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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ______________
COMMISSION FILE NUMBER 1-13038
CRESCENT REAL ESTATE EQUITIES COMPANY
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(Exact name of registrant as specified in its charter)
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TEXAS 52-1862813
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
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777 Main Street, Suite 2100, Fort Worth, Texas 76102
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (817) 321-2100
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of each class: on Which Registered:
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Common Shares of Beneficial Interest par value $.01 per share New York Stock Exchange, Inc.
6 3/4% Series A Convertible Cumulative Preferred Shares of
Beneficial Interest par value $.01 per share New York Stock Exchange, Inc.
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 26, 1999, the aggregate market value of the 118,545,354 common
shares and 8,000,000 preferred shares held by non-affiliates of the registrant
was approximately $2.6 billion, based upon the closing price of $20 13/16 for
common shares and $15 11/16 for preferred shares on the New York Stock Exchange.
Number of Common Shares outstanding as of March 26, 1999: 124,710,139
Number of Preferred Shares outstanding as of March 26, 1999: 8,000,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 1998 Annual Meeting of Shareholders to be held in
June 1999 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PAGE
PART I.
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Item 1. Business.............................................................................. 2
Item 2. Properties............................................................................ 16
Item 3. Legal Proceedings..................................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders................................... 29
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................. 30
Item 6. Selected Financial Data............................................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 54
Item 8. Financial Statements and Supplementary Data........................................... 56
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................................................ 90
PART III.
Item 10. Trust Managers and Executive Officers of the Registrant............................... 90
Item 11. Executive Compensation................................................................ 90
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 90
Item 13. Certain Relationships and Related Transactions........................................ 91
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 91
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PART I
ITEM 1. BUSINESS
THE COMPANY
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT"), and,
together with its subsidiaries, is a fully integrated real estate company. The
Company, as defined below, provides management, leasing and development services
with respect to certain of its properties. Crescent Equities is a Texas real
estate investment trust, which became the successor to Crescent Real Estate
Equities, Inc., a Maryland corporation, on December 31, 1996, through the merger
of Crescent Real Estate Equities, Inc. with CRE Limited Partner, Inc., a
Delaware corporation, into Crescent Equities.
The term "Company" includes, unless the context otherwise requires, all
of the direct and indirect subsidiaries of Crescent Equities and the predecessor
corporation, Crescent Real Estate Equities, Inc.
The direct and indirect subsidiaries of Crescent Equities include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP;
Operating Partnership
o CRESCENT REAL ESTATE EQUITIES, LTD.;
Sole General Partner of the Operating Partnership
o SEVEN SINGLE-PURPOSE LIMITED PARTNERSHIPS;
Formed for the purpose of obtaining securitized debt,
substantially all the economic interests owned directly
or indirectly by the Operating Partnership and the
remaining interests owned indirectly by Crescent
Equities through seven separate corporations described
below.
o SEVEN SEPARATE CORPORATIONS.
Wholly owned subsidiaries of the General Partner, each
of which is a general partner of one of the seven
limited partnerships described above.
Crescent Equities conducts all of its business directly through the
Operating Partnership and its other subsidiaries. The Company is structured to
facilitate and maintain its qualification as a REIT. This structure permits
persons contributing properties (or interests therein) to the Company to defer
some or all of the tax liability that they otherwise might have incurred in
connection with the sale of assets to the Company.
See Note 1 of Item 8. Financial Statements and Supplementary Data for a
table that lists the principal subsidiaries of Crescent Equities and the
Properties owned by such subsidiaries.
As of December 31, 1998, the Company's assets and operations were
composed of five major industry segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Refrigerated Storage Segment; and
o Behavioral Healthcare Segment.
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Within these segments, the Company, through various entities, owned
directly or indirectly the following real estate assets (the "Properties") as of
December 31, 1998:
o OFFICE AND RETAIL SEGMENT includes 89 office properties
(collectively referred to as the "Office Properties") located
primarily in 17 metropolitan submarkets in Texas, with an
aggregate of approximately 31.8 million net rentable square feet
and seven retail properties (collectively referred to as the
"Retail Properties") with an aggregate of approximately 0.8
million net rentable square feet.
o HOSPITALITY SEGMENT includes seven full service hotels with a
total of 2,257 rooms and two destination health and fitness
resorts that can accommodate up to 462 guests daily (collectively
referred to as the "Hotel Properties"). All Hotel Properties,
except the Omni Austin Hotel, are leased to subsidiaries of
Crescent Operating, Inc. ("COI"). As of January 1, 1999, the Omni
Austin Hotel is leased to HCD Austin Corporation, an unrelated
third party.
o RESIDENTIAL DEVELOPMENT SEGMENT includes the Company's ownership
of real estate mortgages and non-voting common stock representing
interests ranging from 40% to 95% in five unconsolidated
residential development corporations (collectively referred to as
the "Residential Development Corporations"), which in turn,
through joint venture or partnership arrangements, own 13
residential development properties (collectively referred to as
the "Residential Development Properties").
o REFRIGERATED STORAGE SEGMENT includes the Company's indirect 38%
interest in three partnerships (collectively referred to as the
"Refrigerated Storage Partnerships"), each of which owns one or
more corporations or limited liability companies (collectively
referred to as the "Refrigerated Storage Corporations") which, as
of December 31, 1998, directly or indirectly owned or operated
approximately 101 refrigerated storage properties (collectively
referred to as the "Refrigerated Storage Properties") with an
aggregate of approximately 530.1 million cubic feet (21.4 million
square feet). The remaining interest in the Refrigerated Storage
Partnerships is owned by Vornado Realty Trust ("Vornado") (60% of
each Refrigerated Storage Partnership) and COI (2% indirect
interest in each Refrigerated Storage Partnership). See "Industry
Segments - Refrigerated Storage Segment - New Ownership Structure"
below for a description of the Company's restructuring of its
investment in the Refrigerated Storage Segment, effective March
12, 1999. As a result of this restructuring, the Company increased
its indirect ownership in the Refrigerated Storage Partnerships to
39.6%, and the Refrigerated Storage Corporations own, but no
longer operate, the Refrigerated Storage Properties.
o BEHAVIORAL HEALTHCARE SEGMENT includes 89 properties in 26 states
(collectively referred to as the "Behavioral Healthcare
Properties") that are leased to Charter Behavioral Health Systems,
LLC ("CBHS"). CBHS was formed to operate the Behavioral Healthcare
Properties and is owned 50% by a subsidiary of Magellan Health
Services, Inc. and 50% by Crescent Operating, Inc.
See Note 3 of Item 8. Financial Statements and Supplementary Data for a
table showing revenues, funds from operations and identifiable assets for each
of these industry Segments for the last three fiscal years.
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BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's business objective is to maximize the total return to its
shareholders through increases in distributions and share price. From the
Company's initial public offering of common shares on May 5, 1994, through March
26, 1999, the total return to shareholders was approximately 122%, with
distributions having increased by approximately 160% and the market price per
common share having increased by approximately 67%.
In response to the challenging market conditions of 1998, management
has renewed its focus on the fundamentals of the Company's business. Management
believes that the earnings growth in both the Office and Retail Segment and the
Hospitality Segment reflects this focus. The Residential Development Segment
also continues to generate sales growth, and the Company continues to reinvest
in new developments within this Segment.
Management believes that, as the Company enters 1999, it is
well-positioned for another year of growth in revenues, driven not only by
revenues generated from leases of existing Office Properties, but also by
revenues from additional investments in existing Properties and businesses.
OPERATING AND FINANCING STRATEGIES
Based on management's assessment of current conditions in the real
estate and financial markets, in 1999 the Company will continue to focus on
growth in revenues from its existing Property portfolio.
The Company seeks to enhance its operating performance and financial
position by:
o applying well-defined leasing strategies in order to capture
the potential rental growth in the Company's portfolio of
Office Properties as occupancy and rental rates increase with
the continued recovery of the markets and submarkets in which
the Company has invested;
o achieving a high tenant retention rate at the Company's Office
Properties through quality service, individualized attention
to its tenants and active preventive maintenance programs;
o empowering management and employing compensation formulas
linked directly with enhanced operating performance of the
Company and its Properties; and
o optimizing the use of various sources of capital including
the refinancing of existing debt and selectively obtaining
additional debt to enhance revenue growth.
INVESTMENT STRATEGIES
The Company intends, in 1999, to focus primarily on operations but will
also continue to assess investment opportunities, consistent with its long-term
investment strategy of acquiring premier assets and assets that have been
undervalued. The Company will continue to employ the corporate, transactional
and financial skills of its management team to assess investment opportunities.
The Company expects that its principal investment focus during 1999 will be on
internal investment opportunities. These internal investment opportunities
include, for example, investments in additional residential development
properties and additional refrigerated storage properties, expansion of existing
Refrigerated Storage Properties, and resort expansions and upgrades in the
Hospitality Segment, such as the construction of additional suites at Sonoma
Mission Inn & Spa and the addition of a spa at the Ventana Country Inn.
Furthermore, the Company will continue to focus, in its assessment of
investment opportunities, on office properties that can be acquired at
significant discounts from replacement cost and that provide both a favorable
current return on invested capital and the opportunity for significant cash flow
growth through future increases in rental rates. In particular, the Company will
focus on office properties which satisfy these criteria and which are located in
the Company's core office markets and submarkets. Consistent with its investment
strategies, the Company also will consider innovative real estate investments
that offer superior returns on its capital investment.
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Finally, the Company is evaluating the possibility of using proceeds from
potential sales of non-core or non-strategic office assets to reinvest in higher
return businesses or assets, with a focus on the Company's core business
segments.
EMPLOYEES
As of December 31, 1998, the Company had more than 500 employees. None
of these employees are covered by collective bargaining agreements.
TAX STATUS
The Company elected under Section 856(c) of the Internal Revenue Code
of 1986, as amended (the "Code"), to be taxed as a REIT under the Code beginning
with its taxable year ended December 31, 1994. As a REIT for federal income tax
purposes, the Company generally is not subject to federal income tax on REIT
taxable income that it distributes to its shareholders. Under the Code, REITs
are subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their REIT taxable income each
year. The Company will be subject to federal income tax on its REIT taxable
income (including any applicable alternative minimum tax) at regular corporate
rates if it fails to qualify as a REIT for tax purposes in any taxable year. The
Company will also not be permitted to qualify for treatment as a REIT for
federal income tax purposes for four years following the year during which
qualification is lost. Even if the Company qualifies as a REIT for federal
income tax purposes, it may be subject to certain federal, state and local taxes
on its REIT taxable income and property and to federal income and excise tax on
its undistributed REIT taxable income. In addition, certain of its subsidiaries
are subject to federal, state and local income taxes.
ENVIRONMENTAL MATTERS
The Company and its Properties are subject to a variety of federal and
state environmental laws, ordinances and regulations, including:
o Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended;
o Superfund Amendments and Reauthorization Act of 1986;
o Federal Clean Water Act;
o Federal Clean Air Act; and
o Toxic Substances Control Act.
The application of these laws to a specific property that the Company owns will
be dependent on a variety of property-specific circumstances, including the
former uses of the property and the building materials used at each property.
Under the environmental laws listed above, a current or previous owner
or operator of real estate may be required to investigate and clean up certain
hazardous or toxic substances, asbestos-containing materials, or petroleum
product releases at the property. They may also be held liable to a governmental
entity or the third parties for property damage and for investigation and clean
up costs such parties incur in connection with the contamination, whether or not
the owner or operator knew of, or was responsible for, the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site.
Such costs or liabilities could exceed the value of the affected real estate. No
governmental authorities have notified the Company of any non-compliance,
liability or other claims in connection with any of the Company's Properties.
Prior to the Company's acquisition of its Properties, independent environmental
consultants conducted or updated Phase I environmental
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assessments on the Properties and, at some Properties, conducted Phase II soil
and ground water sampling as part of the Phase I assessments to also assess the
potential for environmental contamination at those Properties. None of these
Phase I assessments, updates, or Phase II samplings revealed any materially
adverse environmental conditions. Although management does not anticipate any
material environmental liabilities, there can be no assurances that
environmental liabilities have not developed since such environmental
assessments were prepared, or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability.
INDUSTRY SEGMENTS
OFFICE AND RETAIL SEGMENT
OWNERSHIP STRUCTURE
Crescent Equities is a REIT which, through its direct and indirect
subsidiaries, owns 89 Office Properties located primarily in 17 metropolitan
submarkets in Texas with an aggregate of approximately 31.8 million net rentable
square feet and seven Retail Properties with an aggregate of approximately 0.8
million net rentable square feet. The Company, as a lessor, has retained
substantially all of the risks and benefits of ownership of the Office and
Retail Properties and accounts for its leases as operating leases. Additionally,
the Company provides management and leasing services for the majority of its
Office and Retail Properties.
See Item 2. Properties for more information about the Company's Office
and Retail Properties, and Note 1 of Item 8. Financial Statements and
Supplementary Data for a table that lists the principal subsidiaries of Crescent
Equities and the Properties owned by such subsidiaries.
MARKET INFORMATION
The Office and Retail Properties reflect the Company's strategy of
investing in premier assets within markets that have significant potential for
rental growth. In selecting the Office and Retail Properties, the Company
analyzed demographic and economic data to focus on markets expected to benefit
from significant employment growth as well as corporate relocations. After
identifying and analyzing attractive regional markets, the Company selected
submarkets that it believed would be the major beneficiaries of this projected
growth and that would integrate a premier office environment with quality of
life features such as: affordable residential housing; an environment generally
well-protected from crime; effective transportation systems; a significant
concentration of retailing alternatives; and cultural centers, entertainment
attractions and recreational facilities. Other factors the Company considered in
selecting the submarkets in which its Office and Retail Properties are located
included proximity to major airports and the relative aggressiveness of local
governments in providing tax and other incentives designed to favor business.
Currently, the Company's Office and Retail Properties are located primarily in
Dallas/Fort Worth and Houston, Texas.
Within its selected submarkets, the Company has focused on premier
locations that management believes are able to attract and retain the highest
quality tenants and command premium rents. In addition, several of the
Properties benefit from improvements made by prior owners or developers beyond
what currently could be justified by expected economic returns. Examples of
these improvements, which should not materially increase the future operating
cost of the Properties, are the inclusion of various amenities, the use of
expensive materials and the addition of extensive landscaping. Such premier
locations also tend to be more stable in downward property cycles. Consistent
with its long-term investment strategies, the Company has sought situations
where it was able to acquire properties that have strong economic returns based
on in-place tenancy and have a dominant position within the submarket due to
quality and/or location. Accordingly, management's long-term investment strategy
not only demands acceptable current cash flow return on invested capital, but
also considers long-term cash flow growth prospects.
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The Company does not depend on a single or a few major customers within
the Office and Retail Segment, the loss of which would have a material adverse
effect on the Company's financial condition or results of operations. Based on
rental revenues from office and retail leases in effect as of December 31, 1998,
no single tenant accounted for more than 4% of the Company's total Office and
Retail Segment rental revenues.
The demographic conditions, economic conditions and trends (population
growth and employment growth) favoring the markets in which the Company has
invested are projected to continue to approximate or exceed the national
averages (with the exception of New Orleans, Louisiana), as illustrated in the
following table.
Projected Population Growth and Employment Growth for all Company Markets
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Population Employment
Growth Growth
Metropolitan Statistical Area (MSA) 1998-2008 1998-2008
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Dallas/Fort Worth, TX............................... 18.4% 16.3%
Houston, TX......................................... 12.4 11.4
Austin, TX.......................................... 29.2 24.6
Denver, CO.......................................... 16.4 15.2
Colorado Springs, CO................................ 16.2 17.8
New Orleans, LA..................................... 4.0 8.0
Miami, FL........................................... 11.1 12.2
Phoenix, AZ......................................... 23.2 22.2
Washington, DC...................................... 17.2 17.0
Omaha, NE........................................... 11.6 13.7
Albuquerque, NM..................................... 14.7 16.2
San Francisco, CA................................... 14.6 13.8
San Diego, CA....................................... 19.3 18.0
UNITED STATES....................................... 8.5 11.6
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Source: Compiled from information published by Cognetics, Inc.
The Company applies a well-defined leasing strategy in order to capture
the potential rental growth in the Company's portfolio of Office Properties as
occupancy and rental rates increase with the continued recovery of the markets
and the submarkets in which the Company has invested. The Company's strategy has
been and continues to be based in part on identifying and making its investments
in submarkets in which weighted average full-service rental rates (representing
base rent after giving effect to free rent and scheduled rent increases that
would be taken into account under generally accepted accounting principles
("GAAP") and including adjustments for expenses payable by or reimbursed from
tenants) are significantly less than weighted average full-service replacement
cost rental rates (the rate management estimates to be necessary to provide a
return to a developer of a comparable, multi-tenant building sufficient to
justify construction of new buildings) in that submarket. In calculating
replacement cost rental rates, management relies on available third-party data
and its own estimates of construction costs (including materials and labor in a
particular market) and assumes replacement cost rental rates are achieved at a
95% occupancy level. The Company believes that the difference between the two
rates is a useful measure of the additional revenue that the Company may be
able to obtain from a property, because the difference should represent the
amount by which rental rates would be required to increase in order to justify
construction of new properties. For the Company's Office Properties, the
weighted average full-service rental rate as of December 31, 1998 was $19.53 per
square foot, compared to an estimated weighted average full-service replacement
cost rental rate of $28.49 per square foot.
Many of the Company's submarkets have experienced substantial rental
rate growth during the past two years. For example, Class A office rental rates
in Dallas, Houston, Austin and Denver have increased approximately 23%, 49%, 30%
and 21%, respectively, from year-end 1996 to year-end 1998, according to Jamison
Research, Inc. (for Dallas); Baca Landata, Inc., The Woodlands Operating
Company, L.P. and Cushman & Wakefield of Texas, Inc. (for Houston); CB Richard
Ellis (for Austin); and Cushman & Wakefield of Colorado, Inc. (for Denver). The
Company has been successful in renewing or re-leasing office space in these
markets at rental rates significantly above the expiring rental rates.
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COMPETITION
The Company believes that it does not have any direct competition for its Office
Properties considered as a group. The Company's Office Properties, primarily
Class A properties located within the Southwest, individually compete against a
wide range of property owners and developers, including property management
companies and other REITs, that offer space in similar types of office
properties (for example, Class A and Class B properties). A number of these
owners and developers may own more than one property. The number and type of
competing properties in a particular market or submarket could have a material
effect on the Company's ability to lease space and maintain or increase
occupancy or rents in its existing Office Properties as well as at any newly
acquired Office Properties. Management believes, however, that the quality
services and individualized attention that the Company offers its tenants,
together with its active preventive maintenance program and superior building
locations within markets, enhance the Company's ability to attract and retain
tenants for its Office Properties. In addition, on a weighted average basis, the
Company owns 18% of the Class A office space in the 30 submarkets in which the
Company owns Class A office properties, and 9% of the Class B office space in
the five submarkets in which the Company owns Class B office properties.
Management believes that ownership of a significant percentage of office space
in a particular market offers the Company the opportunity to reduce property
operating expenses that the Company and its tenants pay, enhancing the Company's
ability to attract and retain tenants and potentially resulting in increases in
Company net revenues. For example, during 1998, the Company successfully
negotiated bulk contracts for services such as elevator maintenance and parking
garage management, resulting in discounts of up to 15% from service contracts
previously in place. In 1998, the Company also negotiated bulk contracts for
supplies and equipment including contracts for general maintenance supplies and
energy management systems resulting in discounts of up to 40% from contracts for
supplies and equipment previously in place.
1998 COMPLETED ACQUISITIONS
AUSTIN CENTRE. On January 23, 1998, the Company acquired Austin Centre,
a mixed-use property developed in 1986, that includes: a Class A office building
containing approximately 344,000 net rentable square feet; an attached,
five-level, underground parking structure that accommodates 588 cars; the
314-room Omni Austin Hotel Property (see "Hospitality Segment" below); and 61
apartments. The Property is located in the CBD submarket of Austin, Texas, four
blocks from the state capitol building and was purchased for approximately $96.4
million.
POST OAK CENTRAL. On February 13, 1998, the Company acquired Post Oak
Central, a three-building Class A office complex located in the West
Loop/Galleria suburban office submarket of Houston, Texas. Built between 1974
and 1981, the office complex contains approximately 1.3 million net rentable
square feet with three multi-level detached, but connected via covered walkway
or tunnel, above-ground parking structures that accommodate a total of
approximately 4,400 cars. Post Oak Central was purchased for approximately
$155.3 million.
WASHINGTON HARBOUR. On February 25, 1998, the Company acquired
Washington Harbour, a Class A office complex, consisting of a six-story office
building and a seven-story office building (the top three stories of which
comprise 35 luxury condominiums, which were not included in the purchase),
located in the Georgetown submarket of Washington, D.C. Built in 1986, the two
Office Properties contain approximately 536,000 net rentable square feet with a
two-level attached, underground parking structure that accommodates 613 cars.
Washington Harbour was purchased for approximately $161.0 million.
DATRAN CENTER. On May 1, 1998, the Company acquired, subject to a
ground lease, Datran Center, two Class A office buildings, containing
approximately 472,000 net rentable square feet located in the South Dade/Kendall
submarket of Miami, Florida. Construction of One Datran Center was completed in
1986 with an eight-level attached parking garage containing 650 covered spaces
and 26 uncovered spaces. Construction of Two Datran Center was completed in
1988, with a nine-level attached parking garage containing 771 covered spaces
and 65 uncovered spaces. Datran Center was purchased for approximately $70.6
million.
BP PLAZA. On June 30, 1998, the Company acquired BP Plaza, a 20-story
Class A Office Property, and 3.2 acres of adjacent undeveloped land located in
the Katy Freeway submarket of Houston, Texas. Construction of the Office
Property was completed in 1992. BP Plaza contains approximately 561,000 square
feet of net rentable
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area with an attached six-level above-ground parking structure that accommodates
approximately 1,700 cars. BP Plaza and the undeveloped land were purchased for
approximately $83.1 million.
RECENT DEVELOPMENTS
On December 8, 1998, Tower Realty Trust ("Tower"), Reckson Associates
Realty Corporation ("Reckson") and Metropolitan Partners, LLC ("Metropolitan"),
a newly formed limited liability company owned equally by the Company and
Reckson, entered into a revised agreement and plan of merger that superseded the
merger agreement with Tower to which the Company was a party. Pursuant to the
Revised Tower Merger Agreement, Metropolitan has agreed to acquire Tower for a
combination of cash and Reckson exchangeable Class B common shares. The Company,
Reckson and Metropolitan have agreed that the Company's investment in
Metropolitan will be an $85 million preferred member interest. The investment
will have a cash flow preference of 7.5% for a two-year period and may be
redeemed by Metropolitan within the two-year period for $85 million, plus an
amount sufficient to provide a 9.5% internal rate of return to the Company. If
Metropolitan does not redeem the preferred interest within the two-year period,
the Company may convert the interest either into (i) a common equity interest in
Metropolitan or (ii) shares of common stock of Reckson at a conversion price of
$24.61.
In connection with the Revised Tower Merger Agreement, the Company
contributed $10 million of the $85 million required capital contribution to
Metropolitan in December 1998 and agreed to make the additional $75 million
capital contribution to Metropolitan when all of the conditions to the funding
have been met, which is expected to occur in the second quarter of 1999.
HOSPITALITY SEGMENT
OWNERSHIP STRUCTURE
Because of the Company's status as a REIT for federal income tax
purposes, it does not operate the Hotel Properties. The Company has leased all
of the Hotel Properties, except the Omni Austin Hotel, to subsidiaries of COI
pursuant to eight separate leases. As of January 1, 1999, the Omni Austin Hotel
has been leased, under a separate lease, to HCD Austin Corporation, an unrelated
third party. Under the leases, each having a term of 10 years, the Hotel
Property lessees have assumed the rights and obligations of the property owner
under the respective management agreements with the hotel operators, as well as
the obligation to pay all property taxes and other charges against the property.
The Company has agreed to fund all capital expenditures relating to furniture,
fixtures and equipment reserves required under the applicable management
agreements as part of each of the lease agreements for eight of the Hotel
Properties. The only exception is Canyon Ranch-Tucson, in which the Hotel
Property lessee owns all furniture, fixtures and equipment associated with the
property and will fund all related capital expenditures.
Each of the leases provides for the payment by the Hotel Property
lessees of all or a combination of the following:
o base rent, with periodic rent increases if applicable;
o percentage rent based on a percentage of gross hotel receipts or gross
room revenues, as applicable, above a specified amount; and
o a percentage of gross food and beverage revenues above a specified
amount for certain Hotel Properties.
See Item 2. Properties for more information about the Company's Hotel
Properties.
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MARKET INFORMATION
The following information is derived from various industry sources.
Average hotel room rental rates grew 4.4%, 6.2%, and 6.3%, in 1998, 1997, and
1996, respectively. Within the luxury and upscale segment of the industry,
average room rental rates increased approximately 4.0% from 1997 to 1998.
Business and convention travel accounts for approximately two-thirds of
room demand and has risen along with the improving economy and increased
corporate profits. Domestic leisure travel has also increased, especially among
the "baby boomers", who are not only at the prime age for leisure travel but
also have a greater tendency to travel than previous generations. A healthier,
more active senior population is also contributing to the increase in travel.
With the aging of the "baby boomer" generation and the growing interest in
quality of life activities, the resort/spa industry also is experiencing
significant growth in the United States.
The average annual growth rates in REVPAR, from 1994 through 1998, for
the upscale and luxury hotel segments were 4.6% and 6.7%, respectively,
according to Smith Travel Research. This demand comes not only from the business
and convention sector, but also from the leisure traveler who vacations
increasingly at higher-end hotels.
The following table sets forth hotel REVPAR by price segment for the
years 1994 through 1998.
<TABLE>
<CAPTION>
Annual
Average
1998 1997 1996 1995 1994 Growth Rate
--------- ------- ------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Luxury(1).................. $101.33 $98.33 $92.31 $83.93 $79.15
% Change................ 3.1% 6.5% 10.0% 6.0% 7.8% 6.7%
Upscale(2)................. $61.65 $60.05 $57.42 $54.28 $51.76
% Change................ 2.7% 4.6% 5.8% 4.9% 5.2% 4.6%
Mid-Priced................. $45.45 $44.20 $41.84 $39.70 $37.57
% Change................ 2.8% 5.6% 5.4% 5.7% 5.2% 4.9%
Economy.................... $31.37 $30.45 $29.63 $28.64 $27.27
% Change................ 3.0% 2.8% 3.5% 5.0% 4.2% 3.7%
Budget..................... $26.70 $25.07 $24.40 $23.77 $22.75
% Change................ 6.5% 2.7% 2.7% 4.5% 4.4% 4.2%
</TABLE>
- ---------------------------
(1) Includes destination health and fitness resorts, such as the Canyon Ranch
resorts.
(2) Includes full-service and limited-service hotels.
Source: Compiled from information published by Smith Travel Research
COMPETITION
The Company's Hotel Properties in Denver, Albuquerque, Austin and
Houston are convention center hotels that compete against other convention
center hotels, which are owned by different types of owners, including national
hotel chains and local owners. The Company believes, however, that its
destination health and fitness resorts are unique properties that do not have
direct competitors. In addition, the Company believes that each of the remaining
Hotel Properties experiences little to no direct competition due to its high
replacement cost and unique concept or location. The Hotel Properties do
compete, to a limited extent, against business class hotels or middle-market
resorts in their geographic areas, as well as against luxury resorts nationwide
and around the world.
1998 COMPLETED ACQUISITIONS
OMNI AUSTIN HOTEL. On January 23, 1998, the Company acquired Austin
Centre (see "Office and Retail Segment" above), which included the 314-room Omni
Austin Hotel Property. As of January 1, 1999, the Omni
10
<PAGE> 12
Austin Hotel is leased to HCD Austin Corporation, an unrelated third party and
COI will provide limited asset management services for the Property.
SONOMA GOLF COURSE. On October 13, 1998, the Company acquired Sonoma
Golf Course, an 18-hole golf course located in Sonoma County, California, for
approximately $15.3 million. The course is near the Sonoma Mission Inn & Spa and
has a 4,000 square foot club house with a banquet facility. The Company
simultaneously entered into a 10-year lease of the property with COI. The
Company believes that the golf course will enhance the amenities provided to the
Sonoma Mission Inn & Spa guests.
RESIDENTIAL DEVELOPMENT SEGMENT
OWNERSHIP STRUCTURE
The Company owns economic interests in five Residential Development
Corporations through the Residential Development Property mortgages and the
non-voting common stock of these Residential Development Corporations. The
Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in 13 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties.
See Item 2. Properties for more information about the Company's
Residential Development Properties.
COMPETITION
The Company's Residential Development Properties compete against a
variety of other housing alternatives in each of their respective areas. These
alternatives include other planned developments, pre-existing single-family
detached housing, condominiums, townhouses and non-owner occupied housing, such
as luxury apartments. Management believes that The Woodlands Land Company, Inc.
and Desert Mountain Development Corp. ("Desert Mountain"), representing the
Company's most significant investments in Residential Development Properties,
contain certain features that provide competitive advantages to these
developments. For example, The Woodlands, which is an approximately 27,000-acre,
master-planned residential and commercial community north of Houston, Texas, is
unique among developments in the Houston area, because it functions as a
self-contained community. Amenities contained in the development, which are not
contained within other local developments, include a shopping mall, retail
centers, office buildings, a hospital, a community college, places of worship,
60 parks, two man-made lakes and a performing arts pavilion. Desert Mountain, a
luxury residential and recreational community in Scottsdale, Arizona, which also
offers five 18-hole golf courses and tennis courts, does not have any
significant direct competitors due in part to the types of amenities that it
offers. Substantially all of the remaining residential lots for the four
developments that traditionally have competed with Desert Mountain were sold
during 1997. As a result, these developments have become resale communities that
no longer compete with Desert Mountain in any significant respect.
REFRIGERATED STORAGE SEGMENT
ORIGINAL OWNERSHIP STRUCTURE
Prior to the restructuring of its investment in the Refrigerated
Storage Properties in March 1999, the Company, through two subsidiaries (the
"Crescent Subsidiaries"), owned an indirect 38% interest in each of the three
Refrigerated Storage Partnerships. One of the Refrigerated Storage Partnerships
owned Americold Corporation ("Americold"), the second Refrigerated Storage
Partnership owned URS Logistics, Inc. ("URS") and the third Refrigerated Storage
Partnership owned the assets and business operations acquired from Freezer
Services, Inc. ("Freezer Services") and Carmar Group, Inc. ("Carmar Group") (see
"1998 Completed Acquisitions" below). Vornado owned a 60% interest in the
Refrigerated Storage Partnerships and COI owned a 2% indirect interest in the
Refrigerated Storage Partnerships.
11
<PAGE> 13
In order to permit the Company to satisfy certain REIT qualification
requirements, the Company (which is not permitted to operate the Refrigerated
Storage Properties because of the status of Crescent Equities as a REIT) owned
its indirect 38% interest in the Refrigerated Storage Partnerships through its
ownership of all of the nonvoting common stock, representing a 95% economic
interest, in each of the Crescent Subsidiaries, and COI owned its 2% indirect
interest in the Refrigerated Storage Partnerships through its ownership of all
of the voting common stock, representing a 5% economic interest, in each of the
Crescent Subsidiaries.
The Refrigerated Storage Partnerships owned or operated, as of
December 31, 1998, approximately 101 Refrigerated Storage Properties, with an
aggregate of approximately 530.1 million cubic feet (21.4 million square feet),
with the operations conducted pursuant to arrangements with national food
suppliers.
See Item 2. Properties for more information about the Company's
Refrigerated Storage Properties.
12
<PAGE> 14
1998 INVESTMENTS
In April 1998, two of the Refrigerated Storage Corporations refinanced
$607 million of secured and unsecured debt that had a weighted average interest
rate of approximately 12% with a $550 million non-recourse, ten-year loan with
an interest rate of 6.89% secured by 58 Refrigerated Storage Properties.
On June 1, 1998, the Crescent Subsidiaries and Vornado formed the third
Refrigerated Storage Partnership which acquired, through newly formed
Refrigerated Storage Corporations, nine Refrigerated Storage Properties and the
associated operations from Freezer Services for approximately $134 million. On
July 1, 1998, the third Refrigerated Storage Partnership acquired, through newly
formed Refrigerated Storage Corporations, five Refrigerated Storage Properties
and the associated operations from Carmar Group for approximately $163 million.
The Company's cash investments in connection with these acquisitions were
approximately $36.7 million and $55.9 million, respectively. These additional 14
Refrigerated Storage Properties contain approximately 90 million cubic feet (4.1
million square feet) of refrigerated storage space.
NEW OWNERSHIP STRUCTURE
Effective March 12, 1999, the Company, Vornado, the Refrigerated
Storage Partnerships, the Refrigerated Storage Corporations (including all
affiliated entities that owned any portion of the business operations of the
Refrigerated Storage Properties at that time) and COI restructured their
investment in the Refrigerated Storage Properties (the "Restructuring"). In the
Restructuring, the Refrigerated Storage Corporations (including all affiliated
entities that owned any portion of the business operations of the Refrigerated
Storage Properties) sold their ownership of the business operations to a newly
formed partnership (the "Refrigerated Storage Operating Partnership") owned 60%
by Vornado Operating L.P. and 40% by a newly formed subsidiary of COI, 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 with certain of the Refrigerated Storage Corporations. 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 10th 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.
As a result of the Restructuring, the Refrigerated Storage Partnerships
and the Refrigerated Storage Corporations directly or indirectly own the real
estate assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by the
Refrigerated Storage Operating Partnership, in which the Company has no
interest.
Under the terms of the existing partnership agreements for each of the
Refrigerated Storage Partnerships, Vornado has the right to make all decisions
relating to the management and operations of the Refrigerated Storage
Partnerships other than certain major decisions that require the approval of
both the Company and Vornado. The partnership agreement for each of the
Refrigerated Storage Partnerships provides for a buy-sell arrangement upon a
failure of the Company and Vornado to agree on any of the specified major
decisions which, until November 1, 2000, can be exercised only by Vornado. Major
decisions include approval of the annual capital and operating budgets for each
of the Refrigerated Storage Partnerships, decisions to deviate from the budgets
by 10% or more and additional capital contributions.
In addition, in connection with the Restructuring and also effective in
March 1999, the Company purchased from COI an additional 4% nonvoting interest
in each of the Crescent Subsidiaries for an aggregate purchase price of $13.2
million. As a result, the Company holds an indirect 39.6% interest in the
Refrigerated Storage Partnerships and COI holds an indirect 0.4% interest in the
Refrigerated Storage Partnerships. The Company also granted COI an option to
require the Company to purchase COI's remaining 1% interest in each of the
Crescent Subsidiaries at such time as the purchase would not, in the opinion of
counsel to the Company, adversely affect the status of Crescent Equities as a
REIT for an aggregate price, payable by the Company, of approximately $3.3
million.
In connection with these transactions, 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.
INDUSTRY INFORMATION
The Refrigerated Storage Corporations provide frozen food manufacturers
with refrigerated storage and transportation management services. The
Refrigerated Storage Properties consist of production and distribution
facilities. Production facilities differ from distribution facilities in that
they typically serve one or a small number of customers located nearby. These
customers store large quantities of processed or partially processed products in
the facility until they are further processed or shipped to the next stage of
production or distribution. Distribution facilities primarily serve customers
who store a wide variety of finished products to support shipment to end-users,
such as food retailers and food service companies, in a specific geographic
market.
Transportation management services offered include freight routing,
dispatching, freight rate negotiation, backhaul coordination, freight bill
auditing, network flow management, order consolidation and distribution channel
assessment. The temperature-controlled logistics expertise of management of the
Refrigerated Storage Corporations and access to both the Refrigerated Storage
Properties and distribution channels enable the customers of the Refrigerated
Storage Corporations to respond quickly and efficiently to time-sensitive orders
from distributors and retailers.
Customers consist primarily of national, regional and local frozen food
manufacturers, distributors, retailers and food service organizations, including
ConAgra, Inc., H.J. Heinz Company, Kraft Foods, Inc. and Tyson Foods, Inc.
COMPETITION
The Refrigerated Storage Corporations are the largest owners and
operators of public refrigerated storage space in the country in terms of public
storage space owned. Including the 1998 acquisitions (see "1998 Investments"
above), the Refrigerated Storage Corporations owned or operated an aggregate of
approximately 30% of total public refrigerated storage space as of December 31,
1998. Among other owners and operators of public refrigerated storage space, no
other owner and operator owned or operated more than 8% of total public
refrigerated storage space as of December 31, 1998. As a result, the Company
believes that the Refrigerated Storage Corporations do not have any competitors
of comparable size. The Refrigerated Storage Corporations operate in an
environment in which competition is national, regional and local in nature and
in which the range of
13
<PAGE> 15
service, refrigerated storage facilities, customer mix, service performance and
price are the principal competitive factors. The range of total logistics
services and refrigerated storage locations are major competitive factors
because frozen food manufacturers and distributors incur transportation costs
which typically are significantly greater than refrigerated storage costs. In
addition, in certain locations, customers depend upon pooling shipments, which
involves combining their products with the products of other customers destined
for the same markets. In these cases, the mix of customers at a refrigerated
storage facility can significantly influence the cost of delivering products to
markets. The size of a refrigerated storage facility is important because large
customers prefer to have all of the products needed to serve a given market in a
single location in order to have the flexibility to increase storage in that
single location during seasonal peaks. If there are several refrigerated storage
facilities that satisfy customer mix and size requirements, the Company believes
that customers generally will select a refrigerated storage facility based upon
the types of services available, service performance and price.
14
<PAGE> 16
BEHAVIORAL HEALTHCARE SEGMENT
OWNERSHIP STRUCTURE
On June 17, 1997, the Company acquired substantially all of the real
estate assets of the domestic hospital provider business of Magellan Health
Services, Inc. ("Magellan") as previously owned and operated by a wholly owned
subsidiary of Magellan. The transaction involved various components, the
principal component being the acquisition of the Behavioral Healthcare
Properties for approximately $387.2 million.
Because of the Company's REIT status for federal income tax
purposes, the Company does not operate the Behavioral Healthcare Properties. The
Behavioral Healthcare Properties are leased to CBHS and its subsidiaries under a
triple-net lease. CBHS, which is the nation's largest operator of acute-care
psychiatric hospitals and other behavioral care treatment facilities, is a
Delaware limited liability company, formed to operate the Behavioral Healthcare
Properties. CBHS is owned 50% by a subsidiary of Magellan and 50% by COI. The
lease requires the payment of annual minimum rent in the amount of approximately
$43.8 million for the period ending June 16, 1999, increasing in each subsequent
year during the remaining 10-year term at a 5% compounded annual rate. All
maintenance and capital improvement costs are the responsibility of CBHS during
the term of the lease. In addition, the obligation of CBHS, pursuant to a
franchise agreement, to pay an approximately $78.2 million franchise fee to
Magellan and one of its subsidiaries, as franchisor, is subordinated to the
obligation of CBHS to pay annual minimum rent to the Company. The franchisor
does not have the right to terminate the franchise agreement due to any
nonpayment of the franchise fee as a result of the subordination of the
franchise fee to the annual minimum rent. The lease is designed to provide the
Company with a secure, above-average return on its investment as a result of the
priority of annual minimum rent to the franchise fee and the initial amount and
annual escalation in the lease payments. In December 1998, the independent
accountants for CBHS, in connection with their audit of the financial statements
for the year ended September 30, 1998, issued a modified auditors' report
related to the ability of CBHS to continue as a going concern. In October 1998,
CBHS hired a new President and Chief Executive Officer (formerly the Vice
President of Operations for the Southeast Region of Tenet Healthcare), who
announced a set of initiatives to address cost reductions and revenue
enhancements for 1999. CBHS has continued to make timely rent payments to the
Company for the first five months of CBHS's fiscal year.
See Item 2. Properties for more information about the Company's
Behavioral Healthcare Properties.
INDUSTRY INFORMATION
In an era of cost-containment and the reduction of dollars available
for care, behavioral healthcare providers such as CBHS have focused attention on
developing treatment approaches that respond to payors' increasing demands for
shorter stays, lower costs, and expanded access to care. Changes in the mix of
services, the prices of services, and the intensity of service are all part of
this response. These changes have also been bolstered by a rapidly expanding
science base, improved medications management, and the growing availability of
non-hospital treatment settings in more and more communities that help to make
it possible to manage complex and severe illnesses in less intensive treatment
settings. One of the effects that the behavioral healthcare industry is
experiencing is an increasing percentage of non-inpatient care. According to the
National Association of Psychiatric Health Systems 1997 Annual Survey Report,
the most recent available report, nearly one in four admissions in 1996 was to a
service other than inpatient hospitalization, compared to just one in ten
admissions in 1992. Although non-inpatient admissions are increasing rapidly and
inpatient admissions also are increasing, average length of stay and care costs
are decreasing.
Due to these changes in the behavioral healthcare industry, the
position of a hospital or other behavioral care facility such as the Behavioral
Healthcare Facilities relative to its competitors has been affected by its
ability to obtain contracts with HMOs, PPOs and other managed care plans for the
provision of health care services.
15
<PAGE> 17
Although such contracts generally provide for discounted services, pre-admission
certification and concurrent length of stay reviews, they also provide a strong
patient referral base. The importance of entering into contracts with HMOs, PPOs
and other managed care companies varies from market to market and depends upon
the market strength of the particular managed care company.
The behavioral healthcare industry in general, and CBHS in particular,
is influenced by the cyclical nature of the business, with a reduced demand for
services during the summer months and around major holidays.
COMPETITION
The Behavioral Healthcare Properties, which are acute-care psychiatric
hospitals and other behavioral care treatment facilities, are located in 26
states within well-populated urban and suburban locations. Most of the
Behavioral Healthcare Properties offer a full continuum of behavioral care in
their service area, including inpatient hospitalization, partial
hospitalization, intensive outpatient services and, in some markets, residential
treatment services. The Behavioral Healthcare Properties provide structured and
intensive treatment programs for mental health, alcohol and drug dependency
disorders in children, adolescents and adults. A significant portion of
admissions is provided by referrals from former patients, local marketplace
advertising, managed care organizations and physicians. The Behavioral
Healthcare Properties work closely with mental health professionals,
non-psychiatric physicians, emergency rooms and community agencies that come in
contact with individuals who may need treatment for mental illness or substance
abuse.
In general, the operation of behavioral healthcare programs is
characterized by intense competition. The Company anticipates that competition
will become more intense as pressure to contain the rising costs of health care
increases, particularly as programs such as those operated by CBHS are perceived
to help contain mental health care costs. Each of the Behavioral Healthcare
Properties competes with other hospitals and behavioral healthcare facilities,
some of which are larger and have greater financial resources than CBHS. Some
competing facilities are owned and operated by governmental agencies, others by
nonprofit organizations supported by endowments and charitable contributions.
The Behavioral Healthcare Properties frequently draw patients from areas outside
their immediate locale and, therefore, the Behavioral Healthcare Properties may,
in certain markets, compete with both local and distant hospitals and other
facilities. In addition, the Behavioral Healthcare Properties compete not only
with other psychiatric hospitals, but also with psychiatric units in general
hospitals. With respect to outpatient services, CBHS competes with private
practicing mental health professionals, publicly funded mental health centers,
and partial hospitalization and other intensive outpatient services programs and
facilities. The competitive position of a particular facility is, to a
significant degree, dependent upon the number and quality of physicians who
practice at the facility and who are members of its medical staff. There can be
no assurance that CBHS will be able to compete effectively with its present or
future competitors, and any such inability could have a material adverse effect
on CBHS' business, financial condition and results of operations.
ITEM 2. PROPERTIES
The Company considers all of its Properties to be in good condition,
well-maintained and suitable and adequate to carry on the Company's business.
OFFICE PROPERTIES
The Company's Office Properties are located primarily in Dallas/Fort
Worth and Houston, Texas. As of March 26, 1999, the Company's Office Properties
in Dallas/Fort Worth and Houston represent an aggregate of approximately 72% of
its office portfolio based on total net rentable square feet (39% for
Dallas/Fort Worth and 33% for Houston).
OFFICE PROPERTIES TABLES
The following table sets forth, as of December 31, 1998, certain
information about the Company's Office Properties. Based on rental revenues from
office and retail leases in effect as of December 31, 1998, no single tenant
accounted for more than 4% of the Company's total Office and Retail Segment
rental revenues for 1998.
16
<PAGE> 18
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
------------------------- ---------- ------------------ --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center(2).............. 1 CBD 1987 1,530,957 75%(5) $ 22.17
The Crescent Office Towers...... 1 Uptown/Turtle Creek 1985 1,204,720 99 29.43
Fountain Place.................. 1 CBD 1986 1,200,266 96 18.52
Trammell Crow Center(3)......... 1 CBD 1984 1,128,331 95 25.38
Stemmons Place.................. 1 Stemmons Freeway 1983 634,381 89 14.28
Spectrum Center(4).............. 1 Far North Dallas 1983 598,250 85 21.93
Waterside Commons............... 1 Las Colinas 1986 458,739 100 18.74
Caltex House.................... 1 Las Colinas 1982 445,993 97 28.46
Reverchon Plaza................. 1 Uptown/Turtle Creek 1985 374,165 95 18.12
The Aberdeen.................... 1 Far North Dallas 1986 320,629 100 18.29
MacArthur Center I & II......... 1 Las Colinas 1982/1986 294,069 98 19.46
Stanford Corporate Centre....... 1 Far North Dallas 1985 265,507 100 17.52
The Amberton.................... 1 Central Expressway 1982 255,052 85 12.08
Concourse Office Park........... 1 LBJ Freeway 1972-1986 244,879 91 14.30
12404 Park Central.............. 1 LBJ Freeway 1987 239,103 100 20.96
Palisades Central II............ 1 Richardson/Plano 1985 237,731 91 19.42
3333 Lee Parkway................ 1 Uptown/Turtle Creek 1983 233,769 98 19.97
Liberty Plaza I & II............ 1 Far North Dallas 1981/1986 218,813 98 15.16
The Addison..................... 1 Far North Dallas 1981 215,016 100 17.65
The Meridian.................... 1 LBJ Freeway 1984 213,915 86(5) 15.82
Palisades Central I............. 1 Richardson/Plano 1980 180,503 94 15.58
Walnut Green.................... 1 Central Expressway 1986 158,669 94 17.59
Greenway II..................... 1 Richardson/Plano 1985 154,329 99 19.86
Addison Tower................... 1 Far North Dallas 1987 145,886 91(5) 14.36
Greenway I & IA................. 2 Richardson/Plano 1983 146,704 100 23.22
5050 Quorum..................... 1 Far North Dallas 1981 133,594 91 16.11
Cedar Springs Plaza............. 1 Uptown/Turtle Creek 1982 110,923 84 17.44
Valley Centre................... 1 Las Colinas 1985 74,861 99 15.63
One Preston Park................ 1 Far North Dallas 1980 40,525 87 16.28
---- ---------- ------- ------------
Subtotal/Weighted Average..... 30 11,460,279 92% $ 20.84
--- ---------- ------- ------------
FORT WORTH
UPR Plaza........................ 1 CBD 1982 954,895 98% $ 16.40
---- ---------- --------- ------------
HOUSTON
Greenway Plaza Office Portfolio.. 10 Richmond-Buffalo 1969-1982 4,286,277 92% $ 16.15
Speedway
Houston Center................... 3 CBD 1974-1983 2,764,418 96 15.54
Post Oak Central................. 3 West Loop/Galleria 1974-1981 1,277,516 94 15.85
The Woodlands Office
Properties(6).................. 12 The Woodlands 1980-1996 810,630 98 15.53
BP Plaza......................... 1 Katy Freeway 1992 561,065 100 18.26
Three Westlake Park(7)........... 1 Katy Freeway 1983 414,251 99 14.18
1800 West Loop South............. 1 West Loop/Galleria 1982 399,777 80 15.88
---- ---------- -------- ------------
Subtotal/Weighted Average..... 31 10,513,934 94% $ 15.93
---- ---------- -------- ------------
AUSTIN
Frost Bank Plaza................. 1 CBD 1984 433,024 84%(5) $ 18.84
301 Congress Avenue(8)........... 1 CBD 1986 418,338 89 21.66
Bank One Tower................... 1 CBD 1974 389,503 96 17.35
Austin Centre.................... 1 CBD 1986 343,665 96 20.09
The Avallon...................... 1 Northwest 1993/1997 232,301 93(5) 19.50
Barton Oaks Plaza One............ 1 Southwest 1986 99,895 100 21.24
---- ---------- -------- ------------
Subtotal/Weighted Average..... 6 1,916,726 92% $ 19.56
---- ---------- -------- ------------
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET FULL-SERVICE
RENTABLE RENTAL RATE
NO. OF YEAR AREA PERCENT PER LEASED
STATE, CITY, PROPERTY PROPERTIES SUBMARKET COMPLETED (SQ. FT.) LEASED SQ. FT. (1)
------------------------------ ---------- --------------- --------- ---------- ------- -------------
COLORADO
DENVER
<S> <C> <C> <C> <C> <C> <C>
MCI Tower......................... 1 CBD 1982 550,807 99% $ 18.10
Ptarmigan Place................... 1 Cherry Creek 1984 418,630 95 16.52
Regency Plaza One................. 1 DTC 1985 309,862 98 21.27
AT&T Building..................... 1 CBD 1982 184,581 80 14.96
The Citadel....................... 1 Cherry Creek 1987 130,652 100 19.94
55 Madison........................ 1 Cherry Creek 1982 137,176 97 15.28
44 Cook........................... 1 Cherry Creek 1984 124,174 87(5) 17.60
-- ---------- ------ ---------
Subtotal/Weighted Average.... 7 1,855,882 95% $ 17.94
-- ---------- ------ ---------
COLORADO SPRINGS
Briargate Office and
Research Center................. 1 Colorado Springs 1988 252,857 100% $ 17.17
-- ---------- ------ ---------
LOUISIANA
NEW ORLEANS
Energy Centre..................... 1 CBD 1984 761,500 78% $ 15.17
1615 Poydras...................... 1 CBD 1984 508,741 79 15.10
-- ---------- ------ ---------
Subtotal/Weighted Average.... 2 1,270,241 78% $ 15.14
-- ---------- ------ ---------
FLORIDA
MIAMI
Miami Center...................... 1 CBD 1983 782,686 81%(5) $ 23.68
Datran Center..................... 2 South Dade/Kendall 1986/1988 472,236 91 21.02
-- ---------- ------ ---------
Subtotal/Weighted Average.... 3 1,254,922 85% $ 22.59
-- ---------- ------ ---------
ARIZONA
PHOENIX
Two Renaissance Square............ 1 Downtown/CBD 1990 476,373 94%(5) $ 23.25
6225 North 24th Street............ 1 Camelback Corridor 1981 86,451 83 21.53
-- ---------- ------ ---------
Subtotal/Weighted Average.... 2 562,824 93% $ 23.01
-- ---------- ------ ---------
WASHINGTON, D.C
WASHINGTON, D.C
Washington Harbour................ 2 Georgetown 1986 536,206 93% $ 35.84
-- ---------- ------ ---------
NEBRASKA
OMAHA
Central Park Plaza................ 1 CBD 1982 409,850 100% $ 15.38
-- ---------- ------ ---------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza................. 1 CBD 1990 366,236 95% $ 18.79
-- ---------- ------ ---------
CALIFORNIA
SAN FRANCISCO
160 Spear Street.................. 1 South of Market/CBD 1984 276,420 99% $ 25.42
-- ---------- ------ ---------
SAN DIEGO
Chancellor Park (9)................ 1 UTC 1988 195,733 90% $ 21.48
-- ---------- ------ ---------
TOTAL/WEIGHTED AVERAGE.......... 89 31,827,005 92%(5) $ 18.88(10)
== ========== ====== =========
</TABLE>
- -------------------------------------------
(1) Calculated based on base rent payable as of December 31, 1998, without
giving effect to free rent or scheduled rent increases that would be
taken into account under GAAP and including adjustments for expenses
payable by or reimbursable from tenants.
