylaws") and applicable law,
abstentions and broker non votes with respect to the election of trust managers
or the ratification of the appointment of independent auditors will not
constitute votes cast and, as a result, will have no effect on the outcome of
the vote on those two items; abstentions and broker non votes with respect to
amendment of the Declaration of Trust will have the effect of votes cast
against the proposal.
COSTS OF PROXY SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
proxy material. In an effort to have as large of a representation at the
Meeting as possible, special solicitation of proxies may, in certain instances,
be made personally, or by telephone, telegraph, or mail by one or more
employees of the General Partner. The Company will also reimburse brokers,
banks, nominees and other fiduciaries for postage and reasonable clerical
expenses of forwarding the proxy materials to their principals, the beneficial
owners of the Common Shares.
PROPOSAL NUMBER 1
ELECTION OF TRUST MANAGERS
BOARD OF TRUST MANAGERS
The trust managers of the Company are divided into three classes, with the
shareholders electing approximately one-third of the trust managers annually.
The trust managers whose terms will expire at the Meeting are John C. Goff,
Paul E. Rowsey, III and Melvin Zuckerman. Messrs. Goff and Rowsey have been
nominated and have agreed to stand for election at the Meeting as trust
managers to hold office until the Annual Meeting of Shareholders in 2002, or
until their successors are elected and qualify. Mr. Zuckerman has elected not
to stand for reelection when his term expires at the meeting on June 7, 1999,
and the Board of Trust Managers has approved the reduction of the size of the
board to seven members effective contemporaneously with the expiration of Mr.
Zuckerman's term.
The nominees who receive a majority of the votes cast by shareholders,
present or represented by proxy, at the Meeting and entitled to vote on the
election of trust managers, will be elected as trust managers of the Company.
The Board of Trust Managers of the Company recommends a vote FOR John C.
Goff and Paul E. Rowsey, III as trust managers to hold office until the Annual
Meeting of Shareholders in 2002, or until their successors are elected and
qualify. Should one or both of these nominees become unable to serve for any
reason, the Board of Trust Managers may designate substitute nominees, in which
event the persons named in the enclosed proxy will vote for the election of
such substitute nominee or nominees, or may reduce the number of trust managers
on the Board of Trust Managers.
Set forth below is information with respect to the current eight trust
managers, including the nominees, all of whom joined the Company as directors
in 1994 (except Mr. Zuckerman, who was first elected as a director in 1996),
and the executive officers.
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME TERM EXPIRES AGE POSITION
---- ------------ --- --------
<S> <C> <C> <C>
Richard E. Rainwater......... 2000 54 Chairman of the Board of Trust Managers of
the Company
John C. Goff................. 1999 43 Vice Chairman of the Board of Trust
Managers of the Company
Gerald W. Haddock............ 2001 51 President and Chief Executive Officer of
the Company and the General Partner, Trust
Manager of the Company, and Sole Director
of the General Partner
Anthony M. Frank............. 2000 67 Trust Manager of the Company
Morton H. Meyerson........... 2001 60 Trust Manager of the Company
William F. Quinn............. 2000 51 Trust Manager of the Company
Paul E. Rowsey, III.......... 1999 44 Trust Manager of the Company
Melvin Zuckerman............. 1999 70 Trust Manager of the Company
Jack I. Tompkins............. N/A 53 Executive Vice President and Chief
Financial Officer of the Company and the
General Partner
Sanjay Varma................. N/A 45 Executive Vice President, Chief of
Corporate Operations, of the Company and
the General Partner
David M. Dean................ N/A 38 Senior Vice President, Law, and Secretary
of the Company and the General Partner
James M. Eidson, Jr.......... N/A 44 Senior Vice President, Acquisitions, of the
General Partner
Alan D. Friedman............. N/A 45 President of Development and Private Equity
of the General Partner
William D. Miller............ N/A 40 Senior Vice President, Asset Management,
of the General Partner
Joseph D. Ambrose, III....... N/A 48 Vice President, Human Resources
Development/Administration, of the General
Partner
Jerry R. Crenshaw, Jr........ N/A 35 Vice President, Controller, of the General
Partner
Barry L. Gruebbel............ N/A 44 Vice President, Property Management, of the
General Partner
Howard W. Lovett............. N/A 42 Vice President, Corporate Leasing, of the
General Partner
Jane B. Page................. N/A 39 Vice President, Houston Region Asset
Management, of the General Partner
Bruce A. Picker.............. N/A 34 Vice President and Treasurer of the Company
and the General Partner
John L. Zogg, Jr............. N/A 35 Vice President, Leasing and Marketing, of
the General Partner
</TABLE>
3
<PAGE> 6
TRUST MANAGERS AND EXECUTIVE OFFICERS
The Board of Trust Managers currently consists of eight members, divided
into three classes serving staggered three-year terms. Effective as of the date
of the Meeting, Mr. Zuckerman's term will expire and the Board of Trust
Managers will consist of seven members. The following is a summary of the
experience of the current and proposed trust managers and the current executive
officers.
Richard E. Rainwater has been an independent investor since 1986. From 1970
to 1986, he served as the chief investment advisor to the Bass family, whose
overall wealth increased dramatically during his tenure. During that time, Mr.
Rainwater was principally responsible for numerous major corporate and real
estate acquisitions and dispositions. Immediately after beginning his
independent investment activities, he founded ENSCO International Incorporated
("ENSCO"), an oil field service and offshore drilling company, in 1986.
Additionally, in 1987 he co-founded Columbia Hospital Corporation, and in 1989
participated in a management-led buy out of HCA-Hospital Corporation of
America. In 1992, Mr. Rainwater co-founded Mid Ocean Limited, a provider of
casualty re-insurance. In February 1994, he assisted in the merger of Columbia
Hospital Corporation and HCA-Hospital Corporation of America that created
Columbia/HCA Healthcare Corporation. Mr. Rainwater serves as a director of
Pioneer Natural Resources ("Pioneer"), one of the largest oil and gas companies
in the United States. In 1996, Mr. Rainwater led a recapitalization of Mesa,
Inc. (Pioneer's predecessor), and a partnership that Mr. Rainwater controls
became a major shareholder in July 1996. Mr. Rainwater also serves as chairman
of the board of directors of Crescent Operating, Inc. ("COI"). Mr. Rainwater is
a graduate of the University of Texas at Austin and the Graduate School of
Business at Stanford University. Mr. Rainwater has served as the Chairman of
the Board of Trust Managers since the Company's inception in 1994.
John C. Goff currently is the managing director of Goff Moore Strategic
Partners, L.P., a private investment partnership that serves as the primary
investment vehicle for its principals, including Mr. Rainwater and his family.
Mr. Goff joined Mr. Rainwater shortly after he began Rainwater, Inc. as an
independent investor in 1986. From 1987 to 1994, Mr. Goff was vice president of
Rainwater, Inc., serving as a senior investment advisor and principal. Mr. Goff
is on the board of Gainsco, Inc., a publicly traded property and casualty
insurance company; The Staubach Company, one of the nation's largest tenant
representation firms; and Texas Capital Bancshares, Inc., a national bank. Mr.
Goff served as chairman of Charter Behavioral Healthcare Systems, L.L.C.
("CBHS") from 1997 to 1998, and he has served as vice chairman of the board of
directors of COI since its inception in June 1997. From 1981 to 1987, Mr. Goff
worked for KPMG Peat Marwick, and prior to that Mr. Goff worked for Century
Development Corporation, a major office developer and property management
company. Mr. Goff is a graduate of the University of Texas and is a Certified
Public Accountant. Mr. Goff served as Chief Executive Officer and as a trust
manager from the Company's inception in 1994 through December 19, 1996, when he
became Vice Chairman of the Board of Trust Managers.
Gerald W. Haddock, prior to joining the Company, was a vice president of
Rainwater, Inc. from 1990 to 1994, and he was the lead transactional attorney
for Mr. Rainwater from 1986 to 1994. During this period, Mr. Haddock was in the
private practice of law, pursuant to which, among other things, he served as
primary outside legal counsel to, and investor with, Mr. Rainwater and as
primary outside legal counsel to Rainwater, Inc. Mr. Haddock currently is a
member of the board of directors of ENSCO, of which he was one of the three
founding directors. Mr. Haddock is the president, chief executive officer and a
director of COI. Mr. Haddock earned both Bachelor of Business Administration
and Juris Doctor degrees from Baylor University. He also holds a Master of Laws
degree in taxation from New York University and has served as the chairman of
the Tax Section of the State Bar of Texas. From the Company's inception in 1994
through December 19, 1996, Mr. Haddock served as President and Chief Operating
Officer and as a trust manager. Since December 19, 1996, Mr. Haddock has served
as President and Chief Executive Officer and a trust manager of the Company.
Anthony M. Frank serves as chairman of Belvedere Capital Partners, general
partner of the California Community Financial Institutions Fund LP. He served
as Postmaster General of the United States from 1988 to 1992. Prior to that
time, Mr. Frank served as chairman and chief executive officer of First
Nationwide Bank, chairman of the Federal Home Loan Bank of San Francisco,
chairman of the California Housing Finance Agency and chairman of the Federal
Home Loan Mortgage Corporation Advisory Board. From 1992 until 1993, he served
4
<PAGE> 7
as the founding chairman of Independent Bancorp of Arizona. Mr. Frank also
serves as a director of Irvine Apartment Communities, a large California-based
apartment REIT; Charles Schwab & Co., one of the nation's largest discount
brokerages; Temple Inland, Inc., a manufacturer of paper and timber products;
Bedford Property Investors, Inc., an office and commercial property REIT
investing primarily on the West Coast; General American Investors Company,
Inc., a closed-end investment company; Financial Security Assurance, a company
providing credit enhancement for municipal bond issuers; Cotelligent, Inc., a
provider of temporary office support services; and COI. Mr. Frank received a
Bachelor of Arts degree from Dartmouth College and a Master of Business
Administration degree from the Amos Tuck School of Business at Dartmouth.
Morton H. Meyerson is chairman and chief executive officer of 2M Companies,
Inc., a private investment firm. Before beginning his career, he served as a
lieutenant in the United States Army on active duty from 1961 to 1963. Mr.
Meyerson joined Bell Helicopter in 1964 and later joined EDS as a systems
engineer trainee in 1966. He subsequently served as systems engineer, senior
systems engineer, project manager, group manager and vice president. Mr.
Meyerson took a leave of absence from EDS to become president and later
chairman of the Wall Street firm Dupont Glore, Forgan, Inc. He returned to EDS
in 1975. In 1979, he assumed the office of president of EDS and in May of 1986,
became vice chairman of the board. In December of 1986, Mr. Meyerson retired
from EDS to become a private investor. In 1992, he began serving as chairman
and chief executive officer of Perot Systems Corporation until his retirement
in December 1997. He is a director of ENSCO and TeleTech Holdings, Inc. Mr.
Meyerson holds Bachelor of Arts degrees in economics and philosophy from the
University of Texas at Austin.
William F. Quinn currently serves as president of AMR Investment Services,
Inc., the investment services affiliate of American Airlines, with
responsibility for the management of pension and short-term fixed income
assets. In addition, Mr. Quinn is chairman of the board of American Airlines
Employees Federal Credit Union, president and a trustee of the American
Advantage Mutual Funds and serves on the advisory boards for ARCO's pension
plans and Southern Methodist University's Endowment Fund. Prior to being named
to his current position in 1986, Mr. Quinn held several management positions
with American Airlines and its subsidiaries. Before joining American Airlines
in 1974, Mr. Quinn was employed with the accounting firm of Arthur Young &
Company. He holds a Bachelor of Science degree in accounting from Fordham
University and is a Certified Public Accountant.
Paul E. Rowsey, III is president of Eiger, Inc., a private real estate
investment firm, and the manager of Eiger Fund I, L.P., a real estate equity
investment fund. Mr. Rowsey was formerly president and a member of the board of
directors of Rosewood Property Company, a real estate investment company, a
position he held from 1990 until 1998. Mr. Rowsey is also a member of the board
of directors of COI. Mr. Rowsey began his career in 1980 as an attorney
specializing in commercial real estate. Mr. Rowsey holds a Bachelor of Arts
degree from Duke University and a Juris Doctor degree from Southern Methodist
University School of Law.
Melvin Zuckerman is the founder and developer of the Canyon Ranch health
and fitness resorts. Mr. Zuckerman opened the original Canyon Ranch in Tucson,
Arizona ("Canyon Ranch-Tucson") in 1979 and opened a second Canyon Ranch in the
Berkshire Mountains in Lenox, Massachusetts ("Canyon Ranch-Lenox") in 1989. The
Company acquired Canyon Ranch-Tucson in July 1996 and Canyon Ranch-Lenox in
December 1996. Mr. Zuckerman also serves as a director of the University of
Arizona Foundation, and he serves as a director and holds the lifetime title of
president emeritus of the Wellness Council of Tucson, an organization fostering
wellness in the work place that Mr. Zuckerman founded in 1984. Prior to opening
Canyon Ranch-Tucson, Mr. Zuckerman was a builder and real estate developer in
the Tucson area for 20 years. Prior to 1958, Mr. Zuckerman worked as a
Certified Public Accountant. Mr. Zuckerman holds a Bachelor of Science degree
from New York University.