(2) The Company has a 49.5% limited partner interest and a .5% general
partner interest in the partnership that owns Bank One Center.
18
<PAGE> 20
(3) The Company owns the principal economic interest in Trammell Crow
Center through its ownership of fee simple title to the Property
(subject to a ground lease and a leasehold estate regarding the
building) and two mortgage notes encumbering the leasehold interests
in the land and building.
(4) The Company owns the principal economic interest in Spectrum Center
through an interest in Spectrum Mortgage Associates L.P., which owns
both a mortgage note secured by Spectrum Center and the ground
lessor's interest in the land underlying the office building.
(5) Leases have been executed at certain Office Properties but had not
commenced as of December 31, 1998. If such leases had commenced as of
December 31, 1998, the percent leased for Office Properties would have
been 94%. The total percent leased for such Properties would have been
as follows: Bank One Center - 78%; The Meridian - 90%; Addison Tower -
94%; Frost Bank Plaza - 92%; The Avallon - 100%; 44 Cook - 97%; Miami
Center - 86%; and Two Renaissance Square - 98%.
(6) The Company has a 75% limited partner interest and an approximate 10%
indirect general partner interest in the partnership that owns the 12
Office Properties that comprise The Woodlands Office Properties.
(7) The Company owns the principal economic interest in Three Westlake
Park through its ownership of a mortgage note secured by Three
Westlake Park.
(8) The Company has a 1% general partner and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(9) The Company owns Chancellor Park through its ownership of a mortgage
note secured by the building and through its direct and indirect
interests in the partnership which owns the building.
(10) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of December 31, 1998, giving effect to free rent and scheduled rent
increases that would be taken into consideration under GAAP and
including adjustments for expenses payable by or reimbursed from
tenants, is $19.53.
The following table provides information, as of December 31, 1998, for
the Company's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT
PERCENT LEASED OFFICE
OF AT SUBMARKET
TOTAL TOTAL COMPANY PERCENT
NUMBER OF COMPANY COMPANY OFFICE LEASED/
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2)
---------------------- ---------- ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD................................ 3 3,859,554 12% 87%(6) 84%
Uptown/Turtle Creek................ 4 1,923,577 6 97 92
Far North Dallas................... 7 1,897,695 6 94 82
Las Colinas........................ 4 1,273,662 4 98 90
Richardson/Plano................... 5 719,267 2 95 95
Stemmons Freeway................... 1 634,381 2 89 92
LBJ Freeway........................ 2 453,018 1 93(6) 91
-- --------- -- --- ----
Subtotal/Weighted Average........ 26 10,761,154 33% 92% 88%
-- ---------- -- --- ----
FORT WORTH
CBD................................ 1 954,895 3% 98% 89%
-- --------- -- --- ----
HOUSTON
CBD................................ 3 2,764,418 9% 96% 96%
Richmond-Buffalo Speedway 6 2,735,030 9 92 93
West Loop/Galleria................. 4 1,677,293 5 91 95
The Woodlands...................... 7 486,867 2 99 100
Katy Freeway....................... 2 975,316 3 100 98
-- --------- -- --- -----
Subtotal/Weighted Average........ 22 8,638,924 28% 94% 96%
-- --------- -- --- -----
AUSTIN
CBD................................ 4 1,584,530 5% 91%(6) 97%
Northwest.......................... 1 232,301 1 93(6) 94
Southwest.......................... 1 99,895 0 100 98
-- --------- -- --- -----
Subtotal/Weighted Average........ 6 1,916,726 6% 92% 97%
-- --------- -- --- -----
COLORADO
DENVER
Cherry Creek....................... 4 810,632 3% 95%(6) 87%
CBD................................ 2 735,388 2 94 96
DTC................................ 1 309,862 1 98 95
-- --------- -- --- -----
Subtotal/Weighted Average........ 7 1,855,882 6% 95% 95%
-- --------- -- --- -----
COLORADO SPRINGS
Colorado Springs................... 1 252,857 1% 100% 94%
-- --------- -- --- -----
LOUISIANA
NEW ORLEANS
CBD................................ 2 1,270,241 5% 78% 87%
-- --------- -- --- -----
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
COMPANY QUOTED QUOTED SERVICE
SHARE OF MARKET RENTAL RENTAL
OFFICE RENTAL RATE RATE PER RATE PER
SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
---------------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD................................ 21% $ 22.76 $ 25.20 $ 21.94
Uptown/Turtle Creek................ 35 26.56 30.44 25.54
Far North Dallas................... 25 25.34 24.31 18.32
Las Colinas........................ 15 27.04 26.69 22.06
Richardson/Plano................... 18 22.81 23.65 19.38
Stemmons Freeway................... 31 20.97 19.50 14.28
LBJ Freeway........................ 4 24.97 22.67 18.72
-- ------- -------- --------
Subtotal/Weighted Average........ 19% $ 24.39 $ 25.61 $ 21.23
-- ------- -------- --------
FORT WORTH
CBD................................ 24% $ 19.59 $ 18.79 $ 16.40
-- ------- -------- --------
HOUSTON
CBD................................ 11% $ 21.93 $ 21.88 $ 15.54
Richmond-Buffalo Speedway.......... 56 21.08 23.37 16.94
West Loop/Galleria................. 13 21.93 23.91 15.86
The Woodlands...................... 100 15.69 15.69 15.62
Katy Freeway....................... 40 25.00 25.29 16.53
--- ------- -------- --------
Subtotal/Weighted Average........ 19% $ 21.66 $ 22.78 $ 16.15
--- ------- -------- --------
AUSTIN
CBD................................ 44% $ 26.19 $ 26.16 $ 19.45
Northwest.......................... 14 26.15 24.50 19.50
Southwest.......................... 5 26.33 24.00 21.24
--- ------- -------- --------
Subtotal/Weighted Average........ 26% $ 26.19 $ 25.84 $ 19.56
--- ------- -------- --------
COLORADO
DENVER
Cherry Creek....................... 53% $ 20.30 $ 21.16 $ 17.05
CBD................................ 7 22.84 20.75 17.40
DTC................................ 6 23.64 25.00 21.27
--- ------- -------- --------
Subtotal/Weighted Average........ 11% $ 21.86 $ 21.64 $ 17.94
--- ------- -------- --------
COLORADO SPRINGS
Colorado Springs.................... 6% $ 19.29 $ 20.00 $ 17.17
--- ------- -------- --------
LOUISIANA
NEW ORLEANS
CBD................................ 14% $ 16.55 $ 17.00 $ 15.14
--- ------- -------- --------
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
PERCENT
PERCENT OF LEASED AT
TOTAL TOTAL COMPANY
NUMBER OF COMPANY COMPANY OFFICE
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES
---------------------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C>
FLORIDA
MIAMI
CBD....................................... 1 782,686 2% 81%(6)
South Dade/Kendall........................ 2 472,236 1 91
-- ---------- -- ---
Subtotal/Weighted Average............... 3 1,254,922 3% 85%
-- ---------- -- ---
ARIZONA
PHOENIX
Downtown/CBD.............................. 1 476,373 1% 94%(6)
Camelback Corridor........................ 1 86,451 0 83
-- ---------- -- ---
Subtotal/Weighted Average............... 2 562,824 1% 93%
-- ---------- -- ---
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown................................ 2 536,206 2% 93%
-- ---------- -- ---
NEBRASKA
OMAHA
CBD....................................... 1 409,850 1% 100%
-- ---------- -- ---
NEW MEXICO
ALBUQUERQUE
CBD....................................... 1 366,236 1% 95%
-- ---------- -- ---
CALIFORNIA
SAN FRANCISCO
South of Market/CBD....................... 1 276,420 1% 99%
-- ---------- -- ---
SAN DIEGO
UTC....................................... 1 195,733 1% 90%
-- ---------- -- ---
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE............................... 76 29,252,870 92% 93%
== ========== == ===
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway........................ 2 413,721 1% 88%
LBJ Freeway............................... 1 244,879 1 91
Far North Dallas.......................... 1 40,525 0 87
-- ---------- --- --
Subtotal/Weighted Average............... 4 699,125 2% 89%
-- ---------- --- --
HOUSTON
Richmond-Buffalo Speedway................. 4 1,551,247 5% 93%
The Woodlands............................. 5 323,763 1 97
-- ---------- --- --
Subtotal/Weighted Average............... 9 1,875,010 6% 94%
-- ---------- --- --
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE............................... 13 2,574,135 8% 92%
== ========== === ==
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE............................... 89 31,827,005 100% 92%(6)
== ========== === ==
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
OFFICE COMPANY QUOTED QUOTED SERVICE
SUBMARKET SHARE OF MARKET RENTAL RENTAL
PERCENT OFFICE RENTAL RATE RATE PER RATE PER
LEASED/ SUBMARKET PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET OCCUPIED(2) NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5)
---------------------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
FLORIDA
MIAMI
CBD....................................... 90% 23% $ 28.30 $ 28.50 $ 23.68
South Dade/Kendall........................ 94 100 23.19 23.19 21.02
----- --- ------- -------- --------
Subtotal/Weighted Average............... 90% 33% $ 26.38 $ 26.50 $ 22.59
----- --- ------- -------- --------
ARIZONA
PHOENIX
Downtown/CBD.............................. 92% 27% $ 23.38 $ 23.00 $ 23.25
Camelback Corridor........................ 95 2 26.48 22.00 21.53
----- --- ------- -------- --------
Subtotal/Weighted Average............... 94% 11% $ 23.86 $ 22.85 $ 23.01
----- --- ------- -------- --------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown................................ 97% 100% $ 36.66 $ 36.66 $ 35.84
----- --- ------- -------- --------
NEBRASKA
OMAHA
CBD....................................... 97% 32% $ 18.61 $ 18.50 $ 15.38
----- --- ------- -------- --------
NEW MEXICO
ALBUQUERQUE
CBD....................................... 97% 63% $ 19.30 $ 19.50 $ 18.79
----- --- ------- -------- --------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD....................... 97% 3% $ 45.20 $ 38.00 $ 25.42
----- --- ------- -------- --------
SAN DIEGO
UTC....................................... 87% 6% $ 28.50 $ 27.00 $ 21.48
----- --- ------- -------- --------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE............................... 92% 18% $ 23.38 $ 24.03 $ 19.24
===== === ======= ======== ========
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway........................ 82% 11% $ 16.73 $ 18.35 $ 14.37
LBJ Freeway............................... 91 2 19.00 18.25 14.30
Far North Dallas.......................... 88 0 20.61 18.50 16.28
---- --- ------- -------- --------
Subtotal/Weighted Average............... 88% 3% $ 17.75 $ 18.32 $ 14.45
---- --- ------- -------- --------
HOUSTON
Richmond-Buffalo Speedway................. 92% 47% $ 17.82 $ 22.03 $ 14.75
The Woodlands............................. 99 100 15.17 15.17 15.39
---- --- ------- -------- --------
Subtotal/Weighted Average............... 93% 51% $ 17.36 $ 20.85 $ 14.87
---- --- ------- -------- --------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE............................... 89% 9% $ 17.47 $ 20.16 $ 14.75
==== === ======= ======== ========
CLASS A AND CLASS B OFFICE
PROPERTIES TOTAL/WEIGHTED
AVERAGE............................... 92% 16% $ 22.90 $ 23.72 $ 18.88(7)
==== === ======= ======== ========
</TABLE>
- --------------------------------
(1) NRA means net rentable area in square feet.
(2) Market information is for Class A office space under the caption "Class A
Office Properties" and market information is for Class B office space under
the caption "Class B Office Properties." Sources are Jamison Research, Inc.
(for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas,
Richardson/Plano, Stemmons Freeway, LBJ Freeway and Central Expressway,
Fort Worth CBD and the New Orleans CBD submarkets), Baca Landata, Inc. (for
the Houston Richmond-Buffalo Speedway, CBD and West Loop/Galleria
submarkets), The Woodlands Operating Company, L.P. (for The Woodlands
submarket), Cushman & Wakefield of Texas, Inc. (for the Houston Katy Freeway
submarket), CB Richard Ellis (for CBD, Northwest and Southwest submarkets),
Cushman & Wakefield of Colorado, Inc. (for the Denver Cherry Creek, CBD and
DTC submarkets), Turner Commercial Research (for the Colorado Springs
market), Grubb and Ellis Company (for the Phoenix Downtown/CBD, Camelback
Corridor and San Francisco South of Market/CBD submarkets), Grubb and Ellis
Company and the Company (for the Washington D.C. Georgetown submarket),
Pacific Realty Group, Inc. (for the Omaha CBD submarket), Building
Interests, Inc. (for the Albuquerque CBD submarket), RealData Information
Systems, Inc. (for the Miami CBD and South Dade/Kendall submarkets) and John
Burnham & Co. (for the San Diego UTC submarket).
(3) Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Company Office Properties in the
submarket.
20
<PAGE> 22
(4) For Office Properties, represents weighted average rental rates per square
foot quoted by the Company as of December 31, 1998, based on total net
rentable square feet of Company Office Properties in the submarket,
adjusted, if necessary, based on management estimates, to equivalent
full-service quoted rental rates to facilitate comparison to weighted
average Class A or Class B, as the case may be, quoted submarket rental
rates per square foot. These rates do not necessarily represent the amounts
at which available space at the Company's Office Properties will be leased.
(5) Calculated based on base rent payable for Company Office Properties in the
submarket as of December 31, 1998, without giving effect to free rent or
scheduled rent increases that would be taken into account under GAAP and
including adjustments for expenses payable by or reimbursed from tenants,
divided by total net rentable square feet of Company Office Properties in
the submarket.
(6) Leases have been executed at certain Properties in these submarkets but had
not commenced as of December 31, 1998. If such leases had commenced as of
December 31, 1998, the percent leased for all Office Properties in the
Company's submarkets would have been 94%. The total percent leased at the
Company's Office Properties would have been as follows: Dallas CBD - 89%;
LBJ Freeway - 94%; Austin CBD -- 94%; Austin Northwest -- 100%; Denver
Cherry Creek -- 98%; Miami CBD - 86%; and Phoenix Downtown CBD - 98%.
(7) The weighted average full-service rental rate per square foot calculated
based on base rent payable for Company Office Properties as of December 31,
1998, giving effect to free rent and scheduled rent increases that would be
taken into consideration under GAAP and including adjustments for expenses
payable by or reimbursed from tenants, is $19.53.
The following table sets forth, as of December 31, 1998, the principal
businesses conducted by the tenants at the Company's Office Properties, based on
information supplied to the Company from the tenants.
<TABLE>
<CAPTION>
Percent of
Industry Sector Leased Sq. Ft.
--------------- --------------
<S> <C>
Professional Services (1) 25%
Financial Services (2) 20%
Energy(3) 20%
Telecommunications 6%
Technology 6%
Manufacturing 2%
Retail 2%
Medical 3%
Government 2%
Food Service 3%
Other (4) 11%
------------------
Total Leased 100%
</TABLE>
- ------------------
(1) Includes legal, accounting, engineering, architectural, and advertising
services.
(2) Includes banking, title and insurance, and investment services.
(3) Of the 20% of energy tenants at the Company's Office Properties, 65% are
located in Houston, 24% are located in Dallas, 6% are located in Denver and
5% are located in New Orleans. Of the 65% of energy tenants located in
Houston (approximately 4 million square feet), 65% (approximately 2.6
million square feet) are obligated under long-term leases (expiring in 2003
or later).
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables set forth schedules of lease expirations for
leases in place as of December 31, 1998 at the Company's total Office Properties
and for Dallas and Houston, Texas individually, for each of the ten years
beginning with 1999, assuming that none of the tenants exercise or have
exercised renewal options and excluding an aggregate 2,326,676 square feet of
unleased space and 335,984 square feet of leased space for which the leases have
not yet commenced.
21
<PAGE> 23
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE ANNUAL
OF TOTAL FULL-SERVICE
NET RENTABLE ANNUAL RENT PER
AREA PERCENTAGE OF ANNUAL FULL-SERVICE SQUARE
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT FOOT OF NET
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
------------- ------------ ------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999.............. 589 3,947,267(2) 13.5% $72,074,173 12.2% $18.26
2000.............. 407 3,375,059 11.6 64,634,853 10.9 19.15
2001 ............. 410 3,937,251 13.5 72,098,759 12.2 18.31
2002.............. 302 3,547,240 12.2 72,142,547 12.2 20.34
2003.............. 280 2,658,719 9.1 50,784,489 8.6 19.10
2004.............. 110 2,961,320 10.2 60,143,639 10.1 20.31
2005.............. 74 2,297,346 7.9 49,925,513 8.4 21.73
2006.............. 28 711,519 2.4 15,008,808 2.5 21.09
2007.............. 32 1,264,512 4.3 28,273,098 4.8 22.36
2008.............. 30 1,077,621 3.7 26,513,766 4.5 24.60
2009 and thereafter 31 3,386,491 11.6 81,153,538 13.6 23.96
</TABLE>
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under GAAP and including
adjustments for expenses payable by or reimbursable from tenants based on
current levels.
(2) As of December 31, 1998, leases have been signed for approximately 1,500,000
net rentable square feet commencing in 1999.
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE ANNUAL
OF TOTAL FULL-SERVICE
NET RENTABLE ANNUAL RENT PER
AREA PERCENTAGE OF ANNUAL FULL-SERVICE SQUARE
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT FOOT OF NET
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
------------- ------------ ------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999.................. 216 1,477,060 14.1% $31,200,758 13.6% $21.12
2000.................. 153 1,785,125 17.0 36,924,141 16.1 20.68
2001 ................. 144 1,157,442 11.0 23,950,375 10.4 20.69
2002.................. 81 933,139 8.9 22,280,907 9.7 23.98
2003.................. 87 1,127,819 10.8 21,900,757 9.5 19.42
2004.................. 23 512,434 4.9 12,951,390 5.6 25.27
2005.................. 18 1,140,886 10.9 23,712,921 10.3 20.78
2006.................. 9 197,031 1.9 4,889,176 2.1 24.81
2007.................. 12 526,184 5.0 12,605,163 5.5 23.96
2008.................. 10 553,504 5.3 13,588,530 5.9 24.55
2009 and thereafter... 7 1,077,940 10.2 25,868,424 11.3 24.00
</TABLE>
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under generally accepted
accounting principles and including adjustments for expenses payable by or
reimbursable from tenants based on current levels.
22
<PAGE> 24
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE ANNUAL
OF TOTAL FULL-SERVICE
NET RENTABLE ANNUAL RENT PER
AREA PERCENTAGE OF ANNUAL FULL-SERVICE SQUARE
NUMBER OF REPRESENTED LEASED NET FULL-SERVICE RENT FOOT OF NET
TENANTS WITH BY EXPIRING RENTABLE AREA RENT UNDER REPRESENTED RENTABLE
YEAR OF LEASE EXPIRING LEASES REPRESENTED BY EXPIRING BY EXPIRING AREA
EXPIRATION LEASES (SQUARE FEET) EXPIRING LEASES LEASES(1) LEASES EXPIRING(1)
------------- ------------ ------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999.................. 188 1,394,659 14.2% $20,503,413 11.7% $14.70
2000.................. 132 768,009 7.8 11,548,164 6.6 15.04
2001 ................. 130 1,865,036 19.0 29,990,561 17.1 16.08
2002.................. 123 1,051,584 10.7 18,353,365 10.4 17.45
2003.................. 94 798,859 8.1 14,090,838 8.0 17.64
2004.................. 44 1,403,068 14.3 24,905,835 14.2 17.75
2005.................. 15 185,456 1.9 3,470,307 2.0 18.71
2006.................. 9 266,909 2.7 4,660,045 2.7 17.46
2007.................. 6 477,167 4.9 9,045,788 5.1 18.96
2008.................. 7 183,719 1.9 3,160,729 1.8 17.20
2009 and thereafter... 10 1,437,952 14.5 36,024,423 20.4 25.05
</TABLE>
- ---------------------
(1) Calculated based on base rent payable under the lease for net rentable
square feet expiring, without giving effect to free rent or scheduled rent
increases that would be taken into account under generally accepted
accounting principles and including adjustments for expenses payable by or
reimbursable from tenants based on current levels.
RETAIL PROPERTIES
The Company owns seven Retail Properties, which in the aggregate
contain approximately 777,000 net rentable square feet. Four of the Retail
Properties, The Woodlands Retail Properties with an aggregate of approximately
356,000 net rentable square feet, are located in The Woodlands, a master-planned
development located 27 miles north of downtown Houston, Texas. The Company has a
75% limited partner interest and an approximately 10% indirect general partner
interest in the partnership that owns The Woodlands Retail Properties. Two of
the Retail Properties, Las Colinas Plaza with approximately 135,000 net rentable
square feet, and The Crescent Atrium with approximately 95,000 net rentable
square feet, are located in submarkets of Dallas, Texas. The remaining Retail
Property, The Park Shops at Houston Center, with an aggregate of approximately
191,000 net rentable square feet, is located in the CBD submarket of Houston,
Texas. As of December 31, 1998, the Retail Properties were 95% leased.
23
<PAGE> 25
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table sets forth certain information for the years ended
December 31, 1998 and 1997, about the Company's Hotel Properties. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure their performance based on available guest nights.
<TABLE>
For the year ended December 31,
-------------------------------
Revenue
Average Average Per
Occupancy Daily Available
Year Rate Rate Room
Completed/ ---- ---- ----
Hotel Property(1) Location Renovated Rooms 1998 1997 1998 1997 1998 1997
- -------------- -------- --------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels:
- ---------------------------
Denver Marriott City Center Denver, CO 1982/1994 613 80% 80% $124 $117 $100 $ 94
Four Seasons Hotel-Houston Houston, TX 1982 399 65 67 181 161 118 108
Hyatt Regency Albuquerque Albuquerque,NM 1990 395 69 74 103 98 71 73
Omni Austin Hotel Austin, TX 1986 314 77 78 114 103 88 81
Hyatt Regency Beaver Creek Avon, CO 1989 276(2) 69 66 233 229 162 151
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 198(3) 82 87 235 210 194 183
Ventana Country Inn Big Sur, CA 1975/1982/1988 62 63(4) 84 387 337 245(4) 282
----- ---- ---- ---- ---- ---- ----
TOTAL/WEIGHTED AVERAGE 2,257 74% 75% $158 $149 $116 $112
===== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Destination Health & Fitness
Resorts: Guest Nights
- ---------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canyon Ranch - Tucson Tucson, AZ 1980 250(5)
Canyon Ranch - Lenox Lenox, MA 1989 212(5)
----
TOTAL/WEIGHTED AVERAGE 462 86%(6) 81%(6) $508(7) $477(7) $422(8) $370(8)
===== ==== ==== ==== ==== ==== ====
</TABLE>
- --------------------------
(1) Because of the Company's status as a REIT for federal income tax purposes,
it does not operate the Hotel Properties and has leased all of the Hotel
Properties, except the Omni Austin Hotel, to subsidiaries of COI pursuant to
long term leases. As of January 1, 1999, the Omni Austin Hotel is leased
pursuant to a separate long term lease to HCD Austin Corporation, an
unrelated third party.
(2) In 1998, the number of available rooms at Hyatt Regency Beaver Creek was
reduced to 276 due to 19 rooms being converted into a 20,000 square foot
spa.
(3) In July 1997, 30 additional rooms were completed.
(4) Temporarily closed from February 1, 1998 through May 1, 1998 due to flooding
in the region affecting the roadway passage to the hotel.
(5) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(6) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(7) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the period.
(8) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
The following table sets forth average occupancy rate, average daily
rate ("ADR"), and revenue per available room ("REVPAR") for the Company's Hotel
Properties by full-service/luxury hotels and destination health and fitness
resorts for each of the years ended December 31, 1994 through 1998. The
information for the Hotel Properties is based on available rooms, except for
Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts, that measure performance based on available guest nights and
calculate average occupancy rate, ADR and REVPAR as described in the footnotes
to the preceding table.
24
<PAGE> 26
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Average Occupancy Rate.............. 74% 75% 75% 74% 71%
ADR................................. $158 $149 $136 $125 $119
REVPAR.............................. $116 $112 $102 $ 92 $ 85
Destination Health and Fitness Resorts
Average Occupancy Rate.............. 86% 81% 81% 77% 78%
ADR................................. $508 $477 $446 $437 $418
REVPAR.............................. $422 $370 $345 $321 $312
</TABLE>
REFRIGERATED STORAGE PROPERTIES
REFRIGERATED STORAGE PROPERTIES TABLE
The following table shows the number and aggregate size of Refrigerated
Storage Properties by state as of December 31, 1998:
<TABLE>
<CAPTION>
TOTAL CUBIC TOTAL TOTAL CUBIC TOTAL
NUMBER OF FOOTAGE SQUARE FEET NUMBER OF FOOTAGE SQUARE FEET
STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS) STATE PROPERTIES(1) (IN MILLIONS) (IN MILLIONS)
----- ------------- ------------- ------------- ----- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 5 9.5 0.4 Mississippi 1 4.7 0.2
Arizona 1 2.9 0.1 Missouri(2) 2 37.9 2.2
Arkansas 6 33.1 1.0 Nebraska 2 4.4 0.2
California 13 50.3 1.9 New Jersey 1 2.7 0.1
Colorado 2 3.4 0.1 New York 1 11.8 0.4
Florida 5 7.5 0.3 North Carolina 3 8.5 0.3
Georgia 7 41.1 1.5 Oklahoma 2 2.1 0.1
Idaho 2 18.7 0.8 Oregon 6 40.4 1.7
Illinois 2 11.6 0.4 Pennsylvania 4 50.8 1.5
Indiana 1 9.1 0.3 South Carolina 1 1.6 0.1
Iowa 2 12.5 0.5 South Dakota 2 6.3 0.2
Kansas(2) 3 40.2 2.5 Tennessee 4 13.0 0.5
Kentucky 1 2.7 0.1 Texas 4 27.2 0.8
Maine 1 1.8 0.2 Utah 1 8.6 0.4
Massachusetts 6 15.2 0.7 Virginia 1 1.9 0.1
Minnesota 1 5.9 0.2 Washington 6 28.7 1.1
Wisconsin 2 14.0 0.5
------ ------- ------
TOTAL 101 530.1 21.4
====== ======= ======
</TABLE>
(1) The Company has an indirect 38% interest in the Refrigerated Storage
Partnerships, each of which owns one or more of the Refrigerated Storage
Corporations which, as of December 31, 1998, directly or indirectly owned
or operated approximately 101 refrigerated storage properties (collectively
referred to as the "Refrigerated Storage Properties") with an aggregate of
approximately 530.1 million cubic feet (21.4 million square feet). The
remaining interest in the Refrigerated Storage Partnerships is owned by
Vornado Realty Trust ("Vornado") (60% of each Refrigerated Storage
Partnership) and COI (2% indirect interest in each Refrigerated Storage
Partnership). As a result of the Restructuring, effective March 12, 1999,
the Company increased its indirect ownership in the Refrigerated Storage
Partnerships to 39.6%, and the Refrigerated Storage Corporations own, but
no longer operate, the Refrigerated Storage Properties.
(2) Both Kansas and Missouri have one underground storage facility. These
underground facilities in Kansas and Missouri approximate 35.2 million and
33.1 million cubic feet (2.2 million and 2.1 million square feet),
respectively. It is anticipated that the underground facility in Kansas
will be closed in 1999.
25
<PAGE> 27
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table sets forth certain information as of December 31,
1998, relating to the Residential Development Properties.
<TABLE>
<CAPTION>
Total Total
Residential Residential Total Lots/Units Lots/Units
Residential Development Development Lots/ Developed Closed
Development Properties Type of Corporation's Units Since Since
Corporation (1) (RDP) RDP(2) Location Ownership % Planned Inception Inception
- --------------- ----------- ------- -------- ------------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,486 2,050 1,777
Development ------ ------ ------
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 42.5% 38,313 20,063 18,730
Land Company ------ ------ ------
Inc.
Crescent The Reserve at
Development Frisco SF Frisco, CO 60.0% 134(5) 134 128
Management Villa Montane
Corp. Townhomes TH Avon, CO 30.0% 27(5) 27 14
Villa Montane
Club TS Avon, CO 30.0% 38(5) 38 32
Villas at Beaver
Creek TH Avon, CO 30.0% 10 10 9
Deer Trail SFH Avon, CO 60.0% 16(5) -- --
Buckhorn
Townhomes TH Avon, CO 60.0% 24(5) 4 2
Bear Paw Lodge CO Avon, CO 60.0% 53(5) -- --
------ ------ ------
Total Crescent Development Management Corp. 302 213 185
------ ------ ------
Mira Vista Mira Vista SF Fort Worth, TX 100.00% 710 677 559
Development The Highlands SF Breckenridge,CO 12.25% 750 270 245
Corp. ------ ------ ------
Total Mira Vista Development Corp. 1,460 947 804
------ ------ ------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 556 375
Development Spring Lakes SF Houston, TX 100.0% 536 93 35
Corp. ------ ------ ------
Total Houston Area Development Corp. 1,741 649 410
------ ------ ------
TOTAL 44,302 23,922 21,906
====== ====== ======
<CAPTION>
Average
Residential Closed Range of
Residential Development Sale Proposed
Development Properties Type of Price Sale Prices
Corporation (1) (RDP) RDP(2) Per Lot/Unit($)(3) Per Lot/Unit($)(4)
- --------------- ----------- ------- ------------------ --------------------
<S> <C> <C> <C>
Desert Mountain Desert Mountain SF 430,000 150,000 - 2,500,000
Development
Corp.
The Woodlands The Woodlands SF 50,371 14,700 - 500,000
Land Company
Inc.
Crescent The Reserve at
Development Frisco SF 95,000 60,000 - 165,000
Management Villa Montane
Corp. Townhomes TH 905,000 515,000 - 1,700,000
Villa Montane
Club TS 60,000 18,000 - 150,000
Villas at Beaver
Creek TH 2,070,000 2,995,000
Deer Trail SFH N/A 2,560,000 - 3,325,000
Buckhorn
Townhomes TH 1,088,000 945,000 - 1,850,000
Bear Paw Lodge CO N/A 1,495,000 - 1,895,000
Total Crescent Development Management Corp.
Mira Vista Mira Vista SF 97,000 50,000 - 265,000
Development The Highlands SF 143,000 55,000 - 250,000
Corp.
Total Mira Vista Development Corp.
Houston Area Falcon Point SF 31,000 22,000 - 60,000
Development Spring Lakes SF 31,000 22,000 - 33,000
Corp.
Total Houston Area Development Corp.
</TABLE>
- -------------------------
(1) The Company has an approximate 94%, 94%, 90%, 95% and 95% ownership
interest in Mira Vista Development Corp., Houston Area Development Corp.,
Crescent Development Management Corp., The Woodlands Land Company, Inc.,
and Desert Mountain Development Corporation, respectively, through
ownership of non-voting common stock in each of these Residential
Development Corporations.
(2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); TS (Timeshare);
and SFH (Single Family Homes).
(3) Based on Lots/Units closed during the Company's ownership period.
(4) Based on existing inventory of developed lots and lots to be developed.
(5) As of December 31, 1998, 6 lots were under contract at the Reserve at
Frisco representing $.5 million in sales (all 6 of these lots are projected
to close in the first quarter of 1999), 4 units were under contract at
Villa Montane Townhomes representing $5.5 million in sales (all 4 of these
units are projected to close in the first quarter of 1999), 5 units were
under contract at Villa Montane Club representing $5.8 million in sales
(all 5 of these units are projected to close in the first quarter of 1999),
9 units were under contract at Deer Trail representing $26.6 million in
sales (these are projected to close as units are completed over the second
and third quarters of 1999), 12 units were under contract at Buckhorn
Townhomes representing $17.2 million in sales (these are projected to close
as units are completed over the second and third quarters of 1999), and 6
units were under contract at Bear Paw Lodge representing $10.4 million in
sales (these are projected to close as units are completed over the second
and third quarters of 1999).
26
<PAGE> 28
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES TABLE
The following chart sets forth the locations of the 89 Behavioral
Healthcare Properties by state:
<TABLE>
<CAPTION>
Number of Number of Number of Number of
State Properties(1) Beds State Properties(1) Beds
----- ---------- --------- ----- ---------- --------
<S> <C> <C> <C> <C> <C>
Alabama 1 70 Mississippi 2 217
Arkansas 2 109 North Carolina 4 410
Arizona 2 170 New Hampshire 2 100
California 8 649 New Jersey 1 150
Delaware 1 72 Nevada 1 84
Florida 12 648 Pennsylvania 1 169
Georgia 15 986 South Carolina 3 248
Indiana 8 577 Tennessee 1 204
Kansas 2 160 Texas 9 816
Kentucky 3 251 Utah 2 196
Louisiana 1 0 Virginia 3 285
Maryland 1 0 Wisconsin 2 160
Minnesota 1 40 ------ ------
Missouri 1 96 Total 89 6,867
====== ======
</TABLE>
(1) The Behavioral Healthcare Properties include 89 properties in 26 states
that are leased to CBHS. CBHS was formed to operate the Behavioral
Healthcare Properties and is owned 50% by a subsidiary of Magellan and 50%
by COI.
27
<PAGE> 29
ITEM 3. LEGAL PROCEEDINGS
STATION CASINOS, INC.
The Company was a party to an Agreement and Plan of Merger, dated
January 16, 1998, as amended, (the "Merger Agreement") between the Company and
Station Casinos, Inc. ("Station"). Pursuant to the Merger Agreement, Station
would have merged with and into the Company (the "Merger"). On July 27, 1998,
Station canceled the joint annual and special meeting of its common and
preferred stockholders scheduled for August 4, 1998, at which the common and
preferred stockholders were to vote on the Merger, over the Company's objection.
Thereafter, the Company demanded that Station call the stockholders meeting by
August 18, 1998, the last date for which the then-existing record date was
effective. The Company subsequently notified Station that it was exercising its
termination rights under the Merger Agreement based on Station's material
breaches of the Merger Agreement and thereafter notified Station that the Merger
Agreement had been terminated in accordance with its terms.
On July 30, 1998, Station filed a complaint in Clark County District
Court, State of Nevada seeking declaratory relief in connection with the Merger
Agreement. The complaint alleges that the Company consented to Station's
cancellation of its meeting of stockholders. The action seeks a declaratory
judgment that:
o Station has complied in all material respects with its obligations
under the Merger Agreement;
o Station is not obligated to reschedule immediately a meeting of its
common and preferred stockholders;
o the Company has no right to terminate the Merger Agreement; and
o the Company is obligated to purchase up to $115 million in redeemable
preferred stock of Station in accordance with certain provisions of
the Merger Agreement.
On August 7, 1998, the Company filed a complaint in the United States
District Court, Northern District of Texas, seeking damages and declaratory
relief as a result of Station's alleged breaches of the Merger Agreement. The
complaint alleges that Station breached the Merger Agreement by unilaterally
canceling its scheduled stockholders meeting and refusing to reschedule and
conduct the meeting, and that Station's representations and warranties were not
true and correct in all material respects. The action seeks:
o compensatory damages, including the $54 million breakup fee or its
equivalent and the Company's expenses associated with the transaction;
o a declaratory judgment that Station's alleged breaches under the
Merger Agreement excuse the Company from any further obligations under
the Merger Agreement; and
o a declaratory judgment that the Company is not required to purchase
shares of Station Casinos, Inc.'s redeemable preferred stock due to
Station's material breaches of the Merger Agreement.
On August 11, 1998, Station amended its complaint to expand the matters
as to which declaratory relief was sought and to add claims for damages and for
specific performance relating to the purchase of Station's redeemable preferred
stock. The amended complaint alleges that the Company breached its obligations
under the Merger Agreement by failing to use all reasonable efforts to
consummate the Merger and by refusing to provide Station with access to
additional information concerning the Company. The amended complaint also
alleges that the Company had no right to terminate the Merger Agreement or to
refuse to purchase 115,000 shares of Station's redeemable preferred stock for an
aggregate purchase price of $115 million.
28
<PAGE> 30
As amended, the action by Station seeks, in addition to the prior requests
for declaratory relief:
o an order of specific performance requiring the Company to purchase
$115 million of the redeemable preferred stock;
o damages consisting of compensatory damages (which Station states to be
in excess of $400 million);
o costs associated with Station's obtaining capital needed to replace
the $115 million that was to have been paid by the Company to purchase
the redeemable preferred stock;
o expenses incurred by Station in connection with the proposed Merger;
and
o a declaratory judgment that the Company was in breach of its
representations, warranties, and covenants at the time that the
Company exercised its termination rights under the Merger Agreement
and that the Company's breach and exercise of termination rights
excuses Station from any further performance obligation under the
Merger Agreement.
On December 22, 1998, the Company filed its answer to Station's Nevada
state court action, in which the Company reasserted as a counterclaim all of its
original claims against Station for Station's breaches of the Merger Agreement
and for declaratory judgments which had previously been included in the
Company's Texas federal court suit filed against Station on August 7, 1998.
Pursuant to the answer, the Company also vigorously denied the allegations
raised by Station. The parties have commenced discovery in the Nevada state
court action.
With respect to the forum for the litigation, the Company has sought
to have the dispute tried in federal court either in Texas or Nevada, while
Station has sought to maintain the action in state court in Nevada. On August
14, 1998, the Nevada federal district court remanded the action filed by
Station to Nevada state court, and on December 15, 1998, the Texas federal
court followed suit by dismissing for lack of subject matter jurisdiction the
Company's Texas federal action. The Texas federal court's decision is the
subject of an expedited appeal by the Company to the Fifth Circuit Court of
Appeals. If the Company's appeal is successful, the case (including the
Company's claims against Station) would resume in Texas federal court and
proceed simultaneously with the Nevada state court action.
The Company intends to pursue its claims against Station and to
continue to contest Station's claims vigorously. As with any litigation it is
not possible to predict the resolution of the outcome of the pending litigation
with Station. The Company believes that the pending action against the Company
will not have a material adverse effect on the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the Registrant's fiscal year ended December 31, 1998.
29
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
All information provided below has been adjusted to reflect the
two-for-one stock split effected in the form of 100% share dividend paid by the
Company on March 26, 1997 to shareholders of record on March 20, 1997. The
Company's common shares have been traded on the New York Stock Exchange under
the symbol "CEI" since the completion of its initial public offering at a price
of $12.50 per share in May 1994. For each calendar quarter indicated, the
following table reflects the high and low sales prices for the common shares and
the distributions declared by the Company with respect to each such quarter.
<TABLE>
<CAPTION>
PRICE
---------------------
HIGH LOW DISTRIBUTIONS
-------- -------- -------------
<S> <C> <C> <C>
1997
----
First Quarter $31 3/8 $25 1/8 $.305
Second Quarter $32 $25 1/8 $.305(1)
Third Quarter $40 1/8 $30 $.38
Fourth Quarter $40 7/8 $30 $.38
1998
----
First Quarter $40 3/8 $33 1/16 $.38
Second Quarter $37 7/16 $30 3/4 $.38
Third Quarter $34 11/16 $21 1/8 $.55
Fourth Quarter $26 3/8 $21 1/16 $.55
</TABLE>
(1) In addition to the regular quarterly distribution, the Company made a
one-time distribution of shares of the common stock of COI valued at $.99
per share, which was distributed to the shareholders of the Company and the
partners of the Operating Partnership on a pro rata basis, in a spin-off
effective June 12, 1997.
As of March 26, 1999, there were approximately 901 holders of record of
the common shares.
DISTRIBUTION POLICY
On September 2, 1998, the Company announced a 45% increase in the
quarterly distribution, increasing the quarterly distribution on its common
shares and equivalent units from $.38 per share and equivalent unit to $.55 per
share and equivalent unit. This equates to an indicated annualized dividend
increase from $1.52 per share and equivalent unit to $2.20 per share and
equivalent unit. The higher distribution rate commenced with the Company's
distribution for the third quarter of 1998, which was paid on November 3, 1998,
to shareholders and equivalent unitholders of record as of October 14, 1998.
Distributions on the 8,000,000 6 3/4% Series A Convertible Cumulative
Preferred Shares issued by the Company in February 1998 are payable at the rate
of $1.69 per annum per Series A Convertible Cumulative Preferred Share, prior to
distributions on the common shares.
The actual results of operations of the Company and the amounts
actually available for distribution will be affected by a number of
factors, including:
o the operating and interest expenses of the Company;
o the ability of tenants to meet their rent obligations;
30
<PAGE> 32
o general leasing activity in the markets in which the Office Properties
and Retail Properties are located;
o consumer preferences relating to the Hotel Properties;
o any additional properties acquired in the future;
o the general condition of the United States economy;
o federal, state and local taxes payable by the Company;
o capital expenditure requirements; and
o the adequacy of reserves.
In addition, the requirements for the Company's line of credit limit
distributions to the partners of the Operating Partnership for any four
successive quarters to an amount that will not exceed 90% of funds from
operations for such period and 100% of funds available for distribution for such
period.
Future distributions by the Company will be at the discretion of the
Board of Trust Managers. The Board of Trust Managers has indicated that it will
review the adequacy of the Company's distribution rate on a quarterly basis.
Under the Code, real estate investment trusts are subject to numerous
organizational and operational requirements, including the requirement to
distribute at least 95% of REIT taxable income. Pursuant to this requirement,
the Company was required to distribute $136.8 million and $103.9 million for
1998 and 1997, respectively. Actual distributions by the Company were $220.6
million and $140.8 million for 1998 and 1997, respectively.
Distributions by the Company to the extent of its current and
accumulated earnings and profits for federal income tax purposes generally will
be taxable to a shareholder as ordinary dividend income. Distributions in excess
of current and accumulated earnings and profits will be treated as a nontaxable
reduction of the shareholder's basis in such shareholder's shares, to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the shareholder's basis in its shares will have the effect of
deferring taxation until the sale of the shareholder's shares. Given the dynamic
nature of the Company's long-term acquisition strategy and the extent to which
any future acquisitions would alter this calculation, no assurances can be given
regarding what portion, if any, of distributions in 1999 or subsequent years
will constitute a return of capital for federal income tax purposes.
Following is the income tax status of dividends paid during the years
ended December 31, 1998 and 1997 to common shareholders:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Ordinary income 58.8 % 74.3%
Capital gain 5.6 % --
Return of capital 35.6 % 25.7%
</TABLE>
Following is the income tax status of dividends paid during the years
ended December 31, 1998 and 1997 to preferred shareholders:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Ordinary income 94.4 % --
Capital gain 5.6 % --
</TABLE>
31
<PAGE> 33
ITEM 6 . SELECTED FINANCIAL DATA
The following table sets forth certain financial information for the
Company on a consolidated historical basis and for the Rainwater Property Group
(the Company's predecessor) on a combined historical basis, which consists of
the combined financial statements of the entities that contributed properties
in exchange for units or common shares in connection with the formation of the
Company. All information relating to common shares has been adjusted to reflect
the two-for-one stock split effected in the form of a 100% share dividend paid
on March 26, 1997 to shareholders of record on March 20, 1997. Such information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and the
Financial Statements and Supplementary Data included in Item 8.
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED HISTORICAL FINANCIAL DATA AND
RAINWATER PROPERTY GROUP
COMBINED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RAINWATER
PROPERTY
GROUP
COMPANY (PREDECESSOR)
------------------------------------------------------------------------------ ----------------
For the Period
from May 5, For the Period
Year Ended December 31, 1994 to from January 1,
------------------------------------------------------------ December 31, 1994 to May 4,
1998 1997 1996 1995 1994 1994
---- ---- ---- ---- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue ................. $ 698,343 $ 447,373 $ 208,861 $ 129,960 $ 50,343 $ 21,185
Operating income (loss) ....... 143,893 111,281 44,101 30,858 10,864 (1,599)
Income (loss) before
minority interests
and extraordinary
item ...................... 183,210 135,024 47,951 36,358 12,595 (1,599)
Basic earnings per common
share:
Income before
extraordinary
item ...................... $ 1.26 $ 1.25 $ .72 $ .66 $ .28 N/A
Net income ................ 1.26 1.25 .70 .66 .26 N/A
Diluted earnings per common
share:
Income before extraordinary
item ...................... $ 1.21 $ 1.20 $ .70 $ .65 $ .28 N/A
Net income................. 1.21 1.20 .68 .65 .26 N/A
BALANCE SHEET DATA
(AT PERIOD END)
Total assets .................. $ 5,043,447 $ 4,179,980 $ 1,730,922 $ 964,171 $ 538,354 N/A
Total debt .................... 2,318,156 1,710,124 667,808 444,528 194,642 N/A
Total shareholders' equity .... 2,422,545 2,197,317 865,160 406,531 235,262 N/A
OTHER DATA:
Funds from Operations
before minority
interests(1) ............. $ 360,148 $ 214,396 $ 87,616 $ 64,475 $ 32,723 N/A
Cash distribution declared per
common share ............. $ 1.86 $ 1.37 $ 1.16 $ 1.05 $ .65 N/A
Weighted average
common shares and units
outstanding - basic ...... 132,429,405 106,835,579 64,684,842 54,182,186 44,997,716 N/A
Weighted average
common shares and units
outstanding - diluted .... 140,388,063 110,973,459 65,865,517 54,499,690 45,039,840 N/A
Cash flow provided by
(used in)
Operating activities ...... $ 277,075 $ 211,714 $ 77,384 $ 65,011 $ 21,642 $ 2,455
Investing activities ...... (798,085) (2,294,428) (513,038) (421,406) (260,666) (2,379)
Financing activities ...... 564,680 2,123,744 444,315 343,079 265,608 (21,310)
</TABLE>
NOTES:
32
<PAGE> 34
(1) Funds from Operations ("FFO"), based on the revised definition adopted by
the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT") and as used herein, means net income (loss)
(determined in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization of real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. For
a more detailed definition and description of FFO, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Selected Financial Data and the financial statements and notes thereto,
appearing in Item 6 and Item 8, respectively, of this report. Historical results
and percentage relationships set forth in Selected Financial Data, the Financial
Statements and Supplementary Data included in Item 6 and Item 8 and this section
should not be taken as indicative of future operations of the Company.
Capitalized terms used but not otherwise defined herein, shall have the meanings
ascribed to those terms in Items 1 through 6 of this 10-K.
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements generally are
characterized by the use of terms such as "believe", "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
are set forth in the Company's Current Report on Form 8-K/A dated April 17,
1998 and filed November 24, 1998. Among the factors that might cause such a
difference are the following: changes in real estate conditions (including
rental rates and competing properties); changes in industries in which the
Company's principal tenants compete; changes in the financial condition of
existing tenants; the Company's ability to timely lease unoccupied square
footage and timely release of occupied square footage upon expiration; the
Company's ability to generate revenues sufficient to meet debt service payments
and other operating expenses; financing risks, such as the availability of
funds sufficient to service existing debt, changes in interest rates associated
with its variable rate debt, the availability of equity and debt financing
terms acceptable to the Company, the possibility that the Company's outstanding
debt (which requires so-called "balloon" payments of principal) may be
refinanced at higher interest rates or otherwise on terms less favorable to the
Company and the fact that interest rates under the line of credit held by
BankBoston ("Credit Facility") and certain of the Company's other financing
arrangements may increase; the concentration of a significant percentage of the
Company's assets in Texas; the existence of complex regulations relating to the
Company's status as a REIT and the adverse consequences of the failure to
qualify as such; changes in general economic conditions; risks related to
certain ongoing litigation with Station Casinos, Inc. ("Station"); the
Company's inability to control the management and operation of its Residential
Development Properties, its tenants and the businesses associated with its
investment in Refrigerated Storage Properties; and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission ("SEC"). Given these uncertainties, readers are cautioned not to
place undue reliance on such statements. The Company undertakes no obligation
to update these forward-looking statements to reflect any future events or
circumstances.
OFFICE AND RETAIL SEGMENT
Office and Retail net operating income growth for the year ended
December 31, 1998, compared to the year ended December 31, 1997, was
approximately 15% for the 16.3 million square feet of office properties owned
as of January 1, 1997. For these properties, the average occupancy for the year
ended December 31, 1998 was approximately 90%, and the average occupancy for
the year ended December 31, 1997 was approximately 85%.
For the year ended December 31, 1998, leases were executed (all of
which have commenced or will commence during the next twelve months) renewing
or re-leasing 1.8 million net rentable square feet of office space at a
weighted average full-service rental rate (including expense recoveries) and a
funds from operations ("FFO") annual net effective rate (calculated as weighted
average full-service rental rate minus Company-paid operating expenses) of
$20.84 and $13.07 per square foot, respectively, compared to expiring leases
with a weighted average full-service rental rate and an FFO annual net
effective rate of $17.17 and $9.51 per square foot, a 21% and 37% increase,
respectively. Weighted average full-service rental rates represent base rent
after giving effect to free rent and scheduled rent increases that would
33
<PAGE> 35
be taken into account under GAAP and including adjustments for the tenant's
share of expenses payable by or reimbursed to the Company ("expense
recoveries").
The leases executed for the year ended December 31, 1998, all of which
have commenced or will commence during the next twelve months, required tenant
improvement and leasing costs of $4.82 and $3.02 per square foot, respectively
or $.83 and $.61 per square foot per year, respectively. Tenant improvement and
leasing costs in 1998 were approximately 30% and 27%, respectively, lower than
1997. The overall office portfolio was approximately 94% leased (based on
executed leases) and 92% leased (based on commenced leases) at December 31,
1998.
HOSPITALITY SEGMENT
Hotel Property rental income growth, including weighted average base
rent and percentage rent for the year ended December 31, 1998, compared to the
year ended December 31, 1997, was approximately 9% for the full-service hotel
properties and two destination health and fitness resorts owned as of January
1, 1997 (weighted average base rent includes scheduled rent increases that
would be taken into account under GAAP).
For the year ended December 31, 1998, weighted average occupancy,
average daily rate and revenue per available room for all Hotel Properties were
76%, $223 and $168 respectively, compared to 76%, $204 and $154, respectively,
for the same period of 1997.
RESIDENTIAL DEVELOPMENT SEGMENT
The Company owns economic interests in five Residential Development
Corporations through the Residential Development Property Mortgages and the
non-voting common stock of these Residential Development Corporations. The
Residential Development Corporations in turn, through joint ventures or
partnership arrangements, own interests in 13 Residential Development
Properties. The Residential Development Corporations are responsible for the
continued development and the day-to-day operations of the Residential
Development Properties. Management plans to maintain the Residential
Development Segment at its current investment level and reinvest returned
capital into projects which it expects to achieve comparable rates of return.
The Woodlands Land Company, Inc. and The Woodlands Commercial
Properties Company, L.P., The Woodlands, Texas. For the year ended December 31,
1998, these entities sold 1,462 lots in The Woodlands with an average sales
price of $52,500 per lot and 205 acres of commercial land, compared to 1,250
lots with an average sales price of $46,300 per lot and 34 acres of commercial
land, for the same period of 1997.
Desert Mountain Development Corporation ("Desert Mountain"),
Scottsdale, Arizona. For the year ended December 31, 1998, Desert Mountain sold
258 lots with an average sales price of $430,000 per lot (including club
memberships), compared to 226 lots with an average sales price of $382,000 per
lot (including club memberships), for the same period of 1997. Desert Mountain
opened three new villages in the fourth quarter of 1998 with approximately 120
residential lots and, as of year-end, more than 50% of the lots had sold with
an average sales price of $600,000.
Crescent Development Management Corp. ("CDMC"), Beaver Creek,
Colorado. For the year ended December 31, 1998, CDMC's sales from its five
active projects were 48 residential lots, 27 townhomes, and 638 time share
units, compared to 1997 sales from its three active projects of 40 residential
lots and 44 condominiums. The Company has recently made a long-term commitment
to fund an additional $50 million for new projects in CDMC.
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas. For
the year ended December 31, 1998, Mira Vista sold 79 lots with an average sales
price of $111,000 per lot, compared to 67 lots with an average sales price of
$95,000 per lot, for the same period of 1997.
Houston Area Development Corp. ("Houston Area Development"), Houston,
Texas. For the year ended December 31, 1998, Houston Area Development sold 181
lots with an average sales price of $25,000 per lot, compared to 214 lots with
an average sales price of $27,000 per lot, for the same period of 1997.
34
<PAGE> 36
REFRIGERATED STORAGE SEGMENT
Growth in earnings generated from the 380 million cubic feet (15.4
million square feet) of Refrigerated Storage Properties owned as of January 1,
1997 before interest, taxes, depreciation and amortization ("EBITDA") for the
Refrigerated Storage Corporations, for the year ended December 31, 1998,
compared to the year ended December 31, 1997, was approximately 3.5%. The
Company believes that in addition to cash flows and net income, EBITDA is a
useful financial performance measurement for assessing the operating
performance of the Refrigerated Storage Properties. EBITDA does not represent
net income or cash flows from operating, financing and investing activities as
defined by GAAP.
BEHAVIORAL HEALTHCARE SEGMENT
In 1998, the Company received rental payments of $42.8 million from
CBHS as required under its lease with CBHS. The Company recognizes rent on a
straight-line basis, resulting in a deferred rent receivable balance due from
CBHS of approximately $20 million at December 31, 1998. In December 1998, the
independent accountants for CBHS, in connection with their audit of the
financial statements for the year ended September 30, 1998, issued a modified
auditors' report related to the ability of CBHS to continue as a going concern.
In October 1998, CBHS hired a new President and Chief Executive Officer
(formerly the Vice President of Operations for the Southeast Region of Tenet
Healthcare), who announced a set of initiatives to address cost reductions and
revenue enhancements for 1999. CBHS has continued to make timely rent payments
to the Company for the first five months of CBHS's fiscal year; however,
management will continue to evaluate the business, financial condition and
results of operations of CBHS in connection with the collectibility of the
deferred rent receivable balance.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
established standards for the reporting and presentation of comprehensive
income and its components (generally, total nonowner changes in equity). As a
result of the adoption of SFAS No. 130, comprehensive income has been presented
as part of the statement of shareholders' equity. During the year ended
December 31, 1998, the Company held securities classified as available-for-sale
which had unrealized losses during the period of $5 million. Prior to 1998, the
Company's comprehensive income was not material to the Company's financial
statements.
In March 1998, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board ("FASB") issued EITF 97-11, "Accounting
for Internal Costs Relating to Real Estate Property Acquisitions," which
provides that internal costs of identifying and acquiring operating property
should be expensed as incurred. This pronouncement was effective March 19,
1998, and has had no material impact on the Company's 1998 financial
statements.
Beginning with the fiscal year ended December 31, 1998, the Company
adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
This statement is effective for financial statements for periods beginning
after December 15, 1997. (See Note 3 of Item 8. Financial Statements and
Supplementary Data).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which provided that all derivative
instruments should be recognized as either assets or liabilities, depending on
the rights or obligations under the contract and that all derivative instruments
should be measured at fair value. This pronouncement will be effective for all
fiscal quarters of fiscal years beginning after June 15, 1999, and would not
have materially impacted the Company's 1998 financial statements.
35
<PAGE> 37
RESULTS OF OPERATIONS
The following table sets forth the Company's financial data as a
percent of total revenues for the years ended December 31, 1998, 1997 and 1996.
See Item 8. Financial Statements and Supplementary Data, Note 3 to the
Company's Consolidated Financial Statements for financial information about
industry segments.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Office and retail properties 80.6% 81.2% 87.2%
Hotel properties 7.7% 8.3% 9.5%
Behavioral healthcare properties 7.9% 6.7% --
Interest and other income 3.8% 3.8% 3.3%
----- ----- -----
Total revenues 100.0% 100.0% 100.0%
----- ----- -----
EXPENSES
Operating Expenses 34.8% 35.5% 35.3%
Corporate general and administrative 2.3% 2.9% 2.2%
Interest expense 21.8% 19.3% 20.6%
Amortization of deferred financing costs 0.9% 0.8% 1.4%
Depreciation and amortization 16.9% 16.6% 19.4%
Write-off costs associated with terminated
acquisitions 2.7% -- --
----- ----- -----
Total expenses 79.4% 75.1% 78.9%
----- ----- -----
Operating income 20.6% 24.9% 21.1%
OTHER INCOME
Equity in net income of unconsolidated companies:
Refrigerated storage corporations 0.1% 0.3% --
Residential development corporations 4.4% 4.2% 1.8%
Other 1.1% 0.8% --
----- ----- -----
Total other income 5.6% 5.3% 1.8%
----- ----- -----
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 26.2% 30.2% 22.9%
Minority interests (2.5%) (4.0%) (4.5%)
----- ----- -----
INCOME BEFORE EXTRAORDINARY ITEM 23.7% 26.2% 18.4%
Extraordinary item -- -- (0.6%)
----- ----- -----
NET INCOME 23.7% 26.2% 17.8%
PREFERRED STOCK DIVIDENDS (1.7%) -- --
FORWARD SHARE PURCHASE
AGREEMENT RETURN (0.4%) -- --
----- ----- -----
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS 21.6% 26.2% 17.8%
===== ===== =====
</TABLE>
36
<PAGE> 38
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Total revenues increased $250.9 million, or 56.1%, to $698.3 million
for the year ended December 31, 1998, as compared to $447.4 million for the
year ended December 31, 1997.
The increase in Office and Retail Property revenues of $199.7 million,
or 55.0%, compared to 1997 is attributable to:
o the acquisition of nine Office Properties in 1998, which
resulted in $54.7 million of incremental revenues;
o the acquisition of 26 Office Properties and one Retail
Property in 1997, which contributed revenues for a full year
in 1998, as compared to a partial year in 1997, resulting in
$111.3 million of incremental revenues; and
o increased revenues of $33.7 million from the 59 Office and
Retail Properties acquired prior to January 1, 1997,
primarily as a result of rental rate and occupancy increases
at these Properties.
The increase in Hotel Property revenues of $16.1 million, or 43.2%,
compared to 1997 is attributable to:
o the acquisition of one full-service Hotel Property and a
golf course in 1998, which resulted in $3.9 million of
incremental revenues;
o the acquisition of two full-service Hotel Properties in
1997, which contributed revenues for a full year in 1998, as
compared to a partial year in 1997, resulting in $8.9 million
of incremental revenues; and
o increased revenues of $3.3 million from the six Hotel
Properties acquired prior to January 1, 1997, which resulted
in an increase in revenues, primarily from an increase in
percentage rent.
The increase in Behavioral Healthcare Property revenues of $25.5
million, or 85.6%, compared to 1997 is primarily attributable to the fact that
the Behavioral Healthcare Properties contributed revenues for a full year in
1998 as compared to approximately six months in 1997.
The increase in interest and other income of $9.7 million, or 57.1%,
compared to 1997 is primarily attributable to:
o the sale of marketable securities in 1998; and
o the acquisition of certain notes included in the portfolio
acquired from Carter-Crowley in May of 1997 and the extension
of loans to COI, also in May of 1997, both of which earned
interest for a full year in 1998 as compared to a partial
year in 1997, resulting in incremental interest income on
these notes receivable.
EXPENSES
Total expenses increased $218.4 million, or 65.0%, to $554.5 million
for the year ended December 31, 1998, as compared to $336.1 million for the
year ended December 31, 1997.
The increase in rental property operating expenses of $84.1 million,
or 52.9%, compared to 1997 is attributable to:
o the acquisition of nine Office Properties in 1998, which
resulted in $22.1 million of incremental expenses;
o the acquisition of 26 Office Properties and one Retail
Property in 1997, which incurred expenses for a full year in
1998, as compared to a partial year in 1997, resulting in
$52.4 million of incremental expenses; and
o increased expenses of $9.6 million from the 59 Office and
Retail Properties acquired prior to January 1, 1997,
primarily as a result of occupancy increases at these
Properties.
37
<PAGE> 39
The increase in depreciation and amortization expense of $43.7
million, or 58.7%, compared to 1997, is primarily attributable to the
acquisitions of Office, Retail, Hotel and the Behavioral Healthcare Properties
in 1997 and 1998.
The increase in interest expense of $65.8 million, or 76.2%, compared
to 1997 is primarily attributable to:
o $21.6 million of interest payable under the Notes due 2002
and Notes due 2007, which were issued in a private offering
in September 1997 (the "September 1997 Notes Offering");
o $6.1 million of interest payable under the Chase Manhattan
Note, which was assumed in connection with the acquisition of
the Fountain Place Office Property in November 1997;
o $1.2 million of interest payable on the BankBoston N.A.
("BankBoston") Note, which the Company entered into in August
1997;
o $3.0 million of interest payable under the Metropolitan
Life Note II, which was assumed in connection with the
acquisition of the Energy Centre Office Property in December
1997;
o $2.3 million of interest payable under the Metropolitan
Life Notes III and IV, which were assumed in connection with
the acquisition of the Datran Center Office Property in May
1998;
o $3.3 million of interest payable under the promissory note
payable to Merrill Lynch International issued in conjunction
with the termination of the equity swap agreement with
Merrill Lynch International on September 30, 1998; and
o $28.0 million of incremental interest payable due to draws
under the Credit Facility and short-term borrowings with
BankBoston (average balance outstanding for the year ended
December 31, 1998 and 1997 was $728.3 million and $329.8
million, respectively).
All of these financing arrangements were used to fund investments and
working capital.
The increase in corporate general and administrative expense of $3.4
million, or 26.4%, compared to 1997 is primarily attributable to the
incremental costs associated with the operations of the Company as a result of
property acquisitions.
An additional increase in expenses of $18.4 million is attributable to
a non-recurring write-off of costs associated with terminated acquisitions.
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $15.6
million, or 65.8%, to $39.3 million for the year ended December 31, 1998, as
compared to $23.7 million for the year ended December 31, 1997.
The increase is primarily attributable to:
o an increase in equity in net income of the Residential
Development Corporations of $12.2 million, or 64.9%, compared
to 1997 which is primarily attributable to the investments in
The Woodlands Land Company, Inc. in July 1997, and Desert
Mountain Development Corporation in August 1997, which
resulted in $11.6 million of incremental net income; and
o an increase in equity in net income of other unconsolidated
companies of $4.1 million, or 107.9%, compared to 1997, which
is primarily attributable to the investment in The Woodlands
Commercial Properties Company, L.P. in July 1997, which
resulted in $6.5 million of incremental net income, partially
offset by the distributions of $3.1 million received in 1997
from the Company's investment in HBCLP, Inc. (the primary
asset of which is the investment in Hudson Bay Partners,
L.P., an investment partnership in which the Company holds an
effective 95% economic interest).
38
<PAGE> 40
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues increased $238.5 million, or 114.2%, to $447.4 million
for the year ended December 31, 1997, as compared to $208.9 million for the
year ended December 31, 1996.
The increase in Office and Retail Property revenues of $181.1 million,
or 99.4%, compared to 1996 is attributable to:
o the acquisition of 26 Office Properties and one Retail
Property during 1997, which resulted in $79.5 million of
incremental revenues;
o the acquisition of 23 Office Properties and four Retail
Properties during 1996, which contributed revenues for a full
year in 1997, as compared to a partial year in 1996,
resulting in $91.6 million of incremental revenues; and
o increased revenues of $10.0 million from the 32 Office and
Retail Properties acquired prior to January 1, 1996,
primarily as a result of rental rate increases at these
Properties.
The increase in Hotel Property revenues of $17.5 million, or 88.4%,
compared to 1996 is attributable to:
o the acquisition of two Hotel Properties during 1997, which
resulted in $2.1 million of incremental revenues;
o the acquisition of three Hotel Properties during 1996,
which contributed revenues for a full year in 1997, as
compared to a partial year in 1996, resulting in $14.5
million of incremental revenues; and
o increased revenues of $0.9 million from the three Hotel
Properties acquired prior to January 1, 1996, which resulted
from an increase in percentage rent.
The increase in Behavioral Healthcare Property revenues of $29.8
million is attributable to the fact that the Behavioral Healthcare Properties
were not acquired until June 1997.
The increase in interest and other income of $10.1 million for the
year ended December 31, 1997, or 146.4%, compared to 1996 is primarily
attributable to:
o the acquisition of certain notes included in the
Carter-Crowley Portfolio, the extension of loans to COI and
to Desert Mountain Properties Limited Partnership ("DMPLP")
(in which one of the Residential Development Corporations
owns a majority economic interest) and the acquisition of a
note receivable secured by a hotel property, all of which
occurred in 1997, resulting in incremental interest income on
these notes receivable; and
o the interest earned on available cash from the common share
offering completed in April 1997.
EXPENSES
Total expenses increased $171.3 million, or 103.9%, to $336.1 million
for the year ended December 31, 1997, as compared to $164.8 million for the
year ended December 31, 1996.
The increase in rental property operating expenses of $85.1 million,
or 115.3%, compared to 1996 is primarily attributable to:
o the acquisition of 26 Office Properties and one Retail
Property during 1997, which resulted in $38.3 million of
incremental expenses;
o the acquisition of 23 Office Properties and four Retail
Properties during 1996, which incurred expenses for a full
year in 1997, as compared to a partial year in 1996,
resulting in $40.8 million of incremental expenses; and
39
<PAGE> 41
o increased expenses of $5.5 million from the 32 Office and
Retail Properties acquired prior to January 1, 1996,
primarily as a result of occupancy increases at these
Properties.
The increase in depreciation and amortization expense of $33.9 million,
or 83.7%, compared to 1996 is primarily attributable to the acquisitions of
Office and Retail Properties, Hotel Properties and Behavioral Healthcare
Properties in 1996 and 1997.
The increase in interest expense of $43.5 million, or 101.4%, compared
to 1996 is attributable to:
o $6.9 million of interest payable under LaSalle Note III,
which was assumed in connection with the acquisition of the
Greenway Plaza Portfolio in October 1996;
o $0.8 million of interest payable to Nomura Asset Capital
Corporation under the Nomura Funding VI Note, which was
assumed in connection with the acquisition of the Canyon
Ranch-Lenox Hotel Property in December 1996;
o $2.0 million of interest payable under the financing
arrangement with Northwestern Mutual Life Insurance Company,
which was entered into in December 1996 and is secured by the
301 Congress Avenue Office Property;
o $1.0 million of interest payable under LaSalle Note II
secured by the Funding II properties;
o $10.0 million of interest payable under various short-term
notes with BankBoston, with principal amounts ranging between
$150 million and $235 million, which were entered into from
June through December 1997;
o $14.0 million of incremental interest payable due to draws
under the Company's Credit Facility (average balance
outstanding for the year ended December 31, 1997 and 1996 was
$216.8 million and $64.3 million, respectively);
o $7.7 million of interest payable under the Notes due 2002
and Notes due 2007, which were issued in the September 1997
Notes Offering; and
o $1.1 million of interest payable under the Chase Manhattan
Note, which was assumed in connection with the acquisition of
the Fountain Place Office Property in November 1997.
The increase in corporate general and administrative expense of $8.2
million, or 174.5%, compared to 1996 is primarily attributable to incremental
costs associated with the operation of the Company as a result of the
acquisition of additional Properties and to incentive compensation paid to the
Company's executive officers.
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $19.8
million, or 508%, to $23.7 million for the year ended December 31, 1997, as
compared to $3.9 million for the year ended December 31, 1996.
The increase is primarily attributable to the 1997 investments in:
o The Woodlands Land Company, Inc;
o Desert Mountain Development Corporation; and
o The Woodlands Commercial Properties Company, LP.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $110.3 million and $66.6 million at
December 31, 1998 and December 31, 1997, respectively. This 65.6% increase is
attributable to $564.7 million and $277.1 million of cash provided by financing
and operating activities, respectively, offset by $798.1 million used in
investing activities.
40
<PAGE> 42
FINANCING ACTIVITIES
The Company's inflow of cash provided by financing activities of $564.7
million is primarily attributable to:
o net borrowings under the Credit Facility of $310.0 million;
o net proceeds from the February 1998 offering of Series A
convertible cumulative preferred shares (the "February 1998
Preferred Offering") of $191.2 million;
o net proceeds from the June 1998 offering of Series B
convertible preferred shares (the "June 1998 Preferred
Offering") of $224.8 million;
o net proceeds from the April 1998 common share offering (the
"April 1998 Unit Investment Trust Offering") of $43.9
million; and
o net borrowings under short-term facilities of $41.8
million.
The inflow of cash provided by financing activities is partially offset
by:
o distributions paid to common shareholders and unitholders
of $220.6 million;
o distributions paid to preferred shareholders of $11.7
million;
o debt financing costs of $9.6 million;
o capital distributions paid to joint venture partners of
$2.9 million; and
o fees paid related to the extension of the forward share
purchase agreement with affiliates of the predecessor of UBS
AG of $2.9 million.
OPERATING ACTIVITIES
The Company's inflow of cash provided by operating activities of $277.1
million is primarily attributable to:
o inflows from Property operations of $253.8 million;
o inflows from minority interests of $17.6 million;
o inflows from distributions received in excess of equity in
earnings from unconsolidated companies of $9.3 million; and
o inflows from increases in accounts payable, accrued
liabilities and other liabilities of $22.2 million.
The inflow of cash provided by operating activities is partially offset
by increases in other assets and restricted cash and cash equivalents of $25.8
million.
INVESTING ACTIVITIES
The Company utilized $798.1 million of cash flow, primarily in the
following investing activities:
o $530.8 million for the acquisition of nine Office
Properties and one Hotel Property;
o $68.8 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $31.3 million for capital expenditures on rental properties
primarily attributable to non-recoverable building
improvements for the Office and Retail Properties, and
replacement of furniture, fixtures and equipment for the
Hotel Properties;
o $31.9 million for the development of investment properties;
o $147.2 million for investments in unconsolidated companies,
which is primarily attributable to the additional investment
in the Refrigerated Storage Partnerships; and
o $27.3 million attributable to increased notes receivable
primarily due to loans to COI.
The outflow of cash used in investing activities is partially offset
by:
o $35.6 million in return of investment received from the
Residential Development Corporations; and
o $5.8 million inflow from a decrease in escrow deposits held
for acquisitions of investment properties.
41
<PAGE> 43
SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "October Shelf Registration Statement") with the SEC for an aggregate of
$1.5 billion of common shares, preferred shares and warrants exercisable for
common shares. Management believes the October Shelf Registration Statement will
provide the Company with more efficient and immediate access to capital markets
at such time as it is considered appropriate. As of December 31, 1998,
approximately $782.7 million was available under the October Shelf Registration
Statement for the issuance of securities.
PREFERRED OFFERINGS
On February 19, 1998, the Company completed the February 1998
Preferred Offering of 8,000,000 shares of 6 3/4% Series A convertible
cumulative preferred shares (the "Series A Preferred Shares") with a
liquidation preference of $25 per share. The Series A Preferred Shares are
convertible at any time, in whole or in part, at the option of the holders
thereof into common shares of the Company at a conversion price of $40.86 per
common share (equivalent to a conversion rate of .6119 common shares per Series
A Preferred Share based on the original offering price), subject to adjustment
in certain circumstances. Net proceeds to the Company from the February 1998
Preferred Offering, after underwriting discounts of $8.0 million and other
offering costs of approximately $.8 million, were approximately $191.2 million.
The net proceeds from the February 1998 Preferred Offering were used to repay
borrowings under the Credit Facility. Dividends on the Series A Preferred
Shares are cumulative from the date of original issuance and are payable
quarterly in arrears commencing on May 15, 1998. The dividend represents an
annualized dividend of $1.69 per share, or $.42 per share per quarter.
On June 30, 1998, the Company completed the June 1998 Preferred
Offering of 6,948,734 Series B convertible preferred shares at $32.28 per share
(the "Series B Preferred Shares") for aggregate total offering proceeds of
approximately $225.0 million to The Prudential Insurance Company of America and
certain of its affiliates. The Company used the proceeds from the offering, net
of professional fees, of approximately $224.8 million to repay approximately
$170.0 million of short-term indebtedness and to make an indirect investment of
approximately $55.9 million in five additional Refrigerated Storage Properties.
Based on the underwriting fees the Company has typically paid in connection
with previous underwritten public offerings, management estimates that if the
Series B Preferred Shares had been sold in an underwritten public offering, the
Company would have incurred approximately $12 million in underwriting fees and
offering costs. In that case, the Company would have been required to sell
approximately 372,000 additional shares (based on the $32.38 per share price on
the date of the offering) to raise the same amount of net proceeds. On October
7, 1998, the Series B Preferred Shares became convertible at any time, at the
option of the holder. On November 30, 1998, upon the election of the holder,
the Series B Preferred Shares were converted into 8,400,582 of the Company's
common shares at a conversion rate which was calculated by comparing the
investment return produced by the common shares of the Company and an
investment return of a portfolio of equity REIT's as computed by The National
Association of Real Estate Investment Trusts ("NAREIT"). On March 17, 1999, the
Company agreed to issue an additional 12,356 common shares to the former holder
of the Series B Preferred Shares in settlement of a dispute regarding the
calculation of the conversion rate used in the conversion, on November 30,
1998, of the Series B Preferred Shares into the Company's common shares.
COMMON OFFERING
On April 23, 1998, the Company completed the April 1998 Unit
Investment Trust Offering of 1,365,138 common shares at $32.27 per share to
Merrill Lynch & Co. Net proceeds to the Company from the April 1998 Unit
Investment Trust Offering were approximately $43.9 million. The net proceeds
were used to reduce borrowings outstanding under the Credit Facility.
42
<PAGE> 44
FORWARD SHARE PURCHASE AGREEMENT
On August 12, 1997, the Company entered into two transactions with
affiliates of the predecessor of UBS AG ("UBS"). In one transaction, the
Company sold 4,700,000 common shares to UBS for approximately $148 million and
received approximately $145 million in net proceeds. In the other transaction,
the Company entered into a forward share purchase agreement (the "Forward Share
Purchase Agreement") with UBS. On August 11, 1998, the Company paid a fee of
approximately $3 million to UBS in connection with the exercise by the Company
and UBS of the right to extend the term of the Forward Share Purchase Agreement
until August 12, 1999. The Forward Share Purchase Agreement with UBS is not
considered a debt instrument.
Under the Forward Share Purchase Agreement, the Company is committed
to settle its obligations under the agreement by purchasing 4,700,000 common
shares from UBS by August 12, 1999. The price to be paid by the Company for the
4,700,000 common shares (the "Settlement Price") will be determined on the date
the Company settles the Forward Share Purchase Agreement and will be calculated
based on the gross proceeds that the Company received from the original
issuance of common shares to UBS, plus a forward accretion component equal to
90-day LIBOR plus 75 basis points, minus an adjustment for the Company's
distributions paid to UBS. The forward accretion component represents a
guaranteed rate of return to UBS.
The Company may fulfill its settlement obligations under the Forward
Share Purchase Agreement in cash or common shares, at its option, at any time
on or before August 12, 1999.
The Company currently intends to fulfill its settlement obligations in
cash, which will decrease the Company's liquidity and result in an increase in
the Company's net income per common share and net book value per common share.
The Company, however, will continue to evaluate its sources of capital and the
potential uses of its capital until the time that settlement is required under
the Forward Share Purchase Agreement or until such earlier time as it
determines to settle the Agreement. The Company is currently evaluating various
alternatives that would result in the settlement of the Agreement prior to the
expiration date on August 12, 1999.
In the event that the Company elects to fulfill its settlement
obligations in common shares, UBS will sell, on behalf of the Company, a
sufficient number of common shares to realize the Settlement Price. If, as a
result of an increase in the market price of the common shares, the number of
common shares required to be sold to achieve the Settlement Price is less than
the number of common shares previously issued to UBS, UBS will deliver common
shares to the Company. In contrast, if, as a result of a decrease in the market
price of the common shares, such number of common shares is greater than the
number of common shares previously issued to UBS, the Company will deliver
additional common shares to UBS.
On a quarterly basis, if the number of common shares previously
delivered to UBS is not sufficient to permit UBS to realize the Settlement
Price through the sale of such common shares, the Company is obligated to
deliver additional common shares to UBS. On November 20, 1998, the Company
issued 1,852,162 additional common shares to UBS under the Forward Share
Purchase Agreement, as a result of the decline in the market price of the
Company's common shares.
The Company included in the calculation of diluted earnings per share
for the year ended December 31, 1998, approximately 395,489 common shares. The
Company calculated this number of common shares using the Company's average
share price for the year. According to the terms of the Forward Share Purchase
Agreement, had the forward share purchase agreement been settled and the
closing share price of $23 on December 31, 1998 been used, the Company would
have had a contingent obligation to issue approximately 249,555 common shares.
In that event, the Company's net income - diluted per common share would have
remained unchanged at $1.21 for the year ended December 31, 1998 and the net
book value per common share outstanding at December 31, 1998 would have
remained unchanged at $17.81. On February 18, 1999, the Company delivered cash
collateral of $14,700 in lieu of the issuance of additional common shares, as
permitted under the Forward Share Purchase Agreement as a result of a decline
in the market price of the common shares. The Company may issue additional
common shares in substitution for the cash collateral at any time in the
future.
43
<PAGE> 45
To the extent that the Company is obligated, as a result of a further
decline in the market price of the common shares, to issue additional common
shares in the future under the terms of the Forward Share Purchase Agreement,
the issuance will result in a reduction of the Company's net income per common
share and net book value per common share.
EQUITY SWAP AGREEMENT
On December 12, 1997, the Company entered into two transactions with
Merrill Lynch International ("Merrill Lynch"). In one transaction, pursuant to
which the Company obtained additional equity capital through the issuance of
common shares, the Company sold 5,375,000 common shares at $38.125 per share to
Merrill Lynch for $204.9 million ($199.9 million in net proceeds) (the "Merrill
Lynch Offering"). The net proceeds to the Company from the Merrill Lynch
Offering were used to repay borrowings under the Credit Facility. In the other
transaction, the Company entered into an equity swap agreement (the "Swap
Agreement") with Merrill Lynch relating to 5,375,000 common shares (the
"Settlement Shares"), pursuant to which Merrill Lynch would sell, as directed
by the Company on or before December 12, 1998, a sufficient number of common
shares to achieve net sales proceeds equal to the market value of the
Settlement Shares on December 12, 1997, plus a forward accretion component,
minus an adjustment for the Company's distribution rate.
On February 20, 1998 and June 25, 1998, the Company issued 525,000
common shares and 759,254 common shares, respectively, to Merrill Lynch,
pursuant to the terms of the Swap Agreement, as a result of the decline in
market price of the common shares from December 12, 1997, through February 12,
1998 and June 12, 1998, respectively. The issuance of these common shares did
not have a material impact on the Company's net income per common share or net
book value per common share.
Effective September 30, 1998, the Company terminated the Swap
Agreement with Merrill Lynch. As of that date, the Company repurchased the
6,659,254 common shares that Merrill Lynch held and terminated the additional
contingent share obligation provided for under the Swap Agreement by issuing a
$209.3 million promissory note (the "Merrill Lynch Note") due December 14,
1998. The Merrill Lynch Note, which provided for interest at the rate of 75
basis points above 30-day LIBOR is secured by a first mortgage lien on the
Houston Center mixed-use Property complex. On December 14, 1998, the Company
and Merrill Lynch modified the Merrill Lynch Note. In connection with the
modification, (i) the Company made a payment of $25 million of principal, (ii)
the term of the Merrill Lynch Note was extended to September 14, 1999, and
(iii) the interest rate was increased to an initial rate of 200 basis points
above 30-day LIBOR. In connection with this extension, the Company paid an
extension fee of $1.8 million.
STATION CASINOS, INC.
The Company was a party to the Merger Agreement between the Company
and Station. Pursuant to the Merger Agreement, Station would have merged with
and into the Company in the Merger. On July 27, 1998, Station canceled its
joint annual and special meeting of its common and preferred stockholders
scheduled for August 4, 1998, at which the common and preferred stockholders
were to vote on the Merger. The Company subsequently notified Station that it
was exercising its termination rights under the Merger Agreement based on
Station's material breaches of the Merger Agreement. Under the Merger
Agreement, the Company has the right to terminate the Merger Agreement if a
material breach by the other party is not cured within 10 business days after
notice. The Company subsequently notified Station that the Merger Agreement had
been terminated in accordance with its terms. Station and the Company are
currently involved in litigation relating to the Merger Agreement. Each of
Station and the Company are seeking damages from the other and declaratory
relief. In addition, the action by Station seeks, among other matters, an order
of specific performance requiring the Company to purchase $115 million of a
class of Station's redeemable preferred stock and damages consisting of
compensatory damages (which Station states to be in excess of $400 million).
The Company intends to pursue its claims against Station and to
continue to contest Station's claims vigorously. As with any litigation, it is
not possible to predict the resolution of the pending actions. However, the
Company believes that the outcome of the pending litigation with Station will
not have a material adverse effect on the Company's financial condition or
results of operations.
44
<PAGE> 46
TOWER REALTY TRUST, INC.
The Company was a party to an Amended and Restated Agreement and Plan
of Merger, dated August 11, 1998 (the "Tower Merger Agreement"), among the
Company, Tower, Reckson and Metropolitan, a newly formed company owned equally
by the Company and Reckson (collectively, the "Buying Entities"), pursuant to
which Tower would have merged with and into Metropolitan.
On November 2, 1998, Tower filed suit against the Buying Entities for
declaratory and other relief, including damages of not less than $75 million,
arising out of the alleged anticipatory repudiation by the Buying Entities of
the Tower Merger Agreement. Tower's lawsuit followed meetings in which
representatives of the Buying Entities had questioned, among other things,
whether Tower could meet certain conditions to closing. The Buying Entities
subsequently advised Tower that they had not terminated the Tower Merger
Agreement and considered the Tower Merger Agreement to be in full force and
effect, subject to its terms and conditions.
As of December 8, 1998, Tower, Reckson and Metropolitan entered into a
revised agreement and plan of merger (the "Revised Tower Merger Agreement") that
superseded the Tower Merger Agreement to which the Company was a party. In
connection with the Revised Tower Merger Agreement, the Company made a $10
million capital contribution to Metropolitan in December 1998 and agreed to make
an additional $75 million capital contribution to Metropolitan in exchange for a
preferred interest. In addition, the Company and Tower entered into mutual
releases in which each released the other from all claims relating to the Tower
Merger Agreement. Tower's release of the Company provides for the dismissal of
Tower's suit against the Buying Entities without prejudice, but the release
states that it shall become void and unenforceable if all of the conditions to
the funding of the $75 million capital contribution by the Company to
Metropolitan have been met, but the Company fails to fully fund its $75 million
capital contribution to Metropolitan. The Company's release of Tower states that
it shall become void and unenforceable if, but only if, the release from Tower
to the Company becomes void and unenforceable.
The funding by the Company of the additional $75 million capital
contribution to Metropolitan and the merger of Tower with Metropolitan are
expected to close in the second quarter of 1999.
RIGHTS OFFERING
On September 4, 1998, in anticipation of repaying the $209.3 million
Merrill Lynch Note and consummating the Tower Merger Agreement, both originally
scheduled for December 1998, the Company announced a planned rights offering
(the "Rights Offering") that would grant the Company's shareholders rights to
purchase common shares at an exercise price of $22 per share, in an aggregate
amount of approximately $215 million. On December 16, 1998, in view of the
Company's reduced need for capital in the near term, primarily as a result of
the extension of the Merrill Lynch Note and the execution of the Revised Tower
Merger Agreement, the Company elected to cancel the previously announced Rights
Offering.
CAPITAL COMMITMENTS
As of March 26, 1999, the Company has an additional $75 million capital
commitment due in the second quarter of 1999 relating to the Revised Tower
Merger Agreement. The Company expects to fund this obligation through cash flow
provided by operating activities and additional borrowings.
LIQUIDITY REQUIREMENTS
The Company has approximately $347 million of secured debt expiring in
1999, consisting primarily of two major components. The first component is the
$115 million LaSalle Note III maturing in July 1999, which is secured by the
Greenway Plaza office complex. Management expects to refinance this debt before
maturity and is currently in the application phase with a lender for a 10-year
$280 million loan with an interest rate comparable to that of the existing
debt. At this level, the replacement debt would be sufficient to repay the
existing debt and result in additional loan proceeds of approximately $165
million. The Company currently intends to use the net proceeds to settle the
UBS forward share purchase agreement. The second component is the $184 million
Merrill Lynch Note maturing in
45
<PAGE> 47
September 1999, which is secured by the Houston Center mixed-use Property
complex and the Four Seasons Hotel in Houston. Based on management's estimate of
the value of the Properties securing the Merrill Lynch Note, management believes
that it will be able to refinance the Merrill Lynch Note with net proceeds after
repayment of the Note in the range of $30 million to $40 million. Management is
currently engaged in discussions, but has not entered into an agreement, with
any lender. In addition, the Metropolitan Life Notes III and IV, in the
aggregate principal amount of approximately $47 million, mature in December
1999. The Company intends to refinance these Notes prior to maturity but does
not currently expect to obtain additional loan proceeds in connection with the
refinancing.
The Company expects to meet its other short-term liquidity
requirements primarily through cash flow provided by operating activities. The
Company believes that cash flow provided by operating activities will be
adequate to fund normal recurring operating expenses, regular debt service
requirements (including debt service relating to additional and replacement
debt), recurring capital expenditures and distributions to shareholders and
unitholders, as well as non-recurring capital expenditures, such as tenant
improvement and leasing costs related to previously unoccupied space. To the
extent that the Company's cash flow from operating activities is not sufficient
to finance non-recurring capital expenditures, the Company expects to finance
such activities with available cash reserves or, as described above, additional
debt financing. The Company also anticipates that it will fund any investments
during the next 12 months primarily with additional debt financing.
The Company expects to meet its long-term liquidity requirements
through long-term secured and unsecured borrowings and other debt and equity
financing alternatives. As of March 26, 1999, the Company's long-term liquidity
requirements consisted primarily of maturities under the Company's fixed and
variable rate debt.
Debt and equity financing alternatives currently available to the
Company to satisfy its liquidity requirements and commitments for material
capital expenditures include additional proceeds from the refinancing of
existing secured and unsecured debt, obtaining additional debt secured by
existing investment properties or by investment property acquisitions or
developments and issuances of Operating Partnership units or common and/or
preferred shares to existing holders or in exchange for contributions of
investment properties.
REIT QUALIFICATION
The Company intends to maintain its qualifications as a REIT under the
Code. As a REIT, the Company generally will not be subject to corporate federal
income taxes as long as it satisfies certain technical requirements of the
Code, including the requirement to distribute 95% of its REIT taxable income to
its shareholders.
46
<PAGE> 48
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements are shown below (dollars in thousands):
<TABLE>
<CAPTION>
INTEREST
RATE BALANCE
MAXIMUM AT EXPIRATION OUTSTANDING AT
DESCRIPTION BORROWINGS 12/31/98 DATE 12/31/98
----------- ---------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Secured Fixed Rate Debt:
LaSalle Note I(1) $ 239,000 7.83% August 2027 $ 239,000
LaSalle Note II(2) 161,000 7.79 March 2028 161,000
CIGNA Note (3) 63,500 7.47 December 2002 63,500
Metropolitan Life Note I(4) (5) 11,777 8.88 September 2001 11,777
Metropolitan Life Note II(6) 44,364 6.93 December 2002 44,364
Metropolitan Life Note III(7) 40,000 7.74 December 1999 40,000
Metropolitan Life Note IV(8) 6,752 7.11 December 1999 6,752
Northwestern Life Note (9) 26,000 7.65 January 2003 26,000
Nomura Funding VI Note(5) (10) 8,586 10.07 July 2020 8,586
Rigney Promissory Note(11) 755 8.50 June 2012 755
---------- ------- ----------
Subtotal/Weighted Average $ 601,734 7.75% $ 601,734
========== ======= ==========
Secured Capped Variable Rate Debt:
LaSalle Note III(5) (12) $ 115,000 7.20% July 1999 $ 115,000
========== ======= ==========
Secured Variable Rate Debt:
BankBoston Note(13) $ 320,000 8.31% October 2001 $ 260,000
Merrill Lynch Note(14) 184,299 7.06 September 1999 184,299
Chase Manhattan Note(15) 97,123 6.81 September 2001 97,123
---------- ------- ----------
Subtotal/Weighted Average $ 601,422 7.62% $ 541,422
========== ======= ==========
Unsecured Fixed Rate Debt:
Notes due 2007(16) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002(16) 150,000 7.00 September 2002 150,000
---------- ------- ----------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
========== ======= ==========
Unsecured Variable Rate Debt:
Line of Credit(17) $ 660,000 6.44% June 2000 $ 660,000
========== ======= ==========
TOTAL/WEIGHTED AVERAGE $2,378,156 7.24% $2,318,156
========== ======= ==========
</TABLE>
NOTES:
(1) The note has a seven-year period during which only interest is payable
(through August 2002), followed by principal amortization based on a
25-year amortization schedule through maturity. At the end of 12 years
(August 2007), the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the
note
47
<PAGE> 49
is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (August 2007) by making a final payment of approximately $220
million. LaSalle Note I is secured by Properties owned by Funding I (See
Note 1 to Item 8. Financial Statements and Supplementary Data). The note
agreement prohibits Funding I from engaging in certain activities,
including incurring liens on the Properties securing the note, pledging
the Properties securing the note, incurring other indebtedness (except as
specifically permitted in the note agreement), canceling a material claim
or debt owed to it, entering into an affiliate transaction (except as
specifically permitted in the note agreement), distributing funds derived
from operation of the Properties securing the note (except as specifically
permitted in the note agreement), or creating easements with respect to
the Properties securing the note.
(2) The note has a seven-year period during which only interest is payable
(through March 2003), followed by principal amortization based on a
25-year amortization schedule through maturity. At the end of 10 years
(March 2006), the interest rate increases, and the Company is required to
remit, in addition to the monthly debt service payment, excess property
cash flow, as defined, to be applied first against principal until the
note is paid in full and thereafter, against accrued excess interest, as
defined. It is the Company's intention to repay the note in full at such
time (March 2006) by making a final payment of approximately $154 million.
LaSalle Note II is secured by Properties owned by Funding II (See Note 1
to Item 8. Financial Statements and Supplementary Data). The note
agreement prohibits Funding II from engaging in certain activities,
including incurring liens on the Properties securing the note, pledging
the Properties securing the note, incurring other indebtedness (except as
specifically permitted in the note agreement), canceling a material claim
or debt owed to it, entering into an affiliate transaction (except as
specifically permitted in the note agreement), distributing funds derived
from operation of the Properties securing the note (except as specifically
permitted in the note agreement), or creating easements with respect to
the Properties securing the note.
(3) The note requires payments of interest only during its term. The CIGNA
Note is secured by the MCI Tower and Denver Marriott City Center
properties. The note agreement has no negative covenants. The deed of
trust requires the Company to maintain the Properties that secure the
note, and requires approval to grant liens, transfer the Properties, or
issue new leases.
(4) The note requires monthly payments of principal and interest based on
20-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Metropolitan Note I
is secured by five of The Woodlands Office Properties. The note agreement
has no negative covenants.
(5) The note was assumed in connection with an acquisition and was not
subsequently retired by the Company because of prepayment penalties.
(6) The note requires monthly payments of principal and interest based on a
25-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Metropolitan Life
Note II is secured by Energy Centre. The note agreement requires the
Company to maintain compliance with a number of customary covenants,
including maintaining the Property that secures the note and not creating
any lien with respect to or otherwise encumbering such Property.
(7) The note requires monthly payment of interest only during its term, and is
secured by Datran Center. The note agreement requires compliance with a
number of customary covenants including the maintenance of the Property
and the limitations on other liens and borrowings. The note is
cross-defaulted with the Metropolitan Life Note IV.
(8) The note requires monthly payment of principal and interest based on a
15-year amortization until maturity and is secured by Datran Center. The
note agreement requires compliance with a number of customary covenants
including the maintenance of the property and the limitations on other
liens and borrowings. The note is cross-defaulted with the Metropolitan
Life Note III.
(9) The note requires payments of interest only during its term. The
Northwestern Life Note is secured by the 301 Congress Avenue Property. The
note agreement requires the Company to maintain compliance with a number
of customary covenants, including maintaining the Property that secures
the note and not creating any lien with respect to or otherwise
encumbering such Property.
(10) Under the terms of the note, principal and interest are payable based on a
25-year amortization schedule. Beginning in July 1998, the Company
obtained the right to defease the note by purchasing Treasury obligations
in an amount sufficient to pay the note without penalty. The Nomura
Funding VI Note is secured by Canyon Ranch-Lenox, the Property owned by
Funding VI (see Note 1 to Item 8. Financial Statements and Supplementary
Data). In July of 2010, the interest rate due under the note will change
to a 10-year Treasury yield plus 500 basis points or, if the Company so
elects, it may repay the note without penalty. The note agreement requires
Funding VI to maintain compliance with a number of customary covenants,
including a debt service coverage ratio for the Property that secures the
note, a restriction on the ability to transfer or encumber the Property
that secures the note, and covenants related to maintaining its single
purpose nature, including restrictions on ownership by Funding VI of
assets other than the Property that secures the note, restrictions on the
ability to incur indebtedness and make loans, and restrictions on
operations.
(11) The note requires quarterly payments of principal and interest based on a
15-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Rigney Promissory
Note is secured by a parcel of land owned by the Company and located
across from an Office Property. The note agreement has no negative
covenants.
(12) The note bears interest at the rate for 30-day LIBOR plus a weighted
average rate of 2.135% (subject to a rate cap of 10%), and requires
payments of interest only during its term. The LaSalle Note III is secured
by the Properties owned by Funding III, IV, and V (see Note 1 to Item 8.
Financial Statements and Supplementary Data). The note agreement prohibits
Fundings III, IV and V from engaging in certain activities, including
using the Properties securing the note in certain ways, imposing any
restrictions, agreements or covenants that run with the land upon the
Properties securing the note, incurring additional indebtedness (except as
specifically permitted in the note agreement), canceling or releasing a
material claim or debt owed to it, or distributing funds derived from
operation of the Properties securing the note (except as specifically
permitted in the note agreement).
(13) This note requires payments of interest only during its term. The note
bears interest at the Company's election of Base Rate plus 100 basis
points or Eurodollar plus 325 basis points. The note is secured by a first
lien on 3333 Lee Parkway, Frost Bank Plaza, BP Plaza, Central Park Plaza,
Bank One Tower, Washington Harbour and Greenway I and IA Office
Properties. The term loan requires the Company to maintain compliance with
a number of customary financial and other covenants on an ongoing basis,
including leverage ratios based on book value and debt service coverage
ratios, limitations on additional secured and total indebtedness and
distributions, limitations on additional investments and the incurrence of
additional liens, restrictions on real estate development activity and a
minimum net worth requirement. On February 10, 1999, this loan was
increased to $320 million based on the inclusion of the Addison and
Reverchon Plaza Office Properties in the pool of Properties securing this
note.
(14) On December 14, 1998, the Company and Merrill Lynch modified the note. In
connection with the modification, the Company made a payment of $25
million of principal on December 14, 1998, the term was extended to
September 14, 1999 and the interest rate was increased to an initial rate
of 200 basis points above the 30-day LIBOR rate. In connection with this
extension, the Company paid an extension fee of $1.8 million.
(15) The note bears interest at the rate of LIBOR plus 175 basis points and
requires payment of interest only during its term. The Chase Manhattan
Note is secured by Fountain Place. The note agreement requires that the
Company maintain compliance with customary covenants including maintaining
the Property that secures the note.
(16) The notes are unsecured and require payments of interest only during their
terms. The interest rates on the notes were subject to temporary increase
by 50 basis points in the event that a registered offer to exchange the
notes for the notes of the Company with terms identical in all material
respects to the notes is not consummated or a shelf registration statement
with respect to the resale of the notes is not declared effective by the
Commission on or before March 21, 1998. The interest rates on the notes
were increased by 50 basis points temporarily (until July 2, 1998),
because the exchange offer was not completed by March 21, 1998. The
interest rates on the notes were also permanently increased (on July 28,
1998) by 37.5 basis points due to a lower than investment grade rating (as
defined in the notes) by specified rating agencies. The indenture requires
the Company to maintain compliance with a number of customary financial
and other covenants on an ongoing basis, including leverage ratios and
debt service coverage ratios, limitations on the incurrence of additional
indebtedness and maintaining the Company's Properties.
48
<PAGE> 50
(17) The Credit Facility is unsecured with an interest rate of the Eurodollar
rate plus 137 basis points. In connection with the refinancing of a
BankBoston term note, the Company used $90 million of the net proceeds of
the refinancing to purchase a 12% participation interest from BankBoston in
the $750 million Credit Facility. As a result, the Company's borrowing
capacity under the Credit Facility is limited to $660 million. The Credit
Facility requires the Company to maintain compliance with a number of
customary financial and other covenants on an ongoing basis, including
leverage ratios based on book value and debt service coverage ratios,
limitations on additional secured and total indebtedness and distributions,
limitations on additional investments and the incurrence of additional
liens, restrictions on real estate development activity and minimum net
worth requirement. See Note 6 of Item 8. Financial Statements and
Supplementary Data for a more detailed description of the Credit Facility.
The combined aggregate principal amounts, either at maturity or in the
form of scheduled principal installments due pursuant to borrowings under the
Credit Facility and other indebtedness of the Company, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1999..................................... $347,302
2000..................................... 661,351
2001..................................... 369,181
2002..................................... 215,655
2003..................................... 72,201
Thereafter............................... 652,466
</TABLE>
The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of investment opportunities for which
capital is required and the cost of debt in relation to such investment
opportunities, the type of debt available (secured or unsecured), the effect of
additional debt on existing coverage ratios and the maturity of the proposed
debt in relation to maturities of existing debt.
The Company's debt service coverage ratio for both the three months
and the year ended December 31, 1998 was approximately 3.1, compared to
approximately 3.5 for the three months and the year ended December 31, 1997.