Jack I. Tompkins, prior to joining the Company, served as chairman of
Automotive Realty Trust Company of America from its inception in 1997 until its
sale to Capital Automotive REIT in January 1999. Prior to that time, Mr.
Tompkins served at Enron Corp. in various capacities, including chief financial
officer and senior vice president, chief information, administrative &
accounting officer, from 1988 until October 1996. Mr. Tompkins also served as a
member of Enron's Executive Management Committee. Mr. Tompkins has served as
managing director of Equity Advisors, L.L.C., formed to engage primarily in the
business of promoting consolidation and initial public offering transactions
for groups of companies in large fragmented industries. Mr. Tompkins began his
5
<PAGE> 8
career with Arthur Young & Company, serving three years before joining Arthur
Andersen LLP, where he was elected to become partner in 1981. Mr. Tompkins
currently serves on the board of directors of Michael Petroleum Corporation and
the Star of Hope Mission for the homeless. Mr. Tompkins received a Bachelor of
Business degree in accounting and a Masters of Business Administration degree
from Baylor University. Mr. Tompkins joined the Company in April 1999 as
Executive Vice President and Chief Financial Officer.
Sanjay Varma began his association with the Company in 1995 as the majority
owner of Rosestar Management, LLC, which was the lessee for several
Company-owned hotels and as an advisor to the Operating Partnership for
hospitality-related acquisitions. Mr. Varma subsequently became a vice
president of COI and the president of the hospitality division of COI,
positions he held until August 1998. In addition, Mr. Varma and his wife are
principals of The Varma Group, Inc., which performs asset management services
for COI. Prior to his association with the Company in 1995, Mr. Varma served as
executive vice president of Walt Disney Company, where he worked for eight
years. In 1986, Mr. Varma worked for the Bass Group and was assigned to the
Walt Disney Company as a consultant to direct the growth of their resorts
division worldwide. From 1978-1986, he worked for Marriott Hotels and Resorts
as area vice president of food and beverage and was responsible for the
operation of 60 hotels. Mr. Varma began his career in 1972 with the Oberoi
Hotels in Asia and the Middle East. He received a degree in hotel
administration from the Jean Drouant School in Paris, France and completed the
Advanced Management Program at the Harvard Business School. Mr. Varma has
served as Executive Vice President, Chief of Corporate Operations since he
joined the Company in August 1998.
David M. Dean, prior to joining the Company, was an attorney for Burlington
Northern Railroad Company from 1992 to 1994, and he served as Assistant General
Counsel in 1994. At Burlington Northern, he was responsible for the majority of
that company's transactional and general corporate legal work. Mr. Dean was
previously engaged in the private practice of law from 1986 to 1990 with Kelly,
Hart & Hallman, and from 1990 to 1992 with Jackson & Walker, L.L.P., where he
worked primarily with Mr. Haddock on acquisition, financing and venture capital
transactions for Mr. Rainwater and related investor groups. Mr. Dean graduated
with honors from Texas A&M University with Bachelor of Arts degrees in English
and philosophy in 1983. He also holds a Juris Doctor degree and a Master of
Laws degree in taxation from Southern Methodist University School of Law. Mr.
Dean has served as Senior Vice President, Law, and Secretary since August 1994.
James M. Eidson, Jr. has twenty years of experience in the commercial real
estate business. Prior to joining the Company, he owned an investment company,
specializing in investment grade commercial properties, from 1992 to 1994. From
1989 to 1992, Mr. Eidson was associated with CB Commercial Real Estate Group,
Inc. as a senior investment specialist in its investment grade commercial
property group. From 1982 to 1989, Mr. Eidson owned a real estate company,
through which he provided brokerage and investment services for individuals and
large corporate investors and made investments in commercial properties for his
own account. Mr. Eidson gained his early experience in real estate
acquisitions, dispositions, leasing, marketing and consulting while serving as
a broker and investment specialist for three years with Hank Dickerson &
Company. He is a former professional football player and played with the Dallas
Cowboys from 1976 through 1978. Mr. Eidson holds a Bachelor of Science degree
from Mississippi State University and a Master of Business Administration
degree from Southern Methodist University. Mr. Eidson has served as Senior Vice
President, Acquisitions, since May 1995.
Alan D. Friedman has more than twenty years of development and acquisition
experience in the commercial real estate business. Since 1990, Mr. Friedman has
owned an advisory company, Trisept, Inc. through which he provides acquisition
and development services for commercial properties to clients, which has
previously included the Company. From 1980 to 1990, Mr. Friedman was an
operating partner at Lincoln Property, where he had direct responsibility for
developing, financing, marketing and managing more than three million square
feet of projects in Dallas/Fort Worth. Mr. Friedman is a member of ULI, serves
on the North Texas Board of the NAIOP and is a trustee at Texas Christian
University. A graduate of the University of Texas with a degree in finance, Mr.
Friedman has served as President of Development and Private Equity since he
joined the Company in July 1998.
William D. Miller, prior to joining the Company, served as vice president,
legal affairs of the Texas Rangers major league baseball club, beginning in
March 1994. Mr. Miller was also a member of the senior management of the
Rangers and certain partnerships affiliated with the Rangers. In addition, Mr.
Miller functioned as the primary
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<PAGE> 9
lawyer responsible for the Rangers' interest in the development of The Ballpark
in Arlington project. Prior to joining the Rangers, Mr. Miller practiced law at
Jackson & Walker, L.L.P. from September 1986, was the lead real estate lawyer
for Mr. Rainwater, Rainwater, Inc. and Mr. Haddock, and was instrumental in the
formation transactions of the Company. Mr. Miller received his Bachelor of
Science degree with first honors in commerce and engineering sciences from
Drexel University, and he received his Juris Doctor degree with honors from the
University of Texas School of Law. Mr. Miller served as Senior Vice President,
Administration from the time he joined the Company in May 1997 until November
1998, when he became Senior Vice President, Asset Management.
Joseph D. Ambrose, III, prior to joining the Company, served as vice
president of CRC Environmental Risk Management, Inc., an environmental and risk
management consulting firm, from 1993 to 1994. He was responsible for major
client development, development of new risk management initiatives and human
resources. From 1990 to 1993, Mr. Ambrose was a vice president of American Real
Estate Group ("AREG"), a liquidating real estate company, where he managed the
environmental, insurance and other risks associated with the disposition of a
nationwide real estate portfolio. Prior to joining AREG, he was president of
Ambrose Properties, Inc., which acquired and developed oil and gas and real
estate properties. Mr. Ambrose graduated from Texas Christian University with a
Bachelor of Business Administration degree in management and received his Juris
Doctor and Master of Business Administration degrees from Southern Methodist
University. Mr. Ambrose joined the Company in 1994 and served as Vice
President, Administration, from June 1995 to October 1998, when he became Vice
President, Human Resources Development/Administration.
Jerry R. Crenshaw, Jr. was the controller of Carrington Laboratories, Inc.,
a pharmaceutical and medical device company, from 1991 until February 1994.
From 1986 until 1991, Mr. Crenshaw was an audit senior in the real estate
services group of Arthur Andersen LLP. Mr. Crenshaw holds a Bachelor of
Business Administration degree in accounting from Baylor University and is a
Certified Public Accountant. Mr. Crenshaw has served as Controller since the
Company's inception in 1994 and has been a Vice President since March 1997. Mr.
Crenshaw also served as Interim Co-Chief Financial Officer from August 1998
until April 1999.
Barry L. Gruebbel, prior to joining the Company, was involved with the
property and asset management of more than 10 million square feet of Class A
office, retail, industrial and multi-family real estate in Texas and New Mexico
as the vice president of property management with Hines Industrial from 1982 to
1986, as the vice president of property management with Southland Investment
Properties from 1986 to 1990, and most recently as the director of property
management at The Crescent for Rosewood Property Company from 1990 until
formation of the Company. Mr. Gruebbel is a Certified Property Manager and is
currently active in the real estate organizations of the Institute of Real
Estate Management and Building Owners and Managers Association. Mr. Gruebbel
received a Bachelor of Business Administration degree in real estate from the
University of Texas at Arlington. Mr. Gruebbel has been with the Company since
its inception and became Vice President, Property Management, in February 1997.
Howard W. Lovett, prior to joining the Company, was president of The
Gaineswood Company, a private investment company specializing in real estate
and venture capital investments, from January 1989 to August 1995. Previously,
Mr. Lovett was vice president of Morgan & Company, a Houston-based real estate
development company, where he was responsible for income property acquisitions
and the acquisition, development and management of Wildcat Ranch, an exclusive
residential development outside Aspen, Colorado. Mr. Lovett graduated from
Carleton College with a Bachelor of Arts degree in English. He also holds a
Master of Business Administration degree from Harvard University. Mr. Lovett
has served as Vice President, Corporate Leasing, since June 1996.
Jane B. Page, prior to joining the Company, was employed by Metropolitan
Life Real Estate Investments and held positions of director of corporate
property management and regional asset manager, responsible for managing and
leasing a 12-million square foot, high-grade institutional portfolio in
Houston, Austin and New Orleans. Ms. Page's fourteen-year tenure at MetLife
also included membership on MetLife's Investment Committee, which reviewed and
approved all significant transactions on a national basis. Ms. Page serves on
the boards of the Greater Houston Partnership, Central Houston, Inc. and the
Downtown Houston Management District. Ms. Page graduated
7
<PAGE> 10
with a Bachelor of Arts degree from Point Loma College in San Diego and with a
Master of Business Administration degree from the University of San Francisco.
She also holds CCIM and CPM designations. Ms. Page served as Director of Asset
Management, Houston Region from the time she joined the Company in January 1988
until December 1998, when she became Vice President, Houston Region Asset
Management.
Bruce A. Picker, prior to joining the Company, worked for Rainwater, Inc.
from 1990 to 1994 as the partnership controller of its first major real estate
acquisition. Previously, Mr. Picker was a senior accountant for Arthur Andersen
LLP in its audit department from 1986 to 1989. Mr. Picker holds a Bachelor of
Business Administration degree in accounting from Harding University and is a
Certified Public Accountant. Mr. Picker has served as the Treasurer since July
1994, and as a Vice President since June 1996. Mr. Picker also served as
Interim Co-Chief Financial Officer from August 1998 until April 1999.
John L. Zogg, Jr. served as vice president of the commercial real estate
group of Rosewood Property Company, responsible for marketing and leasing
office space in the Dallas and Denver areas from January 1989 to May 1994. For
three years prior to joining Rosewood Property Company, Mr. Zogg worked as
marketing manager of Gerald D. Hines Interests, responsible for office leasing
in the Dallas metropolitan area. He graduated from the University of Texas at
Austin with a Bachelor of Arts degree in economics and holds a Master of
Business Administration degree from the University of Dallas. Mr. Zogg joined
the Company as a Vice President in May 1994 and has served as Vice President,
Leasing and Marketing, since June 1997.
TRUST MANAGER COMPENSATION
Each trust manager who is not also an officer of the Company receives an
annual fee of $20,000 (payable in cash or, at the election of the trust
manager, in Common Shares in an amount determined by dividing the fees
otherwise payable by 90% of the fair market value of the Common Shares), a
meeting fee of $1,000 for each Board of Trust Managers (but not committee)
meeting attended (in person or by telephone) and reimbursement of expenses
incurred in attending meetings. Trust Managers who are also officers receive no
separate compensation for their service as trust managers.
COMMITTEES OF THE BOARD OF TRUST MANAGERS
Audit Committee. The Audit Committee consists of Anthony M. Frank,
Chairman, and William F. Quinn. The Audit Committee, which held two meetings in
1998, makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services that the
independent public accountants provide, reviews the independence of the public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls.
Executive Compensation Committee. The Executive Compensation Committee
consists of Morton H. Meyerson, Chairman, and Paul E. Rowsey, III. The
Executive Compensation Committee, which held two meetings in 1998, determines
compensation for the Company's executive officers and administers the stock
incentive and other compensation plans that the Company adopts. The Executive
Compensation Committee also nominates persons to serve as members of the Board
of Trust Managers. The Executive Compensation Committee will consider nominees
that management, shareholders and others recommend, and such recommendations
may be delivered in writing to the attention of the Executive Compensation
Committee in care of the Company Secretary at the Company's principal executive
offices.
Intercompany Evaluation Committee. The Intercompany Evaluation Committee
consists of Morton H. Meyerson, William F. Quinn and Melvin Zuckerman. The
Board of Trust Managers appointed the Intercompany Evaluation Committee to
review, confirm and ratify, in the Company's capacity as sole stockholder of
the General Partner, all determinations and acts of the Operating Partnership
and the General Partner relating to the Intercompany Agreement between the
Operating Partnership and COI, dated June 3, 1997 (the "Intercompany
Agreement"), or any other transactions with COI or its affiliates that the
General Partner presents to the Company from time to time. The Intercompany
Evaluation Committee did not have any meetings in 1998.