Debt service coverage for the particular period is generally calculated as net
income plus depreciation and amortization, plus interest expense, plus
extraordinary or non-recurring losses, minus extraordinary or non-recurring
gains, divided by debt service (including principal and interest payable during
the period of calculation). The most restrictive debt service coverage ratio
the Company is required to maintain as stipulated by the Company's debt
arrangements and calculated as described above is 1.5. In addition, the
Company's Credit Facility requires a debt service coverage ratio (which is
calculated in a different manner) of 2.5. Under this calculation, the Company's
debt service coverage ratio is 3.5.
FUNDS FROM OPERATIONS
FFO, based on the definition adopted by the Board of Governors of the
NAREIT and as used herein, means net income (loss) determined in accordance
with GAAP, excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. NAREIT
developed FFO as a relative measure of performance and liquidity of an equity
REIT in order to recognize that income-producing real estate historically has
not depreciated on the basis determined under GAAP. The Company considers FFO
an appropriate measure of performance of an equity REIT. However, FFO (i) does
not represent cash generated from operating activities determined in accordance
with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events that enter into the determination of net income),
(ii) is not necessarily indicative of cash flow available to fund cash needs,
and (iii) should not be considered as an alternative to net income determined
in accordance with GAAP as an indication of the Company's operating
performance, or to cash flow from operating activities determined in accordance
with GAAP as a measure of either liquidity or the Company's ability to make
distributions. The Company has historically distributed an amount less than
FFO, primarily due to reserves required for capital expenditures, including
leasing costs. The aggregate cash distributions paid to shareholders and
unitholders for the years ended December 31, 1998 and 1997 were $220.6 and
$140.8 million, respectively. An increase in FFO does not necessarily result in
an increase in aggregate distributions because the Company's Board of Trust
Managers is not required to increase distributions on a quarterly basis unless
necessary in order to enable the Company to maintain REIT status. However, the
Company must distribute 95% of its REIT taxable income (as defined in the Code).
Therefore, a significant increase in FFO will generally require an increase in
distributions to shareholders and unitholders although not necessarily on a
proportionate basis. Accordingly, the Company believes that in order to
facilitate a clear understanding of the consolidated historical operating
results of the Company, FFO should be considered in conjunction with the
Company's net income (loss) and cash flows as reported in the consolidated
49
<PAGE> 51
financial statements and notes thereto. However, the Company's measure of FFO
may not be comparable to similarly titled measures of other REITs because these
REITs may not apply the definition of FFO in the same manner as the Company.
STATEMENTS OF FUNDS FROM OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Income before minority interest $ 183,210 $ 135,024
Adjustments:
Depreciation and amortization of real estate assets 115,678 72,503
Write-off of costs associated with terminated acquisitions 18,435 -
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies 56,024 8,303
Minority interest in joint ventures (1,499) (1,434)
Preferred stock dividends (11,700) -
----------- -----------
Funds from operations $ 360,148 $ 214,396
=========== ===========
Investment Segments:
Office and Retail Segment $ 325,442 $ 204,243
Hospitality Segment 52,375 36,439
Behavioral Healthcare Segment 55,295 29,789
Refrigerated Storage Segment 28,626 2,200
Residential Development Segment 58,892 25,623
Corporate general & administrative (16,264) (12,858)
Interest expense (152,214) (86,441)
Preferred stock dividends (11,700) -
Other(1) 19,696 15,401
----------- -----------
Funds from operations $ 360,148 $ 214,396
=========== ===========
</TABLE>
- --------------------------
(1) Includes interest and other income less depreciation and amortization of
non-real assets and amortization of deferred financing costs.
50
<PAGE> 52
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Funds from operations 360,148 214,396
Adjustments:
Depreciation and amortization of non-real estate assets 1,631 1,235
Write-off of costs associated with terminated acquisitions (18,435) --
Amortization of deferred financing costs 6,486 3,499
Minority interest in joint ventures profit and depreciation
and amortization 2,272 2,122
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (56,024) (8,303)
Change in deferred rent receivable (34,047) (23,371)
Change in current assets and liabilities (6,138) 34,500
Equity in earnings in excess of distributions received from
unconsolidated companies -- (12,536)
Distributions received in excess of equity in earnings from
unconsolidated companies 9,308 --
Preferred Stock Dividends 11,700 --
Non-cash compensation 174 172
-------- --------
Net cash provided by operating activities 277,075 211,714
======== ========
</TABLE>
HISTORICAL RECURRING OFFICE AND RETAIL PROPERTY
CAPITAL EXPENDITURES, TENANT IMPROVEMENT AND LEASING COSTS
The following table sets forth annual and per square foot recurring
capital expenditures (excluding those expenditures which are recoverable from
tenants) and tenant improvement and leasing costs for the years ended December
31, 1998, 1997 and 1996, attributable to signed leases, all of which have
commenced or will commence during the next twelve months (i.e., the renewal or
replacement tenant began or will begin to pay rent) for the Office and Retail
Properties consolidated in the Company's financial statements during each of
the periods presented. Tenant improvement and leasing costs for signed leases
during a particular period do not equal the cash paid for tenant improvement
and leasing costs during such period due to timing of payments.
51
<PAGE> 53
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Capital Expenditures (in thousands) ...... $ 5,107 $ 3,310 $ 1,214
Per square foot .......................... $ .16 $ .15 $ .07
TENANT IMPROVEMENT AND LEASING COSTS:(1)
Replacement Tenant Square Feet ........... 850,325 584,116 390,945
Renewal Tenant Square Feet ............... 923,854 1,001,653 248,603
Tenant Improvement Costs (in thousands)... $ 8,552 $ 10,958 $ 6,263
Per square foot leased ................... $ 4.82 $ 6.91 $ 9.79
Tenant Leasing Costs (in thousands) ...... $ 5,358 $ 6,601 $ 2,877
Per square foot leased ................... $ 3.02 $ 4.16 $ 4.50
Total (in thousands) ..................... $ 13,910 $ 17,559 $ 9,140
Total per square foot .............. $ 7.84 $ 11.07 $ 14.29
Average lease term ................. 5.4 years 6.4 years 6.0 years
Total per square foot per year ..... $ 1.44 $ 1.73 $ 2.38
</TABLE>
(1) Excludes leasing activity for leases that have less than a one-year term
(i.e., storage and temporary space).
Capital expenditures may fluctuate in any given period subject to the
nature, extent and timing of improvements required to be made in the Company's
Property portfolio. The Company maintains an active preventive maintenance
program in order to minimize required capital improvements. In addition,
capital improvement costs are recoverable from tenants in many instances.
Tenant improvement and leasing costs also may fluctuate in any given
year depending upon factors such as the property, the term of the lease, the
type of lease (renewal or replacement tenant), the involvement of external
leasing agents and overall competitive market conditions. Management believes
that future recurring tenant improvements and leasing costs for the Company's
existing Office Properties will approximate on average for "renewal tenants"
$6.00 to $8.00 per square foot, or $1.20 to $1.60 per square foot per year
based on an average five-year lease term, and, on average for "replacement
tenants," $12.00 to $14.00 per square foot, or $2.40 to $2.80 per square foot
per year based on an average five-year lease term.
YEAR 2000 COMPLIANCE
The year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition, the
year 2000 issue relates to whether non-Information Technology ("IT") systems
that depend on embedded computer technology will recognize the year 2000.
Systems that do not properly recognize such information could generate
erroneous information or fail.
In early 1998, the Company assigned a group of individuals with the
task of creating a program to identify, understand and address the myriad of
issues associated with the year 2000 problem. The group's initial step in
assessing the Company's year 2000 readiness consists of a comprehensive review
of IT and non-IT systems at the Company's principal executive offices and at
the Company's Properties to identify any systems that are date sensitive and,
accordingly, could have potential year 2000 problems.
The Company is in the process of conducting such comprehensive review
of all mission-critical IT systems, such as in-house accounting and property
management systems, network operating systems, telecommunication systems and
desktop software systems, and determining whether they are year 2000 compliant.
The Company believes that such review is approximately 75% completed, and it is
expected that the review will be completed on or before June 30, 1999. In
addition, as a result of the Company's normal upgrade and replacement process,
most network and desktop equipment currently meets the requirements for year
2000 compliance. Although the initial assessment and testing is not yet
complete, the Company has not identified any significant problem areas and it
believes that the mission-critical systems,
52
<PAGE> 54
AS/400 and accounting system, local network servers, WAN equipment and the
majority of desktop PC's are compliant, or can be made compliant with minor
software upgrades.
For non-IT systems, the Company is also in the process of conducting
such comprehensive review of computer hardware and software in mechanical
systems and developing a program to repair or replace non-IT systems that are
not year 2000 compliant. The Company has identified substantially all of the
non-IT systems and is considering the use of an outside specialist company to
assist in identifying any year 2000 exposure relating to these systems. While
the process was recently commenced, it is expected that the assessment and
remediation plan should be completed on or before June 30, 1999. The Company's
non-IT systems or embedded technology are primarily property-related and
include escalator and elevator service, building automation (e.g., energy
management and HVAC systems), security access systems, fire and life safety
systems.
The Company believes that the greatest exposure lies with third
parties, such as its tenants, vendors, financial institutions and the Company's
transfer agent and unaffiliated joint venture partners. The Company depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash, its transfer agent to maintain and track investor
information, its vendors for day-to-day services and its unaffiliated joint
venture partners for operations and management of certain of the Company's
Properties. If any of these third parties are unable to meet their obligations
to the Company because of the year 2000 problem, such a failure may have a
material adverse effect on the financial condition or results of operations of
the Company. Although the Company is in the process of working with such third
parties in order to attempt to eliminate its year 2000 concerns, the cost and
timing of the third party year 2000 compliance is not within the Company's
control, and no assurance can be given with respect to the cost and timing of
such efforts or the potential effects of any failure to comply.
The majority of the work performed to date has been performed by
employees of the Company without significant additional costs to the Company.
Although the full extent of any year 2000 exposure has not been finalized and
the total cost to specifically remediate IT and non-IT systems has not fully
been quantified, the Company currently estimates that the total cost to repair
and replace IT and non-IT systems that are not year 2000 compliant (not
including costs associated with the Company's normal upgrade and replacement
process) will be approximately $1.2 million. Management does not believe that
such estimated total cost will have a material adverse effect on the Company's
financial condition or results of operations given current vendor estimates for
complete remediation for non-IT systems.
The Company currently believes that it will have performed all year
2000 compliance testing and completed its remedial measures on its IT and
non-IT systems on or before October 31, 1999. Based on the progress the Company
has made in addressing the Company's year 2000 issues and its plan and timeline
to complete its compliance program, at this time, the Company does not foresee
significant risks associated with the Company's year 2000 compliance.
Management does not believe that the year 2000 issue will pose significant
problems to its IT or non-IT systems, or that resolution of any potential
problems with respect to these systems will have a material adverse effect on
the Company's financial condition or results of operations. Management believes
that the year 2000 risks to the Company's financial condition or results of
operation associated with a failure of non-IT systems is immaterial, due to the
fact that each of the Company's Properties has, for the most part, separate
non-IT systems. Accordingly, a year 2000 problem that is experienced at one
Property generally should have no effect on the other Company Properties. In
addition, management believes that the Company has sufficient time to correct
those system problems within its control before the year 2000. Because the
Company's major source of income is rental payments under long-term leases, a
failure of the Company's mission-critical IT systems is not expected to have a
material adverse effect on the Company's financial condition or results of
operations. Even if the Company were to experience problems with its IT
systems, the payment of rent under the leases would not be excused. In
addition, the Company expects to correct those IT system problems within its
control before the year 2000, thereby minimizing or avoiding the increased cost
of correcting problems after the fact.
Because the Company is still evaluating the status of its systems and
those of third parties with which it conducts business, the Company has not yet
developed a comprehensive contingency plan, and it is very difficult to
identify "the most reasonably likely worst-case scenario" at this time. As the
Company identifies significant risks related to the Company's year 2000
compliance, or if the Company's year 2000 compliance program's progress
deviates substantially from the anticipated timeline, the Company will develop
appropriate contingency plans.
53
<PAGE> 55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's use of financial instruments, such as debt instruments
and its Forward Share Purchase Agreement with UBS, subject the Company to
market risk which may affect the Company's future earnings and cash flows as
well as the fair value of its assets. Market risk generally refers to the risk
of loss from changes in interest rates and market prices. The Company manages
its market risk by attempting to match anticipated inflow of cash from its
operating, investing and financing activities with anticipated outflow of cash
to fund debt payments, distributions to shareholders, investments, capital
expenditures and other cash requirements. The Company does not enter into
financial instruments for trading purposes.
The following discussion of market risk is based solely on
hypothetical changes in interest rates related to its variable rate debt and
the Forward Share Purchase Agreement and in the market price of the Company's
common shares as such changes relate to the Forward Share Purchase Agreement.
This discussion does not purport to take into account all of the factors that
may affect the financial instruments discussed in this section.
INTEREST RATE RISK
The Company's interest rate risk is most sensitive to fluctuations in
interest rates on its short-term variable rate debt. The Company generally does
not use financial instruments to hedge interest rate risk. The Company had total
outstanding debt of approximately $2.3 billion at December 31, 1998, of which
approximately $1.3 billion or 56.8%, was variable rate debt. The weighted
average interest rate on such variable rate debt was 7.0% as of December 31,
1998. A 10% (70 basis point) increase in the weighted average interest rate on
such variable rate debt would result in a decrease in net income and cash flows
of approximately $9.1 million based on the variable rate debt outstanding as of
December 31, 1998, as a result of the increased interest expense associated with
the change in rate. Conversely, a 10% (70 basis point) decrease in the weighted
average interest rate on such variable rate debt would result in an increase in
net income and cash flows of approximately $9.1 million based on the variable
rate debt outstanding as of December 31, 1998, as a result of the decreased
interest expense associated with the change in rate.
In addition, the Company's settlement obligations under the Forward
Share Purchase Agreement with UBS, as described in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Forward Share Purchase Agreement, are subject to interest rate risk,
specifically changes in the 90-day LIBOR rate.
The Company has the option to settle the Forward Share Purchase
Agreement in common shares or cash. The information in this paragraph assumes a
settlement in common shares. If the 90-day LIBOR rate remains unchanged from
December 31, 1998, and assuming no change from the $23 per share closing price
of the common shares on December 31, 1998 and no change in the fourth quarter
dividend rate, the Company would issue an additional 139,988 common shares
pursuant to the Forward Share Purchase Agreement by the final settlement date of
August 11, 1999. If the 90-day LIBOR rate increases by 10% (51 basis points)
from the 90-day LIBOR rate on December 31, 1998, and assuming no change from the
$23 per share closing price of the common shares on December 31, 1998 and no
change in the fourth quarter dividend rate, the Company would issue 167,899
common shares by the final settlement date of August 12, 1999. If the 90-day
LIBOR rate decreases by 10% (51 basis points) from the 90-day LIBOR rate on
December 31, 1998, and assuming no change from the $23 per share closing price
of the common shares on December 31, 1998 and no change in the fourth quarter
dividend rate, the Company would issue 112,076 common shares by the final
settlement date of August 12, 1999. The issuance of common shares under the
terms of the Forward Share Purchase Agreement will result in a reduction of the
Company's net income per common share and net book value per common share.
The Company also has the option to settle the Forward Share Purchase
Agreement in cash rather than common shares, which will reduce cash flow. If the
Company elects to settle the Forward Share Purchase Agreement in cash on the
final settlement date of August 12, 1999, and assuming the 90-day LIBOR rate and
quarterly dividend rate remain unchanged from December 31, 1998, the Company
will pay $149.8 million to UBS to settle the Forward Share Purchase Agreement.
If the 90-day LIBOR rate increases by 10%, the settlement amount will increase
by approximately $.5 million. Conversely, if the 90-day LIBOR rate decreases by
10%, the settlement amount will decrease by approximately $.5 million.
Settlement of the Forward Share Purchase Agreement in cash will reduce cash
flows.
The Company includes the Forward Share Purchase Agreement return on the
Forward Share Purchase Agreement, which is based on the 90-day LIBOR rate, to
arrive at net income available to common shareholders. If the 90-day LIBOR rate
remains unchanged from December 31, 1998, the Forward Share Purchase Agreement
return through settlement at August 12, 1999 would be approximately $6
54
<PAGE> 56
million. A 10% increase in the 90-day LIBOR rate from December 31, 1998 would
increase the return through settlement at August 12, 1999 by approximately $.5
million. Conversely, if the 90-day LIBOR rate decreases by 10%, the return
through settlement at August 12, 1999 would decrease by approximately $.5
million. An increase in the Forward Share Purchase Agreement return will result
in a decrease in net income available to common shareholders and net income per
common share, and a decrease in the Forward Share Purchase Agreement return will
result in an increase in net income available to common shareholders and net
income per common share.
MARKET PRICE RISK
The Forward Share Purchase Agreement is subject to market rate risk
because changes in the closing share price for the Company's common shares
affect the Company's settlement obligation. If the market price of the common
shares decreases by 10% from the $23 per share closing price of the common
shares on December 31, 1998, and assuming no change in the 90-day LIBOR rate
from the rate at December 31, 1998, the Company will issue an additional 935,782
common shares by the final settlement date of August 12, 1999. If the market
price of the common shares increases by 10% from the $23 per share closing price
of the common shares of December 31, 1998, and assuming no change in the 90-day
LIBOR rate from December 31, 1998, UBS will return to the Company 511,117 common
shares by the final settlement date of August 12, 1999. The issuance of
additional common shares under the terms of the Forward Share Purchase Agreement
will result in the reduction of the Company's net income per common share and
net book value per common share. A change in the market price will not affect
the amount required to be paid to settle the Forward Share Purchase Agreement in
cash.
55
<PAGE> 57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
Report of Independent Public Accountants..................................................................... 57
Consolidated Balance Sheets of Crescent Real Estate Equities Company (successor to Crescent
Real Estate Equities, Inc.) at December 31, 1998 and 1997................................................... 58
Consolidated Statements of Operations of Crescent Real Estate Equities Company (successor
to Crescent Real Estate Equities, Inc.) for the years ended December 31, 1998, 1997 and 1996................ 59
Consolidated Statements of Shareholders' Equity of Crescent Real Estate Equities Company
(successor to Crescent Real Estate Equities, Inc.) for the years ended
December 31, 1998, 1997 and 1996............................................................................. 60
Consolidated Statements of Cash Flows of Crescent Real Estate Equities Company (successor
to Crescent Real Estate Equities, Inc.) for the years ended December 31, 1998, 1997 and 1996............... 61
Notes to Financial Statements................................................................................ 62
Schedule III Consolidated Real Estate Investments and Accumulated Depreciation .............................. 87
</TABLE>
56
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trust Managers of Crescent Real Estate Equities Company:
We have audited the accompanying consolidated balance sheets of Crescent Real
Estate Equities Company and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crescent Real Estate Equities
Company and Subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
February 17, 1999 (except with respect to the
matters discussed in Note 14, as to which the
date is March 19, 1999)
57
<PAGE> 59
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 400,690 $ 353,374
Land held for development or sale 95,282 94,954
Building and improvements 3,569,774 2,923,097
Furniture, fixtures and equipment 63,626 51,705
Less - accumulated depreciation (387,457) (278,194)
----------- -----------
Net investment in real estate 3,741,915 3,144,936
Cash and cash equivalents 110,292 66,622
Restricted cash and cash equivalents 46,841 41,528
Accounts receivable, net 32,730 30,179
Deferred rent receivable 73,635 39,588
Investments in real estate mortgages and equity
of unconsolidated companies 743,516 601,770
Notes receivable, net 183,974 156,676
Other assets, net 110,544 98,681
----------- -----------
Total assets $ 5,043,447 $ 4,179,980
=========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 660,000 $ 350,000
Notes payable 1,658,156 1,360,124
Accounts payable, accrued expenses and other liabilities 149,444 127,258
----------- -----------
Total liabilities 2,467,600 1,837,382
----------- -----------
COMMITMENTS AND CONTINGENCIES:
MINORITY INTERESTS:
Operating partnership, 6,545,528 and 6,397,072 units,
respectively 126,575 117,103
Investment joint ventures 26,727 28,178
----------- -----------
Total minority interests 153,302 145,281
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value, authorized 100,000,000 shares:
6 3/4% Series A Convertible Cumulative Preferred Shares,
8,000,000 shares issued and outstanding at December 31, 1998 200,000 -
Common stock, $.01 par value, authorized 250,000,000 shares,
124,555,447 and 117,977,907 shares issued and outstanding
at December 31, 1998 and 1997, respectively 1,245 1,179
Additional paid-in capital 2,336,621 2,253,928
Deferred compensation on restricted shares (88) (283)
Retained deficit (110,196) (57,507)
Accumulated other comprehensive income (5,037) -
----------- -----------
Total shareholders' equity 2,422,545 2,197,317
----------- -----------
Total liabilities and shareholders' equity $ 5,043,447 $ 4,179,980
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE> 60
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS,EXCEPT PER SHARE DATA)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Office and retail properties $ 563,005 $ 363,324 $ 182,198
Hotel properties 53,355 37,270 19,805
Behavioral healthcare properties 55,295 29,789 --
Interest and other income 26,688 16,990 6,858
--------- --------- ---------
Total revenues 698,343 447,373 208,861
--------- --------- ---------
EXPENSES:
Real estate taxes 75,076 44,154 20,606
Repairs and maintenance 41,160 27,783 12,292
Other rental property operating 126,733 86,931 40,915
Corporate general and administrative 16,264 12,858 4,674
Interest expense 152,214 86,441 42,926
Amortization of deferred financing costs 6,486 3,499 2,812
Depreciation and amortization 118,082 74,426 40,535
Write-off of costs associated with terminated
acquisitions 18,435 -- --
--------- --------- ---------
Total expenses 554,450 336,092 164,760
--------- --------- ---------
Operating income 143,893 111,281 44,101
OTHER INCOME:
Equity in net income of unconsolidated
companies 39,317 23,743 3,850
--------- --------- ---------
INCOME BEFORE MINORITY INTERESTS
AND EXTRAORDINARY ITEM 183,210 135,024 47,951
Minority interests (17,610) (17,683) (9,510)
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 165,600 117,341 38,441
Extraordinary item -- -- (1,306)
--------- --------- ---------
NET INCOME 165,600 117,341 37,135
PREFERRED STOCK DIVIDENDS (11,700) -- --
FORWARD SHARE PURCHASE AGREEMENT
RETURN (3,316) -- --
--------- --------- ---------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 150,584 $ 117,341 $ 37,135
========= ========= =========
BASIC EARNINGS PER SHARE DATA:
Income before extraordinary item $ 1.26 $ 1.25 $ 0.72
Extraordinary item -- -- (0.02)
--------- --------- ---------
Net income $ 1.26 $ 1.25 $ 0.70
========= ========= =========
DILUTED EARNINGS PER SHARE DATA:
Income before extraordinary item $ 1.21 $ 1.20 $ 0.70
Extraordinary item -- -- (0.02)
--------- --------- ---------
Net income $ 1.21 $ 1.20 $ 0.68
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
59
<PAGE> 61
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(NOTES 1,2 AND 10)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------------- ---------------------------------
Shares Net Value Shares Par Value
------ --------- ------ ---------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1995 $ -- -- $ 23,523,547 $ 236
Common Share Offerings -- -- 11,950,000 119
Issuance of Common Shares -- -- 599,794 6
Issuance of Common Shares in Exchange for
Operating Partnership Units -- -- 53,789 --
Exercise of Common Share Options -- -- 19,250 --
Amortization of Deferred Compensation -- -- -- --
Dividends Paid -- -- -- --
Net Income -- -- -- --
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY, December 31, 1996 -- -- 36,146,380 361
Common Share Offerings -- -- 45,076,185 451
Issuance of Common Shares -- -- 341,112 3
Issuance of Restricted Shares -- -- 181 --
Common Share Dividend - 2 for 1 Split -- -- 36,162,095 362
Issuance of Common Shares in Exchange for
Operating Partnership Units -- -- 133,412 1
Exercise of Common Share Options -- -- 118,542 1
Amortization of Deferred Compensation -- -- -- --
Crescent Operating, Inc. share distribution -- -- -- --
Dividends Paid -- -- -- --
Net Income -- -- -- --
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY, December 31, 1997 -- -- 117,977,907 1,179
Issuance of common shares -- -- 2,651,732 27
Issuance of preferred shares 14,948,734 425,000 -- --
Exercise of common share options -- -- 52,164 --
Cancellation of restricted shares -- -- (6,638) --
Amortization of deferred compensation -- -- -- --
Issuance of common shares in exchange for Operating
Partnership units -- -- 286,792 3
Settlement of equity swap agreement -- -- (6,659,254) (67)
Preferred share conversion (6,948,734) (225,000) 8,400,582 84
Forward share purchase agreement -- -- 1,852,162 19
Dividends paid -- -- -- --
Net income available to common shareholders - diluted -- -- -- --
Unrealized loss on available-for-sale securities -- -- -- --
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY, December 31, 1998 $ 8,000,000 $ 200,000 124,555,447 $ 1,245
============= ============= ============= =============
<CAPTION>
Deferred
Additional Compensation Retained
Paid-in on Restricted Earning
Capital Shares (Deficit
------- ------ --------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1995 $ 423,530 $ (455) $ (16,780)
Common Share Offerings 456,214 -- --
Issuance of Common Shares 25,014 -- --
Issuance of Common Shares in Exchange for
Operating Partnership Units 856 -- --
Exercise of Common Share Options 110 -- --
Amortization of Deferred Compensation -- 91 --
Dividends Paid -- -- (60,916)
Net Income -- -- 37,135
----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1996 905,724 (364) (40,561)
Common Share Offerings 1,317,873 -- --
Issuance of Common Shares 28,245 -- --
Issuance of Restricted Shares 10 (10) --
Common Share Dividend - 2 for 1 Split (362) -- --
Issuance of Common Shares in Exchange for
Operating Partnership Units 1,017 -- --
Exercise of Common Share Options 1,421 -- --
Amortization of Deferred Compensation -- 91 --
Crescent Operating, Inc. share distribution -- -- (10,474)
Dividends Paid -- -- (123,813)
Net Income -- -- 117,341
----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1997 2,253,928 (283) (57,507)
Issuance of common shares 62,072 -- 687
Issuance of preferred shares (9,000) -- --
Exercise of common share options 725 -- --
Cancellation of restricted shares (100) 100 --
Amortization of deferred compensation -- 95 --
Issuance of common shares in exchange for Operating
Partnership units 4,846 -- --
Settlement of equity swap agreement (200,766) -- (8,466)
Preferred share conversion 224,916 -- --
Forward share purchase agreement -- -- --
Dividends paid -- -- (198,810)
Net income available to common shareholders - diluted -- -- 153,900
Unrealized loss on available-for-sale securities -- -- --
----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31,1998 $ 2,336,621 $ (88) $ (110,196)
=========== =========== ===========
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
------ -----
<S> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1995 $ -- $ 406,531
Common Share Offerings -- 456,333
Issuance of Common Shares -- 25,020
Issuance of Common Shares in Exchange for
Operating Partnership Units -- 856
Exercise of Common Share Options -- 110
Amortization of Deferred Compensation -- 91
Dividends Paid -- (60,916)
Net Income -- 37,135
----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1996 -- 865,160
Common Share Offerings -- 1,318,324
Issuance of Common Shares -- 28,248
Issuance of Restricted Shares -- --
Common Share Dividend - 2 for 1 Split -- --
Issuance of Common Shares in Exchange for
Operating Partnership Units -- 1,018
Exercise of Common Share Options -- 1,422
Amortization of Deferred Compensation -- 91
Crescent Operating, Inc. share distribution -- (10,474)
Dividends Paid -- (123,813)
Net Income -- 117,341
----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1997 -- 2,197,317
Issuance of common shares -- 62,786
Issuance of preferred shares -- 416,000
Exercise of common share options -- 725
Cancellation of restricted shares -- --
Amortization of deferred compensation -- 95
Issuance of common shares in exchange for Operating
Partnership units -- 4,849
Settlement of equity swap agreement -- (209,299)
Preferred share conversion -- --
Forward share purchase agreement -- 19
Dividends paid -- (198,810)
Net income available to common shareholders - diluted -- 153,900
Unrealized loss on available-for-sale securities (5,037) (5,037)
----------- -----------
SHAREHOLDERS' EQUITY, December 31,1998 $ (5,037) $ 2,422,545
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE> 62
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 165,600 $ 117,341 $ 37,135
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 124,568 77,925 43,347
Extraordinary item -- -- 1,306
Minority interests 17,610 17,683 9,510
Non-cash compensation 174 172 111
Distributions received in excess of equity in earnings
from unconsolidated companies 9,308 -- --
Equity in earnings net of distributions received
from unconsolidated companies -- (12,536) (322)
Increase in accounts receivable (2,551) (14,850) (8,324)
Increase in deferred rent receivable (34,047) (23,371) (6,210)
Increase in other assets (22,612) (29,029) (388)
Increase in restricted cash and cash equivalents (3,161) (417) (15,537)
Increase in accounts payable, accrued expenses
and other liabilities 22,186 78,796 16,756
----------- ----------- -----------
Net cash provided by operating activities 277,075 211,714 77,384
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties (530,807) (1,523,735) (460,113)
Development of investment properties (31,875) (9,012) --
Capital expenditures - rental properties (31,339) (22,005) (2,380)
Tenant improvement and leasing costs - rental properties (68,779) (53,886) (20,052)
(Increase) decrease in restricted cash and cash equivalents (2,152) (4,229) 842
Investment in unconsolidated companies (147,208) (278,001) (3,900)
Investment in residential development corporations 35,613 (270,174) (16,657)
Increase in notes receivable (27,298) (127,786) (10,918)
Decrease (increase) in escrow deposits - acquisition of
investment properties 5,760 (5,600) 140
----------- ----------- -----------
Net cash used in investing activities (798,085) (2,294,428) (513,038)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (9,567) (12,132) (7,081)
Borrowings under Credit Facility 672,150 1,171,000 191,500
Payments under Credit Facility (362,150) (861,000) (171,500)
Debt proceeds 418,100 1,127,596 152,755
Debt payments (376,301) (493,203) (92,254)
Capital distributions - joint venture partner (2,951) (2,522) (14,505)
Capital contributions - joint venture partner -- -- 750
Net proceeds from common share offerings 40,992 1,345,291 456,333
Proceeds from exercise of common share options 725 1,422 110
Net proceeds from preferred share offerings 416,000 -- --
Issuance of Operating Partnership units -- -- 1,574
Distribution of Crescent Operating, Inc. shares to
unitholders of Operating Partnership and shareholders
of Crescent Equities -- (11,907) --
Preferred dividends (11,700) -- --
Dividends and unitholder distributions (220,618) (140,801) (73,367)
----------- ----------- -----------
Net cash provided by financing activities 564,680 2,123,744 444,315
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 43,670 41,030 8,661
CASH AND CASH EQUIVALENTS,
Beginning of period 66,622 25,592 16,931
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
End of period $ 110,292 $ 66,622 $ 25,592
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE> 63
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Crescent Real Estate Equities Company ("Crescent Equities") operates as
a real estate investment trust for federal income tax purposes (a "REIT"), and,
together with its subsidiaries, is a fully integrated real estate company. The
Company, as defined below, provides management, leasing, and development
services with respect to certain of its properties. Crescent Equities is a Texas
real estate investment trust, which became the successor to Crescent Real Estate
Equities, Inc., a Maryland corporation (the "Predecessor Corporation"), on
December 31, 1996, through the merger of the Predecessor Corporation with CRE
Limited Partner, Inc., a Delaware corporation, into Crescent Equities. The
direct and indirect subsidiaries of Crescent Equities include Crescent Real
Estate Equities Limited Partnership (the "Operating Partnership"); Crescent Real
Estate Equities, Ltd. (the "General Partner"), which is the sole general partner
of the Operating Partnership; seven single purpose limited partnerships (formed
for the purpose of obtaining securitized debt) in which the Operating
Partnership owns substantially all of the economic interests directly or
indirectly, with the remaining interests owned indirectly by Crescent Equities
through seven separate corporations, each of which is a wholly owned subsidiary
of the General Partner and a general partner of one of the seven limited
partnerships. The term "Company" includes, unless the context otherwise
requires, Crescent Equities, the Predecessor Corporation, the Operating
Partnership, the General Partner and the other direct and indirect subsidiaries
of Crescent Equities.
As of December 31, 1998, the Company directly or indirectly owned a
portfolio of real estate assets (the "Properties"). The Properties include 89
office properties (collectively referred to as the "Office Properties") located
primarily in 17 metropolitan submarkets in Texas with an aggregate of
approximately 31.8 million net rentable square feet, seven retail properties
(collectively referred to as the "Retail Properties") with an aggregate of
approximately 0.8 million net rentable square feet, seven full-service hotels
(collectively referred to as the "Hotel Properties") with a total of 2,257 rooms
and two destination health and fitness resorts that can accommodate up to 462
guests daily, real estate mortgages and non-voting common stock representing
interests ranging from 40% to 95% in five unconsolidated residential development
corporations (collectively referred to as the "Residential Development
Corporations"), which in turn, through joint venture or partnership
arrangements, own interests in 13 residential development properties
(collectively referred to as the "Residential Development Properties"), and 89
behavioral healthcare properties (collectively referred to as the "Behavioral
Healthcare Properties"). In addition, the Company owned an indirect 38% interest
in three partnerships (collectively referred to as the "Refrigerated Storage
Partnerships") each of which owned one or more corporations or limited liability
companies (collectively referred to as the "Refrigerated Storage Corporations")
which, as of December 31, 1998, directly or indirectly owned or operated
approximately 101 refrigerated storage properties (collectively referred to as
the "Refrigerated Storage Properties") with an aggregate of approximately 530.1
million cubic feet (21.4 million square feet). The Company also has a 42.5%
partnership interest in a partnership, the primary holdings of which consist of
a 364-room executive conference center and general partner interests, ranging
from one to 50%, in additional office, retail, multi-family and industrial
properties.
Crescent Equities owns its assets and carries on its operations and
other activities through the Operating Partnership and its other subsidiaries.
62
<PAGE> 64
The following table sets forth, by subsidiary, the Properties such
subsidiaries own as of December 31, 1998:
<TABLE>
<S> <C>
Operating Partnership: 62 Office Properties, six Hotel Properties and five Retail Properties
Crescent Real Estate The Aberdeen, The Avallon, Caltex House, The Citadel, The Crescent Atrium,
Funding I, L.P.: The Crescent Office Towers, Regency Plaza One, UPR Plaza and Waterside Commons
("Funding I")
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate Office and Research Center, Hyatt Regency
Funding II, L.P.: Beaver Creek, MacArthur Center I & II, Ptarmigan Place, Stanford Corporate Centre, Two Renaissance Square
("Funding II") and 12404 Park Central
Crescent Real Estate Greenway Plaza Portfolio(1)
Funding III, IV and V, L.P.:
("Funding III, IV and V")
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate Behavioral Healthcare Properties
Funding VII, L.P.:
("Funding VII")
</TABLE>
- ----------
(1) Funding III owns the Greenway Plaza Portfolio, except for the central
heated and chilled water plant building and Coastal Tower Office
Property, both located within Greenway Plaza, which are owned by
Funding IV and Funding V, respectively.
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company
include all direct and indirect subsidiary entities. The equity interests in
those direct and indirect subsidiaries the Company does not own are reflected as
minority interests. All significant intercompany balances and transactions have
been eliminated.
Certain amounts in prior year financial statements have been
reclassified to conform with current year presentation.
All information relating to common shares has been adjusted to reflect
the two-for-one stock split effected in the form of a 100% share dividend paid
on March 26, 1997 to shareholders of record on March 20, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVESTMENTS IN REAL ESTATE
Real estate is carried at cost, net of accumulated depreciation.
Betterments, major renovations, and certain costs directly related to the
acquisition, improvement and leasing of real estate are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:
Buildings and Improvements 5 to 40 years
Tenant Improvements Terms of leases
Furniture, Fixtures and Equipment 3 to 10 years
An impairment loss is recognized, on a property by property basis, when expected
undiscounted cash flows are less than the carrying value of the asset. In cases
where the Company does not expect to recover its carrying costs, the Company
reduces its carrying costs to fair value. No such reductions have occurred to
date.
63
<PAGE> 65
CONCENTRATION OF REAL ESTATE INVESTMENTS
The majority of the Company's Office and Retail Properties are in the
Dallas/Fort Worth and Houston, Texas metropolitan areas. As of December 31,
1998, these Office and Retail Properties together represented approximately 72%
of the Company's total net rentable square feet in the Office and Retail
Segment. The Dallas/Fort Worth Office and Retail properties accounted for
approximately 39% of that amount, and the Houston Office and Retail Properties
accounted for the remaining approximate 33%. As a result of the geographic
concentration, the operations of the Company could be adversely affected by a
recession or general economic downturn in the areas where these properties are
located.
RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash includes escrows established pursuant to certain
mortgage financing arrangements for real estate taxes, insurance, security
deposits, ground lease expenditures, capital expenditures and monthly interest
carrying costs paid in arrears.
OTHER ASSETS
Other assets consist principally of leasing costs and deferred
financing costs. Leasing costs are amortized on a straight-line basis during the
terms of the respective leases, and unamortized lease costs are written off upon
early termination of lease agreements. Deferred financing costs are amortized on
a straight-line basis over the terms of the respective loans.
DEFERRED COMPENSATION ON RESTRICTED SHARES
Deferred compensation on restricted shares relates to the issuance of
restricted shares to employees of the Company. Such restricted shares are
amortized to expense during the applicable vesting period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company entered into a forward share purchase agreement with Union
Bank of Switzerland ("UBS") and an equity swap agreement with Merrill Lynch
International ("Merrill Lynch") as further discussed in Note 10, Shareholders'
Equity.
Effective September 30, 1998, the Company terminated the equity swap
agreement with Merrill Lynch. As of that date, the Company repurchased the
6,659,254 common shares Merrill Lynch held and terminated the additional
contingent share obligation provided for under that agreement by issuing a
$209,299 promissory note due December 14, 1998, which was subsequently extended
to September 14, 1999, following a principal payment of $25,000 on December 14,
1998.
On August 11, 1998, the Company and UBS exercised the right to extend
the term of the forward share purchase agreement between the Company and UBS
until August 12, 1999.
At December 31, 1998, the Company had a contingent obligation to
deliver approximately an additional 207,471 common shares to UBS under the
forward share purchase agreement calculated using the Company's average share
price for the quarter.
64
<PAGE> 66
The carrying values of cash and cash equivalents and short-term
investments are reasonable estimates of their fair values because of the short
maturities of these instruments. The fair value of notes receivable, which
approximates carrying value, is estimated based on year-end interest rates for
receivables of comparable maturity. Notes payable and borrowings under the
Company's line of credit ("Credit Facility") have aggregate carrying values
which approximate their estimated fair values based upon the current interest
rates for debt with similar terms and remaining maturities, without considering
the adequacy of the underlying collateral. Disclosure about fair value of
financial instruments is based on pertinent information available to management
as of December 31, 1998 and 1997.
REVENUE RECOGNITION
OFFICE & RETAIL PROPERTIES The Company, as a lessor, has retained
substantially all of the risks and benefits of ownership of the Office and
Retail Properties and accounts for its leases as operating leases. Income on
leases, which includes scheduled increases in rental rates during the lease term
and/or abated rent payments for various periods following the tenant's lease
commencement date, is recognized on a straight-line basis. Deferred rent
receivable represents the excess of rental revenue recognized on a straight-line
basis over cash received pursuant to the applicable lease provisions.
HOTEL PROPERTIES The Company cannot, consistent with its status as a
REIT, operate the Hotel Properties directly. It has leased all of the Hotel
Properties except The Omni Austin Hotel to subsidiaries of Crescent Operating,
Inc. ("COI") pursuant to eight separate leases (See Note 12, Formation and
Capitalization of COI). As of January 1, 1999, the Omni Austin Hotel has been
leased under a separate lease to HCD Austin Corporation, an unrelated third
party. The leases provide for the payment by the lessee of the Hotel Property of
(i) base rent, with periodic rent increases if applicable, (ii) percentage rent
based on a percentage of gross receipts or gross room revenues, as applicable,
above a specified amount, and (iii) a percentage of gross food and beverage
revenues above a specified amount for certain Hotel Properties. Base rental
income under these leases is recognized on a straight-line basis over the terms
of the respective leases. Percentage rental income is recognized on an accrual
basis.
BEHAVIORAL HEALTHCARE PROPERTIES The Company has leased the Behavioral
Healthcare Properties to Charter Behavioral Health Systems, LLC ("CBHS") under a
triple-net lease. The lease requires the payment of annual minimum rent in the
amount of approximately $43,800 for the period ending June 16, 1999, increasing
in each subsequent year during the remaining 10-year term at a 5% compounded
annual rate. The Company recognizes the rent on a straight-line basis, resulting
in a deferred rent receivable balance due from CBHS of approximately $20,000 at
December 31, 1998. In December 1998, the independent accountants for CBHS, in
connection with their audit of the financial statements for the year ended
September 30, 1998, issued a modified auditors' report related to the ability of
CBHS to continue as a going concern. In October 1998, CBHS hired a new President
and Chief Executive Officer (formerly the Vice President of Operations for the
Southeast Region of Tenet Healthcare), who announced a set of initiatives to
address cost reductions and revenue enhancements for 1999. CBHS has continued to
make timely rent payments to the Company for the first five months of CBHS's
fiscal year; however, management will continue to evaluate the business,
financial condition and results of operations of CBHS in connection with the
collectibility of the deferred rent receivable balance.
INCOME TAXES
The ongoing operations of the Properties generally will not be subject
to federal income taxes as long as the Company maintains its REIT status. A REIT
will generally not be subject to federal income taxation on that portion of its
income that qualifies as REIT taxable income to the extent that it distributes
such taxable income to its shareholders and complies with certain requirements
(including distribution of at least 95% of its REIT taxable income). As a REIT,
the Company is allowed to reduce REIT taxable income by all or a portion of its
distributions to shareholders. Because distributions have exceeded REIT taxable
income, no federal income tax provision (benefit) has been reflected in the
accompanying consolidated financial statements. State income taxes are not
significant.
65
<PAGE> 67
EARNINGS PER SHARE
Beginning with the year ended December 31, 1997, the Company adopted
SFAS No. 128, "Earnings Per Share" ("EPS"), which supersedes APB No. 15 for
periods ending after December 15, 1997. SFAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share. Primary EPS is
replaced by Basic EPS, and Fully Diluted EPS is replaced by Diluted EPS. Basic
EPS, unlike Primary EPS, excludes all dilution while Diluted EPS, like Fully
Diluted EPS, reflects the potential dilution that could occur if securities or
other contracts to issue common shares were exercised or converted into common
shares.
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------- -------------------------------------
1998 1997
--------------------------------------- -------------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income available $ 150,584 119,443 $ 1.26 $ 117,341 93,709 $ 1.25
to common shareholders ========= =========
Effect of dilutive
securities:
Share and unit options -- 3,903 -- 4,138
Preferred shares -- 3,478 -- --
Equity swap agreement -- 183 -- --
Forward share
purchase agreement 3,316 395 -- --
--------- --------- --------- ---------
Diluted EPS -
Net income available
to common shareholders $ 153,900 127,402 $ 1.21 $ 117,341 97,847 $ 1.20
========= ========= ========= ========= ========= =========
<CAPTION>
---------------------------------------
1996
---------------------------------------
Wtd. Avg. Per Share
Income Shares Amount
<S> <C> <C> <C>
Basic EPS -
Net income available $ 37,135 53,282 $ 0.70
to common shareholders =========
Effect of dilutive
securities:
Share and unit options -- 1,181
Preferred shares -- --
Equity swap agreement -- --
Forward share
purchase agreement -- --
--------- ---------
Diluted EPS -
Net income available
to common shareholders $ 37,135 54,463 $ 0.68
========= ========= =========
</TABLE>
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, all highly liquid
investments purchased with an original maturity of 90 days or less are included
in cash and cash equivalents.
66
<PAGE> 68
SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $145,603 $ 78,980 $ 42,488
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Mortgage notes assumed in property acquisitions $ 46,934 $ 97,923 $142,799
Minority interest - joint venture capital -- -- 31,985
Conversion of operating partnership units to common
shares with resulting reduction in minority interest
and increases in common shares and additional
paid-in capital 4,849 1,018 856
Issuance of operating partnership units in conjunction
with investments and settlement of an obligation 19,972 -- 52,236
Issuance of common shares in conjunction with
investments 21,000 1,200 25,000
Issuance of restricted common shares -- 10 --
Two-for-one common share dividend -- 362 --
Debt incurred in conjunction with termination of equity
swap agreement 184,299 -- --
Unrealized loss on available-for-sale securities 5,037 -- --
Guaranteed return on forward share purchase
agreement return 3,316 -- --
</TABLE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and presentation of comprehensive income and
its components (generally, total nonowner changes in equity). As a result of the
adoption of SFAS No. 130, comprehensive income has been presented as part of the
statement of shareholders' equity. During the year ended December 31, 1998, the
Company held securities classified as available-for-sale which had unrealized
losses during the period of $5,037. Prior to 1998, the Company's comprehensive
income was not material to the Company's financial statements.
In March 1998, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions," which provides that
internal costs of identifying and acquiring operating property should be
expensed as incurred. This pronouncement was effective March 19, 1998, and had
no material impact on the Company's 1998 financial statements.
Beginning with the fiscal year ended December 31, 1998, the Company
adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which establishes standards for the way that
67
<PAGE> 69
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997 (See Note 3, Segment Reporting).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which provides that all derivative
instruments should be recognized as either assets or liabilities depending on
the rights or obligations under the contract and that all derivative instruments
be measured at fair value. This pronouncement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, and would not have
materially impacted the Company's 1998 financial statements.
3. SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. The
Company currently has five major operating segments: the Office and Retail
Segment; the Hospitality Segment; the Refrigerated Storage Segment; the
Residential Development Segment and the Behavioral Healthcare Segment.
Therefore, operating segments for SFAS No. 131 were determined on the same
basis. Management organizes the segments within the Company based on property
type for making operating decisions and assessing performance.
The Company uses Funds from Operations ("FFO") as the measure of
segment profit or loss. FFO, based on the definition adopted by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") and as used herein, means net income (loss) (determined in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. NAREIT developed
FFO as a relative measure of performance and liquidity of an equity REIT in
order to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. The Company considers FFO an
appropriate measure of performance of an equity REIT, and therefore for the
operating segments contained therein. However, the Company's measure of FFO may
not be comparable to similarly titled measures of other REITs because these
REITs may not apply the definition of FFO in the same manner as the Company.
68
<PAGE> 70
Selected financial information related to each segment for the years ended
December 31, 1998, 1997, 1996 is presented below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
----------------- ----------------- -----------------
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES:
Office and Retail Segment $ 563,005 $ 363,324 $ 182,198
Hospitality Segment 53,355 37,270 19,805
Behavioral Healthcare Segment 55,295 29,789 --
Refrigerated Storage Segment -- -- --
Residential Development Segment -- -- --
Corporate and other 26,688 16,990 6,858
----------------- ----------------- -----------------
TOTAL CONSOLIDATED REVENUE $ 698,343 $ 447,373 $ 208,861
================= ================= =================
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 325,442 $ 204,243 $ 106,819
Hospitality Segment 52,375 36,439 19,479
Behavioral Healthcare Segment 55,295 29,789 --
Refrigerated Storage Segment 28,626 2,200 --
Residential Development Segment 58,892 25,623 5,707
Corporate and other adjustments
Interest expense (152,214) (86,441) (42,926)
Preferred dividends (11,700) -- --
Interest and other income 19,696 15,401 3,211
Corporate G & A (16,264) (12,858) (4,674)
----------------- ----------------- -----------------
TOTAL FUNDS FROM OPERATIONS: $ 360,148 $ 214,396 $ 87,616
----------------- ----------------- -----------------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
CONSOLIDATED NET INCOME:
Depreciation and amortization of real estate assets $ (115,678) $ (72,503) $ (39,290)
Write-off costs associated with terminated acquisitions (18,435) -- --
Minority interests in joint ventures 1,499 1,434 1,482
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (56,024) (8,303) (1,857)
Preferred share dividends 11,700 -- --
----------------- ----------------- -----------------
CONSOLIDATED NET INCOME BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEM $ 183,210 $ 135,024 $ 47,951
================= ================= =================
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES:
Office and Retail Segment $ -- $ -- $ --
Hospitality Segment -- -- --
Behavioral Healthcare Segment -- -- --
Refrigerated Storage Segment 512 1,200 --
Residential Development Segment 30,979 18,771 3,850
Corporate and other 7,826 3,772 --
----------------- ----------------- -----------------
TOTAL EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES $ 39,317 $ 23,743 $ 3,850
================= ================= =================
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,214,208 $ 2,651,877 $ 1,341,252
Hospitality Segment 453,583 363,424 262,885
Behavioral Healthcare Segment 386,434 384,796 --
Refrigerated Storage Segment 277,856 153,994 --
Residential Development Segment 289,615 317,950 37,069
Corporate and other 421,751 307,939 89,716
----------------- ----------------- -----------------
TOTAL IDENTIFIABLE ASSETS $ 5,043,447 $ 4,179,980 $ 1,730,922
================= ================= =================
</TABLE>
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<PAGE> 71
COI and CBHS are the largest single lessees of the Company in terms of
total rental revenues derived through their leases. Total rental revenues from
each of COI and CBHS for the year ended December 31, 1998 were 8% of the
Company's total rental revenues. COI was the sole lessee of the Hotel Properties
for the year ended December 31, 1998, and CBHS was the sole lessee of the
Behavioral Healthcare Properties during that period. No other lessee
individually accounted for more than 4% of the respective segment revenues.
4. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES:
The following is a summary of the Company's ownership in significant
unconsolidated companies:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
ENTITY CLASSIFICATIONS AS OF DECEMBER 31, 1998
- ---------------------------------------------- ------------------------------------ -----------------------------------
<S> <C> <C>
Desert Mountain Development Corporation Residential Development Corporation 95%(1)
Houston Area Development Corp. Residential Development Corporation 94%(1)
The Woodlands Land Company, Inc. Residential Development Corporation 95%(1)
Crescent Development Management Corp. Residential Development Corporation 90%(1)
Mira Vista Development Corp. Residential Development Corporation 94%(1)
Crescent CS Holdings Corp. Crescent Subsidiary 95%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 95%(2)
The Woodlands Commercial
Properties Company, L.P. Other (various commercial properties) 42.5%
Main Street Partners, L.P. Other (office property - Bank One 50%
Center)
</TABLE>
- ---------------------
(1) See Item 2. Residential Development Properties and the Residential
Development Properties Table included in that section for the
Residential Development Corporation's ownership interest in Residential
Development Properties.
(2) The Crescent Subsidiaries have a 40% interest in three partnerships
each of which owns one or more corporations or limited liability
companies. Accordingly, each of the Crescent Subsidiaries has an
indirect 40% interest in the Refrigerated Storage Properties.
The Company reports its share of income and losses based on its ownership
interest in the respective equity investments. The following summarized
information for all unconsolidated companies has been presented on an aggregate
basis and classified under the captions "Residential Development Corporations,"
"Refrigerated Storage Corporations," and "Other," as applicable, as of December
31, 1998.
70
<PAGE> 72
BALANCE SHEETS AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE
CORPORATIONS CORPORATIONS OTHER
------------ ------------ ------------
<S> <C> <C> <C>
Real estate, net $ 623,106 $ 1,308,059 $ 475,322
Cash 25,849 14,219 31,582
Other assets 156,782 420,934 86,641
------------ ------------ ------------
Total Assets $ 805,737 $ 1,743,212 $ 593,545
============ ============ ============
Notes payable $ 295,998 $ 617,166 $ 258,000
Notes payable to the Company 164,578 -- 12,085
Other liabilities 131,874 396,836 42,192
Equity 213,287 729,210 281,268
- ---------------------------------------- ------------ ------------ ------------
Total Liabilities and Equity $ 805,737 $ 1,743,212 $ 593,545
============ ============ ============
Company's investments in real estate
mortgages and equity of uncon-
solidated companies $ 289,615 $ 277,856 $ 176,045
============ ============ ============
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
----------------------------------------------
RESIDENTIAL REFRIGERATED
DEVELOPMENT STORAGE
CORPORATIONS CORPORATIONS OTHER
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues ........................... $ 360,191 $ 567,867 $ 82,473
Total expenses ........................... 307,546 559,013 66,118
------------ ------------ ------------
Net income ............................... $ 52,645 $ 8,854 $ 16,355
============ ============ ============
Company's equity in net income
of unconsolidated companies ........... $ 30,979 $ 512 $ 7,826
============ ============ ============
</TABLE>
5. OTHER ASSETS, NET:
Other assets, net consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Leasing costs ..................... $ 76,385 $ 56,740
Deferred financing costs .......... 35,655 26,088
Escrow deposits ................... 50 5,810
Prepaid expenses .................. 2,829 3,451
Other ............................. 44,144 36,453
--------- ---------
159,063 128,542
Less - Accumulated amortization ... (48,519) (29,861)
--------- ---------
$ 110,544 $ 98,681
========= =========
</TABLE>
71
<PAGE> 73
6. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
<TABLE>
<CAPTION>
The following is a summary of the Company's debt financing at December 31, December 31,
1998 and 1997: -------------------------
1998 1997
----- ----
SECURED DEBT
<S> <C> <C>
BankBoston Term Note due October 30, 2001, bears interest at Eurodollar plus 325
basis points or Base Rate plus 100 basis points (at December 31, 1998, the rate
was 8.31% based on Eurodollar) with a three-year interest-only term secured by
Greenway I and IA, BP Plaza, Washington Harbour, Bank One Tower, Frost Bank
Plaza, Central Park Plaza and 3333 Lee Parkway Office Properties with a combined
book value of $374,679.......................................................... $ 260,000(1) --
LaSalle Note I bears interest at 7.83% with an initial seven-year interest-only
term (through August 2002), followed by principal amortization based on a
25-year amortization schedule through maturity in August 2027(2), secured by the
Funding I Properties with a combined book value of $305,959..................... 239,000 239,000
Merrill Lynch Promissory Note due September 14, 1999(3), bears interest at
30-day LIBOR plus 200 basis points (at December 31, 1998, the rate was 7.06%)
with an interest-only term, secured by the Houston Center mixed-use Property
complex with a book value of $271,479........................................... 184,299 --
LaSalle Note II bears interest at 7.79% with an initial seven-year interest-only
term (through March 2003), followed by principal amortization based on a 25-year
amortization schedule through maturity in March 2028(4), secured by the Funding
II Properties with a combined book value of $308,828............................ 161,000 161,000
LaSalle Note III due July 1999, bears interest at 30-day LIBOR plus a weighted
average rate of 2.135% (at December 31, 1998 the rate was 7.20%, subject to a
rate cap of 10%) with an interest-only term, secured by the Funding III, IV and
V Properties with a combined book value of $242,096............................. 115,000 115,000
Chase Manhattan Note due September 30, 2001, bears interest at 30-day LIBOR plus
an average rate of 1.75% (at December 31, 1998, the rate was 6.81%) with an
interest-only term, secured by the Fountain Place Office Property with a book
value of $112,927............................................................... 97,123 97,123
CIGNA Note due December 2002, bears interest at 7.47% with an interest-only
term, secured by the MCI Tower Office Property and Denver Marriott City Center
Hotel Property with a combined book value of $99,050............................ 63,500 63,500
Metropolitan Life Note II due December 2002, bears interest at 6.93% with
monthly principal and interest payments based on a 25-year amortization
schedule, secured by the Energy Centre Office Property with a book value of
$74,389......................................................................... 44,364 45,000
Metropolitan Life Note III due December 1999, bears interest at 7.74% with an
interest-only term, secured by the Datran Center Office Property with a book
value of $70,076................................................................ 40,000 --
Northwestern Note due January 2003, bears interest at 7.65% with an
interest-only term, secured by the 301 Congress Avenue Office Property with a
book value of $45,607........................................................... 26,000 26,000
</TABLE>
72
<PAGE> 74
<TABLE>
<S> <C> <C>
Metropolitan Life Note I due September 2001, bears interest at 8.88% with
monthly principal and interest payments based on a 20-year amortization
schedule, secured by five of The Woodlands Office Properties with a combined
book value of $18,051........................................................... 11,777 12,109
Nomura Funding VI Note bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through July 2020(5),
secured by the Funding VI property with a book value of $33,799................. 8,586 8,692
Metropolitan Life Note IV due December 1999, bears interest at 7.11% with
monthly principal and interest payments based on a 15-year amortization
schedule, secured by the Datran Center Office Property with a book value of
$70,076......................................................................... 6,752 --
Rigney Note due June 2012, bears interest at 8.50% with quarterly principal and
interest payments based on a 15-year amortization schedule, secured by a parcel
of land with a book value of $16,885............................................ 755 800
UNSECURED DEBT
Line of Credit with BankBoston, N.A. ("BankBoston") ("Credit Facility") (see
description of Credit Facility below)........................................... 660,000 350,000
BankBoston Term Note due March 1998, bears interest at Eurodollar rate Plus 120
basis points (at December 31, 1997, the rate was 7.14%)......................... -- 91,900
BankBoston Term Note due August 1998, bears interest at Eurodollar rate plus 120
basis points (at December 31, 1997, the rate was 7.14%)......................... -- 100,000
2007 Notes bear interest at a fixed rate of 7.50% with a ten-year interest-only
term, due September 2007(6)..................................................... 250,000 250,000
2002 Notes bear interest at a fixed rate of 7.00% with a five-year interest-only
term, due September 2002(6)..................................................... 150,000 150,000
----------- -----------
Total Notes Payable $ 2,318,156 $ 1,710,124
=========== ===========
</TABLE>
- ------------------------------------------------
(1) On February 10, 1999, this term note was increased to $320,000
based on the inclusion of the Addison and Reverchon Plaza Office
Properties in the pool of Properties securing this term note.
(2) In August 2007, the interest rate increases, and the Company is
required to remit, in addition to the monthly debt service payment,
excess property cash flow, as defined, to be applied first against
principal until the note is paid in full and thereafter, against
accrued excess interest, as defined. It is the Company's intention to
repay the note in full at such time (August 2007) by making a final
payment of approximately $220,000.
(3) On December 14, 1998, the Company and Merrill Lynch modified the
note. In connection with the modification, the Company made a payment
of $25,000 of principal on December 14, 1998, the term of the note was
extended to September 14, 1999, and the interest rate was increased to
an initial rate of 200 basis points above the 30-day LIBOR rate. In
connection with this extension, the Company paid an extension rate fee
of $1,800.
(4) In March 2006, the interest rate increases, and the Company is required
to remit, in addition to the monthly debt service payment, excess
property cash flow, as defined, to be applied first against principal
until the note is paid in full and thereafter, against accrued excess
interest, as defined. It is the Company's intention to repay the note
in full at such time (March 2006) by making a final payment of
approximately $154,000.
73
<PAGE> 75
(5) The Company has the option to defease the note by purchasing Treasury
obligations in an amount sufficient to pay the note without penalty. In
July 2010, the interest rate due under the note will change to a
10-year Treasury yield plus 500 basis points or, if the Company so
elects, it may repay the note without penalty.
(6) The notes are unsecured and require payments of interest only during
their terms. The interest rates on the notes were subject to temporary
increase by 50 basis points in the event that a registered offer to
exchange the notes for the notes of the Company with terms identical in
all material respects to the notes is not consummated or a shelf
registration statement with respect to the resale of the notes is not
declared effective by the Securities and Exchange Commission on or
before March 21, 1998. The interest rates on the notes were increased
by 50 basis points temporarily (until July 2, 1998), because the
exchange offer was not completed by March 21, 1998. The interest rates
on the notes were also permanently increased (on July 28, 1998) by 37.5
basis points due to a lower than investment grade rating (as defined in
the notes) by specified rating agencies. The indenture requires the
Company to maintain compliance with a number of customary financial and
other covenants on an ongoing basis, including leverage ratios and debt
service coverage ratios, limitations on the incurrence of additional
indebtedness and maintaining the Company's Properties.
Combined aggregate principal maturities of notes payable and borrowings under
the Credit Facility are as follows:
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
1999 ......................... $ 347,302
2000 ......................... 661,351
2001 ......................... 369,181
2002 ......................... 215,655
2003 ......................... 72,201
Thereafter .............. 652,466
------------
$ 2,318,156
============
</TABLE>
CREDIT FACILITY
On June 30, 1998, the Credit Facility was increased to $850,000
(currently limited to $750,000 of borrowing capacity, subject to increase based
upon certain events) to enhance the Company's financial flexibility in making
new real estate investments. The interest rate on advances under the Credit
Facility is the Eurodollar rate plus 137 basis points. The Credit Facility is
unsecured and expires in June 2000. In connection with the refinancing of a
BankBoston term note, the Company used $90,000 of the net proceeds of the
refinancing to purchase a 12% participation interest from BankBoston in the
Credit Facility. As a result the Company's borrowing capacity under the Credit
Facility is limited to $660,000. The Credit Facility requires the Company to
maintain compliance with a number of customary financial and other covenants on
an ongoing basis, including leverage ratios based on book value and debt service
coverage ratios, limitations on additional secured and total indebtedness and
distributions, and a minimum net worth requirement. As of December 31, 1998, the
Company was in compliance with all covenants. As of December 31, 1998, the
interest rate was 6.44%.
7. RENTALS UNDER OPERATING LEASES:
The Company receives rental income from the leasing of Office Property,
Retail Property, Hotel Property and Behavioral Healthcare Property space under
operating leases. For noncancelable operating leases that were in effect as of
December 31, 1998, future minimum rentals (base rents) during the next five
years and thereafter (excluding tenant reimbursements of operating expenses for
Office and Retail Properties) are as follows:
<TABLE>
<CAPTION>
Office and Behavioral
Retail Hotel Healthcare Combined
Properties Properties Properties Properties
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1999 ............ $ 440,048 $ 37,442 $ 44,901 $ 522,391
2000 ............ 397,857 40,541 47,146 485,544
2001 ............ 352,392 41,541 49,504 443,437
2002 ............ 282,016 42,241 51,979 376,236
2003 ............ 224,810 42,798 54,578 322,186
Thereafter ...... 692,196 123,451 352,332 1,167,979
-------------- -------------- -------------- --------------
$ 2,389,319 $ 328,014 $ 600,440 $ 3,317,773
============== ============== ============== ==============
</TABLE>
74
<PAGE> 76
Generally, the office and retail leases also require that tenants
reimburse the Company for increases in operating expenses above operating
expenses during the base year of the tenants lease. These amounts totaled
$78,708, $42,385 and $20,859 for the years ended December 31, 1998, 1997 and
1996, respectively. These increases are generally payable in equal installments
throughout the year, based on estimated increases, with any differences adjusted
at year end based upon actual expenses.
The Company recognized percentage lease revenue from the Hotel
Properties of approximately $13,848, $9,678 and $4,493 for the years ended
December 31, 1998, 1997 and 1996, respectively.
(See Note 2, Summary of Significant Accounting Policies, for further
discussion of revenue recognition, and Note 3, Segment Reporting, for further
discussion of significant tenants.)
8. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company has eleven properties located on land that is subject to
long-term ground leases which expire between 2001 and 2080. The Company also
leases parking spaces in a parking garage adjacent to one of its Properties
pursuant to a lease expiring in 2021. Lease expense associated with these leases
during each of the three years ended December 31, 1998, 1997, and 1996 was
$2,482, $1,247 and $681, respectively. Future minimum lease payments due under
such leases as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Leases
Commitments
---------------
<S> <C>
1999....................... $ 2,266
2000....................... 2,275
2001....................... 2,258
2002....................... 2,185
2003....................... 2,191
Thereafter................. 101,203
---------------
$ 112,378
===============
</TABLE>
CONTINGENCIES
STATION CASINOS, INC.
The Company was a party to an Agreement and Plan of Merger dated
January 16, 1998, as amended, (the "Merger Agreement"), between the Company and
Station Casinos, Inc. ("Station"). Pursuant to the Merger Agreement, Station
would have merged with and into the Company (the "Merger"). On July 27, 1998,
Station canceled its joint annual and special meeting of its common and
preferred stockholders scheduled for August 4, 1998, at which the common and
preferred stockholders were to vote on the Merger. The Company subsequently
notified Station that it was exercising its termination rights under the Merger
Agreement based on Station's material breaches of the Merger Agreement. Under
the Merger Agreement, the Company has the right to terminate the Merger
Agreement if a material breach by the other party is not cured within 10
business days after notice. The Company subsequently notified Station that the
Merger Agreement had been terminated in accordance with its terms. Station and
the Company are currently involved in litigation relating to the Merger
Agreement. Each of Station and the Company are seeking damages from the other
and declaratory relief. In addition, the action by Station seeks, among other
matters, an order of specific performance requiring the Company to purchase
$115,000 of a class of Station's redeemable preferred stock and damages
consisting of compensatory damages (which Station states to be in excess of
$400,000).
75
<PAGE> 77
The Company intends to pursue its claims against Station and to
continue to contest Station's claims vigorously. As with any litigation, it is
not possible to predict the resolution of the pending actions. The Company
believes that the outcome of the pending litigation with Station will not have a
material adverse effect on the Company's financial condition or results of
operations.
TOWER REALTY TRUST, INC.
The Company was a party to an Amended and Restated Agreement and Plan
of Merger, dated August 11, 1998 (the "Tower Merger Agreement"), among the
Company, Tower Realty Trust, Inc. ("Tower"), Reckson Associates Realty
Corporation ("Reckson") and Metropolitan Partners, LLC ("Metropolitan"), a newly
formed limited liability company owned equally by the Company and Reckson
(collectively, the "Buying Entities"), pursuant to which Tower would have merged
with and into Metropolitan.
On November 2, 1998, Tower filed suit against the Buying Entities for
declaratory and other relief, including damages of not less than $75,000,
arising out of the alleged anticipatory repudiation by the Buying Entities of
the Tower Merger Agreement. Tower's lawsuit followed meetings in which
representatives of the Buying Entities had questioned, among other things,
whether Tower could meet certain conditions to closing. The Buying Entities
subsequently advised Tower that they had not terminated the Tower Merger
Agreement and considered the Tower Merger Agreement to be in full force and
effect, subject to its terms and conditions.
As of December 8, 1998, Tower, Reckson, and Metropolitan entered into a
revised agreement and plan of merger (the "Revised Tower Merger Agreement") that
superseded the Tower Merger Agreement to which the Company was a party. In
connection with the Revised Tower Merger Agreement, the Company made a $10,000
capital contribution to Metropolitan in December 1998 and agreed to make an
additional $75,000 capital contribution to Metropolitan in exchange for a
preferred interest. In addition, the Company and Tower entered into mutual
releases, in which each released the other from all claims relating to the Tower
Merger Agreement. Tower's release of the Company provides for the dismissal of
Tower's suit against the Buying Entities without prejudice, but the release
states that it shall become void and unenforceable if all of the conditions to
the funding of the $75,000 capital contribution by the Company to Metropolitan
have been met, but the Company fails to fully fund its $75,000 capital
contribution to Metropolitan. The Company's release of Tower states that it
shall become void and unenforceable if, but only if, the release from Tower to
the Company becomes void and unenforceable.
The funding by the Company of the additional $75,000 capital
contribution to Metropolitan and the merger of Tower with Metropolitan are
expected to close in the second quarter of 1999.
ENVIRONMENTAL MATTERS
All of the Properties have been subjected to Phase I environmental
assessments, and some properties have been subjected to Phase II soil and ground
water sampling as part of the Phase I assessments. Such assessments have not
revealed, nor is management aware of, any environmental liabilities that
management believes would have a material adverse effect on the financial
position or results of operations of the Company.
9. STOCK AND UNIT BASED COMPENSATION PLANS:
STOCK OPTION PLANS
The Company has two stock incentive plans, the 1995 Stock Incentive
Plan (the "1995 Plan") and the 1994 Stock Incentive Plan (the "1994 Plan"). In
June 1996, the shareholders amended the 1995 Plan, which increased the maximum
number of options and/or restricted shares that the Company may grant to
2,850,000 shares. The maximum aggregate number of shares available for grant
under the 1995 Plan increases automatically on January 1 of each year by an
amount equal to 8.5% of the increase in the number of common shares and units
outstanding since January 1 of the preceding year, subject to certain adjustment
provisions. As of January 1, 1999, the number of shares the Company may grant
under the 1995 Plan is 9,229,680. Under the 1995 Plan, the Company had granted,
net of forfeitures, options and restricted shares of 4,680,272 and 23,934,
respectively, through December
76
<PAGE> 78
31, 1998. Due to the approval of the 1995 Plan, additional options and
restricted shares will no longer be granted under the 1994 Plan. Under the 1994
Plan, the Company had granted, net of forfeitures, 2,510,800 options and no
restricted shares. Under both Plans, options are granted at a price not less
than the market value of the shares on the date of grant and expire ten years
from the date of grant. The options that have been granted under the 1995 Plan
vest over five years, with the exception of 500,000 options that vest over two
years. The options that have been granted under the 1994 Plan vest over periods
ranging from one to five years.
A summary of the status of the Company's 1994 and 1995 Plans as of
December 31, 1998, 1997 and 1996 and changes during the years then ended is
presented in the table below:
STOCK OPTION PLANS
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ------------------------ ------------------------
Options Options
Options to to to
Acquire Wtd. Avg. Acquire Wtd. Avg. Acquire Wtd. Avg.
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of January 1, 4,943 $ 16 4,681 $ 15 3,050 $ 13
Granted 2,728 32 485 28 1,760 18
Exercised (52) 18 (134) 14 (39) 13
Forfeited (652) 29 (89) 21 (90) 16
Expired -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Outstanding/Wtd. Avg. as of December 31, 6,967 $ 21 4,943 $ 16 4,681 $ 15
-------- -------- -------- -------- -------- --------
Exercisable/Wtd. Avg. as of December 31, 3,727 $ 15 3,285 $ 14 2,258 $ 13
</TABLE>
The following table summarizes information about the options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- -------------------------------------
Range of Number Outstanding Wtd. Avg. Years Wtd. Avg. Number Exercisable Wtd. Avg.
Exercise Prices at 12/31/98 Remaining Exercise at 12/31/98 Exercise
(000) Before Expiration Price Price Price
- -------------------- ------------------ ----------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
$11 to 18 3,736 5.8 years $ 14 3,297 $ 13
$19 to 27 919 8.5 23 259 23
$28 to 39 2,312 9.3 32 171 32
--------------- --------------- --------------- --------------- ---------------
$11 to 39 6,967 7.3 years $ 21 3,727 $ 15
=============== =============== =============== =============== ===============
</TABLE>
UNIT PLANS
The Operating Partnership has two unit incentive plans, the 1995 Unit
Incentive Plan (the "1995 Unit Plan") and the 1996 Unit Incentive Plan (the
"1996 Unit Plan"). The 1995 Unit Plan is designed to reward persons who are not
trust managers, officers or 10% shareholders of the Company. An aggregate of
100,000 common shares are reserved for issuance upon the exchange of 50,000
units available for issuance to employees and advisors under the 1995 Unit Plan.
As of December 31, 1998, an aggregate of 7,012 units had been distributed under
the 1995 Unit Plan. The 1995 Unit Plan does not provide for the grant of
options. The 1996 Unit Plan provides for the grant of options to acquire up to
2,000,000 units, all of which were granted to the Chief Executive Officer and
Vice Chairman of the Board of the Company in July 1996. The unit options granted
under the 1996 Unit Plan were priced at fair market value on the date of grant,
vest over seven years, and expire ten years from the date of grant. Pursuant to
the terms of the unit options granted under the 1996 Unit Plan, because the fair
market value of the Company's common shares equaled or exceeded $25 for each of
ten consecutive trading days, the vesting of an aggregate of 500,000 units was
accelerated and such units became immediately exercisable in 1996. Under the
1996 Unit Plan, each unit that may be purchased is exchangeable, as a result of
shareholder approval in June 1997, for two common shares.
A summary of the status of the Company's 1996 Unit Plan as of December
31, 1998 and 1997, and changes during the years then ended is presented in the
table below (assumes each unit is exchanged for two common shares):
77
<PAGE> 79
1996 UNIT INCENTIVE OPTION PLAN
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
Shares Shares
Underlying Wtd. Avg. Underlying Wtd. Avg.
Unit Options Exercise Unit Options Exercise
(000) Price (000) Price
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Outstanding as of January 1 4,000 $ 18 4,000 $ 18
Granted -- -- -- --
Exercised -- -- -- --
Forfeited -- -- -- --
Expired -- -- -- --
---------- ---------- ---------- ----------
Outstanding/Wtd. Avg. as of December 31 4,000 $ 18 4,000 $ 18
---------- ---------- ---------- ----------
Exercisable/Wtd. Avg. as of December 31 1,857 $ 18 1,429 $ 18
<CAPTION>
1996
--------------------------
Shares
Underlying Wtd. Avg.
Unit Options Exercise
(000) Price
------------ ----------
<S> <C> <C>
Outstanding as of January 1 -- $ --
Granted 4,000 18
Exercised -- --
Forfeited -- --
Expired -- --
---------- ----------
Outstanding/Wtd. Avg. as of December 31 4,000 $ 18
---------- ----------
Exercisable/Wtd. Avg. as of December 31 1,000 $ 18
</TABLE>
STOCK OPTION AND UNIT PLANS
The Company applies APB No. 25 in accounting for options granted pursuant
to the 1995 Plan, 1994 Plan and 1996 Unit Plan (collectively, the "Plans").
Accordingly, no compensation cost has been recognized for the Plans. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates for awards under the Plans, consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------------------- --------------------------- ---------------------------
As reported Pro forma As reported Pro forma As reported Pro forma
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income available to
Common shareholders $ 150,584 $ 145,115 $ 117,341 $ 114,442 $ 37,135 $ 31,074
Diluted EPS:
Net Income
available to
common shareholders $ 153,900 $ 143,431 $ 117,341 $ 114,442 $ 37,135 $ 31,074
Basic Earnings per Share $ 1.26 $ 1.21 $ 1.25 $ 1.22 $ .70 $ .58
Diluted Earnings per Share $ 1.21 $ 1.17 $ 1.20 $ 1.17 $ .68 $ .57
</TABLE>
Because SFAS No. 123 was not required to be applied to options granted
prior to January 1, 1995, the resulting program compensation cost may not be
representative of what is to be expected in future years.
At December 31, 1998, 1997 and 1996, the weighted average fair value of
options granted was $5.01, $6.52 and $4.59, respectively. The fair value of each
option is estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 1998,
1997 and 1996, respectively: risk free interest rates of 7.0%, 6.7% and 6.8%;
expected dividend yields of 7.0%, 4.0% and 6.2%; expected lives of 10 years and
expected volatility of 26.13%, 19.3% and 17.0%.
78
<PAGE> 80
10. SHAREHOLDERS' EQUITY:
PREFERRED SHARE OFFERINGS
On February 19, 1998, the Company completed an offering (the "February
1998 Preferred Offering") of 8,000,000 shares of 6 3/4% Series A convertible
cumulative preferred shares (the "Series A Preferred Shares") with a liquidation
preference of $25 per share. Series A Preferred Shares are convertible at any
time, in whole or in part, at the option of the holders thereof into common
shares of the Company at a conversion price of $40.86 per common share
(equivalent to a conversion rate of .6119 common share per Series A Preferred
Share based on the original offering price), subject to adjustment in certain
circumstances. Net proceeds to the Company from the February 1998 Preferred
Offering, after underwriting discounts of $8,000 and other offering costs of
$750 were approximately $191,250. The net proceeds from the February 1998
Preferred Offering were used to repay borrowings under the Credit Facility.
Dividends on the Series A Preferred Shares are cumulative from the date of
original issuance and are payable quarterly in arrears commencing on May 15,
1998. The dividend represents an annualized dividend of $1.69 per share, or $.42
per share per quarter.
On June 30, 1998, the Company completed an offering (the "June 1998
Preferred Offering") of 6,948,734 Series B convertible preferred shares at
$32.38 per share (the "Series B Preferred Shares") for aggregate total offering
proceeds of approximately $225,000 to The Prudential Insurance Company of
America and certain of its affiliates. The Company used the proceeds from the
offering, net of professional fees, of approximately $224,750, to repay
approximately $170,000 of short-term indebtedness and to make an indirect
investment of approximately $55,900 in five additional Refrigerated Storage
Properties. Based on the underwriting fees the Company has typically paid in
connection with underwritten public offerings, management estimates that if the
shares had been sold in an underwritten public offering, the Company would have
incurred approximately $12,000 in underwriting fees and offering costs. In that
case, the Company would have been required to sell approximately 372,000
additional shares (based on the $32.38 per share price on the date of the
offering) to raise the same amount of net proceeds. On October 7, 1998, the
Series B Preferred Shares became convertible at any time, at the option of the
holder. On November 30, 1998, upon the election of the holder, the Series B
Preferred Shares were converted into 8,400,582 of the Company's common shares at
a conversion rate which was calculated by comparing the investment return
produced by the common shares of the Company and an investment return of a
portfolio of equity REITs as computed by NAREIT. (See Note 14, Subsequent
Events)
COMMON SHARE OFFERING
On April 23, 1998, the Company completed an offering of 1,365,138
common shares at $32.27 per share (the "April 1998 Unit Investment Trust
Offering") to Merrill Lynch & Co. Net proceeds to the Company from the April
1998 Unit Investment Trust Offering were approximately $43,959. The net proceeds
were used to reduce borrowings outstanding under the Credit Facility.
FORWARD SHARE PURCHASE AGREEMENT
On August 12, 1997, the Company entered into two transactions with UBS.
In one transaction, the Company sold 4,700,000 common shares to UBS for
approximately $148,000 and received approximately $145,000 in net proceeds. In
the other transaction, the Company entered into a forward share purchase
agreement (the "Forward Share Purchase Agreement") with UBS. On August 11, 1998,
the Company paid a fee of approximately $3,000 to UBS in connection with the
exercise by the Company and UBS of the right to extend the term of the Forward
Share Purchase Agreement until August 12, 1999.
Under the Forward Share Purchase Agreement, the Company is committed to
settle its obligations under the agreement by purchasing 4,700,000 common shares
from UBS by August 12, 1999. The price to be paid by the Company for the
4,700,000 common shares (the "Settlement Price") will be determined on the date
the Company settles the Forward Share Purchase Agreement and will be calculated
based on the gross proceeds the Company received from the original issuance of
common shares to UBS, plus a forward accretion component equal to 90-day
79
<PAGE> 81
LIBOR plus 75 basis points, minus an adjustment for the Company's distributions
paid to UBS. The forward accretion component represents a guaranteed rate of
return to UBS.
The Company may fulfill its settlement obligations under the Forward
Share Purchase Agreement in cash or common shares, at its option, at any time on
or before August 12, 1999. In the event that the Company elects to fulfill its
settlement obligations in common shares, UBS will sell, on behalf of the
Company, a sufficient number of common shares to realize the Settlement Price.
If, as a result of an increase in the market price of the common shares, the
number of common shares required to be sold to achieve the Settlement Price is
less than the number of common shares previously issued to UBS, UBS will deliver
common shares to the Company. In contrast, if, as a result of a decrease in the
market price of the common shares, such number of common shares is greater than
the number of common shares previously issued to UBS, the Company will deliver
additional common shares to UBS.
On a quarterly basis, if the number of common shares previously
delivered to UBS is not sufficient to permit UBS to realize the Settlement Price
through the sale of such common shares, the Company is obligated to deliver
additional common shares to UBS. On November 20, 1998, the Company issued
1,852,162 additional common shares to UBS under the Forward Share Purchase
Agreement as a result of the decline in the market price of the Company's common
shares.
The Company included in the calculation of diluted earnings per share
for the year ended December 31, 1998, approximately 395,489 common shares. The
Company calculated this number of common shares using the Company's average
share price for the year. According to the terms of the Forward Share Purchase
Agreement, had the Forward Share Purchase Agreement been settled and the closing
share price of $23 on December 31, 1998 been used, the Company would have had a
contingent liability to issue approximately 249,555 common shares. In that
event, the Company's net income - diluted per common share would have remained
unchanged at $1.21 for the year ended December 31, 1998, and the net book value
per common share outstanding at December 31, 1998 would have remained unchanged
at $17.81. (See Note 14, Subsequent Events, for a description of cash collateral
posted on February 18, 1999.)
To the extent that the Company is obligated, as a result of a further
decline in the market price of the common shares, to issue additional common
shares in the future under the terms of the Forward Share Purchase Agreement,
the issuance will result in a reduction of the Company's net income per common
share and net book value per common share.
EQUITY SWAP AGREEMENT
On December 12, 1997, the Company entered into two transactions with
Merrill Lynch. In one transaction, pursuant to which the Company obtained
additional equity capital through the issuance of common shares, the Company
sold 5,375,000 common shares at $38.125 per share to Merrill Lynch for $204,900
($199,900 in net proceeds) (the "Merrill Lynch Offering"). The net proceeds to
the Company from the Merrill Lynch Offering were used to repay borrowings under
the Credit Facility. In the other transaction, the Company entered into an
equity swap agreement (the "Swap Agreement") with Merrill Lynch relating to
5,375,000 common shares (the "Settlement Shares"), pursuant to which Merrill
Lynch would sell, as directed by the Company on or before December 12, 1998, a
sufficient number of common shares to achieve net sales proceeds equal to the
market value of the Settlement Shares on December 12, 1997, plus a forward
accretion component, minus an adjustment for the Company's distribution rate.
On February 20, 1998, and June 25, 1998, the Company issued 525,000
common shares and 759,254 common shares, respectively, to Merrill Lynch,
pursuant to the terms of the Swap Agreement, as a result of the decline in
market price of the common shares from December 12, 1997 through February 12,
1998 and June 12, 1998, respectively. The issuance of these common shares did
not have a material impact on the Company's net income per common share or net
book value per common share.
Effective September 30, 1998, the Company terminated the Swap Agreement
with Merrill Lynch. As of that date, the Company repurchased the 6,659,254
common shares that Merrill Lynch held and terminated the
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<PAGE> 82
additional contingent share obligation provided for under the Swap Agreement by
issuing a $209,299 promissory note (the "Merrill Lynch Note") due December 14,
1998. The Merrill Lynch Note, which provided for interest at the rate of 75
basis points above 30-day LIBOR, is secured by a first mortgage lien on the
Houston Center mixed-use Property complex. On December 14, 1998, the Company and
Merrill Lynch modified the Merrill Lynch Note. In connection with the
modification, (i) the Company made a payment of $25,000 of principal, (ii) the
term of the Merrill Lynch Note was extended to September 14, 1999, and (iii) the
interest rate was increased to an initial rate of 200 basis points above 30-day
LIBOR. In connection with this extension, the Company paid an extension fee of
$1,800.
DISTRIBUTIONS
Common Shares
The distribution to common shareholders and unitholders paid during the
year ended December 31, 1997, was $140,801 or $1.295 per common share and
equivalent unit.
The distribution to common shareholders and unitholders paid during the
year ended December 31, 1998, was $220,618 or $1.69 per common share and
equivalent unit.
Following is the income tax status of dividends paid on common shares
and equivalent units during the years ended December 31, 1998 and 1997 to common
shareholders:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Ordinary income 58.8% 74.3%
Capital gain 5.6% --
Return of capital 35.6% 25.7%
</TABLE>
Preferred Shares
There were no preferred shares outstanding during the year ended
December 31, 1997.
The distribution to preferred shareholders during the year ended
December 31, 1998, was $11,700 or $1.46 per preferred share.
Following is the income tax status of dividends paid during the years
ended December 31, 1998 and 1997 to preferred shareholders:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Ordinary income 94.4% --
Capital gain 5.6% --
</TABLE>
11. MINORITY INTEREST:
Minority interest represents (i) the limited partnership interests
owned by limited partners in the Operating Partnership, and (ii) joint venture
interests held by third parties. Due to the March 26, 1997 two-for-one common
share split (effected in the form of a 100% share dividend), the exchange factor
has been adjusted in accordance with the Operating Partnership's limited
partnership agreement, and each unit may be exchanged for either two common
shares or, at the election of the Company, cash equal to the fair market value
of two common shares at the time of the exchange. When a unitholder exchanges a
unit, the Company's percentage interest in the Operating Partnership increases.
During 1998 and 1997, 143,396 and 66,706 units, respectively, were exchanged for
common shares of the Company.
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<PAGE> 83
12. FORMATION AND CAPITALIZATION OF COI
In April 1997, the Company established a new Delaware corporation, COI.
All of the outstanding common stock of COI, valued at $.99 per share, was
distributed, effective June 12, 1997, to those persons who were limited partners
of the Operating Partnership or shareholders of the Company on May 30, 1997, in
a spin-off.
COI was formed to become a lessee and operator of various assets to be
acquired by the Company and to perform the Intercompany Agreement between COI
and the Company, pursuant to which each has agreed to provide the other with
rights to participate in certain transactions. As a result of the formation of
COI and the execution of the Intercompany Agreement, persons who own equity
interests in both the Company and COI have the opportunity to participate in the
benefits of both the real estate investments of the Company (including ownership
of real estate assets) and the lease of certain of such assets and the ownership
of other non-real estate assets by COI. The certificate of incorporation, as
amended and restated, of COI generally prohibits COI, for so long as the
Intercompany Agreement remains in effect, from engaging in activities or making
investments that a REIT could make, unless the Company was first given the
opportunity, but elected not to pursue such activities or investments.
In connection with the formation and capitalization of COI, the Company
provided to COI approximately $50,000 in the form of cash contributions and
loans to be used by COI to acquire certain assets. The Company also made
available to COI a line of credit to be used by COI to fulfill certain ongoing
obligations associated with these assets. As of December 31, 1998, COI had
$27,752 and $34,534 outstanding under the line of credit and term loans,
respectively, with the Company.
13. ACQUISITIONS AND INVESTMENTS:
OFFICE AND HOTEL PROPERTIES
During 1998, the Company acquired the following Office and Hotel
Properties from unrelated third parties (certain of the Properties are owned in
fee simple or pursuant to a lessee's interest under a ground lease). The Company
funded these acquisitions through borrowings under the Credit Facility and
borrowings under short-term notes with BankBoston.
<TABLE>
<CAPTION>
Office
Property
Net
Rentable
Company's Hotel Area
Property Name Acq. Date City, State Ownership % Acq. Price Rooms Apartments (In Sq. Ft.)
------------- --------- ----------- ------------ ---------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Austin
Centre/Omni
Austin Hotel 1/23/98 Austin, TX 100 $ 96,400 314 61 344,000
Post Oak Central 2/13/98 Houston, TX 100 $ 155,250 N/A N/A 1,278,000
Washington Harbour 2/25/98 Washington, D.C. 100 $ 161,000 N/A N/A 536,000
Datran Center 5/01/98 Miami, FL 100 $ 70,550 N/A N/A 472,000
BP Plaza 6/30/98 Houston, TX 100 $ 79,100 N/A N/A 561,000
</TABLE>
REFRIGERATED STORAGE PROPERTIES
In April 1998, two of the Refrigerated Storage Corporations refinanced
$607,000 of secured and unsecured debt with a weighted average rate of
approximately 12%, with a $550,000 non-recourse, ten-year loan with an interest
rate of 6.89%, secured by 58 Refrigerated Storage Properties.
On June 1, 1998, the Crescent Subsidiaries and Vornado formed the third
Refrigerated Storage Partnership which acquired, through newly formed
Refrigerated Storage Corporations, nine Refrigerated Storage Properties and the
associated operations from Freezer Services, Inc. for approximately $134,000. On
July 1, 1998, the third Refrigerated Storage Partnership acquired, through newly
formed Refrigerated Storage Corporations, five Refrigerated Storage
82
<PAGE> 84
Properties and the associated operations from Carmar Group, Inc. for
approximately $163,000. The Company's cash investments in connection with these
acquisitions were approximately $36,700 and $55,900, respectively. These
additional 14 Refrigerated Storage Properties contain approximately 90 million
cubic feet (4.1 million square feet) of refrigerated storage space. For a
description of the Company's restructuring of this investment, see Note 14,
Subsequent Events.
PENDING INVESTMENT
On December 8, 1998, Tower, Reckson and Metropolitan entered into a
revised agreement and plan of merger that superceded the Tower Merger Agreement
to which the Company was a party, under which Metropolitan has agreed to
acquire Tower for a combination of cash and Reckson exchangeable Class B common
shares. The Company, Reckson and Metropolitan have agreed that the Company's
investment in Metropolitan will be an $85,000 preferred member interest in
Metropolitan. The investment will have a cash flow preference of 7.5% for a
two-year period and may be redeemed by Metropolitan within the two-year period
for $85,000, plus an amount sufficient to provide a 9.5% internal rate of
return to the Company. If Metropolitan does not redeem the preferred interest
upon expiration of the two-year period, the Company may convert the interest
either into (i) a common equity interest in Metropolitan or (ii) shares of
common stock of Reckson at a conversion price of $24.61.
In connection with the Revised Tower Merger Agreement, the Company
contributed $10,000 of the $85,000 required capital contribution to Metropolitan
in December 1998 and agreed to make the additional $75,000 capital contribution
to Metropolitan when all of the conditions to the funding have been met, which
is expected to occur in the second quarter of 1999.
PRO FORMA OPERATING RESULTS
The pro forma financial information for the years ended December 31, 1998
and 1997 assumes completion, in each case as of January 1, 1997, of (i) the
common share offerings in 1997 pursuant to which an aggregate of 39,350,000
common shares were issued and an aggregate of $1,107,022 in net proceeds
received; (ii) the issuance in 1997 of the 2002 Notes and the 2007 Notes (an
aggregate of $400,000) resulting in net proceeds of $394,800; (iii) the 1997
acquisitions of Office, Hotel, Retail, Residential Developments and Refrigerated
Storage Properties, and investment in CBHS; the 1998 acquisitions and 1999
pending investment; (iv) the February 1998 Preferred Offering (described in Note
10); (v) the April 1998 Unit Investment Trust Offering (described in Note 10);
(vi) the June 1998 Preferred Offering (described in Note 10); and (vii) the
September 1998 termination of the Swap Agreement with Merrill Lynch.
83
<PAGE> 85
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------
1998 1997
------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Total revenue .......................... $ 711,211 $ 638,373
Operating income ....................... 128,404 110,877
Income before minority interest ........ 176,943 156,296
Net income available to common
shareholders ......................... 136,487 117,854
Basic Earnings Per Common Share:
Net income ......................... $ 1.10 $ .95
Diluted Earnings Per Common
Share:
Net income ........................... $ 1.06 $ .92
</TABLE>
The pro forma operating results combine the Company's consolidated historical
statement of operations for the years ended December 31, 1998 and 1997 with the
following adjustments:
o Adjustment to rental income and operating expenses for the 1997 and
1998 acquired Office Properties;
o Adjustment to rental income for the 1997 and 1998 acquired Hotel
Properties and 1998 acquired golf course to reflect the lease
payment (base rent and percentage rent if applicable) from the
hotel and golf course lessee to the Company as calculated by
applying the rent provisions (as defined in the lease agreements)
to the historical revenues of the Hotel Properties and the golf
course Property;
o Adjustment to rental income for the 1997 acquired Behavioral
Healthcare Properties to reflect the lease payment from CBHS to
the Company by applying the base rent provisions as set forth in
the lease agreement;
o Adjustment to equity in net income for The Woodlands, Desert
Mountain and Refrigerated Storage transactions that occurred in
1997;
o Adjustment to equity in net income of unconsolidated companies for
the Refrigerated Storage Corporations 1998 acquired Refrigerated
Storage Properties;
o Adjustment to interest income for the notes acquired in connection
with the 1997 acquisition of substantially all of the assets of
Carter-Crowley Properties, Inc. and the 1997 loans to COI and
Desert Mountain Properties Limited Partnership (in which one of the
Residential Development Corporations holds the majority economic
interest);
o Adjustment to interest income for the September 1998 term loan to
COI;
o Adjustment to increase interest expense as a result of interest
costs for long and short-term financing for investments;
o Adjustment to depreciation based on acquisition prices associated
with the 1997 and 1998 acquired Office and Hotel Properties, 1998
acquired golf course and 1997 acquired Behavioral Healthcare
Properties;
o Adjustment to reflect prorated preferred dividends in connection
with the February 1998 Preferred Offering; and
o Adjustment to reflect minority partners' weighted average interest
in the net income of the Operating Partnership less joint venture
minority interests assuming completion of share and unit issuances
as of January 1, 1997.
These pro forma amounts are not necessarily indicative of what the
actual financial position of the Company would have been assuming the above
investments had been consummated as of the beginning of the period, nor do they
purport to represent the future financial position of the Company.
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<PAGE> 86
14. SUBSEQUENT EVENTS
On February 18, 1999, the Company delivered cash collateral of $14.7
million in lieu of the issuance of additional common shares, as permitted under
the Forward Share Purchase Agreement, as a result of a decline in the market
price of the common shares. The Company may issue additional common shares in
substitution for the cash collateral at any time in the future.
Effective March 12, 1999, the Company, Vornado, the Refrigerated
Storage Partnerships, the Refrigerated Storage Corporations (including all
affiliated entities that owned any portion of the business operations of the
Refrigerated Storage Properties at that time) and COI restructured their
investment in the Refrigerated Storage Properties (the "Restructuring"). In the
Restructuring, the Refrigerated Storage Corporations (including all affiliated
entities that owned any portion of the business operations of the Refrigerated
Storage Properties) sold their ownership of the business operations to a newly
formed partnership (the "Refrigerated Storage Operating Partnership") owned 60%
by Vornado Operating L.P. and 40% by a newly formed subsidiary of COI, in
consideration of the payment of $48,700 by the Refrigerated Storage Operating
Partnership. The Refrigerated Storage Operating Partnership, as lessee, entered
into triple-net master leases of the Refrigerated Storage Properties with
certain of the Refrigerated Storage Corporations. 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 $123,000 for the first
through fifth lease years, $126,000 for the sixth through 10th lease years and
$130,500 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.
As a result of the Restructuring, the Refrigerated Storage Partnerships
and the Refrigerated Storage Corporations directly or indirectly own the real
estate assets associated with the Refrigerated Storage Properties. The business
operations associated with the Refrigerated Storage Properties are owned by the
Refrigerated Storage Operating Partnership, in which the Company has no
interest.
In addition, in connection with the Restructuring and also effective in
March 1999, the Company purchased from COI an additional 4% nonvoting interest
in each of the Crescent Subsidiaries for an aggregate purchase price of $13,200.
As a result, the Company holds an indirect 39.6% interest in the Refrigerated
Storage Partnerships and COI holds an indirect .4% interest in the Refrigerated
Storage Partnerships. The Company also granted COI an option to require the
Company to purchase COI's remaining 1% interest in each of the Crescent
Subsidiaries at such time as the purchase would not, in the opinion of counsel
to the Company, adversely affect the status of Crescent Equities as a REIT for
an aggregate price, payable by the Company, of approximately $3,300.
In connection with these transactions, the Company established a new
line of credit in the principal amount of $19,500 available to COI at an
interest rate of 9% per annum.
On March 17, 1999, the Company agreed to issue an additional 12,356
common shares to the former holder of the Series B Preferred Shares in
settlement of a dispute regarding the calculation of the conversion rate used in
the conversion, on November 30, 1998, of the Series B Preferred Shares into the
Company's common shares.