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<PAGE> 11
During the last fiscal year, the Board of Trust Managers held four
meetings, and no trust manager attended fewer than 80% of the aggregate of all
meetings of the Board of Trust Managers and the committees, if any, upon which
such trust manager served and which were held during the period of time that
such person served on the Board of Trust Managers or such committee.
PROPOSAL NUMBER 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the Company's independent auditors from
inception through the fiscal year ended December 31, 1998, and has been
appointed by the Board of Trust Managers to continue as the Company's
independent auditors for the fiscal year ending December 31, 1999. In the event
that ratification of this appointment of auditors is not approved by the
affirmative vote of a majority of the votes cast on the matter by shareholders
present in person or represented by proxy at the Meeting and entitled to vote
on the matter, then the Board of Trust Managers will reconsider its appointment
of independent auditors.
A representative of Arthur Andersen LLP is expected to be present at the
Meeting. The representative will have an opportunity to make a statement and
will be able to respond to appropriate questions.
The Board of Trust Managers recommends a vote FOR ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors for
the year ending December 31, 1999.
PROPOSAL NUMBER 3
AMENDMENT OF DECLARATION OF TRUST TO INCREASE EXISTING HOLDER LIMIT
BACKGROUND
The Board of Trust Mangers has unanimously approved, and directed that
there be submitted to holders of the Common Shares for their approval,
amendments to certain provisions of Article VI of the Declaration of Trust to
permit the Board of Trust Managers to increase the limit on the percentage of
the issued and outstanding Common Shares that Mr. Rainwater and certain related
persons (collectively, "Rainwater") may own, or be deemed to own by virtue of
certain attribution provisions of the Internal Revenue Code of 1986, as amended
(the "Existing Holder Limit"), to 9.5%. The text of the proposed amendments is
set forth in Exhibit A to this Proxy Statement and is incorporated herein by
reference, and this description of the proposed amendment is qualified in its
entirety by reference thereto.
Under the Declaration of Trust, the Board of Trust Managers has the
authority, without consent of the shareholders, to increase the ownership limit
applicable to holders of Common Shares other than Rainwater and to increase the
ownership limit applicable to holders of any series of the Company's preferred
shares of beneficial interest, par value $.01 per share ("Preferred Shares") up
to 9.9% of the issued and outstanding Common Shares or series of Preferred
Shares. Currently, the ownership limit applicable to holders of Common Shares
is 8.0%, and the ownership limit applicable to holders of Preferred Shares is
9.9%. The Board also has the authority, with the consent of Mr. Rainwater, to
decrease the Existing Holder Limit. None of these actions is considered an
amendment to the Declaration of Trust.
At the time that the Company adopted its original Declaration of Trust, the
Existing Holder Limit was 9.5%. Since that time, the Board of Trust Managers,
acting with the consent of Mr. Rainwater, reduced the Existing Holder Limit to
8.0% of the issued and outstanding Common Shares. The Board does not have the
authority, however, to increase the Existing Holder Limit, after the Board has
decreased it, without consent of the shareholders.
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<PAGE> 12
Mr. Rainwater may be viewed to have an interest in approval of this
proposal as a result of his beneficial ownership of Common Shares (as described
in "Voting Securities and Principal Shareholders" below) and his positions with
the Company and certain related entities (as described above in "Trust Managers
and Executive Officers").
The foregoing limitations on ownership of Common Shares and Preferred
Shares were designed to preserve the Company's status as a real estate
investment trust for federal income tax purposes but, as discussed in more
detail below, also could have the effect of discouraging offers to acquire the
Company and of increasing the difficulty of consummating any such offer.
ANTITAKEOVER EFFECTS OF OWNERSHIP LIMITATIONS AND OTHER DECLARATION OF TRUST
AND BYLAW PROVISIONS
General. The limitations on ownership of Common Shares described above, as
well as certain other provisions of the Declaration of Trust and the Bylaws,
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. As a result,
these provisions, which were designed primarily to preserve the Company's
status as a real estate investment trust for federal income tax purposes, also
may have the effect of inhibiting or impeding acquisition or attempted
acquisition of control of the Company by means of a tender offer, a proxy
contest or otherwise. 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 of these provisions that is set forth
below is only a summary of the applicable terms of the Declaration of Trust and
Bylaws (copies of which may be obtained without charge on written request to
David M. Dean, Senior Vice President, Law, and Secretary, at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102).
Staggered Board of Trust Managers. The Declaration of Trust and the Bylaws
provide that the Board of Trust Managers 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 that the longer terms associated with the classified Board of Trust
Managers helps to ensure continuity and stability of the Company's management
and policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of the Company's capital shares or
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and some, or a majority, of its shareholders.
Accordingly, under certain circumstances, shareholders could be deprived of
opportunities to sell their Common Shares at a higher price than might
otherwise be available.
Number of Trust Managers; Removal; Filling Vacancies. Subject to any rights
of holders of Preferred Shares to elect additional trust managers under
specified circumstances ("Preferred Holders' Rights"), the Declaration of Trust
provides that the number of trust managers will be fixed by, or in the manner
provided in, the Bylaws, but must not be more than 25 nor fewer than one. In
addition, the Bylaws provide that, subject to any Preferred Holders' Rights,
the Board of Trust Managers will fix the number of trust managers, but the
number must not be more than 25 nor fewer 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 an
increase in the total number of trust managers creates) will be filled by the
affirmative vote of a majority of the remaining trust managers, although less
than a quorum, and any vacancies an increase in the total number of trust
managers creates 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> 13
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 for the Board of Trust Managers to Consider. 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 that the transaction
raises; 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 Proposals. The
Bylaws provide for advance notice procedures for shareholders to make
nominations of candidates for trust manager or bring other business before an
annual meeting of shareholders of the Company. See "Shareholder Proposals for
the Company's 2000 Annual Meeting of Shareholders" below, for a description of
these procedures. 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
proposed nominees or the advisability of other proposed business and, to the
extent the Board of Trust Managers deems necessary or desirable, 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 proposals for
action, the shareholder notice procedures may have the effect of discouraging a
shareholder from proposing nominees or business, precluding a contest for the
election of trust managers or the consideration of shareholder proposals if
procedural requirements are not met, and deterring third parties from
soliciting proxies for a non-management proposal or slate of trust managers,
without regard to the merits of such proposal or slate.
Preferred Shares. The Declaration of Trust authorizes the Board of Trust
Managers to establish one or more series of Preferred Shares and to determine,
with respect to any series of Preferred Shares, the preferences, rights and
other terms of such series. 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 financing
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. Although the Board of Trust Managers has no present intention to do
so, it could, in the future, issue a series of Preferred Shares which, due to
its terms, could impede a merger, tender offer or other transaction that some,
or a majority, of the Company's shareholders might believe to be in their best
interests or in which shareholders might receive a premium over then-prevailing
market prices for their Common Shares.
Amendment of Declaration of Trust. The Declaration of Trust provides that
it may be amended only by the affirmative vote of the holders of not less than
two-thirds of the votes entitled to be cast, except that the provisions
11
<PAGE> 14
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 securities of all classes ("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 that 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 approved by (i) the Board of Trust Managers
and (ii) 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 the Interested Shareholder previously paid for
his shares. These provisions of the Declaration of Trust do not apply, however,
to business combinations that the Board of Trust Managers approves or exempts
prior to the time that the Interested Shareholder becomes an Interested
Shareholder.
Control Share Acquisitions. The Declaration of Trust provides that "control
shares" of the Company acquired in a control share acquisition have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast by the holders of Equity Shares, excluding shares as to
which the acquirer, 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 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 the Declaration of Trust requires, 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 as 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
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<PAGE> 15
(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 that the acquiror pays 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.
The Board of Trust Managers has determined that it is in the best interest
of the Company to increase the Existing Holder Limit to permit Rainwater to
maintain a significant ownership interest in the Company at a level greater
than 8.0% of the outstanding Common Shares. If the shareholders approve the
amendment to the Declaration of Trust to permit the Board of Trust Managers to
increase the Existing Holder Limit to 9.5% of the outstanding Common Shares,
the Board intends to increase the Existing Holder Limit to 9.5%, which will
permit Rainwater to increase Rainwater's existing ownership of Common Shares,
through purchases, exchanges of Units or otherwise, up to 9.5% of the
outstanding Common Shares. The Board of Trust Managers does not currently
intend to increase the ownership limit applicable to other holders of the
Common Shares above the current level of 8.0%.
The Board of Trust Managers recommends that the shareholders vote FOR the
proposal to amend the Declaration of Trust as set forth in Exhibit A to permit
the Board of Trust Managers to increase the Existing Holder Limit from 8.0% to
9.5%.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Shares
for (i) each shareholder of the Company who beneficially owns more than 5% of
the Common Shares, (ii) each trust manager and named executive officer of the
Company or the General Partner, and (iii) the trust managers and executive
officers of the Company or the General Partner as a group. Unless otherwise
indicated in the footnotes, the listed beneficial owner directly owns all
Common Shares.
BENEFICIAL OWNERSHIP (1)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF COMMON PERCENT OF
BENEFICIAL OWNER(2) SHARES (3)(4)(5) COMMON SHARES (6)
- ------------------- ---------------------- -----------------
<S> <C> <C>
Richard E. Rainwater... 12,548,142(7) 9.4%
John C. Goff........... 2,259,359(8) 1.8%
Gerald W. Haddock...... 1,793,606(9) 1.4%
Anthony M. Frank....... 38,800 *
Morton H. Meyerson..... 165,925(10) *
William F. Quinn....... 38,320 *
Paul E. Rowsey, III.... 49,720 *
Melvin Zuckerman....... 1,015,258(11) *
David M. Dean.......... 21,040(12) *
James M. Eidson, Jr.... 24,108(13) *
William D. Miller...... 55,560 *
John L. Zogg, Jr....... 60,055(14) *
The Prudential Insurance
Company of America..... 16,030,725(15) 12.7%
751 Broad Street
Newark, New Jersey
07102-3777
FMR Corp............... 8,186,201(16) 6.5%
82 Devonshire Street
Boston, Massachusetts
07102-377
Cohen & Steers Capital
Management, Inc. ...... 6,454,400(17) 5.1%
757 Third Avenue
New York, New York
10017
Trust Managers and
Executive Officers as a
Group (21 persons) ... 18,686,446(7)(8) 14.1%
(9)(10)(11)(12)(13)(14)(18)
</TABLE>
- ----------
* Less than 1%
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<PAGE> 16
(1) All information is as of April 23, 1999, unless otherwise indicated.
The number of Common Shares beneficially owned is reported on the
basis of regulations of the Securities and Exchange Commission (the
"Commission") governing the determination of beneficial ownership of
securities. Accordingly, the number of Common Shares a person
beneficially owns includes (i) the number of Common Shares that such
person has the right to acquire within 60 days of April 23, 1999 upon
the exercise of options to purchase Common Shares ("Stock Options")
granted pursuant to the 1994 Crescent Real Estate Equities, Inc. Stock
Incentive Plan (the "1994 Plan") and the 1995 Crescent Real Estate
Equities, Inc. Stock Incentive Plan (as amended, the "1995 Plan"),
(ii) the number of Common Shares that may be issued upon exchange of
partnership units of the Operating Partnership ("Units") that such
person owns for Common Shares, with such exchange made on the basis of
two Common Shares for each Unit exchanged (assuming the Company elects
to issue Common Shares rather than pay cash upon such exchange), and
(iii) the number of Common Shares that may be issued upon exercise of
options (the "Unit Options") granted under the 1996 Crescent Real
Estate Equities Limited Partnership Unit Incentive Plan (the "Unit
Plan") to purchase Units and the subsequent exchange of such Units for
Common Shares, with such exchange made on the basis of two Common
Shares for each Unit exchanged (assuming the Company elects to issue
Common Shares rather than pay cash upon such exchange). In addition,
the number of Common Shares a person beneficially owns is deemed to
include the number of Common Shares issuable upon exchange of the
Company's 6 3/4% Series A Convertible Cumulative Preferred Shares,
each of which is currently convertible into .6119 Common Shares (the
"Preferred Shares"). As of April 23, 1999, none of the persons listed
in the Beneficial Ownership table, other than FMR Corp., and no
executive officer not listed in the table, beneficially owned any
Preferred Shares.
(2) Unless otherwise indicated, the address of each beneficial owner is
777 Main Street, Suite 2100, Fort Worth, Texas 76102.
(3) The number of Common Shares the following persons beneficially own
includes the number of Common Shares indicated due to the vesting of
unexercised Stock Options, as follows: Richard E. Rainwater --
1,165,624; John C. Goff -- 445,204; Gerald W. Haddock -- 350,000;
Anthony M. Frank -- 8,400; Morton H. Meyerson -- 11,200; William F.