85
<PAGE> 87
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues ....................................... $ 161,149 $ 169,104 $ 179,793 $ 188,297
Income before minority interests and
extraordinary item .......................... 47,154 48,278 32,795 54,983
Minority interests ............................. (4,746) (4,834) (3,217) (4,813)
Net income applicable to common shareholders
- basic ................................... 40,833 40,069 26,203 43,479
Net income applicable to common shareholders
- diluted ................................. 40,833 40,069 26,203 46,795
Per share data:
Basic Earnings Per Common Share ............. .35 .33 .22 .37
Diluted Earnings Per Common Share ........... .33 .32 .21 .37
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues ....................................... $ 84,074 $ 99,129 $ 120,057 $ 147,257
Income before minority interests and
extraordinary item .......................... 20,245 29,186 34,835 50,758
Minority interests ............................. (3,494) (4,092) (4,432) (5,665)
Net income ..................................... 16,751 25,094 30,403 45,093
Per share data:
Basic Earnings Per Common Share ............. .23 .28 .30 .40
Diluted Earnings Per Common Share ........... .22 .27 .29 .38
</TABLE>
86
<PAGE> 88
SCHEDULE III
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Gross Amount at Which
Subsequent to Carried at
Initial Costs Acquisition Close of Period
------------------------ --------------- ------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment
- --------------------------------------------- ----------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
The Crescent , Dallas, TX $ 6,723 $ 153,383 $ 75,284 $ 6,723 $ 228,667
Continental Plaza, Fort Worth, TX 1,375 66,649 34,912 1,375 101,561
The Citadel, Denver, CO 1,803 17,259 3,905 1,803 21,164
MacArthur Center I & II, Irving, TX 704 17,247 2,633 880 19,704
Las Colinas Plaza, Irving, TX 2,576 7,125 1,626 2,582 8,745
Caltex House, Irving, TX 2,200 48,744 1,550 2,200 50,294
Liberty Plaza I & II, Dallas, TX 1,650 15,956 164 1,650 16,120
Regency Plaza One, Denver, CO 950 31,797 1,607 950 33,404
Waterside Commons, Irving, TX 3,650 20,135 1,986 3,650 22,121
The Avallon, Austin, TX 475 11,207 53 475 11,260
Two Renaissance Square, Phoenix, AZ -- 54,412 5,599 -- 60,011
Stanford Corporate Centre, Dallas, TX -- 16,493 1,123 -- 17,616
Hyatt Regency Beaver Creek, Avon, CO 10,882 40,789 9,378 10,882 50,167
The Aberdeen, Dallas, TX 850 25,895 304 850 26,199
Barton Oaks Plaza One, Austin, TX 900 8,207 1,261 900 9,468
12404 Park Central, Dallas, TX 1,604 14,504 1,737 1,604 16,241
MCI Tower, Denver, CO -- 56,593 689 -- 57,282
Denver Marriott City Center, Denver, CO -- 50,364 2,261 -- 52,625
The Woodlands Office Properties, Houston, TX 12,007 35,865 2,645 12,153 38,364
Spectrum Center, Dallas, TX 2,000 41,096 6,046 2,000 47,142
Ptarmigan Place, Denver, CO 3,145 28,815 4,110 3,145 32,925
6225 North 24th Street, Phoenix, AZ 719 6,566 2,539 719 9,105
Briargate Office and Research
Center, Colorado Springs, CO 2,000 18,044 638 2,000 18,682
Albuquerque Plaza, Albuquerque, NM -- 36,667 1,708 -- 38,375
Hyatt Regency Albuquerque, Albuquerque, NM -- 32,241 2,604 -- 34,845
3333 Lee Parkway, Dallas, TX 1,450 13,177 3,165 1,468 16,324
301 Congress Avenue, Austin, TX 2,000 41,735 5,209 2,000 46,944
Central Park Plaza, Omaha, NE 2,514 23,236 106 2,514 23,342
Canyon Ranch, Tucson, AZ 14,500 43,038 4,077 18,390 43,225
The Woodlands Office Properties, Houston, TX 2,393 8,523 -- 2,393 8,523
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Total Depreciation Construction Date Computed
- --------------------------------------------- ---------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
The Crescent , Dallas, TX $ 235,390 $ (141,057) 1985 -- (1)
Continental Plaza, Fort Worth, TX 102,936 (35,296) 1982 1990 (1)
The Citadel, Denver, CO 22,967 (13,133) 1987 1987 (1)
MacArthur Center I & II, Irving, TX 20,584 (5,456) 1982/1986 1993 (1)
Las Colinas Plaza, Irving, TX 11,327 (3,356) 1989 1989 (1)
Caltex House, Irving, TX 52,494 (6,099) 1982 1994 (1)
Liberty Plaza I & II, Dallas, TX 17,770 (1,843) 1981/1986 1994 (1)
Regency Plaza One, Denver, CO 34,354 (3,784) 1985 1994 (1)
Waterside Commons, Irving, TX 25,771 (2,990) 1986 1994 (1)
The Avallon, Austin, TX 11,735 (1,177) 1986 1994 (1)
Two Renaissance Square, Phoenix, AZ 60,011 (7,338) 1990 1994 (1)
Stanford Corporate Centre, Dallas, TX 17,616 (2,343) 1985 1995 (1)
Hyatt Regency Beaver Creek, Avon, CO 61,049 (4,310) 1989 1995 (1)
The Aberdeen, Dallas, TX 27,049 (3,201) 1986 1995 (1)
Barton Oaks Plaza One, Austin, TX 10,368 (1,135) 1986 1995 (1)
12404 Park Central, Dallas, TX 17,845 (1,475) 1987 1995 (1)
MCI Tower, Denver, CO 57,282 (4,976) 1982 1995 (1)
Denver Marriott City Center, Denver, CO 52,625 (5,881) 1982 1995 (1)
The Woodlands Office Properties, Houston, TX 50,517 (7,420) 1980-1993 1995 (1)
Spectrum Center, Dallas, TX 49,142 (4,678) 1983 1995 (1)
Ptarmigan Place, Denver, CO 36,070 (2,674) 1984 1995 (1)
6225 North 24th Street, Phoenix, AZ 9,824 (867) 1981 1995 (1)
Briargate Office and Research
Center, Colorado Springs, CO 20,682 (1,521) 1988 1995 (1)
Albuquerque Plaza, Albuquerque, NM 38,375 (2,931) 1990 1995 (1)
Hyatt Regency Albuquerque, Albuquerque, NM 34,845 (3,332) 1990 1995 (1)
3333 Lee Parkway, Dallas, TX 17,792 (1,137) 1983 1996 (1)
301 Congress Avenue, Austin, TX 48,944 (3,337) 1986 1996 (1)
Central Park Plaza, Omaha, NE 25,856 (1,869) 1982 1996 (1)
Canyon Ranch, Tucson, AZ 61,615 (2,591) 1980 1996 (1)
The Woodlands Office Properties, Houston, TX 10,916 (588) 1995-1996 1996 (1)
</TABLE>
<PAGE> 89
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized Gross Amount at Which
Subsequent to Carried at
Initial Costs Acquisition Close of Period
------------------------ --------------- ------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment
- --------------------------------------------- ----------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Three Westlake Park, Houston, TX 2,920 26,512 563 2,920 27,075
1615 Poydras, New Orleans, LA -- 37,087 1,752 1,104 37,735
Greenway Plaza, Houston, TX 27,204 184,765 46,550 27,204 231,315
Chancellor Park, San Diego, CA 8,028 23,430 (5,991) 2,328 23,139
The Woodlands Retail Properties, Houston, TX 11,340 18,948 606 11,340 19,554
Sonoma Mission Inn & Spa, Sonoma, CA 10,000 44,922 12,421 10,000 57,343
Canyon Ranch, Lenox, MA 4,200 25,218 7,017 4,200 32,235
160 Spear Street, San Francisco, CA -- 35,656 2,368 -- 38,024
Greenway I & IA, Richardson, TX 1,701 15,312 98 1,701 15,410
Bank One Tower, Austin, TX 3,879 35,431 1,388 3,879 36,819
Frost Bank Plaza, Austin, TX -- 36,019 2,763 -- 38,782
Greenway II, Richardson, TX 1,823 16,421 33 1,823 16,454
55 Madison, Denver, CO 1,451 13,253 276 1,451 13,529
44 Cook, Denver, CO 1,451 13,253 354 1,451 13,607
AT&T Building, Denver, CO 1,366 12,471 1,620 1,366 14,091
Trammell Crow Center, Dallas, TX 25,029 137,320 5,293 25,029 142,613
The Addison 1,990 17,998 583 1,990 18,581
Addison Tower 830 7,701 193 830 7,894
Amberton Tower 1,050 9,634 538 1,050 10,172
Cedar Springs Plaza 700 6,549 488 700 7,037
Concourse Office Park 800 7,449 485 800 7,934
The Meridian 1,500 13,613 570 1,500 14,183
One Preston Park 180 1,694 169 180 1,863
Palidades Central I 1,300 11,797 519 1,300 12,316
Palidades Central II 2,100 19,176 389 2,100 19,565
5050 Quorum 898 8,243 198 898 8,441
Reverchon Plaza 2,850 26,302 783 2,850 27,085
Stemmons Place -- 37,537 349 -- 37,886
Valley Centre 421 3,873 332 421 4,205
Walnut Green 980 8,923 307 980 9,230
Carter-Crowley Land/Multi-Family, Dallas, TX 46,900 3,600 (29,439) 21,061 --
Behavioral Healthcare Facilities 89,000 301,269 (1,398) 87,270 301,601
Houston Center, Houston, TX 52,504 224,041 2,416 47,254 231,707
Four Seasons Hotel, Houston, TX 5,569 45,138 2,203 5,569 47,341
Miami Center, Miami, FL 13,145 118,763 1,551 13,145 120,314
1800 West Loop, Houston, TX 4,165 40,857 633 4,165 41,490
Fountain Place, Dallas, TX 10,364 103,212 2,446 10,364 105,658
Energy Centre, New Orleans, LA 7,500 67,704 898 7,500 68,602
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Total Depreciation Construction Date Computed
- --------------------------------------------- ---------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Three Westlake Park, Houston, TX 29,995 (1,547) 1983 1996 (1)
1615 Poydras, New Orleans, LA 38,839 (2,306) 1984 1996 (1)
Greenway Plaza, Houston, TX 258,519 (16,423) 1969-1982 1996 (1)
Chancellor Park, San Diego, CA 25,467 (1,273) 1988 1996 (1)
The Woodlands Retail Properties, Houston, TX 30,894 (2,302) 1984 1996 (1)
Sonoma Mission Inn & Spa, Sonoma, CA 67,343 (3,798) 1927 1996 (1)
Canyon Ranch, Lenox, MA 36,435 (2,636) 1989 1996 (1)
160 Spear Street, San Francisco, CA 38,024 (2,132) 1984 1996 (1)
Greenway I & IA, Richardson, TX 17,111 (802) 1983 1996 (1)
Bank One Tower, Austin, TX 40,698 (1,931) 1974 1996 (1)
Frost Bank Plaza, Austin, TX 38,782 (2,070) 1984 1996 (1)
Greenway II, Richardson, TX 18,277 (821) 1985 1997 (1)
55 Madison, Denver, CO 14,980 (694) 1982 1997 (1)
44 Cook, Denver, CO 15,058 (741) 1984 1997 (1)
AT&T Building, Denver, CO 15,457 (764) 1982 1997 (1)
Trammell Crow Center, Dallas, TX 167,642 (6,526) 1984 1997 (1)
The Addison 20,571 (722) 1980/1986 1997 (1)
Addison Tower 8,724 (398) 1980/1986 1997 (1)
Amberton Tower 11,222 (402) 1980/1986 1997 (1)
Cedar Springs Plaza 7,737 (324) 1980/1986 1997 (1)
Concourse Office Park 8,734 (355) 1980/1986 1997 (1)
The Meridian 15,683 (561) 1980/1986 1997 (1)
One Preston Park 2,043 (88) 1980/1986 1997 (1)
Palidades Central I 13,616 (501) 1980/1986 1997 (1)
Palidades Central II 21,665 (776) 1980/1986 1997 (1)
5050 Quorum 9,339 (362) 1980/1986 1997 (1)
Reverchon Plaza 29,935 (1,088) 1980/1986 1997 (1)
Stemmons Place 37,886 (1,590) 1980/1986 1997 (1)
Valley Centre 4,626 (164) 1980/1986 1997 (1)
Walnut Green 10,210 (362) 1980/1986 1997 (1)
Carter-Crowley Land/Multi-Family, Dallas, TX 21,061 -- -- --
Behavioral Healthcare Facilities 388,871 (22,297) 1850-1992 1997 (1)
Houston Center, Houston, TX 278,961 (7,482) 1974-1983 1997 (1)
Four Seasons Hotel, Houston, TX 52,910 (1,880) 1983 1997 (1)
Miami Center, Miami, FL 133,459 (3,505) 1983 1997 (1)
1800 West Loop, Houston, TX 45,655 (1,252) 1982 1997 (1)
Fountain Place, Dallas, TX 116,022 (3,095) 1986 1997 (1)
Energy Centre, New Orleans, LA 76,102 (1,713) 1984 1997 (1)
</TABLE>
<PAGE> 90
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized Gross Amount at Which
Subsequent to Carried at
Initial Costs Acquisition Close of Period
------------------------ --------------- ------------------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Land Equipment
- --------------------------------------------- ----------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Ventana Country Inn, Big Sur, CA 2,782 26,744 627 2,782 27,371
Avallon Phase II, Building V, Austin, TX 1,102 -- 10,147 597 10,652
Austin Centre (including condo's) 2,007 48,566 1,040 2,007 49,606
Omni Hotel 1,896 44,579 -- 1,896 44,579
Post Oak 15,525 139,777 2,399 15,525 142,176
Washington Harbor 16,100 146,438 641 16,100 147,079
Datran Center -- 71,091 174 -- 71,265
BP Plaza 3,910 79,190 24 3,910 79,214
Sonoma Golf Course 14,956 -- 231 15,187 --
Plaza Park Garage 2,032 14,125 1,185 2,032 15,310
Washington Harbor Phase II 15,279 411 (133) 15,188 369
Crescent Real Estate Equities L.P. -- -- 14,775 -- 14,775
Other 23,270 2,874 13,304 29,719 9,729
-------------------------------------------------------------------
Total $ 523,067 $3,320,648 $ 285,657 $ 495,972 $3,633,400
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in
Latest Income
Accumulated Date of Acquisition Statement Is
Description Total Depreciation Construction Date Computed
- --------------------------------------------- ---------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Ventana Country Inn, Big Sur, CA 30,153 (795) 1975-1988 1997 (1)
Avallon Phase II, Building V, Austin, TX 11,249 (396) 1997 -- (1)
Austin Centre (including condo's) 51,613 (850) 1986 1998 (1)
Omni Hotel 46,475 (1,251) 1986 1998 (1)
Post Oak 157,701 (2,968) 1974-1981 1998 (1)
Washington Harbor 163,179 (3,064) 1986 1998 (1)
Datran Center 71,265 (1,189) 1986-1992 1998 (1)
BP Plaza 83,124 (990) 1992 1998 (1)
Sonoma Golf Course 15,187 -- 1929 1998 (1)
Plaza Park Garage 17,342 -- 1998 -- (1)
Washington Harbor Phase II 15,557 -- 1998 -- (1)
Crescent Real Estate Equities L.P. 14,775 (2,274) -- -- (1)
Other 39,448 (202) -- -- (1)
-----------------------
Total $4,129,372 $ (387,457)
========== ==========
</TABLE>
<PAGE> 91
(1) Depreciation of the real estate assets is calculated over the following
estimated useful lives using the straight-line method:
<TABLE>
<S> <C>
Building and improvements 5 to 40 years
Tenant improvements Terms of leases
Furniture, fixtures, and equipment 3 to 10 years
</TABLE>
A summary of combined real estate investments and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Real estate investments:
Balance, beginning of year........... $ 3,423,130 $ 1,732,626 $ 1,006,706
Acquisitions....................... 580,694 1,643,587 680,148
Improvements....................... 145,409 58,634 13,787
Disposition........................ (19,861) (11,717) --
Consolidation of Joint Venture..... -- -- 31,985
----------- ----------- -----------
Balance, end of year................. $ 4,129,372 $ 3,423,130 $ 1,732,626
=========== =========== ===========
Accumulated depreciation:
Balance, beginning of year........... 278,194 208,808 $ 172,267
Depreciation....................... 109,551 69,457 36,541
Disposition........................ (288) (71) --
----------- ----------- -----------
Balance, end of year................. $ 387,457 $ 278,194 $ 208,808
=========== =========== ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Certain information Part III requires is omitted from the Report. The
Registrant will file a definitive proxy statement with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A (the "Proxy
Statement") not later than 120 days after the end of the fiscal year covered by
this Report, and certain information to be included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
90
<PAGE> 92
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Report of Independent Public Accountants
Crescent Real Estate Equities Company Consolidated Balance Sheets at
December 31, 1998 and 1997.
Crescent Real Estate Equities Company Consolidated Statements of
Operations for the years ended December 31, 1998, 1997 and 1996.
Crescent Real Estate Equities Company Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1998, 1997 and
1996.
Crescent Real Estate Equities Company Consolidated Statements of Cash
Flows for the years ended December 31, 1998, 1997 and 1996.
Crescent Real Estate Equities Company Notes to Financial Statements.
(a)(2) Financial Statement Schedules
Schedule III - Crescent Real Estate Equities Company Consolidated Real
Estate Investments and Accumulated Depreciation at December 31, 1998.
All other schedules have been omitted either because they are not
applicable or because the required information has been disclosed in
the Financial Statements and related notes included in the consolidated
and combined statements.
91
<PAGE> 93
(a)(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3.01 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 3.02 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 (the "1998 3Q 10-Q") and
incorporated herein by reference
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit 4.07 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company
(filed as Exhibit No. 4 to the Registrant's Registration
Statement on Form 8-A/A filed on February 18, 1998 and
incorporated by reference)
4.04 Statement of Designation of Series B Convertible Preferred
Shares of the Registrant (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated June 29, 1998
and filed June 30, 1998 and incorporated herein by reference)
4.05 Form of Certificate of Series B Convertible Preferred Shares
(filed as Exhibit 4.05 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (the "1998 2Q
10-Q") and incorporated herein by reference)
4.06 Indenture, dated as of September 22, 1997, between Crescent
Real Estate Equities Limited Partnership and State Street Bank
and Trust Company of Missouri, N.A. (filed as Exhibit No.
4.01 to the Registration Statement on Form S-4 (File No.
333-42293) of Crescent Real Estate Equities Limited
Partnership (the "Form S-4") and incorporated herein by
reference)
4.07 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the 1998 2Q
10-Q and incorporated herein by reference)
4.08 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998 2Q
10-Q and incorporated herein by reference)
4.09 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit No. 4.01 to the Registrant's Current Report
on Form 8-K dated August 11, 1997 and filed August 13, 1997
and incorporated herein by reference)
92
<PAGE> 94
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.01 Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as
of November 1, 1997, as amended (filed herewith)
10.02 Noncompetition of Richard E. Rainwater, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.04 to the 1997 10-K and incorporated
herein by reference)
10.05 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.05 to the
1997 10-K and incorporated herein by reference)
10.06 Amendment No. 5 to the Goff Employment Agreement, dated March
10, 1998 (filed as Exhibit 10.29 to the Form S-4 and
incorporated herein by reference)
10.07 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.06 to the
1997 10-K and incorporated herein by reference)
10.08 Amendment No. 4 to the Haddock Employment Agreement, dated
March 10, 1998 (filed as Exhibit 10.30 to the Form S-4 and
incorporated herein by reference)
10.09 Amendment No. 5 to the Haddock Employment Agreement, dated
March 1, 1999 (filed herewith)
10.10 Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Registrant and each of
its executive officers and trust managers (filed as Exhibit
No. 10.07 to the Form S-4 and incorporated herein by
reference)
10.11 Crescent Real Estate Equities Company 1994 Stock Incentive
Plan (filed as Exhibit No. 10.07 to the Registrant's
Registration Statement on Form S-11 (File No. 33-75188) (the
"Form S-11") and incorporated herein by reference)
10.12 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan, as amended (filed herewith)
10.13 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the
Form S-4 and incorporated herein by reference)
93
<PAGE> 95
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.14 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
99.01 to the Registrant's Registration Statement on Form S-8
(File No. 333-3452 and incorporated herein by reference))
10.15 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit 10.01 to the Registrant's
Current Report on Form 8-K dated and filed September 27, 1996
and incorporated herein by reference)
10.16 Master Lease Agreement, dated June 16, 1997, as amended,
between Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries, relating
to the Magellan Facilities (filed as Exhibit 10.27 to the 1997
10-K and incorporated herein by reference)
10.17 Fifth Amended and Restated Revolving Credit Agreement, dated
June 30, 1998, among Crescent Real Estate Limited Partnership,
BankBoston, N.A. and the other banks named therein (filed as
Exhibit 10.17 to the 1998 2Q 10-Q and incorporated herein by
reference)
10.18 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent
Operating, Inc. and incorporated herein by reference)
10.19 Form of Registration Rights, Lock-Up and Pledge Agreement
(filed as Exhibit No. 10.05 to the Form S-11 and incorporated
herein by reference)
12.01 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges and Preferred Shares Dividends (filed herewith)
21.01 List of Subsidiaries (filed herewith)
23.01 Consent of Arthur Andersen LLP (filed herewith)
27.01 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
Form 8-K dated and filed November 24, 1998, for the purpose of
filing under Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits, certain exhibits in connection with the
Company's issuance of 1,852,162 common shares to UBS.
Form 8-K/A dated April 17, 1998, and filed November 24, 1998,
restating under Item 5 - Other Events, certain factors that may be
relevant to the Company's forward looking statements.
(c) Exhibits
See Item 14(a)(3) above.
94
<PAGE> 96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 1999.
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ Gerald W. Haddock
------------------------------------------
Gerald W. Haddock
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard E. Rainwater Trust Manager and Chairman of the Board 3/26/99
- -------------------------------
Richard E. Rainwater
/s/ John C. Goff Trust Manager and Vice Chairman of the Board 3/26/99
- -------------------------------
John C. Goff
/s/ Gerald W. Haddock Trust Manager, President and Chief Executive 3/26/99
- ------------------------------- Officer (Principal Executive Officer)
Gerald W. Haddock
/s/ Jerry R. Crenshaw Jr. Controller and Interim Co-Chief 3/26/99
- ------------------------------- Financial Officer (Principal Accounting
Jerry R. Crenshaw Jr. Officer)
/s/ Bruce A. Picker Vice President, Treasurer and Interim Co-Chief 3/26/99
- ------------------------------- Financial Officer (Principal Financial Officer)
Bruce A. Picker
Trust Manager
- -------------------------------
Anthony M. Frank
/s/ Morton H. Meyerson Trust Manager 3/26/99
- -------------------------------
Morton H. Meyerson
/s/ William F. Quinn Trust Manager 3/26/99
- -------------------------------
William F. Quinn
/s/ Paul E. Rowsey, III Trust Manager 3/26/99
- -------------------------------
Paul E. Rowsey, III
/s/ Melvin Zuckerman Trust Manager 3/26/99
- -------------------------------
Melvin Zuckerman
</TABLE>
95
<PAGE> 97
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
3.01 Restated Declaration of Trust of Crescent Real Estate Equities
Company (filed as Exhibit No. 4.01 to the Registrant's
Registration Statement on Form S-3 (File No. 333-21905) (the
"1997 S-3") and incorporated herein by reference)
3.02 Amended and Restated Bylaws of Crescent Real Estate Equities
Company, as amended (filed as Exhibit No. 3.02 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 (the "1998 3Q 10-Q") and
incorporated herein by reference)
4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to
the 1997 S-3 and incorporated herein by reference)
4.02 Statement of Designation of 6-3/4% Series A Convertible
Cumulative Preferred Shares of Crescent Real Estate Equities
Company (filed as Exhibit 4.07 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 (the "1997 10-K") and incorporated herein by reference)
4.03 Form of Certificate of 6-3/4% Series A Convertible Cumulative
Preferred Shares of Crescent Real Estate Equities Company
(filed as Exhibit No. 4 to the Registrant's Registration
Statement on Form 8-A/A filed on February 18, 1998 and
incorporated by reference)
4.04 Statement of Designation of Series B Convertible Preferred
Shares of the Registrant (filed as Exhibit 4.01 to the
Registrant's Current Report on Form 8-K dated June 29, 1998
and filed June 30, 1998 and incorporated herein by reference)
4.05 Form of Certificate of Series B Convertible Preferred Shares
(filed as Exhibit 4.05 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (the "1998 2Q
10-Q") and incorporated herein by reference)
4.06 Indenture, dated as of September 22, 1997, between Crescent
Real Estate Equities Limited Partnership and State Street Bank
and Trust Company of Missouri, N.A. (filed as Exhibit No.
4.01 to the Registration Statement on Form S-4 (File No.
333-42293) of Crescent Real Estate Equities Limited
Partnership (the "Form S-4") and incorporated herein by
reference)
4.07 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 to the 1998
2Q 10-Q and incorporated herein by reference)
4.08 7-1/8% Note due 2007 (filed as Exhibit No. 4.08 to the 1998
2Q 10-Q and incorporated herein by reference)
4.09 Purchase Agreement, dated as of August 11, 1997, between
Crescent Real Estate Equities Company, UBS Securities
(Portfolio), LLC, and Union Bank of Switzerland, London Branch
(filed as Exhibit No. 4.01 to the Registrant's Current Report
on Form 8-K dated August 11, 1997 and filed August 13, 1997
and incorporated herein by reference)
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.01 Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as
of November 1, 1997, as amended (filed herewith)
10.02 Noncompetition of Richard E. Rainwater, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.02 to the 1997 10-K and incorporated
herein by reference)
10.03 Noncompetition Agreement of John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.03 to the 1997 10-K and incorporated
herein by reference)
10.04 Noncompetition Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994 (filed as Exhibit 10.04 to the 1997 10-K and incorporated
herein by reference)
10.05 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.05 to the
1997 10-K and incorporated herein by reference)
10.06 Amendment No. 5 to the Goff Employment Agreement, dated March
10, 1998 (filed as Exhibit 10.29 to the Form S-4 and
incorporated herein by reference)
10.07 Employment Agreement of Gerald W. Haddock, as assigned to
Crescent Real Estate Equities Limited Partnership on May 5,
1994, and as further amended (filed as Exhibit 10.06 to the
1997 10-K and incorporated herein by reference)
10.08 Amendment No. 4 to the Haddock Employment Agreement, dated
March 10, 1998 (filed as Exhibit 10.30 to the Form S-4 and
incorporated herein by reference)
10.09 Amendment No. 5 to the Haddock Employment Agreement, dated
March 1, 1999 (filed herewith)
10.10 Form of Officers' and Trust Managers' Indemnification
Agreement as entered into between the Registrant and each of
its executive officers and trust managers (filed as Exhibit
No. 10.07 to the Form S-4 and incorporated herein by
reference)
10.11 Crescent Real Estate Equities Company 1994 Stock Incentive
Plan (filed as Exhibit No. 10.07 to the Registrant's
Registration Statement on Form S-11 (File No. 33-75188) (the
"Form S-11") and incorporated herein by reference)
10.12 Crescent Real Estate Equities, Ltd. First Amended and Restated
401(k) Plan, as amended (filed herewith)
10.13 Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan (filed as Exhibit 10.13 to the
Form S-4 and incorporated herein by reference)
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.14 Amended and Restated 1995 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan (filed as Exhibit
99.01 to the Registrant's Registration Statement on Form S-8
(File No. 333-3452 and incorporated herein by reference)
10.15 1996 Crescent Real Estate Equities Limited Partnership Unit
Incentive Plan (filed as Exhibit 10.01 to the Registrant's
Current Report on Form 8-K dated and filed September 27, 1996
and incorporated herein by reference)
10.16 Master Lease Agreement, dated June 16, 1997, as amended,
between Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries, relating
to the Magellan Facilities (filed as Exhibit 10.27 to the
1997 10-K and incorporated herein by reference)
10.17 Fifth Amended and Restated Revolving Credit Agreement, dated
June 30, 1998, among Crescent Real Estate Limited Partnership,
BankBoston, N.A. and the other banks named therein (filed as
Exhibit 10.17 to the 1998 2Q 10-Q and incorporated herein by
reference)
10.18 Intercompany Agreement, dated June 3, 1997, between Crescent
Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-25223) of Crescent
Operating, Inc. and incorporated herein by reference)
10.19 Form of Registration Rights, Lock-Up and Pledge Agreement
(filed as Exhibit No. 10.05 to the Form S-11 and incorporated
herein by reference)
12.01 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges and Preferred Shares Dividends (filed herewith)
21.01 List of Subsidiaries (filed herewith)
23.01 Consent of Arthur Andersen LLP (filed herewith)
27.01 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 10.01
------------------------------------
SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
------------------------------------
Dated as of November 1, 1997
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I DEFINED TERMS .................................................................. 2
ARTICLE II ORGANIZATIONAL MATTERS ........................................................ 17
Section 2.1 Continuation of Partnership ............................................. 17
Section 2.2 Name .................................................................... 17
Section 2.3 Principal Office and Registered Agent ................................... 17
Section 2.4 Power of Attorney ....................................................... 17
Section 2.5 Term .................................................................... 19
ARTICLE III PURPOSE ...................................................................... 19
Section 3.1 Purpose and Business .................................................... 19
Section 3.2 Powers .................................................................. 19
ARTICLE IV CAPITAL CONTRIBUTIONS ......................................................... 20
Section 4.1 Capital Contributions of the Partners ................................... 20
Section 4.2 Additional Funding ...................................................... 21
Section 4.3 Issuance of Additional Partnership Interests ............................ 23
Section 4.4 No Preemptive Rights .................................................... 25
Section 4.5 No Interest on Capital .................................................. 26
Section 4.6 Stock Incentive Plans ................................................... 26
Section 4.7 Other Equity Compensation Plans ......................................... 27
ARTICLE V DISTRIBUTIONS .................................................................. 28
Section 5.1 Initial Partnership Distributions ....................................... 28
Section 5.2 Requirement and Characterization of Distributions ....................... 28
Section 5.3 Amounts Withheld ........................................................ 28
Section 5.4 Distributions in Kind ................................................... 29
Section 5.5 Distributions Upon Liquidation .......................................... 29
ARTICLE VI ALLOCATIONS ................................................................... 29
Section 6.1 Allocations For Capital Account Purposes ................................ 29
Section 6.2 Allocation of Nonrecourse Debt .......................................... 30
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS ........................................ 30
Section 7.1 Management .............................................................. 30
Section 7.2 Certificate of Limited Partnership ...................................... 34
Section 7.3 Restrictions on General Partner's Authority ............................. 34
</TABLE>
(i)
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<TABLE>
<S> <C>
Section 7.4 Reimbursement of the Crescent Group ..................................... 35
Section 7.5 Outside Activities of the Crescent Group ................................ 35
Section 7.6 Contracts with Affiliates ............................................... 36
Section 7.7 Indemnification ......................................................... 36
Section 7.8 Liability of the General Partner ........................................ 39
Section 7.9 Other Matters Concerning the General Partner ............................ 39
Section 7.10 Title to Partnership Assets ............................................ 40
Section 7.11 Reliance by Third Parties .............................................. 40
Section 7.12 Limited Partner Representatives ........................................ 41
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS .................................. 41
Section 8.1 Limitation of Liability ................................................. 41
Section 8.2 Management of Business .................................................. 41
Section 8.3 Outside Activities of Limited Partners .................................. 42
Section 8.4 Return of Capital ....................................................... 42
Section 8.5 Rights of Limited Partners Relating to the Partnership .................. 42
Section 8.6 Exchange Rights ......................................................... 43
Section 8.7 Covenants Relating to the Exchange Rights ............................... 44
Section 8.8 Other Matters Relating to the Exchange Rights ........................... 45
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS ........................................ 45
Section 9.1 Records and Accounting .................................................. 45
Section 9.2 Fiscal Year ............................................................. 46
Section 9.3 Reports ................................................................. 46
ARTICLE X TAX MATTERS .................................................................... 46
Section 10.1 Preparation of Tax Returns ............................................. 46
Section 10.2 Tax Elections .......................................................... 46
Section 10.3 Tax Matters Partner .................................................... 47
Section 10.4 Organizational Expenses ................................................ 48
Section 10.5 Withholding ............................................................ 48
ARTICLE XI TRANSFERS AND WITHDRAWALS ..................................................... 49
Section 11.1 Transfer ............................................................... 49
Section 11.2 Transfer of Partnership Interests of the General Partner ............... 49
Section 11.3 Transfer of Partnership Interests of Limited Partners Other Than
Crescent Equities ................................................................. 50
</TABLE>
(ii)
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<TABLE>
<S> <C>
Section 11.4 Substituted Limited Partners ........................................... 51
Section 11.5 Assignees .............................................................. 52
Section 11.6 General Provisions ..................................................... 52
Section 11.7 Acquisition of Partnership Interest by Partnership ..................... 53
ARTICLE XII ADMISSION OF PARTNERS ........................................................ 53
Section 12.1 Admission of Substituted General Partner ............................... 53
Section 12.2 Admission of Additional or Employee Limited Partners ................... 54
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership .......... 55
ARTICLE XIII DISSOLUTION AND LIQUIDATION ................................................. 55
Section 13.1 Dissolution ............................................................ 55
Section 13.2 Winding Up ............................................................. 56
Section 13.3 Compliance with Timing Requirements of Regulations ..................... 57
Section 13.4 Deemed Distribution and Recontribution ................................. 58
Section 13.5 Rights of Limited Partners ............................................. 58
Section 13.6 Documentation of Liquidation ........................................... 58
Section 13.7 Reasonable Time for Winding-Up ......................................... 58
Section 13.8 Liability of the Liquidator ............................................ 59
Section 13.9 Waiver of Partition .................................................... 59
ARTICLE XIV AMENDMENT OF AGREEMENT ....................................................... 59
Section 14.1 Amendments ............................................................. 59
ARTICLE XV PARTNER REPRESENTATIONS AND WARRANTIES ........................................ 60
Section 15.1 Representations and Warranties ......................................... 60
ARTICLE XVI ARBITRATION OF DISPUTES ...................................................... 62
Section 16.1 Arbitration ............................................................ 62
Section 16.2 Procedures ............................................................. 62
Section 16.3 Binding Character ...................................................... 63
Section 16.4 Exclusivity ............................................................ 63
Section 16.5 No Alteration of Agreement ............................................. 63
ARTICLE XVII GENERAL PROVISIONS .......................................................... 63
Section 17.1 Addresses and Notice ................................................... 63
Section 17.2 Titles and Captions .................................................... 64
Section 17.3 Pronouns and Plurals ................................................... 64
Section 17.4 Further Action ......................................................... 64
</TABLE>
(iii)
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<TABLE>
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Section 17.5 Binding Effect ......................................................... 64
Section 17.6 Creditors .............................................................. 64
Section 17.7 Waiver ................................................................. 64
Section 17.8 No Agency .............................................................. 65
Section 17.9 Entire Understanding ................................................... 65
Section 17.10 Counterparts .......................................................... 65
Section 17.11 Applicable Law ........................................................ 65
Section 17.12 Invalidity of Provisions .............................................. 65
Section 17.13 Guaranty by Crescent Equities ......................................... 65
Section 17.14 Restriction on Sale of Sonoma Property ................................ 66
</TABLE>
Exhibit A -- Partners, Partnership Units and Partnership Interests
Exhibit B -- Capital Account Maintenance
Exhibit C -- Special Tax Allocation Rules
Exhibit D -- Notice of Exchange
Exhibit E -- Listing of Approved Substituted Limited Partners
(iv)
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SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of November 1, 1997, is entered into by and among Crescent Real
Estate Equities, Ltd., a Delaware corporation, as general partner (the "General
Partner"), and those parties who are Limited Partners as listed on Exhibit A
hereto or who are admitted from time to time as Limited Partners as herein
provided.
W I T N E S S E T H:
WHEREAS, Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Partnership"), was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement was amended and restated in its entirety
by that certain First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 5, 1994, as
amended by the First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of May 16, 1994, the Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of April 11, 1995, the Third Amendment to the First
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 11, 1995, the Fourth Amendment
to the First Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of May 3, 1995, the Fifth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 31, 1995, the
Sixth Amendment to the First Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1995, the Seventh Amendment to the First Amended and Restated Agreement
of Limited Partnership of Crescent Real Estate Equities Limited Partnership,
dated as of August 23, 1995, the Eighth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of December 31, 1995, the Restatement of Ninth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of February 16,
1996, the Supplemental Amendment to the Restatement of Ninth Amendment to the
First Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of June 30, 1996, the Tenth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of July 26, 1996,
the Eleventh Amendment to the First Amended and Restated
<PAGE> 7
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 4, 1996, the Twelfth Amendment to the First
Amended and Restated Agreement of Limited Partnership, dated as of December 31,
1996, the Thirteenth Amendment to the First Amended and Restated Agreement of
Limited Partnership, dated as of April 29, 1997 and the Fourteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 30, 1997 (hereinafter referred to collectively as the "First Amended
Agreement");
WHEREAS, the General Partner desires to amend and restate in its
entirety the First Amended Agreement pursuant to its authority under Sections
2.4 and 14.1.B of the First Amended Agreement and the powers of attorney granted
to the General Partner by the Limited Partners in order to (i) combine all of
the provisions of the First Amended Agreement into one document, and (ii) make
changes to provisions of the First Amended Agreement in accordance with Section
14.1.B(3) of the First Amended Agreement;
WHEREAS, the General Partner desires to correct the Capital
Contribution amounts set forth in Paragraph 1 of the Thirteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 29, 1997, to the following amounts: (i) $134,100 as of February 11, 1997,
in connection with the exercise of David M. Dean's options to purchase 2,400
REIT Shares; (ii) $420,000 as of February 21, 1997, in connection with the
exercise of Dallas E. Lucas' option to purchase 7,500 REIT Shares;
(iii) $58,625 as of March 5, 1997, in connection with the exercise of James E.
Wassel's option to purchase 1,000 REIT Shares; (iv) $59,000 as of March 6,
1997, in connection with the exercise of Jeffrey L. Fitzgerald's option to
purchase 1,000 REIT Shares; (v) $15,375 as of March 11, 1997, in connection
with the exercise of Charlene J. McNeil's option to purchase 250 REIT Shares;
(vi) $24,250 as of March 14, 1997, in connection with the exercise of John P.
Pittman's option to purchase 400 REIT Shares; and (vii) $72,750 as of March 14,
1997, in connection with the exercise of Alan C. Powers' option to purchase
1,200 REIT Shares;
WHEREAS, the General Partner desires to correct the description of the
March 15, 1997 assignment by FW-Irving Partners, Ltd. set forth in the Recitals
to the Fourteenth Amendment to the First Amended Agreement, dated as of April
30, 1997, to read as follows: FW-Irving Partners, Ltd. assigned legal title to
its entire 1.176019% Limited Partnership Interest (including 635,668
Partnership Units) to its partners as follows: (i) a .001177% Limited
Partnership Interest, including 636 Partnership Units, to Rainwater, Inc.,
(ii) a .704906% Limited Partnership Interest, including 381,020 Partnership
Units, to John C. Goff, and (iii) a .469936% Limited Partnership Interest,
including 254,012 Partnership Units, to Gerald W. Haddock;
WHEREAS, on May 4, 1997, Joseph W. Autem exercised his Exchange Right
with respect to 1,805 Partnership Units;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name;
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Charlene J. McNeil 5/12/97 300 1994 Plan $7,837.50
Charlene J. McNeil 5/12/97 800 1995 Plan $20,900.00
Paul E. Rowsey, III 6/10/97 30,000 1994 Plan $795,000.00
6/10/97 2,800 First Amended and $74,200.00
Restated 1995 Plan
Jennifer L. Miller 6/16/97 400 1995 Plan $11,500.00
John M. Walker, Jr. 6/16/97 6,000 1995 Plan $172,500.00
Suzanne Stevens 7/11/97 800 1995 Plan $25,350.00
Carlton Jordan 7/17/97 200 1995 Plan $6,600.00
Kurtis D. Adams 7/17/97 200 1995 Plan $6,600.00
Michael A. Howell 7/17/97 200 1995 Plan $6,600.00
Henry L. Cosby 7/17/97 200 1995 Plan $6,600.00
John R. Leathers 7/17/97 200 1995 Plan $6,600.00
Ramon Cortez 7/17/97 200 1995 Plan $6,600.00
Becky Rainwater 7/17/97 200 1995 Plan $6,600.00
J. Mike Williams 7/17/97 200 1995 Plan $6,600.00
</TABLE>
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<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Elizabeth M. Frankowski 7/17/97 200 1995 Plan $6,600.00
Daniel Thompson 7/18/97 200 1995 Plan $6,537.50
Mark Stanfield 7/22/97 1,200 1995 Plan $39,150.00
Angela Petrucci 7/22/97 200 1995 Plan $6,525.00
Michael Musack 7/22/97 200 1995 Plan $6,525.00
Sidney Schneider 7/22/97 200 1995 Plan $6,525.00
Rodney Leach 7/22/97 200 1995 Plan $6,525.00
Vicki Rowell 7/22/97 200 1995 Plan $6,525.00
Debbie Hall 7/24/97 200 1995 Plan $6,600.00
Christopher Crisman 7/24/97 200 1995 Plan $6,600.00
Debra Garrison 7/24/97 100 First Amended and $3,300.00
Restated 1995 Plan
Teresa Shiller 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
Nelda Casbon 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
William Garcia 8/4/97 200 First Amended and $6,137.50
Restated 1995 Plan
Raymond Cuellar 8/6/97 200 First Amended and $6,575.00
Restated 1995 Plan
Jerry Crenshaw 8/14/97 1,600 1994 Plan $53,000.00
Jerry Crenshaw 8/14/97 1,800 1995 Plan $59,625.00
Priscilla Nunez 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
David Hagar 8/18/97 192 First Amended and $6,216.00
Restated 1995 Plan
Richard Flusche 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
Charles Lucabaugh 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
James Dockal II 8/18/97 800 1995 Plan $25,900.00
James Dockal II 8/18/97 440 First Amended and $14,245.00
Restated 1995 Plan
</TABLE>
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<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Willie E. Hollie, Jr. 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Amelia K. Davis 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Anthony Tillman 9/5/97 200 First Amended and $6,250.00
Restated 1995 Plan
Cheryl Dillon 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
L. Blair Tillery 9/10/97 160 First Amended and $5,440.00
Restated 1995 Plan
Eric Painter 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
Elizabeth Hays 9/11/97 200 First Amended and $7,200.00
Restated 1995 Plan
Jeff Fitzgerald 9/12/97 6,000 1995 Plan $216,750.00
David M. Dean 9/15/97 400 1994 Plan $14,500.00
Joseph D. Ambrose, III 9/16/97 2,000 1994 Plan $70,375.00
Joseph D. Ambrose, III 9/16/97 8,000 1995 Plan $281,500.00
Philip Webster 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Brad Russell 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Johnny Jarrin 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Alan Connelly 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Sharon Simmons 10/22/97 500 1995 Plan $18,781.25
Jim Petrie 10/22/97 200 First Amended and $7,512.50
Restated 1995 Plan
</TABLE>
WHEREAS, on May 14, 1997, Crescent Equities issued 500,000 REIT Shares
in a public stock offering at a cash price of $25.875 per share, which cash
proceeds were contributed to the Partnership by Crescent Equities pursuant to
Section 4.2 of the First Amended Agreement;
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<PAGE> 10
WHEREAS, on June 30, 1997, (i) the Partnership issued 1,046 Partnership
Units valued at $66,421 to Texas Greenbrier Associates, Inc. ("Greenbrier")
pursuant to a Consultant Unit Agreement dated August 15, 1995 between Greenbrier
and the Partnership; and (ii) Greenbrier immediately exercised its Exchange
Right with respect to such 1,046 Partnership Units;
WHEREAS, on July 8, 1997, Crescent Equities issued 217 REIT Shares to
each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in payment
of trust managers' fees and, in connection therewith, Crescent Equities shall
receive credit for an aggregate Capital Contribution to the Partnership
of $20,018.25;
Whereas, On July 25, 1997, Crescent Equities issued 351,185 REIT Shares
in a public offering at a cash price of $28.475 per share, which cash proceeds
were contributed to the Partnership by Crescent Equities pursuant to Section 4.2
of the First Amended Agreement;
WHEREAS, on August 12, 1997, Crescent Equities issued 4,700,000 REIT
Shares to UBS Securities (Portfolio) LLC at a price of $31.5625 per share,
pursuant to that certain Purchase Agreement, dated as of August 11, 1997, by and
among Crescent Equities, UBS Securities (Portfolio) LLC and Union Bank of
Switzerland, London Branch, acting through its agent UBS Securities LLC, which
cash proceeds were contributed to the Partnership by Crescent Equities pursuant
to Section 4.2 of the First Amended Agreement;
WHEREAS, effective August 29, 1997, Crescent Equities granted (i) 33
REIT Shares to Tommy Ellis; (ii) 33 REIT Shares to Alan Friedman; (iii) 34 REIT
Shares to Shannon Gilbert; (iv) 34 REIT Shares to Jana Irwin; (v) 33 REIT Shares
to John Walker; and (vi) 33 REIT Shares to John Zogg, in accordance with
resolutions of the Board of Trust Managers of Crescent Equities, dated as of
August 29, 1997 and, in connection therewith, Crescent Equities shall receive
credit for an aggregate Capital Contribution to the Partnership of $6,325.00;
WHEREAS, on August 31, 1997, Crescent Equities rescinded 177,604
Partnership Units held by Canyon Ranch, Inc. pursuant to Article II of that
certain Contribution Agreement dated July 26, 1996 between the Partnership and
Canyon Ranch, Inc.
WHEREAS, on September 8, 1997, Gerald W. Haddock exercised his Exchange
Right with respect to 8,900 Partnership Units;
WHEREAS, on September 22, 1997, Crescent Equities issued 307,831 REIT
Shares in a public offering at a cash price of $32.485 per share, which cash
proceeds were contributed to the Partnership by Crescent Equities pursuant to
Section 4.2 of the First Amended Agreement;
WHEREAS, on October 1, 1997, Greenbrier exercised options to
purchase 25,500 REIT Shares pursuant to the 1994 stock option plan of Crescent
Equities and, in connection therewith, Crescent Equities shall receive credit
for a Capital Contribution to the Partnership of $1,012,031.25;
WHEREAS, on October 7, 1997, Crescent Equities issued 138 REIT Shares
to each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for an aggregate Capital Contribution to the Partnership of
$16,767;
WHEREAS, on October 8, 1997, Crescent Equities issued 10,000,000 REIT
Shares in a public stock offering at a cash price of $39.00 per share, which
cash proceeds were contributed to the Partnership by Crescent Equities pursuant
to Section 4.2 of the First Amended Agreement;
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WHEREAS, on October 23, 1997, Christopher J. O'Brien exercised his
Exchange Right with respect to 18,155 Partnership Units;
WHEREAS, on October 24, 1997, Peter M. Joost exercised his Exchange
Right with respect to 25,000 Partnership Units; and
WHEREAS, the General Partner desires to amend Exhibit A to reflect the
transactions described above.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
ARTICAL I
DEFINED TERMS
Except as otherwise herein expressly provided, the following terms and
phrases shall have the meanings set forth below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Additional Funds" has the meaning set forth in Section 4.2.A hereof.
"Additional Limited Partner" has the meaning set forth in Section 4.3
hereof.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is treated as being obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant fiscal year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 1.D of Exhibit B hereof. Once an Adjusted
Property is deemed distributed by, and recontributed to, the Partnership for
federal income tax purposes upon a termination thereof pursuant to Section 708
of the Code, such property shall thereafter constitute a
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<PAGE> 12
Contributed Property until the Carrying Value of such property is further
adjusted pursuant to Section 1.D of Exhibit B hereof.
"Adjustment Date" has the meaning set forth in Section 4.2.A(2) hereof.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Amstar" means Amstar Continental Plaza Limited Partnership, a Colorado
limited partnership.
"Amstar Required Cash Payment" means the "Required Cash Payment" as
defined in Article III of that certain Contribution Agreement dated February 8,
1994 between Amstar and the Partnership.
"Assignee" means a Person to whom a Limited Partnership Interest has
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Sections 8.6, 11.3.A and 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (i) the sum of:
A. the Partnership's Net Income or Net Loss, as the case may be,
for such period (without regard to adjustments resulting from
allocations described in Section 1.A-E of Exhibit C),
B. Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
C. the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(f) below (including, without limitation,
reductions resulting because the General Partner determines such
amounts are no longer necessary),
D. the excess of proceeds from the sale, exchange, disposition,
or refinancing of Partnership property during such period over the gain
(or loss, as the case may be) recognized from such sale, exchange,
disposition, or refinancing during such period (excluding Terminating
Capital Transactions) as such items of gain or loss are determined in
accordance with Section 1.B of Exhibit B, and
E. all other cash received by the Partnership for such period,
including cash contributions and loan proceeds (other than refinancing
proceeds described in (d) above), that was not included in determining
Net Income or Net Loss for such period;
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(ii) less the sum of:
(a) all principal debt payments made during such period by
the Partnership,
(b) capital expenditures made by the Partnership during such
period,
(c) investments in any entity (including loans made thereto)
to the extent that such investments are not otherwise described in
clauses (ii)(a) or (b),
(d) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period,
(e) any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period, and
(f) the amount of any increase in reserves (including,
without limitation, working capital accounts or other cash or similar
balances) established during such period which the General Partner
determines are necessary or appropriate in its sole and absolute
discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Bankruptcy" of a Person shall be deemed to have occurred when (a) the
Person commences a voluntary proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect, (b) the Person is adjudged as bankrupt or insolvent, or a
final and nonappealable order for relief under any bankruptcy, insolvency or
similar law now or hereafter in effect has been entered against the Person, (c)
the Person executes and delivers a general assignment for the benefit of the
Person's creditors, (d) the Person files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against the
Person in any proceeding of the nature described in clause (b) above, (e) the
Person seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Person or for all or any substantial part of the
Person's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within one hundred twenty (120) days
after the commencement thereof, (g) the appointment without the Person's consent
or acquiescence of a trustee, receiver or liquidator has not been vacated or
stayed within ninety (90) days of such appointment, or (h) an appointment
referred to in clause (g) is not vacated within ninety (90) days after the
expiration of any such stay.
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"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Canyon Contribution Agreement" means that certain Contribution
Agreement, dated July 26, 1996, by and between the Partnership and Canyon Ranch.
"Canyon Ranch" means Canyon Ranch, Inc. an Arizona corporation.
"Canyon Ranch Property" means the property and assets specified in the
Canyon Contribution Agreement.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Exhibit B hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Net Asset Value of Contributed Property which such
Partner contributes to the Partnership.
"Carrying Value" means (i) with respect to a Contributed Property or
Adjusted Property, the Gross Asset Value of such property reduced (but not below
zero) by all Depreciation with respect to such property charged to the Partners'
Capital Accounts and (ii) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Exhibit B hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for improvements and
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash Amount" means an amount of cash equal to the Value, as of the
date of receipt by Crescent Equities of a Notice of Exchange, of the REIT Shares
Amount. Notwithstanding the foregoing, if the Crescent Group raises the Cash
Amount through an offering of securities, borrowings or otherwise, the Cash
Amount shall be reduced by an amount equal to the expenses incurred by the
Crescent Group in connection with raising such funds (to the extent that such
expenses are allocable to funds used to pay the Cash Amount); provided, however,
that the total reduction of the Cash Amount for such expenses shall not exceed
five percent (5%) of the total Cash Amount as determined prior to reduction for
such expenses.
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"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of Delaware, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consultant Unit Agreement" means that certain Consultant Unit
Agreement, dated August 15, 1995, by and between Greenbrier and the Partnership.
"Contributed Funds" has the meaning set forth in Section 4.2.A(2)
hereof.
"Contributed Property" means each property or other asset (but
excluding cash), in such form as may be permitted by the Act, contributed to the
Partnership or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code. Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 1.D of Exhibit B
hereof, such property shall no longer constitute a Contributed Property for
purposes of Exhibit B hereof, but shall be deemed an Adjusted Property for such
purposes.
"Contribution Date" has the meaning set forth in Section 4.3 hereof.
"Crescent Equities" means Crescent Real Estate Equities Company, a
Texas real estate investment trust.
"Crescent Group" means Crescent Equities, the General Partner, and any
wholly owned subsidiaries of Crescent Equities or the General Partner.
"Crescent Loan" has the meaning set forth in Section 4.2.A(1) hereof.
"Declaration of Trust" means the Declaration of Trust of Crescent
Equities, as it may be amended, supplemented or restated from time to time.
"Deemed Partnership Interest Value" as of any date shall mean, with
respect to a Partner, the product of (i) the Deemed Value of the Partnership as
of such date, multiplied by (ii) such Partner's Partnership Interest as of such
date.
"Deemed Value of the Partnership" as of any date shall mean the
quotient of the following amounts:
(i) the product of (a) the Value of a REIT Share as of such date,
multiplied by (b) the total number of REIT Shares issued and
outstanding as of the close of business on such date
(excluding treasury shares and, for purposes of Section 4.2
hereof, excluding any REIT Shares issued in exchange for
Contributed Funds to be
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contributed to the Partnership by Crescent Equities on the
Adjustment Date for which the calculation is being made),
divided by
(ii) the aggregate Partnership Interest of Crescent Equities and
the General Partner as of such date.
"Demand Notice" has the meaning set forth in Section 16.2 hereof.
"Depreciation" means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Employee Limited Partner" has the meaning set forth in Section 4.7.C
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Factor" means 1.0, provided that in the event that Crescent
Equities (i) pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Exchange
Factor shall be adjusted by multiplying the Exchange Factor by a fraction, the
numerator of which shall be the number of REIT Shares that would be issued and
outstanding on the record date for such event if such dividend, distribution,
subdivision or combination had occurred as of such date, and the denominator of
which shall be the actual number of REIT Shares issued and outstanding on the
record date for such dividend, distribution, subdivision or combination. Any
adjustment of the Exchange Factor shall become effective immediately after the
effective date of such event retroactive to the record date for such event;
provided, however, that if Crescent Equities receives a Notice of Exchange after
the record date, but prior to the effective date, of any such event, the
Exchange Factor shall be determined as if Crescent Equities had received the
Notice of Exchange immediately prior to the record date for such event.
"Exchange Right" has the meaning set forth in Section 8.6 hereof.
"Exchanging Person" has the meaning set forth in Section 8.6.A hereof.
"Falcon Point Property" means the Falcon Point single family
residential development located in Houston, Texas.
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"First Amended Agreement" has the meaning set forth in the recitals to
this Agreement.
"Funding Loan Proceeds" means the net cash proceeds received by the
Crescent Group in connection with any Funding Loan, after deduction of all costs
and expenses incurred by the Crescent Group in connection with such Funding
Loan.
"Funding Loan(s)" means any borrowing or refinancing of borrowings by
or on behalf of the Crescent Group from any lender for the purpose of causing
Crescent Equities to advance the proceeds thereof to the Partnership as a loan
pursuant to Section 4.2.A(1) hereof.
"General Partner" means Crescent Real Estate Equities, Ltd. (formerly
known as CRE General Partner, Inc.), a Delaware corporation which is a wholly
owned subsidiary of Crescent Equities, its duly admitted successors and assigns
and any other Person who is a General Partner at the time of reference thereto.
"General Partnership Interest" means the Partnership Interest held by
the General Partner.
"Greenbrier" means Texas Greenbrier Associates, Inc., a Texas
corporation.
"Greenbrier Agreement" means that certain Agreement of Acceptance of
the Partnership Agreement executed by Greenbrier and delivered to the General
Partner.
"Gross Asset Value" of any Contributed Property or Properties
contributed by a Partner to the Partnership in connection with the execution of
this Agreement means the Net Asset Value of such Contributed Property or
Properties as set forth in Exhibit A hereof, increased by any liabilities either
treated as assumed by the Partnership upon the contribution of such property or
properties or to which such property or properties are treated as subject when
contributed pursuant to the provisions of Section 752 of the Code. The Gross
Asset Value of any other Contributed Property or Properties means the fair
market value of such property or properties at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt. The General Partner shall, in its sole and absolute discretion,
use such method as it deems reasonable and appropriate to allocate the aggregate
of the Gross Asset Value of Contributed Properties contributed in a single or
integrated transaction among the separate properties on a basis proportional to
their respective fair market values.
"HA Development Corporation" means Houston Area Development Corp., a
Texas corporation that will own the Falcon Point Property and the Huntington
Woods Property.
"Huntington Woods Property" means the Huntington Woods single family
residential development located in Houston, Texas.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry of an order by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii)
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as to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the Bankruptcy of such Partner.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of his status as (A) a member of the Crescent Group, (B) a director or
officer of the Partnership or of a member of the Crescent Group, or (C) an
attorney-in-fact of the General Partner acting pursuant to Section 7.9.C, and
(ii) such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Initial Agreement" has the meaning set forth in the recitals to this
Agreement.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Lien" means any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances, pledges, options, rights of first offer or first
refusal and any other rights or interests of any kind or nature, actual or
contingent, or other similar encumbrances of any nature whatsoever.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to time, or
any Substituted Limited Partner, Additional Limited Partner, or Employee Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement.
"Liquidating Event(s)" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"Management Company" means Crescent Development Management Corp., a
Texas corporation that will provide management services to the Mira Vista
Property, the Falcon Point Property, the Huntington Woods Property, and certain
other properties that may be acquired by the Partnership in the future. The
Partnership will own one (1) share of voting common stock and nine thousand
eight hundred and ninety-nine (9,899) shares of nonvoting common stock of the
Management Company.
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"Mira Vista Property" means the single family residential development
located in Fort Worth, Texas, and a ninety-eight percent (98%) interest in the
limited liability company that owns the adjacent Mira Visa Golf Club.
"MV Development Corporation" means Mira Vista Development Corp., a
Texas corporation that will own the Mira Vista Property.
"Net Asset Value" in the case of any Contributed Property contributed
by a Partner to the Partnership in connection with the execution of this
Agreement shall be determined on an aggregate basis with respect to all of the
properties contributed by such Partner to the Partnership, and means the
aggregate Gross Asset Values of such properties, reduced by any liabilities
either treated as assumed by the Partnership upon the contribution of such
properties or to which such properties are treated as subject when contributed
pursuant to the provisions of Section 752 of the Code. The aggregate Net Asset
Values of the properties contributed by each Partner to the Partnership in
connection with the execution of this Agreement are set forth in Exhibit A. In
the case of any other Contributed Property and as of the time of its
contribution to the Partnership, Net Asset Value means the Gross Asset Value of
such property, reduced by any liabilities either treated as assumed by the
Partnership upon such contribution or to which such property is treated as
subject when contributed pursuant to Section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Exhibit C, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 1.B of Exhibit B. Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to the
special allocation rules in Exhibit C, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such items.
"New Interests" has the meaning set forth in Section 8.7.C hereof.
"New Securities" has the meaning set forth in Section 8.7.C hereof.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
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"Non-Unitholder Partnership Interest" means a Limited Partnership
Interest that does not have Partnership Units associated therewith.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a fiscal
year shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit D to this Agreement.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. The Partnership Interest of each Partner shall be expressed as a
percentage of the total Partnership Interests owned by all of the Partners, as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time. All Partnership Interests shall be calculated to the nearest one
millionth of one percent (0.000000%), with amounts equal to or greater than
0.0000005% being rounded up to the next one millionth of one percent, and with
amounts less than 0.0000005% being rounded down to the next one millionth of one
percent.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or
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decrease in Partnership Minimum Gain, for a fiscal year shall be determined in
accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.3
hereof, which record date shall be the same as the record date established by
Crescent Equities or otherwise pursuant to the Texas Act for a distribution to
its shareholders of some or all of its portion of such distribution.
"Partnership Unit" means a unit representing the Exchange Rights
associated with the Partnership Interests issued to certain of the Limited
Partners pursuant to the terms of this Agreement, which unit may be exchanged
for REIT Shares or cash through the exercise of the Exchange Rights set forth in
Sections 8.6. The number of Partnership Units of each Limited Partner shall be
as specified in Exhibit A attached hereto, as such Exhibit may be amended from
time to time. The Partnership Units may be evidenced by certificates as set
forth in Section 4.1.C hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Qualified Individual" has the meaning set forth in Section 16.2
hereof.
"RainAm Investors" means RainAm Investment Properties Ltd., a Texas
limited partnership.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Regulations" means the income tax regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 1.H of
Exhibit C hereof.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT Share" means a common share of beneficial interest of Crescent
Equities.
"REIT Shares Amount" means a number of REIT Shares equal to the product
of (i) the number of Partnership Units to be exchanged by an Exchanging Person
pursuant to Section 8.6, multiplied by (ii) the Exchange Factor; provided that
in the event Crescent Equities issues to all holders of REIT Shares rights,
options, warrants or convertible or exchangeable securities entitling the
shareholders to subscribe for or purchase REIT Shares, or any other securities
or
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property (collectively, the "rights"), then the REIT Shares Amount shall also
include such rights that a holder of that number of REIT Shares would be
entitled to receive.
"Representative" has the meaning set forth in Section 7.12 hereof.
"Requesting Party" has the meaning set forth in Section 16.2 hereof.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocable
pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C to eliminate Book-Tax
Disparities.
"Responding Party" has the meaning set forth in Section 16.2 hereof.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Sonoma" means Rahn Sonoma, Ltd., a Florida limited partnership.
"Sonoma Contribution Agreement" means that certain Contribution
Agreement, dated September 13, 1996, by and among Crescent Real Estate Equities,
Inc., the Partnership, Sonoma, Peter H. Roberts and John H. Anderson.
"Sonoma Property" means the property and assets specified in the Sonoma
Contribution Agreement.
"Specified Exchange Date" means the tenth Business Day after receipt by
Crescent Equities of a Notice of Exchange, unless applicable law requires a
later date. Notwithstanding the foregoing, if Crescent Equities elects to pay
all or any portion of the consideration to an Exchanging Person in cash, the
Specified Exchange Date may be extended for an additional period to the extent
required for the Crescent Group to raise the funds required to pay the cash
consideration to the Exchanging Person.
"Stock Incentive Plan" means The 1994 Crescent Real Estate Equities,
Inc. Stock Incentive Plan, as amended from time to time, or any other stock
incentive plan adopted by Crescent Equities.
"Subsidiary Development Corporation(s)" means MV Development
Corporation and HA Development Corporation, and either of them.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
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"Terminating Capital Transaction" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Texas Act" means the Texas Real Estate Investment Trust Act, as the
same may be amended from time to time, or any successor statute thereto.
"Trading Day" means a day on which the principal national securities
exchange on which the REIT Shares are listed or admitted to trading is open for
the transaction of business or, if the REIT Shares are not listed or admitted to
trading, means a Business Day.
"Transaction" has the meaning set forth in Section 11.2.C hereof.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under Exhibit B hereof) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made on such date pursuant to Exhibit B hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made on such date pursuant
to Exhibit B hereof) as of such date, over (ii) the fair market value of such
property (as determined under Exhibit B hereof) as of such date.
"Value" means, with respect to a REIT Share as of any date, the average
of the "closing price" for the ten (10) consecutive Trading Days immediately
preceding such date (except as provided to the contrary in Sections 4.2, 4.3 and
4.6 hereof). The "closing price" for each such Trading Day means the last sale
price, regular way on such day, or, if no such sale takes place on that day, the
average of the closing bid and asked prices on that day, regular way, in either
case as reported on the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange, or if the REIT Shares are not so listed or admitted to trading, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange (including
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System) on which the REIT Shares are listed or admitted
to trading or, if the REIT Shares are not so listed or admitted to trading, the
last quoted price or, if not quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal automated quotation system then in use or, if the
REIT Shares are not so quoted by any such system, the average of the closing bid
and asked prices as furnished by a professional market maker selected by the
board of directors of the General Partner making a market in the REIT Shares,
or, if there is no such market maker or such closing prices otherwise are not
available, the fair market value of the REIT Shares as of such day, as
determined by the board of directors of the General Partner in its sole
discretion. In the event Crescent Equities issues to all holders of REIT Shares
rights, options, warrants or convertible or exchangeable securities entitling
the shareholders to subscribe for or purchase REIT Shares or any other property,
then the Value of a
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REIT Share shall include the value of such rights, as determined by the board of
directors of the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Continuation of Partnership
The Partners hereby continue the Partnership as a limited partnership
pursuant to the provisions of the Act and upon the terms and conditions set
forth in this Agreement. Except as expressly provided herein to the contrary,
the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
Section 2.2 Name
The name of the Partnership is Crescent Real Estate Equities Limited
Partnership. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P." "Ltd."
or similar words or letters shall be included in the Partnership's name where
necessary for purposes of complying with the laws of any jurisdiction that so
requires. The General Partner in its sole and absolute discretion may change the
name of the Partnership at any time and from time to time and shall notify the
Limited Partners of such change in the regular communication to the Limited
Partners next succeeding the effectiveness of the change of name.
Section 2.3 Principal Office and Registered Agent
The principal office of the Partnership is 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, or such other place as the General Partner may from
time to time designate. The registered agent of the Partnership is The
Prentice-Hall Corporation System, Inc., located at 1013 Centre Road, in the city
of Wilmington, County of New Castle, Delaware 19805, or such other Person as the
General Partner may from time to time designate. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner constitutes and appoints the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of each,
and each of those acting singly, in each case with full power of substitution,
as its true and lawful agent and attorney-in-fact, with full power and authority
in its name, place and stead to:
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(1) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates,
documents and other instruments (including, without
limitation, the Certificate and all amendments or
restatements of this Agreement or the Certificate) that
the General Partner or the Liquidator deems appropriate
or necessary to qualify or continue the existence or
qualification of the Partnership as a limited partnership
(or a partnership in which the limited partners have
limited liability) in the State of Delaware and in all
other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the
General Partner deems appropriate or necessary to reflect
any amendment, change, modification or restatement of
this Agreement made in accordance with its terms; (c) all
conveyances and other instruments or documents that the
General Partner or Liquidator, as the case may be, deems
appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a
certificate of cancellation; and (d) all instruments
relating to the Capital Contribution of any Partner or
the admission, withdrawal, removal or substitution of any
Partner made pursuant to the terms of this Agreement; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner, to make,
evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary, in
the sole discretion of the General Partner, to effectuate
the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive and not be affected by the
subsequent Incapacity of any Limited Partner or the transfer of all or any
portion of such Limited Partner's Partnership Interest and shall extend to such
Limited Partner's heirs, successors, assigns and personal representatives. Each
such Limited Partner hereby agrees to be bound by any representation made by the
General Partner, acting in good faith pursuant to such power of attorney; and
each such Limited Partner hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner,
taken in good faith under such power of attorney. Each Limited Partner shall
execute and deliver to the General Partner or the Liquidator, within fifteen
(15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the
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Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership commenced on February 9, 1994, and shall
continue until December 31, 2093, unless it is dissolved sooner pursuant to the
provisions of Article 13 or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, including, without
limitation, to acquire, hold, own, develop, construct, improve, maintain,
operate, sell, lease, transfer, encumber, convey, exchange, and otherwise
dispose of or deal with real and personal property of all kinds; to acquire
stock ownership interests in and to exercise all of the powers of a stockholder
in the Subsidiary Development Corporations and the Management Company; (ii) to
enter into any partnership, joint venture or other similar arrangement to engage
in any of the foregoing or the ownership of interests in any entity engaged in
any of the foregoing; and to exercise all of the powers of an owner in any such
entity; and (iii) to do anything necessary, appropriate, proper, advisable,
desirable, convenient or incidental to the foregoing; provided, however, that
such business shall be limited to and conducted in such a manner as to permit
Crescent Equities at all times to qualify as a REIT, unless Crescent Equities
voluntarily terminates its REIT status pursuant to its Declaration of Trust. In
connection with the foregoing, and without limiting Crescent Equities' right in
its sole discretion to cease qualifying as a REIT, the Partners acknowledge that
Crescent Equities' current status as a REIT inures to the benefit of all the
Partners and not solely the Crescent Group.
Section 3.2 Powers
Subject to all of the terms, covenants, conditions and limitations
contained in this Agreement and any other agreement entered into by the
Partnership, the Partnership shall have full power and authority to do any and
all acts and things necessary, appropriate, proper, advisable, desirable,
incidental to or convenient for the furtherance and accomplishment of the
purposes and business described herein and for the protection and benefit of the
Partnership, including, without limitation, full power and authority, directly
or through its ownership interest in other entities, to enter into, perform and
carry out contracts of any kind, borrow money and issue evidences of
indebtedness, whether or not secured by mortgage, deed of trust, pledge or other
lien, acquire and develop real property, and lease, sell, transfer or otherwise
dispose of real property; provided, however, that the Partnership shall not
take, or refrain from taking, any action which, in the judgment of General
Partner, in its sole and absolute discretion, (i) could adversely affect the
ability of Crescent Equities to achieve or maintain qualification as a REIT,
(ii) could subject Crescent
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Equities to any additional taxes under Section 857 or Section 4981 of the Code,
or (iii) could violate any law or regulation of any governmental body or agency
having jurisdiction over Crescent Equities or its securities, unless such action
(or inaction) shall have been specifically consented to by the General Partner
in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
A. Each Partner listed in Exhibit A has previously made a
Capital Contribution to the Partnership as specified in the First Amended
Agreement or in the Recitals portion of this Agreement, as the case may be, in
exchange for its Partnership Units and Partnership Interest set forth in
Exhibit A.
B. The Partners shall own Partnership Units in the amounts
set forth in Exhibit A and shall have Partnership Interests in the Partnership
as set forth in Exhibit A, which Partnership Units and Partnership Interests
shall be adjusted in Exhibit A from time to time by the General Partner to the
extent necessary to reflect accurately the exercise of Exchange Rights, Capital
Contributions, transfers of Partnership Interests, admissions of Additional
Limited Partners or Employee Limited Partners, or similar events. Except as
provided in Section 10.5, or as a result of directly paying any Partnership
debt, the Partners shall have no obligation to make any additional Capital
Contributions or loans to the Partnership.
C. The interest of each Limited Partner in Partnership Units
may be evidenced by one or more certificates in such form as the General Partner
may from time to time prescribe. Upon surrender to the General Partner of a
certificate evidencing the ownership of Partnership Units accompanied by proper
evidence of authority to transfer, the General Partner shall cancel the old
certificate, issue a new certificate to the Person entitled thereto and record
the transaction upon its books. The transfer of Partnership Units may be
effectuated only in connection with a transfer of a Limited Partnership Interest
pursuant to the terms of Section 8.6 or Article 11 hereof. The General Partner
may issue a new certificate or certificates in place of any certificate or
certificates previously issued, which previously-issued certificate or
certificates are alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the owner claiming the certificate or
certificates to be lost, stolen or destroyed. When issuing such new certificate
or certificates, the General Partner may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or its legal representative, to give the
Partnership a bond in such sum as the General Partner may direct as indemnity
against any claim that may be made against the Partnership with respect to the
certificate or certificates alleged to have been lost, stolen or destroyed.
Section 4.2 Additional Funding
A. If the General Partner determines that it is in the best
interests of the Partnership to provide for additional Partnership funds
("Additional Funds") for any Partnership purpose in excess of any other funds
determined by the General Partner to be available to the
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Partnership, the General Partner (i) may cause the Partnership to obtain such
funds from outside borrowings, (ii) may cause the Partnership to obtain such
funds by the admission of Additional Limited Partners pursuant to Section 4.3
hereof, or (iii) may elect to have Crescent Equities provide such Additional
Funds to the Partnership. On any date that Crescent Equities provides Additional
Funds to the Partnership (the "Funding Date"):
(1) to the extent the General Partner elects to borrow all or
any portion of the Additional Funds through a Funding
Loan, the General Partner shall cause Crescent Equities
to lend (the "Crescent Loan") to the Partnership the
Funding Loan Proceeds on comparable terms and conditions,
including interest rate, repayment schedule and costs and
expenses, as shall be applicable with respect to or
incurred in connection with the Funding Loan; or
(2) to the extent the General Partner does not elect to
borrow all or any portion of the Additional Funds by
entering into a Funding Loan, the General Partner shall
cause Crescent Equities to contribute to the Partnership
as an additional Capital Contribution the amount of the
Additional Funds not loaned to the Partnership as a
Crescent Loan (the "Contributed Funds") (hereinafter,
each Funding Date on which Crescent Equities so
contributes Contributed Funds pursuant to this
subparagraph (2) is referred to as an "Adjustment Date").
The Crescent Group may raise such Contributed Funds
through a private placement or public offering of REIT
Shares or otherwise. The Partnership shall assume or pay
the expenses, including any applicable underwriting
discounts incurred by the Crescent Group in connection
with raising such Contributed Funds through a private
placement or public offering of its securities or
otherwise (i.e., Crescent Equities shall be treated as
contributing to the Partnership as Contributed Funds the
gross amount of funds raised, and the Partnership shall
be charged with the cost of raising such funds, with such
cost allocated to all of the Partners in accordance with
Article VI of the Agreement).
B. Effective on each Adjustment Date, Crescent Equities
shall receive an additional Partnership Interest (and the Partnership Interest
of each Limited Partner other than Crescent Equities shall be reduced) such
that:
(1) the Partnership Interest of each Limited Partner not
owning Partnership Units (other than Crescent Equities) shall be equal to a
fraction, the numerator of which is equal to the Deemed Partnership Interest
Value of such Limited Partner (computed as of the Business Day immediately
preceding the Adjustment Date) and the denominator of which is equal to the sum
of (i) the Deemed Value of the Partnership (computed as of the Business Day
immediately preceding the Adjustment Date) and (ii) the amount of Contributed
Funds contributed by Crescent Equities on such Adjustment Date;
(2) the combined Partnership Interest of Crescent Equities
and the General Partner shall be equal to a fraction, the numerator of which is
equal to the sum of (i) the
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combined Deemed Partnership Interest Value of Crescent Equities and the General
Partner (computed as of the Business Day immediately preceding the Adjustment
Date) and (ii) the amount of the Contributed Funds contributed by Crescent
Equities on such Adjustment Date and the denominator of which is equal to the
sum of (x) the Deemed Value of the Partnership (computed as of the Business Day
immediately preceding the Adjustment Date) and (y) the amount of the Contributed
Funds contributed by Crescent Equities on such Adjustment Date. The Partnership
Interest of the General Partner shall remain one percent (1%), and the
Partnership Interest of Crescent Equities shall be equal to the combined
Partnership Interest determined in clause (2) of the preceding sentence, reduced
by one percentage point (1%); and
(3) the Partnership Interest of each Limited Partner owning
Partnership Units shall be equal to the product of the following: (i) the
difference obtained from subtracting (x) the sum of the combined Partnership
Interest of Crescent Equities and the General Partner as calculated in Section
4.2.B(2) hereof, plus the aggregate Non-Unitholder Partnership Interests as
calculated in Section 4.2.B(1) hereof, from (y) one hundred percent (100%), and
(ii) a fraction, the numerator of which is equal to the number of Partnership
Units held by such Limited Partner on such Adjustment Date, and the denominator
of which is equal to the total number of Partnership Units held by all Limited
Partners on such Adjustment Date.
The General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the increase in the Partnership
Interest of Crescent Equities and the corresponding reduction of the Partnership
Interests of the other Limited Partners in accordance with the provisions of
this Section 4.2. The number of Partnership Units owned by the Limited Partners
and Assignees shall not be decreased in connection with any additional
contribution of funds to the Partnership by Crescent Equities pursuant to this
Section 4.2. Notwithstanding anything to the contrary contained in this
Agreement, for purposes of calculating the "Deemed Value of the Partnership" and
the "Deemed Partnership Interest Value" under this Section 4.2.B with respect to
cash amounts raised by Crescent in a private placement or public offering of
REIT Shares and contributed to the Partnership as Contributed Funds, the "Value"
of a REIT Share shall be the gross offering price (prior to deduction of any
expenses, including without limitation selling commissions or underwriting
discounts) per REIT Share sold in the private placement or public offering.
C. The Partners hereby acknowledge and agree that any Additional
Funds provided by the Crescent Group (through Crescent Equities) to the
Partnership pursuant to this Section 4.2 may be in the form of real property or
an interest therein rather than cash. In the event that real property or an
interest therein is contributed by Crescent Equities to the Partnership pursuant
to this Section 4.2:
(1) to the extent that the consideration given in exchange for
such real property or interest therein is in the form of indebtedness, Crescent
Equities shall be deemed to have made a Crescent Loan to the Partnership
pursuant to Section 4.2.A(1) hereof in an amount equal to the amount of such
indebtedness; and
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(2) to the extent that the consideration given in exchange for
such real property or interest therein is in the form of cash or REIT Shares,
(i) Crescent Equities shall be deemed to have contributed Contributed Funds to
the Partnership pursuant to Section 4.2.A(2) hereof in an amount equal to the
amount of cash or the Value (computed as of the Business Day immediately
preceding the date on which such real property or interest therein is
contributed to the Partnership) of the REIT Shares given as consideration, and
(ii) the Partnership Interests of the Limited Partners shall be adjusted as set
forth in Section 4.2.B hereof.
To the extent that the consideration given for such real property or interest
therein is New Securities, the provisions of Section 8.7.C hereof shall apply to
the contribution of the real property or interest therein by Crescent Equities
to the Partnership.
Section 4.3 Issuance of Additional Partnership Interests
At any time after the date hereof, without the consent of any Partner,
but subject to the provisions of Section 12.2 hereof, the General Partner may,
upon its determination that the issuance of additional Partnership Interests is
in the best interests of the Partnership, cause the Partnership to issue
Partnership Interests to and admit as a limited partner in the Partnership, any
Person (the "Additional Limited Partner") in exchange for the contribution by
such Person of cash and/or property in such amounts as is determined appropriate
by the General Partner to further the purposes of the Partnership under Section
3.1 hereof. In the event that an Additional Limited Partner is admitted to the
Partnership pursuant to this Section 4.3:
(1) if the Additional Limited Partner does not receive any
Partnership Units in connection with the receipt of his
or its Partnership Interest, the Partnership Interest of
such Additional Limited Partner shall be equal to a
fraction, the numerator of which is equal to the total
dollar amount of the cash contributed and/or the Net
Asset Value of the property contributed by the Additional
Limited Partner as of the date of contribution to the
Partnership (the "Contribution Date") and the denominator
of which is equal to the sum of (i) the Deemed Value of
the Partnership (computed as of the Business Day
immediately preceding the Contribution Date) and (ii) the
total dollar amount of the cash contributed and/or the
Net Asset Value of the property contributed by the
Additional Partner as of the Contribution Date;
(2) the Partnership Interest of Crescent Equities shall be
reduced, as of the Contribution Date, such that the
combined Partnership Interest of Crescent Equities and
the General Partner shall be equal to a fraction, the
numerator of which is equal to the combined Deemed
Partnership Interest Value of Crescent Equities and the
General Partner (computed as of the Business Day
immediately preceding the Contribution Date) and the
denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership (computed as of the
Business Day immediately preceding the Contribution Date)
and (ii) the total dollar amount of the cash contributed
and/or the Net Asset Value of the property contributed by
the Additional Limited Partner as of
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the Contribution Date (with the Partnership Interest of
the General Partner remaining at one percent (1%), and
the Partnership Interest of Crescent Equities equal to
the combined Partnership Interest determined above in
this Section 4.3(2), reduced by one percentage point
(1%));
(3) the Partnership Interest of each existing Limited Partner
not owning Partnership Units (other than Crescent
Equities) shall be reduced, as of the Contribution Date,
such that the Partnership Interest of each such Limited
Partner shall be equal to a fraction, the numerator of
which is equal to the Deemed Partnership Interest Value
of such Limited Partner (computed as of the Business Day
immediately preceding the Contribution Date) and the
denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership (computed as of the
Business Day immediately preceding the Contribution Date)
and (ii) the total dollar amount of the cash contributed
and/or the Net Asset Value of the property contributed by
the Additional Limited Partner as of the Contribution
Date; and
(4) The Partnership Interest of each existing Limited Partner
owning Partnership Units and of the Additional Limited
Partner, if such Additional Partner receives Partnership
Units in connection with the receipt of his or its
Partnership Interest, shall be equal to the product of
the following: (i) the difference obtained from
subtracting (x) the sum of the combined Partnership
Interest of Crescent Equities and the General Partner as
calculated in Section 4.3(2) hereof, plus the aggregate
Non-Unitholder Partnership Interests as calculated in
Sections 4.2(1) and (3) hereof, from (y) one hundred
percent (100%), and (ii) a fraction, the numerator of
which is equal to the number of Partnership Units held by
such Limited Partner on such Contribution Date, and the
denominator of which is equal to the total number of
Partnership Units held by all Limited Partners (including
the Additional Limited Partner) on such Contribution
Date.
The General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the admission of any Additional
Limited Partner and any reduction of the Partnership Interests of the other
Limited Partners in accordance with the provisions of this Section 4.3.
The number of Partnership Units owned by the Limited Partners and
Assignees shall not be decreased in connection with any admission of an
Additional Limited Partner pursuant to this Section 4.3. The General Partner may
(but is not required to) grant to an Additional Limited Partner Partnership
Units, which Partnership Units shall enable the Additional Limited Partner to
participate in the Exchange Rights, upon such terms and conditions as are deemed
appropriate by the General Partner. Notwithstanding anything to the contrary
contained in this Agreement, if the value of the Partnership Units granted to an
Additional Limited Partner is determined based on the average of the "closing
price" of a REIT Share for a period of time other than the ten (10)-day period
specified in the Article I definition of "Value" (including, without limitation,
a
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determination based on the "closing price" of a REIT Share for the Trading Day
immediately preceding the admission of such Additional Limited Partner), then
such other time period shall be used in calculating the "Value" of a REIT Share
for purposes of calculating the "Deemed Value of the Partnership" and the
"Deemed Partnership Interest Value" under this Section 4.3 with respect to the
admission of such Additional Limited Partner.
Section 4.4 No Preemptive Rights
Except as otherwise set forth in Section 4.2.A, no Person shall have
any preemptive, preferential or other similar right with respect to the making
of additional Capital Contributions or loans to the Partnership.
Section 4.5 No Interest on Capital
No Partner shall be entitled to interest on its Capital Contribution or
its Capital Account.
Section 4.6 Stock Incentive Plans
A. Grants of REIT Shares. If grants of REIT Shares are made
in connection with a Stock Incentive Plan,
(1) Crescent Equities shall, as soon as practicable after such
grant, contribute to the capital of the Partnership an amount equal to the price
(if any) paid to Crescent Equities by the party receiving the grant of REIT
Shares;
(2) Crescent Equities shall, as of the date on which the grant
of REIT Shares is made, be deemed to have contributed to the Partnership as
Contributed Funds pursuant to Section 4.2.A(2) hereof an amount equal to the
fair market value (computed using the "closing price" (as such term is defined
in the definition of the term "Value" in Article I hereof) as of the date on
which the grant of REIT Shares is made) of the REIT Shares delivered by Crescent
Equities to such party; and
(3) the General Partner's Partnership Interest shall remain
unchanged, and the Partnership Interests of Crescent Equities and the other
Limited Partners shall be adjusted as set forth in Section 4.2, based on the
amount deemed to be contributed, determined pursuant to Section 4.6.A(2);
provided that, for purposes of calculating the "Deemed Value of the Partnership"
and the "Deemed Partnership Interest Value" under Section 4.2, the "Value" of a
REIT Share shall be the "closing price" (as such term is defined in the
definition of the term "Value" in Article I hereof) of a REIT Share as of the
date on which the grant of REIT Shares is made.
B. Exercise of Stock Options. If stock options granted in connection
with a Stock Incentive Plan are exercised:
(1) Crescent Equities shall, as soon as practicable after such
exercise, contribute to the capital of the Partnership an amount equal to the
exercise price paid to Crescent Equities by the exercising party;
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(2) Crescent Equities shall, as of the date on which the
purchase of the REIT Shares is consummated by such exercising party, be deemed
to have contributed to the Partnership as Contributed Funds pursuant to Section
4.2.A(2) hereof an amount equal to the fair market value (computed using the
"closing price" (as such term is defined in the definition of "Value" in Article
I hereof) as of the date on which such purchase of REIT Shares is consummated by
such exercising party) of the REIT Shares delivered by Crescent Equities to such
exercising party; and
(3) the General Partner's Partnership Interest shall remain
unchanged, and the Partnership Interests of Crescent Equities and the other
Limited Partners shall be adjusted as set forth in Section 4.2, based on the
amount deemed to be contributed, determined pursuant to Section 4.6.B(2);
provided that, for purposes of calculating the "Deemed Value of the Partnership"
and the "Deemed Partnership Interest Value" under Section 4.2, the "Value" of a
REIT Share shall be the "closing price" (as such term is defined in the
definition of the term "Value" in Article I hereof) of a REIT Share as of the
date on which the purchase of REIT Shares is consummated by the exercising
party.
Section 4.7 Other Equity Compensation Plans
A. The Partnership may adopt a compensation plan for its
employees, agents or consultants pursuant to which the Partnership may grant
Limited Partnership Interests (including Partnership Units, which Partnership
Units shall enable the Limited Partner to participate in the Exchange Rights),
or options to acquire Limited Partnership Interests (including Partnership
Units, which Partnership Units shall enable the Limited Partner to participate
in the Exchange Rights), to one or more of its employees, agents or consultants
upon such terms and conditions as may be deemed necessary or appropriate by the
General Partner.
B. The Management Company may adopt a compensation plan for
its employees, agents or consultants pursuant to which the Management Company
may grant Limited Partnership Interests (including Partnership Units, which
Partnership Units shall enable the Limited Partner to participate in the
Exchange Rights), or options to acquire Limited Partnership Interests (including
Partnership Units, which Partnership Units shall enable the Limited Partner to
participate in the Exchange Rights), to one or more of its employees, agents or
consultants. The Partnership may sell Limited Partnership Interests (including
Partnership Units, which Partnership Units shall enable the Limited Partner to
participate in the Exchange Rights) to the Management Company for delivery to
its employees, agents or consultants. The price at which the Partnership shall
sell such Partnership Interests to the Management Company shall be the fair
market value of such Partnership Interests, as determined by the General Partner
in its reasonable discretion.
C. Upon any admission of an employee, agent or consultant of
the Partnership or the Management Company as an additional Limited Partner (an
"Employee Limited Partner") pursuant to Section 4.7.A or 4.7.B above, the
Partnership Interests of the other Partners shall be diluted, on a pro rata
basis, in proportion to their respective Partnership Interests, to reflect the
admission of the Employee Limited Partner. Notwithstanding the foregoing, the
Partnership Interest of the General Partner shall not be diluted upon the
admission of the Employee Limited Partner; any dilution that would otherwise
occur with respect to the Partnership Interest of the
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General Partner in accordance with the terms of the preceding sentence shall be
allocated instead to Crescent Equities. The number of Partnership Units owned by
the Limited Partners and Assignees shall not be decreased in connection with any
admission of an Employee Limited Partner.
D. In addition to the compensation plans described in
Sections 4.6, 4.7.A and 4.7.B hereof, the General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans or other
incentive compensation plans (including, without limitation, plans granting REIT
Shares or options to purchase REIT Shares, plans granting Partnership Interests
(including Partnership Units) or options to purchase Partnership Interests
(including Partnership Units), "phantom" equity plans or other plans in which
compensation is tied to revenue or income amounts, or based on increases in the
market value of equity ownership interests) for the benefit of employees, agents
or consultants of any member of the Crescent Group, the Partnership, the
Management Company, the Subsidiary Development Corporation(s) or any Affiliate
of the foregoing in respect of services performed, directly or indirectly, for
the benefit of the Crescent Group, the Partnership, the Management Company or
the Subsidiary Development Corporation(s).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Initial Partnership Distributions
Upon execution of the First Amended and Restated Agreement, the
Partnership made (i) a distribution of one million five hundred thousand dollars
($1,500,000) to RainAm Investors, and (ii) a distribution in an amount equal to
the Amstar Required Cash Payment to Amstar. In addition, the Partnership
returned to the General Partner, CRE Limited Partner, Inc. and Gerald W. Haddock
the initial capital contributions of one dollar ($1), seventy-four dollars ($74)
and twenty-five dollars ($25), respectively, previously made by such Persons to
the Partnership.
Section 5.2 Requirement and Characterization of Distributions
The General Partner shall cause the Partnership to distribute quarterly
all, or such portion deemed appropriate by the General Partner, of Available
Cash generated by the Partnership during such quarter to the Partners who are
Partners on the Partnership Record Date with respect to such quarter in
accordance with their respective Partnership Interests on such Partnership
Record Date. The General Partner shall take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with the
qualification of Crescent Equities as a REIT, to distribute Available Cash to
the Limited Partners so as to preclude any such distribution or portion thereof
from being treated as part of a sale of property to the Partnership by a Limited
Partner under Section 707 of the Code or the Regulations thereunder; provided
that the General Partner and the Partnership shall not have any liability to a
Limited Partner under any circumstances as a result of any distribution to a
Limited Partner being so treated. Notwithstanding the foregoing, the General
Partner shall use its best efforts to cause the Partnership to distribute
sufficient amounts to enable Crescent Equities to pay shareholder dividends that
will (i) allow Crescent Equities to
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achieve and maintain qualification as a REIT, and (ii) avoid the imposition of
any additional taxes under Section 857 or Section 4981 of the Code.
Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to a Partner shall be treated as amounts distributed to
such Partner pursuant to Section 5.2 for all purposes under this Agreement.
Section 5.4 Distributions In Kind
Pursuant to Section 17-605 of the Act, the General Partner has the
authority to make in-kind distributions of assets to the Partners. Any such
distributions in kind shall be distributed among the Partners in the same manner
as set forth in Section 5.2 with respect to Available Cash (provided that
distributions in kind made after commencement of the liquidation of the
Partnership shall be distributed to the Partners in accordance with Section
13.2). The General Partner shall determine the fair market value of any assets
distributed in kind using such reasonable method of valuation as it may adopt.
Section 5.5 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Income shall be allocated (i) first, to
the General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B exceed Net Income
previously allocated to the General Partner pursuant to this clause (i) of
Section 6.1.A, and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Partnership Interests.
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C, Net Losses shall be allocated to the
Partners in accordance with their
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respective Partnership Interests, provided that Net Losses shall not be
allocated to any Limited Partner pursuant to this Section 6.1.B to the extent
that such allocation would cause such Limited Partner to have an Adjusted
Capital Account Deficit at the end of such taxable year (or increase any
existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. Allocations to Reflect Issuance of New Interests. In the
event that the Partnership issues New Interests to Crescent Equities pursuant to
Section 8.7.C, the General Partner shall make such revisions to Sections 6.1.A
and B above as it determines are necessary to reflect the issuance of such New
Interests.
Section 6.2 Allocation of Nonrecourse Debt
For purposes of Regulations Section 1.752-3(a), the Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (i) the
amount of Partnership Minimum Gain and (ii) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with their
respective Partnership Interests.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things and perform all acts specified in this
Agreement or otherwise deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all Partnership powers set forth in
Section 3.2 hereof and to effectuate the Partnership purposes set forth in
Section 3.1 hereof (to the extent consistent with allowing Crescent Equities at
all times to qualify as a REIT, unless Crescent Equities voluntarily terminates
its REIT status pursuant to the Declaration of Trust), including, without
limitation, to:
(1) acquire interests in real or personal property of any
kind and type, and any and all kinds of interests
therein, and determine the manner in which title thereto
is to be held; manage, insure against loss, protect and
subdivide any such property; improve, develop or
redevelop any such property; dedicate for public use,
vacate any such property subdivisions or parts thereof,
or resubdivide such property or any part thereof; lease,
renew or extend leases, amend, change or modify the terms
and provisions of leases, and grant options to lease and
options to renew leases and options to purchase;
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partition, sell or otherwise dispose of all or any
portion of such property; exchange all or any portion of
such property for other real or personal property; grant
easements or charges of any kind; release, convey or
assign any right, title or interest in or about or
easement appurtenant to such property or any part
thereof; construct and reconstruct, remodel, alter,
repair, add to or take from buildings on such property;
insure any Person having an interest in or responsibility
for the care, management or repair of such property;
direct the trustee of any land trust to mortgage, lease,
convey or contract to convey the real estate held in such
land trust or to execute and deliver deeds, mortgages,
notes, and any and all documents pertaining to the
property subject to such land trust or in any matter
regarding such trust; and execute assignments of all or
any part of the beneficial interest in such land trust;
(2) employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed
necessary by the General Partner for the operation and
management of the Partnership business, including, but
not limited to, employees, including employees having
such titles as the General Partner may from time to time
specify, such as "chairman of the board," "chief
executive officer," chief operating officer,"
"president," "vice president," "secretary," "treasurer";
contractors; subcontractors; engineers; architects;
surveyors; mechanics; consultants; accountants;
attorneys; insurance brokers; real estate brokers; and
others;
(3) make expenditures, borrow money, procure loans and
advances from any Person for Partnership purposes
(including, without limitation, borrow money to permit
the Partnership to make distributions in such amounts as
will permit Crescent Equities (so long as Crescent
Equities elects to qualify as a REIT) to avoid the
payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of the
Code) and to make distributions to its shareholders
sufficient to permit Crescent Equities to maintain REIT
status) and apply for and secure, from any Person, credit
or accommodations; contract, assume or guarantee
liabilities and obligations, direct or contingent and of
every kind and nature with or without security; and
repay, prepay, discharge, settle, adjust, compromise, or
liquidate any such loan, advance, credit, obligation or
liability;
(4) pledge, hypothecate, mortgage, assign, deposit, deliver,
enter into sale and leaseback arrangements or otherwise
give as security or as additional or substitute security,
any and all Partnership property, tangible or intangible,
including, but not limited to, real estate and beneficial
interests in land trusts, and make substitutions thereof,
and receive any proceeds thereof upon the release or
surrender thereof; sign, execute and deliver any and all
assignments, deeds and other contracts and instruments in
writing; authorize, give, make, procure, accept and
receive moneys, payments, property,
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notices, demands, vouchers, receipts, releases,
compromises and adjustments; waive notices, demands,
protests and authorize and execute waivers of every kind
and nature; negotiate, execute, deliver and receive
written agreements, undertakings and instruments of
every kind and nature; give oral instructions and make
oral agreements; and generally to do any and all other
acts and things incidental to any of the foregoing;
(5) acquire and enter into any contract of insurance which
the General Partner deems necessary or appropriate for
the protection of the Partnership and the Partners, for
the conservation of the Partnership's assets or for any
purpose convenient or beneficial to the Partnership;
(6) conduct any and all banking transactions on behalf of the
Partnership; adjust and settle checking, savings, and
other accounts with such institutions as the General
Partner shall deem appropriate; draw, sign, execute,
accept, endorse, guarantee, deliver, receive and pay any
checks, drafts, bills of exchange, acceptances, notes,
obligations, undertakings and other instruments for or
relating to the payment of money in, into, or from any
account in the Partnership's name; execute, procure,
consent to and authorize extensions and renewals of the
same; and make deposits and withdraw the same and
negotiate or discount commercial paper, acceptances,
negotiable instruments, bills of exchange and dollar
drafts;
(7) demand, sue for, receive, and otherwise take steps to
collect or recover all debts, rents, proceeds, interests,
dividends, goods, chattels, income from property, damages
and all other property, to which the Partnership may be
entitled or which are or may become due the Partnership
from any Person; commence, prosecute or enforce, or
defend, answer or oppose, contest and abandon all legal
proceedings in which the Partnership is or may hereafter
be interested; settle, compromise or submit to
arbitration any accounts, debts, claims, disputes and
matters which may arise between the Partnership and any
other Person and grant an extension of time for the
payment or satisfaction thereof on any terms, with or
without security; and indemnify any Indemnitees against
liabilities and contingencies in accordance with the
provisions of Section 7.7 of this Agreement or otherwise;
(8) take all reasonable measures necessary to insure
compliance by the Partnership with applicable laws, and
other contractual obligations and arrangements entered
into by the Partnership from time to time in accordance
with the provisions of this Agreement, including periodic
reports as required to lenders; and use all due diligence
to insure that the Partnership is in compliance with its
contractual obligations;
(9) form, acquire a debt or equity ownership interest in, and
contribute or loan property to, any further corporations,
limited or general partnerships, joint
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ventures, real estate investment trusts, or other
entities upon such terms and conditions as General
Partner deems appropriate;
(10) invest assets of the Partnership on a temporary basis in
commercial paper, government securities, checking or
savings accounts, money market funds, or any other highly
liquid investments deemed appropriate by the General
Partner; make loans, including participating or
convertible loans, to other Persons (including, without
limitation, the Subsidiary Development Corporation(s) and
the Management Company) upon such terms and conditions,
and for such security, as deemed appropriate by the
General Partner; repay obligations of any Person in which
the Partnership has an equity investment (including,
without limitation, the Subsidiary Development
Corporation(s) and the Management Company); and purchase
existing debt obligations held by other Persons,
including participating or convertible debt obligations,
upon such terms and conditions, and for such security, as
deemed appropriate by the General Partner;
(11) negotiate, execute and perform any contracts, conveyance
or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's
powers under this Agreement;
(12) distribute Partnership cash or other assets in accordance
with this Agreement;
(13) maintain the Partnership's books and records;
(14) prepare and deliver all financial, regulatory, tax and
other filings or reports to governmental or other
agencies having jurisdiction over the Partnership; and
(15) take any action in connection with the Partnership's
direct or indirect investment in any other Person.
B. Each of the Limited Partners agrees that the General
Partner is authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the Partners, notwithstanding any other provisions of
this Agreement (except as provided in Section 7.3), the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
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C. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain working capital
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the
General Partner may, but shall be under no obligation to, take into account the
tax consequences to any Partner of any action taken by it. The General Partner
and the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
To the extent that such action is determined by the General Partner to
be necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate and do all things necessary or appropriate to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other jurisdiction in which the Partnership may elect to do business or
own property. Subject to the terms of Section 8.5.A(3) hereof, the General
Partner shall not be required, before or after filing, to deliver or mail a copy
of the Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other jurisdiction in which the Partnership may elect to do
business or own property.
Section 7.3 Restrictions on General Partner's Authority
The General Partner shall not have the authority to:
A. take any action in contravention of this Agreement or
which would make it impossible to carry on the ordinary business of the
Partnership;
B. possess Partnership property, or assign any rights in
specific Partnership property, for other than a Partnership purpose;
C. do any act in contravention of applicable law; or
D. perform any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability except
as provided herein or under the Act.
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Section 7.4 Reimbursement of the Crescent Group
A. Except as provided in this Section 7.4 and elsewhere in
this Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments, and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
B. The Crescent Group shall be reimbursed on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses the Crescent Group incurs relating to the
ownership and operation of, or for the benefit of, the Partnership, provided
that the amount of any such reimbursement shall be reduced by any interest paid
to the Crescent Group with respect to bank accounts or other instruments held by
it as permitted in Section 7.5. The Limited Partners acknowledge that the
Crescent Group's sole business is the ownership of interests in and operation of
the Partnership, and that all of the Crescent Group's operating expenses
(including, without limitation, costs and expenses relating to the formation and
continuity of existence of the Crescent Group, costs and expenses associated
with compliance with the periodic reporting requirements and all other rules and
regulations of the SEC or any other federal, state or local regulatory body,
salaries payable to officers and employees of the Crescent Group, fees and
expenses payable to directors of the Crescent Group, and all other operating or
administrative costs of the Crescent Group) are incurred for the benefit of the
Partnership and shall be reimbursed by the Partnership. Such reimbursements
shall be in addition to any reimbursement to the Crescent Group as a result of
indemnification pursuant to Section 7.7 hereof. If and to the extent any
reimbursements to the Crescent Group are determined for federal income tax
purposes not to constitute payment of expenses of the Partnership, the amounts
so determined shall constitute guaranteed payments within the meaning of Section
707(c) of the Code, shall be treated consistently therewith by the Partnership
and all Partners, and shall not be treated as distributions for purposes of
computing the Partners' Capital Accounts.
Section 7.5 Outside Activities of the Crescent Group
The Crescent Group shall not directly or indirectly enter into or
conduct any business, other than in connection with the ownership, acquisition
and disposition of Partnership Interests and the management of the business of
the Partnership, and such activities as are incidental thereto. The Crescent
Group shall not own any assets other than Partnership Interests in the
Partnership, and such bank accounts or similar instruments as it deems necessary
to carry out its responsibilities contemplated under this Agreement and the
Declaration of Trust. The Crescent Group shall not borrow funds for the purpose
of making distributions to the shareholders of any member of the Crescent Group
unless such borrowing is effectuated through the Partnership. Notwithstanding
anything to the contrary contained above in this Section 7.5, Crescent Equities
may form additional direct or indirect wholly owned subsidiary entities to serve
as general partners of partnerships or managing members of limited liability
companies in which the Partnership also owns a direct or indirect ownership
interest, provided that (i) the General Partner determines that the formation of
the subsidiary entities is necessary or appropriate to further the business
objectives of the Partnership and (ii) the subsidiary entities (a) make capital
contributions in exchange for their ownership interests in the partnerships and
limited liability companies on a pro
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rata basis with the Partnership and (b) do not own more than one percent (1%) of
the total ownership interests in any such partnership or limited liability
company.
Section 7.6 Contracts with Affiliates
A. The Partnership may contribute assets and loan funds to
joint ventures, other partnerships, corporations or other business entities in
which it is or thereby becomes a participant upon such terms and subject to such
conditions consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, deems advisable. The foregoing
authority shall not create any right or benefit in favor of any such other
business entities.
B. Except as expressly permitted by this Agreement, no
Partner or Affiliate of a Partner shall sell, transfer or convey any property
to, purchase any property from, lend or borrow funds, provide services to, or
enter into any other transaction with the Partnership, directly or indirectly,
except pursuant to transactions that are on terms that are fair and reasonable
and no less favorable to the Partnership than could be obtained from an
unaffiliated third party.
C. The General Partner is expressly authorized to enter into,
in the name and on behalf of the Partnership, noncompetition agreements and
other conflict avoidance agreements for its benefit with various Affiliates of
the Partnership and its Partners, on such terms as the General Partner, in its
sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. The Partnership shall indemnify each Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys' fees and other legal fees
and expenses), judgments, fines, settlements, and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the
Partnership as set forth in this Agreement in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceedings and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise, for any indebtedness of the Partnership or any subsidiary
entity (including, without limitation, any indebtedness which the Partnership or
any subsidiary entity has assumed or taken subject to), and the General Partner
is hereby authorized and empowered, on behalf of the Partnership, to enter into
one or more indemnity agreements consistent with the provisions of this Section
7.7 in favor of any Indemnitee having or potentially having liability for any
such indebtedness. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7.A. The termination
of any proceeding by conviction of an Indemnitee or upon a plea
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of nolo contendre or its equivalent by an Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, creates a rebuttable
presumption that such Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A with respect to the subject matter of such proceeding.
B. The right to indemnification conferred in this Section 7.7
shall be a contract right and shall include the right of each Indemnitee to be
paid by the Partnership the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the Partnership of (i) a written affirmation of the Indemnitee
of his or her good faith belief that the standard of conduct necessary for
indemnification by the Partnership pursuant to this Section 7.7 has been met,
and (ii) a written undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced if it shall ultimately be determined that the standard of
conduct has not been met.
C. The indemnification provided pursuant to this Section 7.7
shall continue as to a Person who has ceased to have the status of an Indemnitee
pursuant to clause (i) of the definition of "Indemnitee" set forth in Article I
hereof and shall inure to the benefit of the heirs, successors, assigns,
executors and administrators of any such Person, or to a Person whose status as
an Indemnitee was originally established pursuant to clause (ii) of such
definition and was later terminated for any reason other than the affirmative
decision of the General Partner to terminate such status; provided, however,
that except as provided in Section 7.7.D with respect to proceedings seeking to
enforce rights to indemnification, the Partnership shall indemnify any such
Person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such Person only if such proceeding (or part thereof) was
authorized by the General Partner.