Quinn -- 31,800; Paul E. Rowsey, III -- 14,000; Melvin Zuckerman --
5,600; David M. Dean -- 18,450; James M. Eidson, Jr. -- 22,000;
William D. Miller -- 54,500; John L. Zogg, Jr. --53,300; and Trust
Managers and Executive Officers as a Group --2,688,408.
(4) The number of Common Shares the following persons beneficially own
includes the number of Common Shares owned indirectly through
participation in the General Partner's 401(k) Plan as of December 31,
1998, as follows: John C. Goff -- 1,977; Gerald W. Haddock -- 2,198;
David M. Dean -- 1,262; James M. Eidson, Jr. -- 770; William D. Miller
-- 713; John L. Zogg, Jr. -- 1,755; and Trust Managers and Executive
Officers as a Group -- 14,453.
(5) The number of Common Shares the following persons beneficially own
includes the number of Common Shares that may be issued upon exchange
of Units that such person owns, as follows: Richard E. Rainwater --
6,682,230; John C. Goff -- 770,114; Gerald W. Haddock -- 512,838;
Morton H. Meyerson -- 54,858; Melvin Zuckerman -- 1,006,858; and Trust
Managers and Executive Officers as a Group -- 9,083,730.
(6) The percentage of Common Shares a person beneficially owns assumes
that (i) as to any person listed in the Beneficial Ownership table,
all Stock Options exercisable within 60 days of April 23, 1999 are
exercised, all Unit Options exercisable within 60 days of April 23,
1999 are exercised and the Units so acquired are subsequently
exchanged for Common Shares, all Units are exchanged for Common
Shares, and all Preferred Shares are exchanged for Common Shares, and
(ii) as to all other persons, no Stock Options or Unit Options are
exercised, no Units are exchanged for Common Shares, and no Preferred
Shares are exchanged for Common Shares.
(7) The number of Common Shares that Mr. Rainwater beneficially owns
includes 460,000 Common Shares and 4,180 Common Shares that may be
issued upon exchange of Units that Darla Moore, Mr. Rainwater's
spouse, owns. Mr. Rainwater disclaims beneficial ownership of such
Common Shares. In addition, the number of Common Shares that Mr.
Rainwater beneficially owns includes 2,206,374 Common Shares and
6,335,564 Common Shares that may be issued upon exchange of Units that
Mr. Rainwater owns indirectly, including (i) 12,346 Common Shares and
49,506 Common Shares that may be issued upon exchange of Units owned
by Rainwater, Inc., a Texas corporation, of which Mr. Rainwater is a
director and the sole owner, (ii) 2,425,836 Common Shares that may be
issued upon exchange of Units owned by Rainwater Investor Partners,
Ltd., a Texas limited partnership, of which Rainwater, Inc. is the
sole general partner, (iii) 555,424 Common Shares that may be issued
upon exchange of Units owned by Rainwater RainAm Investors, L.P., a
Texas limited partnership, of which Rainwater, Inc. is the sole
general partner, (iv) 3,304,798 Common Shares that may be issued upon
exchange of Units owned by Office Towers LLC, a Nevada limited
liability company, of which Mr.
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<PAGE> 17
Rainwater and Rainwater, Inc. own an aggregate 100% interest, and (v)
2,194,028 Common Shares owned by the Richard E. Rainwater 1995
Charitable Remainder Unitrust No. 1, of which Mr. Rainwater is the
settlor and has the power to remove the trustee and designate a
successor, including himself.
(8) The number of Units that Mr. Goff beneficially owns includes (i)
152,560 Common Shares that may be issued upon exchange of Units that
the Goff Family, L.P., a Delaware limited partnership, owns, and (ii)
928,570 Common Shares that may be issued upon exchange of Units due to
the vesting of Unit Options. Mr. Goff disclaims beneficial ownership
of the Common Shares that may be issued upon exchange of Units that
the Goff Family, L.P. owns in excess of his pecuniary interest in such
Units.
(9) The number of Common Shares that Mr. Haddock beneficially owns
includes (i) 101,706 Common Shares that may be issued upon exchange of
Units owned by Haddock Family, L.P., a Delaware limited partnership,
of which Mr. Haddock is the general partner, (ii) 928,570 Common
Shares that may be issued upon exchange of Units due to the vesting of
Unit Options, and (iii) 2,000 Common Shares that may be issued upon
exchange of Units that Mr. Haddock's spouse owns. Mr. Haddock
disclaims beneficial ownership of the Common Shares that may be issued
upon exchange of Units that the Haddock Family, L.P. owns in excess of
his pecuniary interest in such Units, and he disclaims beneficial
ownership of the Common Shares that may be issued upon exchange of
Units that his spouse owns.
(10) The number of Common Shares that Mr. Meyerson beneficially owns
includes (i) 80,000 Common Shares that trusts established for the
benefit of Mr. Meyerson's children (the "Meyerson Trusts") own, (ii)
5,000 Common Shares that Mr. Meyerson's son's estate owns, and (iii)
5,600 Common Shares that are owned by Big Bend III Investments, L.P.
("Big Bend"), in which Mr. Meyerson owns a 49.5% limited partner
interest, and a corporation of which Mr. Meyerson is the sole
shareholder owns a 1% general partner interest. The number of Common
Shares that Mr. Meyerson beneficially owns also includes (i) 16,880
Common Shares that may be issued upon exchange of Units that the
Meyerson Trusts own, and (ii) 37,978 Common Shares that may be issued
upon exchange of Units that Big Bend owns. Mr. Meyerson disclaims
beneficial ownership of all Common Shares and Common Shares that may
be issued upon exchange of Units that the Meyerson Trusts and his
son's estate own. Mr. Meyerson also disclaims beneficial ownership of
the Common Shares and the Common Shares that may be issued upon
exchange of Units that Big Bend owns in excess of Mr. Meyerson's
beneficial interest in Big Bend.
(11) The number of Common Shares that Mr. Zuckerman beneficially owns
includes 1,006,858 Common Shares that may be issued upon exchange of
Units that are owned by Canyon Ranch, Inc., of which Mr. Zuckerman is
the sole shareholder.
(12) The number of Common Shares that Mr. Dean beneficially owns includes
664 Restricted Shares, which will vest (i.e., the restrictions will
lapse) in June 2000. Mr. Dean has sole voting power with respect to
these Restricted Shares.
(13) The number of Common Shares that Mr. Eidson beneficially owns includes
1,338 Common Shares that trusts established for the benefit of Mr.
Eidson's minor children own. Mr. Eidson disclaims beneficial ownership
of such Common Shares.
(14) The number of Common Shares that Mr. Zogg beneficially owns includes
1,000 Common Shares that Mr. Zogg's minor children own. Mr. Zogg
disclaims beneficial ownership of such Common Shares.
(15) The Prudential Insurance Company of America ("Prudential") filed a
Schedule 13G/A ("Prudential Schedule 13G/A") dated February 12, 1999,
reporting that Prudential beneficially owns 16,018,369 Common Shares.
Prudential holds 4,767,551 of the 16,018,369 Common Shares for the
benefit of its general account and has sole voting and dispositive
power as to such Common Shares. Prudential holds 11,250,818 of the
16,018,369 Common Shares for its own benefit or for the benefit of its
clients by its separate accounts, externally managed accounts,
registered investment companies, subsidiaries and/or other affiliates
and has shared voting and dispositive power as to such Common Shares.
All information presented above relating to Prudential is based solely
on the Prudential Schedule 13G/A. In addition, the Company
subsequently issued an additional 12,356 Common Shares to Prudential
in connection with the conversion by Prudential, on behalf of its
general account and certain funds that affiliates of Prudential
advise, of the Company's Series B Convertible Preferred Shares.
(16) FMR Corp. filed a Schedule 13G/A ("FMR Schedule 13G/A") dated February
1, 1999, reporting that Fidelity Management & Research Company
("Fidelity"), a registered investment adviser and a wholly owned
subsidiary of FMR Corp., beneficially owns 7,590,834 Common Shares,
none of which it has the power to vote. The number of Common Shares
that Fidelity Management beneficially owns includes 156,034 Common
Shares resulting from the assumed conversion of 255,000 Preferred
Shares. In addition to such 7,590,834 Common Shares, Fidelity
Management Trust Company ("Fidelity Management"), a wholly owned
subsidiary of FMR Corp., beneficially owns 595,366 Common Shares, each
of which it has the sole power to vote. The number of Common Shares
that Fidelity Management beneficially owns includes 85,666 Common
Shares resulting from the assumed conversion of 55,000 Preferred
Shares. Fidelity beneficially owns 7,590,834 Common Shares as a result
of serving as investment adviser to various registered investment
companies (the "Funds"). Each of (i) Edward C. Johnson III, chairman
of FMR Corp., (ii) Abigail P. Johnson, a director of FMR Corp., (iii)
FMR Corp., through its control of Fidelity, and (iv) the Funds, has
sole power to dispose of such 7,590,834 Common Shares that the Funds
own. Neither FMR Corp., Edward C. Johnson III nor Abigail Johnson has
the sole power to vote or direct the voting of the Common Shares that
the Funds own, which power resides with the Funds' boards of trustees.
Fidelity carries out voting of the Common Shares under written
guidelines that the Funds' boards of trustees establish. Fidelity
Management beneficially owns 595,366 Common Shares as a result of its
serving as investment manager of certain institutional accounts. Each
of Edward C. Johnson III, Abigail Johnson and FMR Corp., through its
control of Fidelity Management, has sole dispositive power over such
595,366 Common Shares, sole voting power over 563,466 Common Shares
and no voting power over
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<PAGE> 18
31,900 Common Shares that the institutional accounts own. All
information presented herein relating to FMR Corp., Fidelity and
Fidelity Management is based solely on the FMR Schedule 13G/A.
(17) Cohen & Steers Capital Management, Inc. ("Cohen & Steers") filed a
Schedule 13G/A ("Cohen & Steers Schedule 13G/A") dated February 8,
1999, reporting that Cohen & Steers beneficially owns 6,454,400 Common
Shares. Cohen & Steers has the sole power to dispose of all such
6,454,400 Common Shares and the sole power to vote 5,540,000 of such
Common Shares. All information presented herein relating to Cohen &
Steers is based solely on the Cohen & Steers Schedule 13G/A.
(18) The number of shares that the trust managers and executive officers as
a group beneficially own includes an aggregate of 1,392 Restricted
Shares that two executive officers other than Mr. Dean hold. Such
Restricted Shares will vest (i.e., the restrictions will lapse) in
June 2000. Such executive officers have sole voting power with respect
to their respective Restricted Shares.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLES
The following table sets forth the annual and long-term compensation paid
or awarded for the years ended December 31, 1998, 1997 and 1996, to the
Company's Chief Executive Officer and to the four most highly compensated
executive officers of the Company and the General Partner. As a result of the
Company's UPREIT structure, the General Partner, rather than the Company,
compensates all employees. The Company did not grant any stock appreciation
rights ("SARs") during this period.
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------------- -------------------------------------------------
AWARDS PAYOUTS
------------------------ -------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS (#) PAYOUTS ($)(1)
------------------ ---- ---------- --------- ---------------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock 1998 416,153 300,000 58,535(2) -- 1,000,000 -- 1,690
President and Chief 1997 380,772 500,000 56,553(2) -- -- -- 1,600
Executive Officer 1996 286,165 1,500,000 -- -- 2,000,000(3) -- 960
James M. Eidson, Jr. 1998 182,067 110,000 -- -- 30,000 -- 1,690
Senior Vice President, 1997 168,865 200,000 -- -- 80,000(4) -- 1,600
Acquisitions 1996 138,740 331,000 -- -- 210,000 -- 960
David M. Dean 1998 182,067 80,000 -- -- 79,500 -- 1,211
Senior Vice President, 1997 169,375 150,000 -- -- 80,000(4) -- 1,600
Law, and Secretary 1996 141,300 81,000 -- -- 120,000 -- 960
William D. Miller 1998 182,067 80,000 -- -- 12,500 -- 1,628
Senior Vice President, 1997 112,404(5) 69,300 -- -- 140,000(6) -- 1,600
Asset Management 1996 -- -- -- -- -- -- --
John L. Zogg, Jr. 1998 143,884 80,000 -- -- 112,500 -- 1,690
Vice President, Leasing 1997 113,848 106,875 -- -- 30,000(4) -- 1,600
and Marketing 1996 102,938 25,625 -- -- 7,500 -- 935
</TABLE>
- ----------
(1) All amounts in this column represent matching contributions that the
General Partner made to the individual's Crescent Real Estate
Equities, Ltd. 401(k) Plan account.
(2) Amount represents salaries and benefits that the Company paid for two
personal accountants for Mr. Haddock.
(3) Amount represents the number of Common Shares that may be issued
following (i) exercise of Unit Options for Units on a one-for-one
basis, and (ii) exchange of Units for Common Shares on the basis of
two Common Shares for each Unit.
(4) Amount represents Common Shares underlying Stock Options granted in
March 1998 based on the individual's performance in 1997.
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<PAGE> 19
(5) This amount represents salary paid to Mr. Miller for the period
between May 1, 1997, the date he joined the Company, until the end of
1997. Mr. Miller's annualized salary for 1997 was $175,000.
(6) Amount includes 20,000 Common Shares underlying Stock Options granted
in March 1998 based on Mr. Miller's performance in 1997.
The following table provides certain information regarding Stock Options
granted to the named executive officers for the year ended December 31, 1998.
The Company did not grant any SARs during this period.
TABLE 2
OPTION GRANTS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
----------------------------------------------------------- ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM ($)(1)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH.) DATE 5% 10%
---- ----------- ------------ ------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock..... 1,000,000(2) 48.02 31.125 June 2008 19,574 49,605
James M. Eidson, Jr... 30,000(2) 1.44 31.125 June 2008 587 1,488
David M. Dean......... 79,750(2) 3.83 31.125 June 2008 1,561 3,956
William D. Miller..... 12,500(2) 0.60 31.125 June 2008 245 620
John L. Zogg, Jr...... 12,500(2) 0.60 31.125 June 2008 245 620
100,000(3) 4.80 22.125 October 2008 1,391 3,526
</TABLE>
- ----------
(1) Potential Realizable Value is the value of the granted options, based
on the assumed annual growth rates of the share price shown during
their 10-year option term. For example, a 5% growth rate, compounded
annually, for Mr. Haddock's grant results in a share price of $50.70
per share, and a 10% growth rate, compounded annually, results in a
share price of $80.73 per share. These potential realizable values are
listed to comply with the regulations of the Commission, and the
Company cannot predict whether these values will be achieved. Actual
gains, if any, on Stock Option exercises are dependent on the future
performance of the Common Shares.
(2) Amount vests in equal one-fifth installments on June 12, 1999, 2000,
2001, 2002 and 2003.
(3) Amount vests in equal one-fifth installments on October 19, 1999,
2000, 2001, 2002 and 2003.
The following table provides information about Stock Options that the named
executive officers exercised during the year ended December 31, 1998 and Stock
Options that each of them held at December 31, 1998. The Company did not grant
any SARs during this period.
TABLE 3
AGGREGATED OPTION EXERCISES DURING 1998 AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gerald W. Haddock....... -- -- 1,581,042(2) 2,071,430(3) 11,259 5,826
James M. Eidson, Jr. ... 3,900 44,769 104,100 275,900 348 565
David M. Dean........... -- -- 123,600 258,700 718 282
William D. Miller....... -- -- 24,000 128,500 -- --
John L. Zogg, Jr........ -- -- 38,600 181,400 280 340
</TABLE>
17
<PAGE> 20
- ---------
(1) Market value of securities underlying in-the-money options is based on the
closing price of the Common Shares on December 31, 1998 (the last trading
day of the fiscal year) on the New York Stock Exchange of $23.00, minus
exercise price.
(2) The number of securities underlying exercisable but unexercised options
includes 928,570 Common Shares that may be issued following (i) exercise of
Units Options for Units on a one-for-one basis, and (ii) exchange of Units
for Common Shares on the basis of two Common Shares for each Unit.
(3) The number of securities underlying unexercisable and unexercised options
includes 1,071,430 Common Shares that may be issued following (i) vesting
of Unit Options, (ii) exercise of Units Options for Units on a one-for-one
basis, and (iii) exchange of Units for Common Shares on the basis of two
Common Shares for each Unit.
EMPLOYMENT AGREEMENTS
As part of the transactions in connection with formation of the Company,
the Operating Partnership assumed Employment Agreements between Rainwater, Inc.
and each of John C. Goff and Gerald W. Haddock. Such Employment Agreements
require that Messrs. Goff and Haddock enter into the Noncompetition Agreements
described below. See "Agreements Not to Compete" below. The Operating
Partnership takes action through the General Partner; Mr. Haddock serves as the
sole member of the board of directors of the General Partner. The Employment
Agreements for Messrs. Goff and Haddock initially provided that each of them
receive annual compensation of $160,000 per annum. On July 1, 1995, the
Operating Partnership increased the salary for each of Messrs. Goff and Haddock
to $240,000 per annum. On March 5, 1996, the Operating Partnership increased
the salary for each of Messrs. Goff and Haddock to $300,000 per annum, and on
March 3, 1997, to $400,000 per annum. On June 23, 1997, Mr. Goff agreed to a
reduction in his salary from the Operating Partnership to $100,000 per annum to
reflect his agreement to devote a significant amount of his time to his duties
as chairman of CBHS. On March 9, 1998, the Operating Partnership increased the
salary for each of Messrs. Goff and Haddock by 5% per annum, to $105,000 per
annum for Mr. Goff and to $420,000 per annum for Mr. Haddock. On March 1, 1999,
the Operating Partnership increased the salary for Mr. Haddock to $500,000 per
annum. The term of each of the Employment Agreements expires on April 14, 2000,
subject to automatic renewal for one-year terms unless terminated by the
Operating Partnership or Messrs. Goff or Haddock, as the case may be. The
salaries under the Employment Agreements, which are not subject to a cap, may
be increased at the discretion of the Operating Partnership, although at its
request, the Executive Compensation Committee of the Company has reviewed and
ratified all such increases in salaries. The Operating Partnership similarly
determines bonuses under the Employment Agreements, although at its request,
the Executive Compensation Committee has reviewed and ratified all such
bonuses.
AGREEMENTS NOT TO COMPETE
The Operating Partnership is dependent on the services of Richard E.
Rainwater, John C. Goff and Gerald W. Haddock. Mr. Rainwater serves as Chairman
of the Board of Trust Managers but has no employment agreement with the Company
and, therefore, is not obligated to remain with the Company for any specified
term. In connection with the initial public offering of the Company's Common
Shares in May 1994 (the "Initial Offering"), each of Messrs. Rainwater, Goff
and Haddock entered into a Noncompetition Agreement with the Company that
restricts him from engaging in certain real estate related activities during
specified periods of time. The restrictions that Mr. Rainwater's Noncompetition
Agreement imposes will terminate one year after the later to occur of (i) the
date on which Mr. Rainwater ceases to serve as a trust manager of the Company,
and (ii) the date on which Mr. Rainwater's beneficial ownership of the Company
(including Common Shares and Units) first represents less than a 2.5% ownership
interest in the Company. The restrictions that Mr. Goff's and Mr. Haddock's
Noncompetition Agreements impose will terminate one year after the subject
individual first ceases to be a trust manager or an executive officer of the
Company. The Noncompetition Agreements do not, among other things, prohibit
Messrs. Rainwater, Goff and Haddock from engaging in certain activities in
which they were engaged at the time of formation of the Company in 1994 or from
making certain passive real estate investments.
In 1996, Sanjay Varma became an advisor to the Operating Partnership
pursuant to an Advisory Agreement among the Operating Partnership, Mr. Varma,
Johanna Varma, Mr. Varma's spouse, and The Varma Group, Inc. (as amended,
"Advisory Agreement"). Mr. Varma subsequently became an employee of the General
Partner and
18
<PAGE> 21
Executive Vice President, Chief of Corporate Operations of the Company and the
General Partner in August 1998, and is no longer providing services under the
Advisory Agreement in connection with the Operating Partnership's acquisition
and operation of hotels, resorts, restaurants, health spas and other public
hospitality businesses ("Advisory Services"). However, Mr. Varma remains
subject to certain restrictions under the Advisory Agreement, until July 31,
2001. Pursuant to these restrictions, Mr. Varma may not provide Advisory
Services to anyone other than the Operating Partnership, and he may not invest
in or otherwise participate for his own benefit in the acquisition of any real
estate interest. The Advisory Agreement does not, among other things, prohibit
Mr. Varma from (i) engaging in activities in which he was engaged at the time
of executing the Advisory Agreement, (ii) investing in real estate interests
in, and management contracts for, hotels and resort properties that the
Operating Partnership or its affiliates own, or (iii) making certain
co-investments in acquisitions that the Operating Partnership or its affiliates
make. The Varma Group, Inc. currently provides asset management services to the
subsidiaries of COI that operate certain Company hotel properties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934, as amended (the "Exchange Act")
requires the Company's officers, trust managers and persons who own more than
10% of the Common Shares or the Preferred Shares to file reports of ownership
on Form 3 and changes in ownership on Forms 4 and 5 with the Commission and the
New York Stock Exchange. The Commission rules also require such officers, trust
managers and 10% holders to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that all
Section 16(a) filing requirements applicable to its officers, trust managers
and 10% shareholders were complied with for the fiscal year ended December 31,
1998, except that (i) Ms. Page failed to file on a timely basis her Initial
Statement of Beneficial Ownership of Securities on Form 3; (ii) Mr. Eidson
failed to file on a timely basis one Statement of Changes in Beneficial
Ownership of Securities on Form 4 ("Form 4") reporting nine transactions; (iii)
Mr. Zogg failed to file on a timely basis one Form 4 reporting one transaction;
(iv) Mr. Frank failed to file on a timely basis one Form 4 reporting two
transactions; and (v) Mr. Crenshaw failed to report on a timely basis one
transaction on his Annual Statement of Beneficial Ownership of Securities on
Form 5 that was timely filed.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following report and the Performance Graph shall not be
incorporated by reference into any such filings.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee is comprised of Messrs. Meyerson and
Rowsey. A majority of the full Board of Trust Managers select members of the
Executive Compensation Committee.
Compensation Philosophy and Objectives. The Executive Compensation
Committee of the Company determines the compensation for the Company's
executive officers and administers the stock incentive and other compensation
plans that the Company adopts. In addition, the Executive Compensation
Committee, acting for the Company in its capacity as the sole stockholder of
the General Partner, reviews and ratifies, where appropriate, decisions of the
board of directors of the General Partner with respect to the compensation of
the executive officers of the General Partner.
The philosophy of the Company's compensation program is to employ, retain
and reward executives capable of leading the Company in achieving its business
objectives. These objectives include enhancing shareholder value, maximizing
financial performance, preserving a strong financial posture, increasing the
Company's assets and positioning its assets and business in geographic markets
offering long-term growth opportunities. The
19
<PAGE> 22
accomplishment of these objectives is measured against the conditions
characterizing the industry within which the Company and the Operating
Partnership operate. In implementing the Company's compensation program, it
generally is the policy of the Executive Compensation Committee to seek to
qualify executive compensation for deductibility by the Company for purposes of
Section 162(m) of the Internal Revenue Code to the extent that such policy is
consistent with the Company's overall objectives and executive compensation
policy.
Executive Officer Compensation. In addition to their regular salary, the
executive officers of the General Partner may be compensated in the form of
cash bonus awards and restricted stock grants and Stock Options under the 1995
Plan. Executive officers of the General Partner are eligible to participate, on
the same basis as other employees, in the employer matching provision of the
profit sharing plan that the General Partner established, whereby employees may
save for their future retirement on a tax-deferred basis through the Section
401(k) savings feature of the plan, with the General Partner contributing an
additional percentage of the amount each employee saves. Such executive
officers are also eligible to participate in the other employee benefit and
welfare plans that the General Partner maintains on the same terms as
non-executive personnel who meet applicable eligibility criteria, subject to
any legal limitations on the amounts that may be contributed or the benefits
that may be payable under such plans.
Performance of the Company and the Operating Partnership in light of
conditions characterizing the REIT industry generally was a key consideration
in the deliberations of the Executive Compensation Committee regarding
executive compensation for 1998. The Executive Compensation Committee
recognizes that share price is one measure of performance, but also that other
factors, including industry business conditions and the Company's success in
achieving short-term and long-term goals and objectives, must be evaluated in
arriving at a meaningful analysis of performance. Accordingly, the Executive
Compensation Committee also gave consideration to the Company's achievement of
specified business objectives when reviewing 1998 executive officer
compensation. An additional objective of the Executive Compensation Committee
has been to reward executive officers with equity compensation in addition to
salary, in keeping with the Company's overall compensation philosophy of
placing equity in the hands of its executive officers in an effort to further
instill shareholder considerations and values in the actions of management.
Base Salary. The 1998 base annual salaries of the Vice Chairman of the
Board of Trust Managers (the "Vice Chairman") and the President and Chief
Executive Officer (the "CEO") were based upon employment contracts between such
officers and the Operating Partnership. In March 1997, the General Partner
approved, and the Board of Trust Managers of the Company ratified, an increase
from the $300,000 annual salary provided in each such contract to $400,000 per
annum for each of the Vice Chairman and CEO. On June 23, 1997, Mr. Goff agreed
to a reduction in his salary from the Operating Partnership to $100,000 per
annum to reflect his agreement to devote a significant amount of his time to
his duties as chairman of CBHS. On March 9, 1998, the General Partner approved,
and the Executive Compensation Committee ratified, a 5% increase for each of
the Vice Chairman and CEO to $105,000 per annum for the Vice Chairman and
$420,000 per annum for the CEO. On March 1, 1999, the General Partner approved,
and the Executive Compensation Committee ratified, an increase in the annual
salary for the CEO to $500,000. Each of these employment agreements, which
provides for bonuses to be determined by the board of directors of the General
Partner, expires in April 2000, subject to automatic renewal for successive
one-year periods unless terminated by the Operating Partnership or Messrs. Goff
or Haddock, as the case may be. The 1998 compensation paid to the other
executive officers of the General Partner was based upon a salary structure
administered for consistency for each position relative to its authority and
responsibility and in comparison to industry peers.
Annual Incentive. The General Partner paid cash bonuses to its executive
officers and other key personnel in recognition of the Company's strong
performance within its industry and increased long-term return to shareholders,
as well as the substantial personal contributions to the strategies of the
Operating Partnership. For a discussion of the bonus paid to the CEO, see "Vice
Chairman and CEO Compensation" below.
Long-Term Incentive. Stock Options were used in 1998 to reward and
incentivize executive officers and other key personnel and to retain them
through the potential of capital gains and equity buildup in the Company. The
Executive Compensation Committee determined the number of Stock Options granted
based upon its evaluation of performance criteria mentioned above, along with
the Executive Compensation Committee's subjective evaluation
20
<PAGE> 23
of each executive's ability to influence the Company's long-term growth and
profitability. All Stock Options were issued at a price not less than the
market price of the Common Shares on the date of grant. Because the value of
the Stock Option should, over time, bear a direct relationship to the Company's
share price, the Executive Compensation Committee believes the award of Stock
Options represents an effective incentive to create value for the shareholders.
During 1998, the Executive Compensation Committee granted Stock Options to
purchase 1,949,500 Common Shares to twelve persons who currently serve as
officers of the Company, the General Partner, or both.
Vice Chairman and CEO Compensation. On March 1, 1999, the Executive
Compensation Committee and the Board of Trust Managers approved and ratified
the authorization by the General Partner of a cash bonus in the amount of
$300,000 to the CEO. In taking such action, the Executive Compensation
Committee gave substantial weight to the critical contributions that the CEO
made to the Company's historical performance and to planning and implementing
the positioning of the Company to take advantage of growth opportunities when
changes in market conditions permit. The Company has completed more than $4.6
billion in acquisitions since the Initial Offering in 1994 and has increased
its quarterly distributions by approximately 137.8% since the Initial Offering.
The Executive Compensation Committee also noted that the stock price has
increased from $12.50 per share since the Initial Offering to $21.375 at the
time of the approval of the bonus on March 1, 1999. Further, total return to
shareholders (consisting of appreciation in share price and distributions paid)
increased by 139.5% from the Initial Offering through December 31, 1998. The
Executive Compensation Committee also considered the amount and nature of
compensation paid to similarly situated executives at other major office REITs
and at other companies in the Dallas-Fort Worth area.
On July 16, 1996, the Executive Compensation Committee and the Board of
Trust Managers of the Company granted Unit Options to acquire 1,000,000 Units
to each of the Vice Chairman and the CEO. The Unit Plan provided for a
seven-year vesting period and accelerated vesting of 250,000 Unit Options in
the event the fair market value of the Common Shares equaled or exceeded $25.00
for each of ten consecutive trading days (determined based on the closing price
on each such day), which it did on January 7, 1997. Effective March 9, 1998,
the Compensation Committee of the General Partner, which consists of Messrs.
Meyerson and Rowsey, amended the vesting schedule of the CEO's Unit Options to
provide for (i) the vesting of 107,143 Unit Options per year for the remainder
of the term of such Unit Option, (ii) accelerated vesting of 250,000 Unit
Options at the time that the Fair Market Value of the Common Shares first
equals or exceeds $50.00 per Common Share, and (iii) accelerated vesting of all
remaining unvested Unit Options at the time that the Fair Market Value of the
Common Shares first equals or exceeds $60.00 per Common Share. The Fair Market
Value of the Common Shares is defined as the average closing price of the
Common Shares for the preceding ten consecutive trading days. The closing price
of the Common Shares on the date of amendment of the vesting schedule was
$35.3125. The Executive Compensation Committee believes that the exercise
price, vesting provisions and other terms of the Unit Options provide a strong
link between the future value of the Unit Options and the long-term value of
the Common Shares, which will provide further incentives for the Vice Chairman
and CEO to establish financial and operational objectives designed to further
increase the value of the Company.
EXECUTIVE COMPENSATION COMMITTEE
Morton H. Meyerson
Paul E. Rowsey, III
PERFORMANCE GRAPH
The following line graph sets forth a comparison of the percentage change
in the cumulative total shareholder return on the Common Shares compared to the
cumulative total return of the NAREIT Equity REIT Return Index, the S&P 500
Index and SNL Securities LP Office REITs Index for the period April 28, 1994,
the date on which trading of the Common Shares commenced, through December 31,
1998. The graph depicts the actual increase in the market value of the Common
Shares relative to an initial investment of $100 on April 28, 1994, assuming a
reinvestment of cash distributions.
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<PAGE> 24
<TABLE>
<CAPTION>
NAREIT SNL
CRESCENT EQUITY SECURITIES
REAL ESTATE REIT LP OFFICE
MEASUREMENT PERIOD EQUITIES RETURN S&P 500 REITS
(FISCAL YEAR COVERED) COMPANY ($) INDEX ($) INDEX ($) INDEX ($)
--------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
04/28/94 100.00 100.00 100.00 100.00
12/31/94 111.73 98.11 104.40 104.81
12/31/95 150.81 113.09 143.63 145.14
12/31/96 248.14 158.97 176.47 219.48
12/31/97 390.63 183.96 235.36 285.09
12/31/98 241.40 151.76 302.62 227.91
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Meyerson and Rowsey, who are the sole members of the Executive
Compensation Committee of the Board of Trust Managers, have borrowed certain
funds from the Operating Partnership in connection with the exercise of Stock
Options, as described in "Certain Relationships and Related Transactions"
below.
In addition, Messrs. Rainwater, Goff and Haddock are executive officers and
trust managers of the Company and members of the board of directors of COI. For
1998, recommendations regarding compensation of the executive officers of COI
were made either by the full board of directors of COI or by COI's compensation
committee (composed of Carl Thorne and Mr. Rowsey), and the full board of
directors of COI approved all recommendations with respect to executive officer
compensation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For purposes of the following discussion, the term "Company" includes,
unless the context otherwise requires, the Operating Partnership and the other
subsidiaries of the Company, in addition to the Company.
In July 1996, in connection with the acquisition of Canyon Ranch-Tucson,
the Operating Partnership obtained from Mr. Zuckerman, who subsequently became
a trust manager of the Company in November 1996, and Jerrold Cohen an option
(the "Option") to acquire, in three equal installments, up to 30% of a
management company to be formed by Messrs. Zuckerman and Cohen for the
licensing and use of the "Canyon Ranch" name in locations and for services and
products beyond Canyon Ranch-Tucson and Canyon Ranch-Lenox. In July, 1998, the
Operating
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<PAGE> 25
Partnership assigned the Option to CRL Investments, Inc. ("CRL"), a company
owned 95% by the Operating Partnership and 5% (representing 100% of the voting
securities of CRL) by COI. In connection with formation of CRL, the Operating
Partnership contributed $949,500 and COI contributed $50,500. CRL exercised the
first installment of the Option by paying $1 million to obtain a 10% economic
interest in CR License, LLC ("CR License"), the management company that Messrs.
Zuckerman and Cohen formed. CRL has the opportunity during the next two years
to pay an additional $5 million to obtain an additional 20% interest in CR
License. Contemporaneously, CRL acquired a 50% interest in CR Las Vegas LLC, an
entity that will operate and be the lessee of a Canyon Ranch day spa in the
Venetian Hotel in Las Vegas; CR License owns the remaining 50% interest in CR
Las Vegas LLC. Through CRL and CR License, the Operating Partnership has an
effective 52.25% economic interest in the Canyon Ranch day spa project. To
enable CRL to exercise future options with respect to CR License and to fund
its obligations to partnerships such as CR Las Vegas, the Operating Partnership
extended to CRL a $7 million credit facility ("CRL Facility"), which bears
interest at 12% per annum and matures in August 2003. The Operating Partnership
has committed to invest $8 million in equity in CRL. During the first quarter
of 1999, the Operating Partnership and COI made an equity contribution in CRL,
on a pro rata basis, in the amount of $2.33 million, and CRL borrowed $2.33
million from the Operating Partnership under the CRL Facility. Substantially
all of these amounts have been contributed to CR Las Vegas. As of April 23,
1999, the total amount outstanding under the CRL Facility was $3.4 million.
Effective March 14, 1996, March 14, 1997 and March 30, 1998, the Company
loaned to Mr. Meyerson, an independent trust manager of the Company, $187,425,
$45,311 and $45,297, respectively, on a recourse basis, pursuant to the 1994
Plan and the 1995 Plan. Mr. Meyerson used the proceeds of the first loan, with
$75.00 in cash, to acquire 15,000 Common Shares pursuant to the exercise of
15,000 Stock Options that were granted to him on May 5, 1994 under the 1994
Plan. Mr. Meyerson used the proceeds of the second loan, together with $14.00
in cash, to acquire 2,800 Common Shares pursuant to the exercise of 2,800 Stock
Options that were granted to him on March 14, 1996 under the 1995 Plan. Mr.
Meyerson used the proceeds of the third loan, together with $28.00 in cash, to
acquire 2,800 Common Shares pursuant to the exercise of 2,800 Stock Options
that were granted to him on March 14, 1996 under the 1995 Plan. In April 1999,
Mr. Meyerson assigned his loans, together with 7,500 Units and 5,600 Common
Shares securing these loans, to Big Bend III Investments L.P. ("Big Bend"), of
which Mr. Meyerson is a 49.5% limited partner, and of which a corporation that
Mr. Meyerson wholly owns is a 1% general partner.
Effective July 17, 1996, February 2, 1998 and June 12, 1998, the Company
loaned to Mr. Frank, an independent trust manager of the Company, $187,425,
$45,298 and $120,869 respectively, on a recourse basis, pursuant to the 1994
Plan and the 1995 Plan. Mr. Frank used the proceeds of the first loan, together
with $75.00 in cash, to acquire 15,000 Common Shares pursuant to the exercise
of 15,000 Stock Options that were granted to him on May 5, 1994 under the 1994
Plan. Mr. Frank used the proceeds of his second loan, together with $28.00 in
cash, to acquire 2,800 Common Shares pursuant to the exercise of 2,800 Stock
Options that were granted to him on March 14, 1996 under the 1995 Plan. Mr.
Frank used the proceeds of the third loan, together with $56.00 in cash, to
acquire 5,600 Common Shares pursuant to the exercise of 2,800 Stock Options
that were granted to him on March 14, 1996 under the 1995 Plan and 2,800 Stock
Options that were granted to him on June 9, 1997 under the 1995 Plan.
Effective June 10, 1997, the Company loaned to Mr. Rowsey, an independent
trust manager of the Company, $419,997 on a recourse basis, pursuant to the
1994 Plan and the 1995 Plan. Mr. Rowsey used the proceeds of his loan, together
with $328.00 in cash, to acquire 30,000 Common Shares pursuant to the exercise
of 30,000 Stock Options that were granted to him on May 5, 1994 under the 1994
Plan, and 2,800 Common Shares pursuant to the exercise of 2,800 Stock Options
that were granted to him on March 14, 1996 under the 1995 Plan.
Each of the loans to Messrs. Meyerson, Frank and Rowsey bears interest at a
fixed annual rate equal to the distribution yield on the Common Shares as of
March 14, 1996, March 14, 1997 and March 30, 1998 (for the respective loans
originally made to Mr. Meyerson), July 17, 1996, February 2, 1998 and June 12,
1998 (for Mr. Frank's respective loans), and June 10, 1997 (for Mr. Rowsey's
loan), in each case, the effective date of the applicable loan. Each loan is
payable, interest only, on a quarterly basis from distributions paid with
respect to such Common Shares, with a final payment of all accrued and unpaid
interest, plus the entire original principal balance, due on March 14, 2001,
March 14, 2002 and March 30, 2003 (for the respective loans originally made to
Mr.
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<PAGE> 26
Meyerson), on July 17, 2001, February 2, 2003 and June 12, 2003 (for Mr. Frank's
respective loans), and on June 10, 2002 (for Mr. Rowsey's loan). The loans
originally made to Mr. Meyerson are secured by 7,500 Units, 2,800 Common Shares
and 2,800 Common Shares, respectively, that Big Bend owns; Mr. Frank's loans are
secured by 15,000 Common Shares, 2,800 Common Shares and 5,600 Common Shares,
respectively, that Mr. Frank owns; and Mr. Rowsey's loan is secured by 32,800
Common Shares that Mr. Rowsey owns. As of December 31, 1998, accrued interest in
the aggregate amount of $8,286 was outstanding on the loans originally made to
Mr. Meyerson, accrued interest in the aggregate amount of $8,375 was outstanding
on Mr. Frank's loans, and accrued interest in the amount of $9,718 was
outstanding on Mr. Rowsey's loan.
On May 5, 1994, the Company made a loan to Houston Area Development Corp.
("HADC") and to Mira Vista Development Corp. ("MVDC"), each in the original
principal amount of $14.4 million, bearing interest at a rate of 12.5% per
annum and maturing in May 2001. The outstanding balances of those two loans as
of December 31, 1998 were, respectively, $19.6 million and $970,000. On January
16, 1997, the Company entered into a Revolving Development Loan Agreement
("Revolver") with HADC, pursuant to which the Company agreed to loan the amount
of $5.0 million to HADC, bearing interest at a rate of 14% per annum; the
outstanding balance under this Revolver as of December 31, 1998 was $2.0
million. Messrs. Goff and Haddock each own one-third of the voting stock
(representing approximately 2% of the outstanding stock) and the Operating
Partnership owns a 93.99% of the outstanding stock (all of which is non voting)
of MVDC and HADC. Mr. Haddock is a director of HADC, and Mr. Goff is a director
of MVDC.
In April 1997, the Company established COI to be the lessee and operator of
certain assets to be acquired by the Company and to perform the Intercompany
Agreement, pursuant to which each party agreed to provide the other with rights
to participate in certain transactions. Messrs. Rainwater and Goff are,
respectively, the Chairman of the Board and the Vice Chairman of the Board of
both the Company and COI, and Mr. Haddock serves as the President, Chief
Executive Officer and a member of the Board of the Company, COI and the General
Partner. Messrs. Frank and Rowsey are members of the Board of the Company and
of COI. As of April 16, 1999, Messrs. Rainwater, Goff and Haddock beneficially
owned an aggregate of approximately 15.1% of the outstanding common stock of
COI through their aggregate ownership of 1,740,926 shares of COI common stock,
including shares underlying vested stock options.
In connection with the formation and capitalization of COI, the Company
contributed $14.1 million to COI and loaned approximately $35.9 million to COI
pursuant to a five-year loan (the "COI Term Loan"), which bears interest at 12%
per annum, is collateralized by a lien on certain assets that COI now owns or
may acquire in the future and matures in May 2002. Also in connection with
COI's formation, the Company established a $20.4 million line of credit (the
"Line of Credit"), which bears interest at 12% per annum. The Line of Credit
was amended in August 1998 to increase the amount available to $30.4 million.
The Line of Credit is cross-defaulted and cross-collateralized with the COI
Term Loan and matures no later than June 2007. As of December 31, 1998, the
outstanding principal balance on the COI Term Loan was approximately $24.2
million, and accrued interest was approximately $500,000. As of December 31,
1998, the outstanding principal balance on the Line of Credit was $27.7
million, with accrued interest of approximately $18,500.
In connection with the acquisition by COI, effective July 31, 1997, of the
companies that leased certain Company-owned hotel properties, COI acquired 100%
of an entity that had outstanding debt under notes in the original principal
amounts of approximately $2.4 million and $650,000 (collectively, the "CR
Notes") payable to the Company in connection with acquisition of Canyon
Ranch-Tucson. The CR Notes bear interest at a rate of 10.75% per annum, are
secured by deeds of trust for certain real and personal property and mature in
August 2003. The aggregate outstanding balance at December 31, 1998 on the CR
Notes was approximately $2.2 million. In addition, in connection with this
transaction, COI acquired 100% of an entity that has outstanding debt under a
promissory note of approximately $190,000 (the "Sonoma Note") payable to the
Company in connection with acquisition of Sonoma Mission Inn & Spa. The Sonoma
Note bears interest at a rate of 7.5% per annum and matures in November 2006.
The outstanding balance of the Sonoma Note at December 31, 1998 was
approximately $190,000.
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<PAGE> 27
In connection with COI's acquisition on September 22, 1997 of a two-thirds
interest in the joint venture that owns the Houston Center Athletic Club and a
$5.0 million note receivable from the joint venture, the Company made a loan to
COI of $800,000 ("Houston Center Note"), which bears interest at 8.5% per
annum. The Houston Center Note is secured by COI's interest in the joint
venture and matures in September 2002. As of December 31, 1998, the outstanding
balance of the Houston Center Note was approximately $632,000.
Until September 1998, Messrs. Haddock and Goff owned, collectively, 66.67%
of the voting securities (representing approximately 6.67% of the outstanding
stock) of Crescent Development Management Corp., a Delaware corporation
("CDMC"), and they, together with Harry Frampton (collectively, the "CDMC
Capital Contributors"), comprised CDMC's board of directors. The Operating
Partnership owns 90% of the outstanding stock (all of which is non voting) of
CDMC. Effective September 11, 1998, the CDMC Capital Contributors entered into
a partnership agreement (the "Partnership Agreement") with COI to form COPI
Colorado, L.P., a Delaware limited partnership ("COPI Colorado"). As of
September 22, 1998, each CDMC Capital Contributor contributed to COPI Colorado
all of his shares of CDMC voting stock (collectively, the "CDMC Shares") in
exchange for an approximately 16.67% limited partner interest in COPI Colorado.
COPI Colorado also owns 1,088,030 shares of COI stock. COI contributed to COPI
Colorado $9.0 million in cash in exchange for a 50% general partner interest in
COPI Colorado. As a result, COI owns a 50% managing interest in COPI Colorado,
and the CDMC Capital Contributors own a 50% investment interest in COPI
Colorado. COI funded its contribution to COPI Colorado using the proceeds from
a $9 million term loan from the Operating Partnership ("COPI Colorado Note").
The COPI Colorado Note bears interest at 12% per annum, with interest payable
quarterly, and matures in May 2002. The COPI Colorado Note is secured by COI's
general partner interest in COPI Colorado and is cross-collateralized and
cross-defaulted with COI's other borrowings from the Operating Partnership. As
of December 31, 1998, the COPI Colorado Note had an outstanding principal
balance of $9 million and accrued interest of $183,000.
As of December 31, 1998, three credit facilities that the Operating
Partnership extended to CDMC were outstanding: (i) a $40.2 million line of
credit that matures August 2004 and bearing interest at the rate of 11.5% per
annum ("CDMC Credit Facility"), (ii) a note payable to the Operating
Partnership in the original principal amount of $3.1 million, maturing June
2005 and bearing interest at the rate of 12% per annum; and (iii) a $22.9
million credit facility due January 2003 and bearing interest at 12% per annum.
The aggregate outstanding balance of those facilities as of December 31, 1998
is $53.9 million, and they are cross-defaulted and cross-collateralized with
CDMC's interests in the real estate development companies and resort management
company in which the loan proceeds have been invested. Effective January 1,
1999, the Operating Partnership and CDMC entered into a modification of the
CDMC Credit Facility, increasing the size of the credit facility from $40.2
million to $48.2 million, but restricting the use of advances to specified
existing real estate development projects. The Operating Partnership extended
an additional credit facility to CDMC dated January 1, 1999 in the amount of
$40 million to fund certain future real estate development projects. This
facility bears interest at 11.5% per annum and matures in December 2006.
Additionally, the Operating Partnership guarantees approximately $3 million of
mortgage loan indebtedness of a general partnership in which CDMC's
wholly-owned subsidiary holds a nonmanaging minority interest; the Operating
Partnership made that guaranty in consideration, in part, for an option from
CDMC's subsidiary to purchase its interest in that partnership.
Messrs. Haddock and Goff own in the aggregate a 5% economic interest
(representing all of the voting common stock) in DBL Holdings, Inc. ("DBL"),
and the Company owns all of the non voting common stock (representing a 95%
economic interest) in DBL. In connection with DBL's purchase of a 12.39%
limited partner interest (the "Mavericks Interest") in the partnership that
owns the Dallas Mavericks, the Operating Partnership loaned $10.08 million to
DBL pursuant to a loan agreement and related term note (the "DBL Mavericks
Loan"). The DBL Mavericks Loan bears interest at the rate of 12% per annum and
matures in June 2002. Generally, interest under the DBL Mavericks Loan is
payable quarterly to the extent of cash flow derived from all sources other
than DBL-CBO, Inc., DBL's newly-formed wholly-owned subsidiary ("DBL-CBO"). On
December 31, 1998, the outstanding principal balance of the DBL Mavericks Loan,
was $11.77 million, and outstanding interest was approximately $560,000. The
DBL Mavericks Loan agreement prohibits pledges of the Mavericks Interest.
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<PAGE> 28
On March 31, 1999, DBL-CBO acquired a $5.97 million aggregate principal
amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Islands
limited liability company (the "Juniper Notes"). DBL-CBO obtained the funds to
purchase the Juniper Notes by selling all of the equity interest in DBL-CBO
(the "Equity Interest") to DBL for $6 million. DBL, in turn, obtained the
purchase price for the Equity Interest pursuant to a $6 million loan agreement
and related term note (the "DBL Juniper Loan") from the Operating Partnership
that is secured by the Equity Interest. The DBL Juniper Loan matures in April
2011 and accrues interest at the rate of 12% per annum. Generally, interest
under the DBL Juniper Loan is payable quarterly to the extent of cash flow
derived from DBL-CBO. Under the DBL Juniper Loan agreement, DBL has agreed (i)
to prepay the DBL Juniper Loan to the extent of any prepayment of the Juniper
Notes, (ii) to cause DBL-CBO to distribute to DBL, in its capacity as DBL-CBO's
sole shareholder, substantially all of the interest payments that DBL-CBO
receives on the Juniper Notes, and (iii) to cause DBL-CBO not to engage in any
business activity other than acquiring and holding the Juniper Notes.
In 1997, COI and Magellan Health Services, Inc. ("Magellan") formed CBHS to
operate 90 behavioral healthcare facilities (the "Behavioral Healthcare
Facilities") that the Company acquired in 1997 from a subsidiary of Magellan.
Until November 1998, Mr. Goff served as chairman of the CBHS governing board.
Mr. Rainwater, either directly or indirectly, owns 2,457,278 shares of
Magellan, and approximately 1,212,483 warrants to purchase Magellan's common
stock. Messrs. Goff and Haddock and the Company also own, directly or
indirectly, shares or warrants to acquire shares of Magellan common stock. COI
and Magellan each own a 50% interest in CBHS. CBHS leases the Behavioral
Healthcare Facilities from the Company pursuant to a lease with an initial
12-year term (subject to four, five-year renewal options at fair market rates)
for annual base rent of approximately $42.8 million (received during 1998),
increasing annually at a 5% compounded annual rate. The lease provides for CBHS
to pay base rent of approximately $45.0 million during 1999.
CBHS, Magellan and the Company entered into a letter agreement dated
November 10, 1998, in which the Company agreed to use the proceeds in excess of
$4.4 million from the sale of certain Behavioral Healthcare Facilities that the
Company owns ("Aggregate Sales Proceeds") to purchase certain behavioral
healthcare facilities that Magellan owns. The Company currently has received
outstanding offers to buy two of the Company facilities, the sale of either
would cause the Aggregate Sales Proceeds to exceed $4.4 million and trigger the
Company's purchase obligation.
Darla D. Moore is married to Mr. Rainwater and is a director of Magellan.
As part of the arrangements pursuant to which Mr. Rainwater acquired securities
of Magellan, an affiliate of Mr. Rainwater has the right to designate a nominee
acceptable to Magellan for election as a director of Magellan for so long as
Mr. Rainwater and his affiliates continue to beneficially own a specified
minimum number of shares of Magellan common stock. Mr. Rainwater's affiliate
proposed Ms. Moore as its nominee for director, and the Magellan board elected
Ms. Moore as director on February 22, 1996.
Effective March 12, 1999, the Company, Vornado Realty Trust ("Vornado"),
affiliated entities that owned or operated approximately 101 refrigerated
storage properties (the "Refrigerated Storage Properties") and COI restructured
their investment in the Refrigerated Storage Properties (the "Restructuring").
In the Restructuring, the affiliated entities that owned any portion of the
business operations of the Refrigerated Storage Properties sold their ownership
to a newly formed partnership (the "Refrigerated Storage Operating
Partnership"), of which Vornado Operating L.P. owns 60% and a newly formed
subsidiary of COI owns 40%, in consideration of the payment of $48.7 million by
the Refrigerated Storage Operating Partnership. The Refrigerated Storage
Operating Partnership, as lessee, entered into triple-net master leases of the
Refrigerated Storage Properties. Each of the Refrigerated Storage Properties is
subject to one or more of the leases, each of which has an initial term of 15
years, subject to two, five-year renewal options. The leases provide for an
aggregate annual base rental rate of $123 million for the first through fifth
lease years, $126 million for the sixth through tenth lease years and $130.5
million for the 11th through 15th lease years, plus percentage rent based on
the gross revenues received from customers at the Refrigerated Storage
Properties above a specified amount.
In addition, in connection with the Restructuring, and also effective March
12, 1999, the Company purchased from COI an additional 4% non voting interest
in the two subsidiaries of the Company that have an indirect interest
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<PAGE> 29
in the Refrigerated Storage Properties for an aggregate purchase price of $13.2
million. As a result, the economic interest of the Company in each of the two
subsidiaries increased from 95% to 99%, which increased the Company's indirect
ownership interest in the Refrigerated Storage Properties from 38% to 39.6%,
and the economic interest of COI in the two subsidiaries decreased from 5% to
1%, which decreased COI's indirect ownership interest in the Refrigerated
Storage Properties from 2% to 0.4%. The Company also granted COI an option to
require the Company to purchase COI's remaining 1% interest in both or either
of the two subsidiaries at such time as the purchase would not, in the opinion
of counsel to the Company, adversely affect the status of the Company as a REIT
for an aggregate price, payable by the Company, of approximately $3.4 million.
In connection with the Restructuring, the Company established a new line of
credit in the principal amount of $19.5 million available to COI at an interest
rate of 9% per annum, all of which was outstanding as of April 23, 1999.
On April 24, 1998, the Company and COI acquired a 94.9% economic interest
and a 5% economic interest, respectively, in Corporate Arena Associates, Inc.
("CAA"). CAA owns an undivided 6.19% interest in certain acreage on which the
multi-purpose sports arena (the "Arena") is to be built in Dallas, Texas for
the Dallas Stars, a National Hockey League club, and the Dallas Mavericks, a
National Basketball Association club, as well as in the Arena. The common stock
that the Company owns in CAA is non voting. The common stock that COI owns in
CAA is also non voting; however, COI has limited consent rights under a
Shareholders Agreement among the three shareholders executed in connection with
the transaction. As of March 31, 1999, the Company's total contribution to CAA
was $3.43 million. On September 16, 1998, the Company and COI acquired a 9.9%
interest and a 2.6051% interest, respectively, as limited partners in
Hillwood/1642, Ltd. ("Hillwood"), a partnership that owns certain acreage
surrounding the Arena that may be developed for commercial purposes. As of
March 31, 1999, the Company's contribution to Hillwood was $3.95 million.
As of December 31, 1998, the Company owned nine hotel and resort properties
(collectively, the "Hotel Properties") that the Company leased to subsidiaries
of COI (the "Hotel Lessees") pursuant to nine separate leases ("Hotel Leases").
Under the Hotel Leases, each having an initial term of ten years, the Hotel
Lessees assumed the rights and obligations of the property owner under any
related management agreement with the hotel operators, as well as the
obligation to pay all property taxes and other charges against the property.
Each of the Hotel Leases provides for the respective Hotel Lessee to pay (i)
base rent, with periodic rent increases, if applicable, and (ii) percentage
rent based on a percentage of gross revenues, room revenues, food and beverage
revenues, or a combination thereof, if applicable, above a specified amount.
The Hotel Lessees paid an aggregate of approximately $52.2 million in base and
percentage rent under the Hotel Leases to the Company during the year ended
December 31, 1998. The Hotel Leases entitle the Company to receive an aggregate
amount of $37.44 million for base rent, in addition to amounts for percentage
rent, from the Hotel Lessees during 1999.
Until December 31, 1998, the Omni Austin Hotel, one of the Hotel
Properties, was subleased to a third party that was the tenant of the Hotel
Property when the Operating Partnership acquired it. In connection with the
Operating Partnership's negotiation of an amended lease directly with that
third party, the Operating Partnership and the Hotel Lessee, by mutual
agreement, terminated the Hotel Lease with the Hotel Lessee, effective December
31, 1998, and the Company paid $75,000 as a break-up fee to the Hotel Lessee
pursuant to the terms of the Hotel Lease. Since January 1, 1999, that Hotel
Lessee has provided limited asset management services for the Hotel Property in
consideration of $50,000 in annual compensation payable by the Company.
In addition to the Hotel Properties, the Company owns the Renaissance
Houston Hotel and is negotiating an agreement with a Marriott affiliate to
manage the Renaissance Houston Hotel, in which case it is expected that (i) the
Company will terminate its lease with the current tenant of the hotel, and (ii)
a subsidiary of COI would become the tenant of Renaissance Houston Hotel under
a lease with terms comparable to those of the Hotel Leases described above
("COI Subsidiary Lease"). It is anticipated that the COI Subsidiary Lease will
require annual base rent payments in the amount of $1.1 million for the first
year of the COI Subsidiary Lease, to increase to $6 million during the ten-year
term, in addition to percentage rent.
COI executed a Master Guaranty and other guaranties pursuant to which COI
unconditionally guarantees payment and performance under the Hotel Leases by
the Hotel Lessee solely from COI's hotel and resort related assets and income
streams. COI provided the Master Guaranty in exchange for the Company's
agreement to
27
<PAGE> 30
eliminate from the Hotel Leases certain net worth requirements and cash
distribution limitations applicable to the Hotel Lessees.
In early 1998, Mr. Rainwater proposed to purchase an undeveloped
residential lot located at Canyon Ranch-Tucson (the "Lot") from the Operating
Partnership at a price equal to the fair market value of the Lot. Arthur
Andersen LLP appraised the Lot and determined its market value to be $275,000.
Mr. Rainwater closed on the purchase of the Lot on March 8, 1999, and paid
$275,000 for the Lot. The Audit Committee confirmed and ratified this
transaction.
Alan D. Friedman became an employee and President of Development and
Private Equity of the General Partner on July 17, 1998. Prior to that time,
Trisept, Inc., a company wholly owned by Mr. Friedman, performed consulting
services for the Operating Partnership. The amounts paid for the services that
Trisept, Inc. performed for the Operating Partnership from January 1, 1998
through July 16, 1998 totaled approximately $385,500.
Management believes that the foregoing transactions are on terms no less
favorable than those that could have been obtained in comparable transactions
with unaffiliated parties.
SHAREHOLDER PROPOSALS FOR THE COMPANY'S 2000
ANNUAL MEETING OF SHAREHOLDERS
Shareholders who intend to submit proposals for consideration at the
Company's 2000 annual meeting of shareholders must submit such proposals to the
Company no later than December 31, 1999, in order to be considered for
inclusion in the proxy statement and form of proxy that the Board of Trust
Managers will distribute in connection with that meeting. Shareholder proposals
should be submitted to David M. Dean, Senior Vice President, Law, and
Secretary, at 777 Main Street, Suite 2100, Fort Worth, Texas 76102.
Under the Bylaws, a shareholder must comply with certain procedures to
nominate persons for election to the Board of Trust Managers or to propose
other business to be considered at an annual meeting of shareholders. These
procedures provide that shareholders desiring to make nominations for trust
managers and/or to bring a proper subject before a meeting must do so by notice
timely delivered to the Secretary of the Company. The Secretary of the Company
generally must receive notice of any such proposal not less than seventy days
nor more than ninety days prior to the anniversary of the preceding year's
annual meeting of shareholders. In the case of proposals for the 2000 annual
meeting of shareholders, the Secretary of the Company must receive notice of
any such proposal no earlier than March 9, 2000, and no later than March 29,
2000 (other than proposals intended to be included in the proxy statement and
form of proxy, which, as noted above, the Company must receive by December 31,
1999). Generally, such shareholder notice must set forth (i) as to each nominee
for trust manager, all information relating to such nominee that is required to
be disclosed in solicitations of proxies for election of trust managers under
the proxy rules of the Commission; (ii) as to any other business, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in that business of such shareholder; and (iii) as to the shareholder, (a) the
name and address of the shareholder, (b) the class or series and number of
shares of beneficial interest of the Company that the shareholder owns
beneficially and of record, and (c) the date(s) upon which the shareholder
acquired ownership of such shares. The chairman of the annual meeting shall
have the power to declare that any proposal not meeting these and any other
applicable requirements that the Bylaws impose shall be disregarded. A copy of
the Bylaws may be obtained, without charge, upon written request to David M.
Dean, Senior Vice President, Law, and Secretary, at 777 Main Street, Suite
2100, Fort Worth, Texas 76102.
In addition, the form of proxy that the Board of Trust Managers will
solicit in connection with the Company's 2000 annual meeting of shareholders
will confer discretionary authority to vote on any proposal, unless the
Secretary of the Company receives notice of that proposal no earlier than March
9, 2000, and no later than March 29, 2000, and the notice complies with the
other requirements described in the preceding paragraph.
28
<PAGE> 31
EXHIBIT A
CRESCENT REAL ESTATE EQUITIES COMPANY
AMENDMENTS TO ARTICLE VI
OF
RESTATED DECLARATION OF TRUST
RESOLVED, that paragraph (A) of Section 6.4 of the Company's Restated
Declaration of Trust is hereby amended by deleting the first sentence of the
definition of "Existing Holder Limit" in its entirety and replacing it with the
following sentence:
"Existing Holder Limit" shall mean initially 9.5 percent of the outstanding
Common Shares of the Trust, or, from and after the date hereof, such percentage
of the outstanding Common Shares of the Trust as the Board of Trust Managers
may establish from time to time pursuant to the authority expressly vested in
the Board of Trust Managers in paragraph J or paragraph K of this Section 6.4,
subject to the limitations contained in paragraph L of this Section 6.4.
FURTHER RESOLVED, that paragraph (K) of Section 6.4 of the Company's
Restated Declaration of Trust is hereby amended to read as follows:
(K) Increase in Common Shares Ownership Limit or Existing Holder Limit.
Subject to the limitations contained in paragraph L of this Section 6.4, the
Board of Trust Managers is hereby expressly vested with the full power and
authority from time to time to increase the Common Shares Ownership Limit or
the Existing Holder Limit, or both. No such increase shall constitute or be
deemed to constitute an amendment of this Declaration of Trust, and shall take
effect automatically without any action on the part of any shareholder as of
the date that the Board of Trust Managers specifies that is subsequent to the
Board resolution approving and effecting such increase.
FURTHER RESOLVED, that subparagraph (4) of paragraph (L) of Section 6.4 of
the Company's Restated Declaration of Trust is hereby amended to read as
follows:
(L) Limitations on Modifications.
(4) The Existing Holder Limit may not be increased to a percentage that
is greater than 9.5 percent. The Existing Holder Limit also may not be
increased, and no additional ownership limitations may be created if, after
giving effect to such increase or creation the Trust would be "closely held"
within the meaning of Section 856(h) of the Code (assuming ownership of Equity
Shares by all Persons (other than the Existing Holder) equal to the greatest of
(i) the actual ownership, (ii) the Beneficial Ownership of Equity Shares by
each Person, or (iii) the applicable Ownership Limit with respect to such
Person, and assuming the ownership by the Existing Holder of Common Shares
equal to the Existing Holder Limit and shares of any series of Preferred Shares
equal to the Preferred Shares Ownership Limit).
<PAGE> 32
[CRESCENT LETTERHEAD]
CRE112 DETACH HERE
PROXY
CRESCENT REAL ESTATE EQUITIES COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 7, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF TRUST MANAGERS.
The undersigned hereby appoints Gerald W. Haddock and David M. Dean, and
each of them, as proxies, with full power of substitution in each, to vote all
common shares of beneficial interest of Crescent Real Estate Equities Company
(the "Company") which the undersigned is entitled to vote, at the Annual
Meeting of Shareholders of the Company to be held on June 7, 1999, at 10:00
a.m., Central Daylight Savings Time, and any adjournment thereof, on all
matters set forth on the Notice of Annual Meeting and Proxy Statement, dated
April 30, 1999, a copy of which has been received by the undersigned, as
follows on the reverse side.
[SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE
SIDE] SIDE]
CRE111 DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED "FOR" THE MATTERS STATED.
1. To elect two Trust Managers to serve three-year terms.
Nominees: John C. Goff, Paul E. Rowsey, III
GRANT WITHHOLD
AUTHORITY [ ] [ ] AUTHORITY
for all for all
nominees nominees
- ----------------------------------------------
INSTRUCTIONS: To withhold authority to vote for
any individual nominee, write that nominee's
name in the space provided above.
2. To approve the appointment of Authur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the amendment of the Restated Declaration of Trust of the
Company to permit the Board of Trust Managers to increase the limit on the
percentage of the issued and outstanding Common Shares that Mr. Rainwater,
Chairman of the Board, and related persons may own, or be deemed to own, to
9.5%.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Other Matters.
In the discretion of the proxies, upon such other matters as may come
before the Meeting as they determine to be in the best interest of the
Company.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
IMPORTANT: Please mark this Proxy, date it, sign it exactly as your name(s)
appear(s) and return it in the enclosed postage paid envelope. Joint owners
should each sign personally. Trustees and others signing in a representative or
fiduciary capacity should indicate their full titles in such capacity.
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Signature: Date: Signature: Date:
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