D. If a claim under Sections 7.7.A, 7.7.B or 7.7.C is not
paid in full by the Partnership within thirty (30) calendar days after a written
claim has been received by the Partnership, the Indemnitee making such claim may
at any time thereafter (but prior to payment of the claim) bring suit against
the Partnership to recover the unpaid amount of the claim and, if successful, in
whole or in part, such Indemnitee shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the Partnership) that the Indemnitee has not met
the standards of conduct set forth above which make it permissible for the
Partnership to indemnify the Indemnitee for the amount claimed, but the burden
of proving such defense shall be on the Partnership. Neither the failure of the
Partnership to have made a determination prior to the commencement of such
action that indemnification of the Indemnitee is proper in the circumstances
because he or she has met the applicable standard of conduct set forth herein
nor an actual determination by the Partnership that the Indemnitee has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct.
E. Following any "change in control" of Crescent Equities of
the type required to be reported under Item 1 of Form 8-K promulgated under the
Exchange Act, any
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determination as to entitlement to indemnification shall be made by independent
legal counsel selected by the Indemnitee, which such independent legal counsel
shall be retained by the General Partner on behalf of the Partnership and at the
expense of the Partnership.
F. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Section 7.7 shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute or agreement, or pursuant to any
vote of the Partners, or otherwise.
G. The Partnership may purchase and maintain insurance, at
its expense, on its own behalf and on behalf of any Indemnitee and of such other
Persons as the General Partner shall determine, against any liability (including
expenses) that may be asserted against and incurred by such Person in connection
with the Partnership's activities pursuant to this Agreement, whether or not the
Partnership would have the power to indemnify such Person against such liability
under the terms of this Agreement. In addition, the Partnership may, together
with Crescent Equities, enter into indemnification agreements with one or more
of the Indemnitees pursuant to which the Partnership and Crescent Equities shall
jointly and severally agree to indemnify such Indemnitee(s) to the fullest
extent permitted by law, and advance to such Indemnitee(s) all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted.
H. Any indemnification pursuant to this Section 7.7 shall be
made only out of assets of the Partnership, and neither the General Partner nor
any Limited Partner shall have any obligation to contribute to the capital of
the Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
I. No Limited Partner shall be liable for the obligations of
the Partnership by reason of the indemnification provisions set forth in this
Agreement.
J. An Indemnitee shall not be denied indemnification in whole
or in part pursuant to this Section 7.7 because such Indemnitee has an interest
in the transaction to which the indemnification relates if the transaction
otherwise was permitted by the terms of this Agreement.
K. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns, executors and administrators,
and shall not be deemed to create any rights for the benefit of any other
Person. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for
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losses sustained or liabilities incurred as a result of errors in judgment or of
any act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the shareholders of
Crescent Equities collectively, that the General Partner is under no obligation
to consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions, and that the
General Partner shall not be liable to the Partnership or to any Partner for
monetary damages for losses sustained, liabilities incurred, or benefits not
derived by Limited Partners in connection with such decisions, provided that the
General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner
set forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely, and shall be protected in
acting or refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which such
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith.
C. The General Partner shall have the right, in respect of
any of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every act
and duty which is permitted or required to be done by the General Partner
hereunder.
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D. Notwithstanding any other provision of this Agreement or
the Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of Crescent Equities
to achieve or maintain qualification as a REIT or (ii) to avoid the incurring by
Crescent Equities of any taxes under Section 857 or Section 4981 of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners, to the extent such approval may be necessary.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
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Section 7.12 Limited Partner Representatives
Any Limited Partner may (but shall not be required to) appoint a
representative (the "Representative") who shall have full power and authority to
exercise all rights, including consent rights, of such Limited Partner under
this Agreement. Any such appointment shall be made in a writing delivered by the
Limited Partner to the General Partner. The same Person may serve as
Representative for more than one Limited Partner. Any action taken by a
Representative on behalf of a Limited Partner shall be fully binding on such
Limited Partner. The General Partner shall be entitled to rely on the actions
taken by a Representative without further evidence of its authority or further
action by the Limited Partner who appointed such Representative. Any appointment
of a Representative shall remain effective until rescinded in a writing
delivered by the Limited Partner to the General Partner. A Limited Partner may
revoke its designation of a Representative, or replace a designated
Representative with a different Representative, at any time by delivering
written notice of such action to the General Partner.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
Section 8.2 Management of Business
No Limited Partner (other than any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in his, her or its capacity as such) shall take part in the
operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to Section 7.5 hereof, and subject to any agreements entered
into pursuant to Section 7.6.C hereof and any other agreements entered into by a
Limited Partner or its Affiliates with the Partnership, any Limited Partner and
any officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct competition with the
Partnership. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner. None
of the Limited Partners nor any other Person shall have the rights by virtue of
this
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Agreement or the partnership relationship established hereby in any business
ventures of any other Person, other than the Crescent Group, and such Person
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital
Except pursuant to the Exchange Rights set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of his Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. No Limited
Partner shall have priority over any other Limited Partner either as to the
return of Capital Contributions or, except to the extent provided by Exhibit C
hereof or as permitted by Section 8.7.C, or otherwise expressly provided in this
Agreement, as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the Partnership's federal, state and
local income tax returns for each fiscal year;
(2) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
provided, however, that the General Partner may require,
as a condition of providing such list to the Limited
Partner, that the Limited Partner confirm in writing to
the General Partner that the names of the Partners and
other information provided by the list will be held in
strictest confidence and no distribution of the list will
be made;
(3) to obtain a copy of this Agreement and the Certificate,
and all amendments to the Agreement and the Certificate,
together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all
amendments to the Agreement and the Certificate have been
executed; and
(4) to obtain true and full information regarding the amount
of cash and a description and statement of any other
property or services contributed by each Partner and which
each Partner has agreed to contribute in the future, and
the date on which each became a Partner.
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B. The Partnership shall notify each Limited Partner in
writing of any change made to the Exchange Factor. Such written notification
shall be included with the quarterly financial statements that are sent to each
Limited Partner pursuant to Section 9.3 hereof.
C. Notwithstanding any other provision of this Section 8.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership, or (ii) the Partnership is required by law or
by agreements with unaffiliated third parties to keep confidential.
Section 8.6 Exchange Rights
A. Subject to the limitations set forth herein, in Section
8.6.B below and in Exhibit A, each Limited Partner or Assignee owning
Partnership Units shall have the right (the "Exchange Right") to require
Crescent Equities to exchange on any Specified Exchange Date all or any portion
of the Partnership Units owned by such Limited Partner or Assignee (an
"Exchanging Person") for consideration consisting of (i) an amount of cash equal
to the Cash Amount, (ii) a number of REIT Shares equal to the REIT Shares
Amount, or (iii) any combination of (i) or (ii) above, with the decision as to
the type of consideration to be given to the Exchanging Person to be made by
Crescent Equities, in its sole and absolute discretion. The Exchange Right shall
be exercised pursuant to a Notice of Exchange delivered to Crescent Equities by
the Exchanging Person, accompanied by any certificate or certificates evidencing
the Partnership Units to be exchanged. If Crescent Equities elects to pay all or
any portion of the consideration to an Exchanging Person in cash, the Crescent
Group agrees to use its best efforts to raise any required funds as quickly as
possible after receipt of the Notice of Exchange.
B. Notwithstanding anything to the contrary contained in
Section 8.6.A above, to the extent that the delivery of REIT Shares to an
Exchanging Person pursuant to Section 8.6.A above would cause the Exchanging
Person to violate the applicable "Ownership Limit" or the "Existing Holder
Limit" set forth in the Declaration of Trust, Crescent Equities may not deliver
REIT Shares to such Exchanging Person but may, in its sole and absolute
discretion, elect to either (1) pay the consideration to the Exchanging Person
in the form of the Cash Amount, or (2) refuse, in whole or in part, to accept
the Notice of Exchange.
Section 8.7 Covenants Relating to the Exchange Rights
A. Crescent Equities shall at all times reserve for issuance
such number of REIT Shares as may be necessary to enable it to issue such REIT
Shares in full satisfaction of the Exchange Rights with respect to all
Partnership Units which are from time to time outstanding.
B. As long as Crescent Equities shall be obligated to file
periodic reports under the Exchange Act, Crescent Equities shall use its best
efforts to file such reports in such manner as shall enable any recipient of
REIT Shares issued pursuant to Section 8.6 in reliance upon an
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exemption from registration under the Securities Act to continue to be eligible
to utilize Rule 144 promulgated by the SEC pursuant to the Securities Act, or
any successor rule or regulation or statute thereunder, for the resale thereof.
C. Crescent Equities shall not issue any additional REIT
Shares (other than REIT Shares contemplated by Sections 4.2 and 8.6 and REIT
Shares issued pursuant to a Stock Incentive Plan) other than on a pro rata basis
to all holders of REIT Shares. Crescent Equities shall not issue any preferred
stock or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares ("New Securities")
other than to all holders of REIT Shares unless (i) the General Partner shall
cause the Partnership to issue to Crescent Equities preferred equity ownership
interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership ("New Interests") having designations, preferences and other
rights, all such that the economic interests are substantially similar to those
of the New Securities, and (ii) Crescent Equities contributes the proceeds from
the issuance of such New Securities and from the exercise of rights contained in
such New Securities to the Partnership. The Partners hereby acknowledge and
agree that the proceeds received by Crescent Equities in exchange for the
issuance of New Securities may be cash or real property or an interest therein.
If any New Securities are subsequently converted or exchanged for REIT Shares,
(i) Crescent Equities shall, as of the date on which the conversion or exchange
is consummated, be deemed to have contributed to the Partnership as Contributed
Funds pursuant to Section 4.2.A(2) hereof an amount equal to the Value (computed
as of the Business Day immediately preceding the date on which such conversion
or exchange of the New Securities is consummated) of the REIT Shares delivered
by Crescent Equities to such holder of New Securities, and (ii) the Partnership
Interests of Crescent Equities and the other Limited Partners shall be adjusted
as set forth in Section 4.2. The number of Partnership Units held by the Limited
Partners shall not be decreased in connection with the issuance of any New
Securities or in connection with any subsequent conversion or exchange of any
New Securities for REIT Shares.
D. Each Limited Partner and Assignee covenants and agrees
that all Partnership Units delivered for exchange pursuant to Section 8.6 hereof
shall be delivered to Crescent Equities free and clear of all Liens and,
notwithstanding anything herein contained to the contrary, Crescent Equities
shall be under no obligation to acquire Partnership Units which are or may be
subject to any Liens. Each Limited Partner and Assignee further agrees that, in
the event any state or local property transfer tax is payable as a result of the
transfer of its Partnership Units to Crescent Equities, such Limited Partner or
Assignee shall assume and pay such transfer tax.
E. In the event Crescent Equities purchases REIT Shares, then
the General Partner shall cause the Partnership to purchase from Crescent
Equities a portion of its Partnership Interest on the same terms that Crescent
Equities purchased such REIT Shares.
Section 8.8 Other Matters Relating to the Exchange Rights
A. Any Partnership Units transferred to Crescent Equities in
connection with the exercise of the Exchange Rights shall be canceled.
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B. Upon any transfer of Partnership Units by an Exchanging
Person to Crescent Equities pursuant to Section 8.6 above, the Partnership
Interest of such Limited Partner or Assignee shall be decreased (and the
Partnership Interest of Crescent Equities shall be correspondingly increased) as
provided in this Section 8.8.B. The Partnership Interest of such Limited Partner
or Assignee subsequent to the exchange event shall be equal to the product of
the following: (i) the Partnership Interest of such Limited Partner or Assignee
immediately prior to the exchange event, multiplied by (ii) a fraction, the
numerator of which is the total Partnership Units owned by such Limited Partner
or Assignee immediately after the exchange event, and the denominator of which
is the total number of Partnership Units owned by such Limited Partner or
Assignee immediately prior to the exchange event. Notwithstanding the foregoing,
if a Limited Partner or Assignee owns Partnership Units and also owns
Partnership Interests issued pursuant to Section 4.3 or 4.7 above, which
Partnership Interests were not associated with Partnership Units, the portion of
the Partnership Interest of such Limited Partner or Assignee that represents the
Partnership Interests issued pursuant to Section 4.3 or 4.7 shall not be subject
to reduction pursuant to the provisions of this Section 8.8.B.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 8.5 hereof. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
As soon as practicable after the close of each fiscal quarter (other
than the last quarter of the fiscal year), the General Partner shall cause to be
mailed to each Limited Partner a quarterly report containing financial
statements of the Partnership, or of the Crescent Group if such statements are
prepared solely on a consolidated basis with the Crescent Group, for such fiscal
quarter, presented in accordance with generally accepted accounting principles.
As soon as practicable after the close of each fiscal year, the General Partner
shall cause to be mailed to each Limited Partner an annual report containing
financial statements of the Partnership, or of the Crescent Group
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if such statements are prepared solely on a consolidated basis with the Crescent
Group, for such fiscal year, presented in accordance with generally accepted
accounting principles. The annual financial statements shall be audited by a
nationally recognized firm of independent public accountants selected by the
General Partner.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal, state and local income tax
purposes, and the delivery to the Limited Partners of all tax information
reasonably required by the Limited Partners for federal, state and local income
tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
or choose any available reporting method pursuant to the Code or state or local
tax law; provided, however, that the General Partner shall make the election
under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) or change any reporting method upon the General Partner's determination in
its sole and absolute discretion that such revocation is in the best interests
of all of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profits interest of
each of the Limited Partners, provided that such information is provided to the
Partnership by the Limited Partners.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the
tax matters partner may expressly state that such
agreement shall bind all Partners, except that such
settlement agreement shall not bind
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any Partner (i) who (within the time prescribed pursuant
to the Code and Regulations) files a statement with the
IRS providing that the tax matters partner shall not
have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice
partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required
to be taken into account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax matters partner,
to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with
the Tax Court or the United States Claims Court, or the
filing of a complaint for refund with the District Court
of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is
not allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with respect
to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any
item required to be taken into account by a Partner for
tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable
law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of Indemnitees
set forth in Section 7.7 of this Agreement shall be fully applicable to the tax
matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for
its services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder.
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Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60)-month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from
or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner, or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and, until repayment of such loan, shall succeed to
all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer," when used in this Article 11 with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which the General Partner purports
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to assign its General Partnership Interest to another Person or by which a
Limited Partner purports to assign its Limited Partnership Interest to another
Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
The term "transfer" when used in this Article 11 does not include any exchange
of Partnership Units by a Limited Partner pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of Partnership Interests of the General Partner
A. The General Partner shall not withdraw from the
Partnership or transfer all or any portion of its interest in the Partnership
except in connection with a transaction described in Section 11.2.B or 11.2.C.
B. Crescent Equities shall not engage in any merger,
consolidation or other combination with or into another Person, or sale of all
or substantially all of its assets, or any reclassification, or recapitalization
or change of outstanding REIT Shares (other than a reincorporation, a
reorganization primarily for the purpose of changing domicile or converting to
corporate form, a change in par value, or from par value to no par value, or as
a result of a subdivision or combination as described in the definition of
"Exchange Factor," which require no consent of the Limited Partners under this
Agreement) ("Transaction"), unless the Transaction either:
(1) includes a merger of the Partnership or sale of
substantially all of the assets of the Partnership, as a
result of which all Limited Partners will receive for each
Partnership Unit an amount of cash, securities, or other
property equal to the product of the Exchange Factor and
the greatest amount of cash, securities or other property
paid to a holder of one REIT Share in consideration of one
REIT Share at any time during the period from and after
the date on which the Transaction is consummated, provided
that if, in connection with the Transaction, a purchase,
tender or exchange offer shall have been made to and
accepted by the holders of more than fifty percent (50%)
of the outstanding REIT Shares, the holders of Partnership
Units shall receive the greatest amount of cash,
securities, or other property which a Limited Partner
would have received had it exercised the Exchange Right
and received REIT Shares in exchange for all of its
Partnership Units immediately prior to the expiration of
such purchase, tender or exchange offer; or
(2) provides that the Partnership shall continue as a separate
entity and grants to the Limited Partners exchange rights
with respect to the ownership interests in the new entity
that are substantially equivalent to the Exchange Rights
provided for in Section 8.6.
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C. Crescent Equities shall not transfer all or any portion
of its ownership interest in the General Partner; provided, however, that
Crescent Equities may liquidate the General Partner.
Section 11.3 Transfer of Partnership Interests of Limited Partners
Other Than Crescent Equities
A. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.3.F and 11.3.G hereof, any Limited Partner other than Crescent
Equities may freely transfer all or any portion of its Partnership Interest. Any
transferee of a Limited Partnership Interest (whether such transferee is a
Substituted Limited Partner or an Assignee) shall also become the owner of any
Partnership Units associated with such Limited Partnership Interest, and shall
be entitled to exercise the Exchange Rights with respect to such Partnership
Units in accordance with the terms and conditions set forth in Section 8.6
above.
B. If a Limited Partner is Incapacitated, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise
permitted under this Section 11.3 by a Limited Partner of its Partnership
Interest if, in the opinion of legal counsel to the Partnership, such transfer
would require filing of a registration statement under the Securities Act or
would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Interest.
D. No transfer by a Limited Partner of its Partnership
Interest may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation for federal income tax purposes, or result
in a termination of the Partnership for federal income tax purposes, (ii) in the
opinion of the legal counsel for the Partnership, it would adversely affect the
ability of Crescent Equities to continue to qualify as a REIT or subject
Crescent Equities to any additional taxes under Section 857 or Section 4981 of
the Code, or (iii) the General Partner determines that such transfer is
effectuated through or, together with other similar transfers, could result in
the creation of an "established securities market" or a "secondary market (or
the substantial equivalent thereof)" or otherwise increase the likelihood that
the Partnership would be treated as a "publicly traded partnership" within the
meaning of Code Section 7704 and the related Notice 88-75, 1988-2 C.B. 386, and
Treasury Regulations Section 1.7704-1.
E. No transfer by a Limited Partner of its Partnership
Interest may be made (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest, (ii) in violation of any provision of
any mortgage or trust deed (or the note or bond secured thereby) constituting a
Lien against an asset of the Partnership, (iii) in violation of applicable law,
or (iv) if
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such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor regulations section 2510.2-101.
F. No transfer of a Limited Partnership Interest may be made
to a lender to the Partnership or any Person who is related (within the meaning
of Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, except with the consent of the General
Partner, which consent may be granted or withheld in the sole and absolute
discretion of the General Partner.
Section 11.4 Substituted Limited Partners
A. Except as otherwise expressly provided in the last
sentence of this Section 11.4.A, no Limited Partner shall have the right to
substitute a transferee as a Limited Partner in its place without the consent of
the General Partner, which consent may be granted or withheld by the General
Partner in its sole and absolute discretion. The General Partner's failure or
refusal to permit a transferee of a Limited Partnership Interest to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or any Partner. Notwithstanding anything to the contrary
contained above in this Section 11.4.A, if the transferee of a Limited
Partnership Interest is a Person listed on Exhibit E attached hereto, the
General Partner shall be required to admit such transferee as a Substituted
Limited Partner, provided that (i) the transfer of the Limited Partnership
Interest to such Person is not prohibited under the provisions of Sections
11.3.C through G hereof, and (ii) such transferee complies with the provisions
of the second sentence of Section 11.4.B hereof.
B. A transferee who has been admitted as a Substituted
Limited Partner in accordance with this Article 11 shall have all the rights and
powers and be subject to all the restrictions and liabilities of a Limited
Partner under this Agreement. The admission of any transferee as a Substituted
Limited Partner shall be subject to the transferee executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement (including, without limitation, the provisions of Section 2.4) and
such other documents or instruments as may be required to effect the admission.
C. Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Partnership Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any
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other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Interest transferred to such transferee, but
shall not be entitled to vote such Partnership Interest on any matter presented
to the Limited Partners for a vote (such Partnership Interest being deemed to
have been voted on such matter in the same proportion as all other Partnership
Interests held by the Limited Partners are voted). In the event any such
transferee desires to make a further transfer of any such Partnership Interest,
such transferee shall be subject to all of the provisions of this Article 11 to
the same extent and in the same manner as any Limited Partner desiring to make a
transfer of a Partnership Interest.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's
Partnership Interest in accordance with this Article 11 or pursuant to an
exchange of its Partnership Interest under Section 8.6.
B. Any Limited Partner who shall transfer all of its
Partnership Interest in a permitted transfer pursuant to this Article 11 or
pursuant to an exchange of all of its Partnership Units under Section 8.6 shall
cease to be a Limited Partner.
C. If any Partnership Interest is exchanged pursuant to
Section 8.6 or transferred pursuant to this Article 11 at any time other than
the end of a fiscal year, Net Income, Net Loss, each item thereof and all other
items attributable to such interest for such fiscal year shall be allocated
between the transferor Partner and the transferee Partner in the same ratio as
the number of days in such fiscal year before and after such transfer, except
that gain or loss attributable to the sale or other disposition of all or any
substantial portion of the Partnership assets or to other extraordinary
non-recurring items shall be allocated to the owner of the Partnership Interest
as of the date of closing of the sale or other disposition, or, with respect to
other extraordinary non-recurring items, the date the profit is realized or the
loss is incurred, as the case may be. Solely for purposes of the allocations to
be made under the preceding sentence (but not for any other purpose), (i) any
Partnership Interest that is exchanged or otherwise transferred prior to the
eighth day of a month shall receive allocations under the preceding sentence as
if it had been transferred on the first day of the month, (ii) any Partnership
Interest that is exchanged or otherwise transferred on or after the eighth day
of a month and prior to the twenty-third day of such month shall receive
allocations under the preceding sentence as if it had been transferred on the
fifteenth day of the month, and (iii) any Partnership Interest that is exchanged
or otherwise transferred on or after the twenty-third day of a month shall
receive allocations under the preceding sentence as if it had been transferred
on the first day of the next succeeding month. All distributions of Available
Cash with respect to which the Partnership Record Date is before the date of
such transfer or exchange shall be made to the transferor Partner, and all
distributions of Available Cash thereafter shall be made to the transferee
Partner.
Section 11.7 Acquisition of Partnership Interest by Partnership
The Partnership may acquire, by purchase, redemption or otherwise, any
Partnership Interest or other interest of a Partner in the Partnership. Any
Partnership Interest or other interest
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so acquired by the Partnership shall be deemed canceled. In the event that a
Partnership Interest is acquired by the Partnership pursuant to this Section
11.7, the Partnership Interest of each other existing Partner shall be
increased, as of the date of acquisition of such Partnership Interest by the
Partnership, such that the Partnership Interest of each Partner shall be equal
to the sum of (a) each Partner's existing Partnership Interest, plus (b) the
product obtained by multiplying (i) each Partner's existing Partnership Interest
by (ii) a fraction, the numerator of which is equal to the Partnership Interest
acquired by the Partnership and the denominator of which is equal to the result
obtained by subtracting (A) one minus (B) the Partnership Interest acquired by
the Partnership.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Substituted General Partner
A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
substituted General Partner shall be admitted to the Partnership as the General
Partner, effective simultaneously with such transfer. Any such transferee shall
carry on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the substituted General Partner executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement and such other documents or instruments as may be required to
effect the admission.
Section 12.2 Admission of Additional or Employee Limited Partners
A. After the admission to the Partnership of the Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with Section 4.3 hereof or receives a Limited
Partnership Interest pursuant to Section 4.7 hereof shall be admitted to the
Partnership as an Additional Limited Partner or Employee Limited Partner, as the
case may be, only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner or Employee
Limited Partner, as the case may be. The admission of any Person as an
Additional Limited Partner or Employee Limited Partner, as the case may be,
shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
B. If any Additional Limited Partner or Employee Limited
Partner is admitted to the Partnership at any time other than the end of a
fiscal year, Net Income, Net Loss, each item thereof and all other items for
such fiscal year shall be allocated among such Additional Limited Partner or
Employee Limited Partner and all other Partners by taking into account their
varying interests during such fiscal year in accordance with Section 706(d) of
the Code. For this purpose, Net Income, Net Loss, each item thereof and all
other items for such fiscal year shall be prorated based on the portion of the
taxable year that has elapsed prior to the admission of such Additional
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Limited Partner or Employee Limited Partner, except that gain or loss
attributable to the sale or other disposition of all or any substantial portion
of the Partnership assets or to other extraordinary non-recurring items shall be
allocated to the Partners who own Partnership Interests as of the date of
closing of the sale or other disposition, or, with respect to other
extraordinary non-recurring items, the date the profit is realized or the loss
is incurred, as the case may be. All distributions of Available Cash with
respect to which the Partnership Record Date is before the date of admission of
such Additional Limited Partner or Employee Limited Partner shall be made solely
to Partners other than the Additional Limited Partner or Employee Limited
Partner, and all distributions of Available Cash thereafter shall be made to all
Partners including the Additional Limited Partner or Employee Limited Partner.
C. Greenbrier has executed and delivered to the General
Partner the Greenbrier Agreement. The General Partner, exercising its discretion
pursuant to Section 12.2.A hereof, hereby agrees that the Greenbrier Agreement
is the sole document required to effectuate the admission to the Partnership of
Greenbrier as an Additional Limited Partner. The Greenbrier Agreement contains
an "evergreen" provision so that it shall be deemed reexecuted and delivered to
the General Partner by Greenbrier if, as and whenever it shall acquire future
installments of Partnership Units under the Consultant Unit Agreement if, prior
to the acquisition of any such future installment, it shall have exchanged all
of its Partnership Units and consequently ceased to be a Limited Partner
pursuant to Section 11.6.B hereof. Accordingly, if, as and whenever Greenbrier
receives Partnership Units pursuant to the terms of the Consultant Unit
Agreement, the General Partner shall automatically admit Greenbrier as an
Additional Limited Partner without requiring any additional documentation from
Greenbrier, even if Greenbrier is not at that time a Limited Partner of the
Partnership.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner in accordance with
the provisions of this Agreement, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners, Additional Limited Partners or Employee Limited Partners, or
by the admission of a substituted General Partner in accordance with the terms
of this Agreement. Upon the withdrawal of the General Partner, any substituted
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following ("Liquidating Events"):
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A. the expiration of its term as provided in Section 2.5
hereof;
B. an event of withdrawal of the General Partner, as defined
in the Act (other than (i) a liquidation of the General Partner into Crescent
Equities, in which event Crescent Equities shall become the General Partner, or
(ii) an event of Bankruptcy), unless within ninety (90) days after the
withdrawal remaining Partners owning a majority-in-interest of the total
Partnership Interests of the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective immediately prior
to the date of withdrawal, of a substitute General Partner;
C. an election to dissolve the Partnership made in writing by
the General Partner;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and
properties of the Partnership, unless the General Partner elects to continue the
Partnership business for the purpose of the receipt and the collection of
indebtedness or the collection of other consideration to be received in exchange
for the assets of the Partnership (which activities shall be deemed to be part
of the winding up of the Partnership); or
F. a final and non-appealable judgment is entered by a court
with appropriate jurisdiction ruling that either Crescent Equities or the
General Partner is bankrupt or insolvent, or a final and non-appealable order
for relief is entered by a court with appropriate jurisdiction against either
Crescent Equities or the General Partner, in each case under any federal or
state bankruptcy or insolvency laws as now or hereafter in effect, unless prior
to the entry of such order or judgment remaining Partners owning a
majority-in-interest of the total Partnership Interests of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substituted General Partner.
Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets (subject to the provisions of Section
13.2.B below), and satisfying the claims of its creditors and Partners. No
Partner shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Partnership's business and affairs. The
General Partner (or, in the event there is no remaining General Partner, any
Person elected by Limited Partners owning a majority-in-interest of the total
Partnership Interests of the Limited Partners (the "Liquidator")) shall be
responsible for overseeing the winding up and dissolution of the Partnership and
shall take full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair market value thereof, and the proceeds
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therefrom (which may, to the extent determined by the General Partner, include
shares of stock in Crescent Equities) shall be applied and distributed in the
following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other
than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners; and
(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their positive Capital Account
balances, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof
which require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. As part of the liquidation and winding-up of the
Partnership, a proper accounting shall be made of the Capital Account of each
Partner, including an analysis of changes to the Capital Account from the date
of the last previous accounting. Financial statements presenting such accounting
shall include a report of an independent certified public accountant selected by
the Liquidator.
D. As part of the liquidation and winding-up of the
Partnership, the Liquidator may sell Partnership assets (or assets owned by the
Subsidiary Corporations, the Management Company, or any other entity in which
the Partnership is an owner), at the best price and on the best terms and
conditions as the Liquidator in good faith believes are reasonably available at
the time.
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Section 13.3 Compliance with Timing Requirements of Regulations
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in its Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever. In
the discretion of the Liquidator, a pro rata portion of the distributions that
would otherwise be made to the General Partner and Limited Partners pursuant to
this Article 13 may be:
(i) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General Partner and Limited Partners
pursuant to this Agreement; or
(ii) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provisions of this Article 13, in the event
the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Partnership
property in kind to the General Partner and Limited Partners, who shall be
deemed to have assumed and taken such property subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership property in kind to the Partnership, which
shall be deemed to have assumed and taken such property subject to all such
liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contribution and shall have no right or power to demand or receive property
other than cash from the Partnership. No Limited Partner
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shall have priority over any other Limited Partner as to the return of its
Capital Contributions, distributions, or allocations, except as permitted by
Section 8.7.C or otherwise expressly provided in this Agreement.
Section 13.6 Documentation of Liquidation
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken. The Liquidator shall have the authority to execute and record
any and all documents or instruments required to effect the dissolution,
liquidation and termination of the Partnership.
Section 13.7 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.8 Liability of the Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership from and against any and all claims, demands, liabilities, costs,
damages and causes of action of any nature whatsoever arising out of or
incidental to the Liquidator's taking of any action authorized under or within
the scope of this Agreement; provided, however, that the Liquidator shall not be
entitled to indemnification, and shall not be held harmless, where the claim,
demand, liability, cost, damage or cause of action at issue arises out of:
(1) a matter entirely unrelated to the Liquidator's action or
conduct pursuant to the provisions of this Agreement; or
(2) the proven willful misconduct or gross negligence of the
Liquidator.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to a partition of the Partnership
property.
ARTICLE XIV
AMENDMENT OF AGREEMENT
Section 14.1 Amendments
A. Amendments to this Agreement may be proposed by the
General Partner. Except as provided in Section 14.1.B or 14.1.C, a proposed
amendment shall be adopted and be
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effective as an amendment hereto if it is approved by the General Partner and
Limited Partners owning a majority-in-interest of the total Percentage Interests
of the Limited Partners.
B. Notwithstanding Section 14.1.A, the General Partner shall
have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for the
benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement
(including, without limitation, adjustments to Exhibit A
to reflect such events, as set forth in Section 4.1.B
hereof); and
(3) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any
material respect, or to cure any ambiguity, correct or
supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with
the provisions of this Agreement.
C. Notwithstanding anything to the contrary contained in
Section 14.1.A hereof, this Agreement shall not be amended without the prior
written consent of each Partner adversely affected if such amendment would (i)
convert a Limited Partner's interest in the Partnership into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii) alter
rights of the Partner to receive distributions pursuant to Article 5, or the
allocations specified in Article 6 (except as permitted pursuant to Sections
4.2, 4.3, 4.6, 4.7, 8.7 and Section 14.1.B(3) hereof), (iv) alter or modify the
Exchange Rights set forth in Section 8.6, or the right set forth in Section
11.2.C, (v) cause the termination of the Partnership prior to the time set forth
in Sections 2.5 or 13.1, or (vi) amend this Section 14.1.C. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth in Section 7.3 without the consent of all Limited Partners.
ARTICLE XV
PARTNER REPRESENTATIONS AND WARRANTIES
Section 15.1 Representations and Warranties
A. Each Partner represents and warrants severally and not
jointly, and solely on behalf of itself, to the Partnership and the other
Partners as follows:
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(1) Organization. If such Partner is not a natural person,
such Partner is duly formed and validly existing and is qualified to do business
and in good standing in the jurisdictions in which it does business.
(2) Due Authorization; Binding Agreement. This Agreement
has been duly executed and delivered by such Partner, or an authorized
representative of such Partner, and constitutes a legal, valid and binding
obligation of such Partner, enforceable against such Partner in accordance with
the terms hereof.
(3) Consents and Approvals. No consent, waiver, approval
or authorization of, or filing, registration or qualification with, or notice
to, any governmental unit or any other person is required to be made, obtained
or given by such Partner in connection with the execution, delivery and
performance of this Agreement other than consents, waivers, approvals or
authorizations which have been obtained prior to the date hereof.
(4) No Conflict with Other Documents or Violation of Law.
The execution of this Agreement by such Partner and such Partner's performance
of the transactions contemplated herein will not violate any document,
instrument, agreement, stipulation, judgment, order, or any applicable federal,
state or local law, ordinance or regulation to which such Partner is a party or
by which such Partner is bound.
B. Each Limited Partner represents and warrants that its
Limited Partnership Interest is being acquired for its own account and not with
a view to the distribution or other sale thereof, except in a transaction which
is exempt from registration under the Securities Act or registered thereunder.
Any distribution or other sale of the Limited Partnership Interest of such
Limited Partner shall be subject to the provisions of Section 11.3 hereof. Such
Limited Partner further represents and warrants to the Partnership and the other
Partners as follows:
(1) If such Limited Partner is a corporation, partnership
or a Massachusetts business trust or similar business trust, it has not been
formed for the specific purpose of acquiring the Limited Partnership Interest,
and has total assets in excess of Five Million Dollars ($5,000,000);
(2) If such Limited Partner is an individual, he or she
had an individual income in excess of $200,000 in each of the two most recent
tax years or joint income with his or her spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching at least the same
income level in the current year;
(3) Such Limited Partner is a sophisticated investor with
the capacity to protect its own interests in investments of this nature, and is
capable of evaluating the merits and risks of an investment in the Limited
Partnership Interest;
(4) Such Limited Partner has had an opportunity to ask
questions and receive answers concerning the investment in the Limited
Partnership Interest, and has all of the information deemed by it to be
necessary or appropriate to evaluate the investment in the Limited Partnership
Interest and the risks and merits thereof;
(5) Such Limited Partner is aware of the following:
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(i) An investment in the Limited Partnership Interest
is speculative, with no assurance of any income therefrom;
(ii) No federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(iii) Transferability of the Limited Partnership
Interest is restricted and, accordingly, it may not be possible for such Limited
Partner to liquidate the Limited Partnership Interest in case of emergency; and
(iv) With respect to the tax aspects of an investment
in the Limited Partnership Interest, such Limited Partner in making this
acquisition is not relying to any degree upon the advice of Crescent Equities or
the Partnership, or any Person affiliated therewith, but rather solely upon its
own legal, financial and tax advisors.
ARTICLE XVI
ARBITRATION OF DISPUTES
Section 16.1 Arbitration
Notwithstanding anything to the contrary contained in this Agreement,
all claims, disputes and controversies between the parties hereto (including,
without limitation, any claims, disputes and controversies between the
Partnership and any one or more of the Partners and any claims, disputes and
controversies among any two or more Partners) arising out of or in connection
with this Agreement or the Partnership created hereby, relating to the validity,
construction, performance, breach, enforcement or termination thereof, or
otherwise, shall be resolved by binding arbitration in the State of Texas, in
accordance with this Article 16 and, to the extent not inconsistent herewith,
the Expedited Procedures and Commercial Arbitration Rules of the American
Arbitration Association.
Section 16.2 Procedures
Any arbitration called for by this Article 16 shall be conducted in
accordance with the following procedures:
(1) The Partnership or any partner (the "Requesting Party")
may demand arbitration pursuant to Section 16.1 hereof at any time by giving
written notice of such demand (the "Demand Notice") to all other Partners and
(if the Requesting Party is not the Partnership) to the Partnership, which
Demand Notice shall describe in reasonable detail the nature of the claim,
dispute or controversy.
(2) Within fifteen (15) days after the giving of a Demand
Notice, the Requesting Party, on the one hand, and each of the other Partners
and/or the Partnership against whom the claim has been made or with respect to
which a dispute has arisen (collectively, the "Responding Party"), on the other
hand, shall select and designate in writing to the other party one reputable,
disinterested individual deemed competent to arbitrate the claim, dispute or
controversy (a
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"Qualified Individual") willing to act as an arbitrator of the claim, dispute or
controversy. Within fifteen (15) days after the foregoing selections have been
made, the arbitrators so selected shall jointly select a third Qualified
Individual willing to act as an arbitrator of the claim, dispute or controversy.
In the event that the two arbitrators initially selected are unable to agree on
a third arbitrator within the second fifteen (15) day period referred to above,
then, on the application of either party, the American Arbitration Association
shall promptly select and appoint a Qualified Individual to act as the third
arbitrator. The three arbitrators selected pursuant to this Section 16.2(2)
shall constitute the arbitration panel for the arbitration in question.
(3) The presentations of the parties hereto in the arbitration
proceeding shall be commenced and completed within sixty (60) days after the
selection of the arbitration panel pursuant to Section 16.2(2) above, and the
arbitration panel shall render its decision in writing within thirty (30) days
after the completion of such presentations. Any decision concurred in by any two
(2) of the arbitrators shall constitute the decision of the arbitration panel,
and unanimity shall not be required.
(4) The arbitration panel shall have the discretion to include
in its decision a direction that all or part of the attorneys' fees and costs of
any party or parties and/or the costs of such arbitration be paid by any other
party or parties. On the application of a party before or after the initial
decision of the arbitration panel, and proof of its attorneys' fees and costs,
the arbitration panel shall order the other party to make any payments directed
pursuant to the preceding sentence.
(5) Notwithstanding anything to the contrary contained above
in this Section 16.2, if either party fails to select a Qualified Individual to
act as an arbitrator for such party with the fifteen (15) day time period set
forth in the first sentence of Section 16.2(2), the Qualified Individual
selected by the other party shall serve as sole arbitrator under this Section
16.2 in lieu of the arbitration panel. Such sole arbitrator shall have all of
the rights and duties of the arbitration panel set forth above in this Section
16.2.
Section 16.3 Binding Character
Any decision rendered by the arbitration panel pursuant to this Article
16 shall be final and binding on the parties hereto, and judgment thereon may be
entered by any state or federal court of competent jurisdiction
Section 16.4 Exclusivity
Arbitration shall be the exclusive method available for resolution of
claims, disputes and controversies described in Section 16.1 hereof, and the
Partnership and its Partners stipulate that the provisions hereof shall be a
complete defense to any suit, action, or proceeding in any court or before any
administrative or arbitration tribunal with respect to any such claim,
controversy or dispute. The provisions of this Article 16 shall survive the
dissolution of the Partnership.
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Section 16.5 No Alteration of Agreement
Nothing contained herein shall be deemed to give the arbitrators any
authority, power or right to alter, change, amend, modify, add to, or subtract
from any of the provisions of this Agreement.
ARTICLE XVII
GENERAL PROVISIONS
Section 17.1 Addresses and Notice
All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A or at such other
address as the Partner shall notify the General Partner in writing. Such
communications shall be deemed sufficiently given, served, sent or received for
all purposes at such time as delivered to the addressee (with the return receipt
or delivery receipt being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
Section 17.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, (i) references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and (ii) references
to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit
attached hereto and referred to herein is hereby incorporated by reference.
Section 17.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa. Any references in this Agreement to "including" shall be deemed to mean
"including without limitation."
Section 17.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.
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Section 17.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 17.6 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
Section 17.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 17.8 No Agency
Nothing contained herein shall be construed to constitute any partner
the agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.
Section 17.9 Entire Understanding
This Agreement constitutes the entire agreement and understanding among
the Partners and supersedes any prior understanding and/or written or oral
agreements among them respecting the subject matter herein.
Section 17.10 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 17.11 Applicable Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law. The laws of the State of Delaware shall be applied in construing the
Agreement in connection with all arbitration proceedings under Article XVI;
provided that, to the extent that the laws of another jurisdiction are otherwise
applicable as to procedural requirements relating to the arbitration, the
procedural requirements of such other jurisdiction shall be complied with.
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Section 17.12 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respects, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 17.13 Guaranty by Crescent Equities
Crescent Equities unconditionally and irrevocably guarantees to the
Limited Partners the performance by the General Partner of the obligations of
the General Partner under this Agreement. This guaranty is exclusively for the
benefit of the Limited Partners and shall not extend to the benefit of any
creditor of the Partnership.
Section 17.14 Restriction on Sale of Sonoma Property
The General Partner hereby acknowledges that the Partnership's ability
to sell or otherwise transfer the Sonoma Property is subject to certain
restrictions under the Sonoma Contribution Agreement for a period of seven (7)
years after the date of the Sonoma Contribution Agreement, or as otherwise set
forth at the end of Article II of the Sonoma Contribution Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
LIMITED PARTNERS:
as set forth in Exhibit A hereto:
By: CRESCENT REAL ESTATE EQUITIES,
LTD., as attorney-in-fact
pursuant to Sections 2.4 and
14.1.B of the Agreement
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
[EXHIBITS OMITTED]
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FIRST AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of February 19, 1998, is entered into by and among Crescent Real Estate
Equities, Ltd., a Delaware corporation, on its own behalf as sole general
partner (the "General Partner") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997, hereinafter referred
to as the "Effective Agreement."
WITNESSETH:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware, and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Stock Option Plan Contribution
-------------- ------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Julie C. Carey 11/10/97 800 1995 Plan $ 28,350.00
Anna Dean 11/24/97 200 First Amended and $ 7,562.50
Restated 1995 Plan
Howard Lovett 12/4/97 3,000 1995 Plan $117,000.00
Howard Lovett 12/4/97 2,000 First Amended and $ 78,000.00
Restated 1995 Plan
Bobby Vann 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
Bret Angle 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C> <C> <C>
Howard Lovett 12/19/97 200 1995 Plan $ 7,737.50
Lynn B. Sonsel 1/5/98 200 First Amended and $ 7,937.50
Restated 1995 Plan
Fred Hoeckstra 1/21/98 200 First Amended and $ 7,237.50
Restated 1995 Plan
Anthony M. Frank 2/2/98 2,800 First Amended and $ 97,125.00
Restated 1995 Plan
</TABLE>
WHEREAS, the individuals and entities set forth in the following table
exercised their Exchange Rights with respect to the respective number of
Partnership Units, on the respective date indicated opposite each such
individual's or entity's name:
<TABLE>
<CAPTION>
Number of
Partnership Units
Individual or Entity Exercise Date Exchanged
------------------------------ -------------------- --------------------
<S> <C> <C>
Gerald W. Haddock 12/12/97 5,000
Pridemore Asset Trust UA 1/1/98 8,064
Scott Asset Trust UA 1/1/98 8,064
Peter G. Henry 1/2/98 7,149
University of Arizona 1/5/98 61,250
Foundation
The Joost Family Living Trust 1/6/98 2,110
Scott Asset Trust UA 1/16/98 1,364
Pridemore Asset Trust UA 1/16/98 1,364
Robert J. Stirk 1/19/98 2,000
Peter G. Henry 1/28/98 10,000
The Lone Star Trust 1/29/98 4,220
</TABLE>
WHEREAS, on December 8, 1997, Richard E. Rainwater assigned 1,300
Partnership Units to Darla D. Moore;
WHEREAS, on December 19, 1997, Crescent Equities issued 5,375,000 REIT
Shares in a public stock offering at a cash price of $38.125 per share, which
cash proceeds aggregating $204,921,875 were contributed to the Partnership by
Crescent Equities pursuant to Section 4.2 of the Effective Agreement;
WHEREAS, effective as of December 31, 1997, Crescent Equities issued
30,933 REIT Shares to Senterra Real Estate Group, L.L.C. ("Senterra") in
satisfaction of certain obligations of the Partnership to Senterra, and, in
connection therewith, Crescent Equities shall receive credit for a Capital
Contribution to the Partnership of $1,200,000;
WHEREAS, on January 5, 1998, Canyon Ranch, Inc. assigned 61,250
Partnership Units to the University of Arizona Foundation;
-2-
<PAGE> 75
WHEREAS, on January 8, 1998. Crescent Equities issued 196 REIT Shares to
each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for a Capital Contribution to the Partnership of $20,064;
WHEREAS, on January 16, 1998, Darla D. Moore assigned 682 Partnership
Units to the Scott Asset Trust UA and 682 Partnership Units to the Pridemore
Asset Trust UA;
WHEREAS, on January 16, 1998, Richard E. Rainwater assigned 682
Partnership Units to the Scott Asset Trust UA and 682 Partnership Units to the
Pridemore Asset Trust UA;
WHEREAS, on February 19,1998, Crescent Equities issued 8,000,000 6-3/4%
Series A Convertible Cumulative Preferred Shares ("Series A Preferred Shares")
and, in connection therewith, the General Partner, pursuant to Section 8.7.C of
the Effective Agreement, is required to cause the Partnership to issue to
Crescent Equities preferred equity ownership interests in the Partnership
("Series A Preferred Partnership Units"), and, pursuant to its authority under
Sections 6.1.C and 8.7.C of the Effective Agreement, desires to make such
revisions to the Agreement as are necessary to reflect the issuance of the
Series A Preferred Partnership Units; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In order to reflect (i) the Capital Contributions of Crescent Equities
aggregating $366,500 in connection with the exercise of options to purchase
REIT Shares by Julie C. Carey, Anna Dean, Howard Lovett, Bobby Vann, Bret
Angle, Lynn B. Sonsel, Fred Hoeckstra and Anthony M. Frank, as more fully set
forth above, (ii) the exercise by Gerald W. Haddock, the Pridemore Asset Trust
UA, the Scott Asset Trust UA, Peter G. Henry, the University of Arizona
Foundation, The Joost Family Living Trust, Robert J. Stirk, and the Lone Star
Trust of their Exchange Rights with respect to Partnership Units, as more fully
set forth above, (iii) the assignment by Richard E. Rainwater of 1,300
Partnership Units to Darla D. Moore, (iv) the Capital Contribution by Crescent
Equities on December 19, 1997 of $204,921,875 in connection with the public
stock offering of 5,375,000 REIT Shares at $38,125 per share, (v) the
assignment by Canyon Ranch, Inc. of 61,250 Partnership Units to the University
of Arizona Foundation, (vi) the Capital Contribution by Crescent Equities on
December 31, 1997, of $1,200,000 in connection with the issuance OF 30,933 REIT
Shares to Senterra in satisfaction of certain obligations of the Partnership to
Senterra, (vii) the Capital Contribution by Crescent Equities on January 8,
1998, of $20,064 in connection with the issuance of 196 REIT shares to each of
Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment of
trust managers' fees, (viii) the assignment by Darla D. Moore of 682
Partnership Units to each of the Scott Irrevocable Asset Trust and the
Pridemore Irrevocable Asset Trust, and (ix) the assignment by Richard E.
Rainwater of 682 Partnership Units to each of the Scott Irrevocable Asset Trust
and the Pridemore Irrevocable Asset Trust, Exhibit A to the Effective Agreement
is hereby deleted in its entirety and replaced with the Exhibit A attached to
this First Amendment and made a part hereof.
-3-
<PAGE> 76
2. Pursuant to Section 8.7.C of the Effective Agreement, effective as of
February 19, 1998, the issuance date of Series A Preferred Shares by Crescent
Equities, the Partnership hereby issues 8,000,000 Series A Preferred
Partnership Units to Crescent Equities.
(a) Crescent Equities shall have a zero percentage Partnership Interest
with respect to such Series A Preferred Partnership Units and shall have no
voting rights other than the right to vote on any amendment to the Effective
Agreement if such amendment would (i) convert the Series A Preferred Partnership
Units into a general partner's interest, (ii) modify the limited liability of
Crescent Equities with respect to the Series A Preferred Partnership Units, or
(iii) alter the distribution, redemption, conversion or liquidation rights of
the Series A Preferred Partnership Units as set forth in paragraphs 2(b) through
(e) below.
(b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to
any distributions of Available Cash under such provision, the General Partner
shall cause distributions of Available Cash to be made quarterly in cash on the
15th day, or if not a Business Day, the next succeeding Business Day, of
February, May, August and November in each year, beginning November 15, 1998,
(or on any other date on which Crescent Equities makes a distribution of
accrued, unpaid quarterly distributions to the holders of Series A Preferred
Shares) to Crescent Equities in an amount equal to the amount that is required
to be distributed by Crescent Equities on that date to the holders of Series A
Preferred Shares.
(c) Notwithstanding Sections 6.1.A and B of the Effective Agreement
(i) Each year, after giving effect to the special allocations set
forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the
Partnership shall be allocated first to Crescent Equities until the cumulative
amount allocated under this paragraph 2(c)(i) to Crescent Equities for the
current year and all prior years is equal to the cumulative amount for the
current year and all prior years of the distributions made to Crescent Equities
under paragraph 2(b) above and the portion of the distributions made to Crescent
Equities under paragraph 2(d) below (if any) that exceeds $25 per Series A
Preferred Partnership Unit. Any remaining Net Profits or Net Losses (other than
gain or loss from a sale or other disposition of all or substantially all of the
assets of the Partnership, which shall be allocated as set forth in paragraphs
2(c)(ii) and (iii) below) shall be allocated as set forth in Sections 6.1.A and
B of the Effective Agreement.
(ii) The gain of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to Crescent Equities in the amount
necessary to cause its Capital Account balance to be equal to the liquidation
preference payable by Crescent Equities on the outstanding Series A Preferred
Shares (the "Liquidation Preference") (i.e., a liquidation payment of $25 per
Series A Preferred Partnership Unit, necessary, plus and accrued, unpaid
quarterly distribution thereon), (B) second, to the Partners in the amounts
necessary, and in the ratio of such amounts, to cause the Capital Account
balance of Crescent Equities in excess of the liquidation Preference and the
Capital Account of each other Partner to be in the same ratio as their
respective Partnership Interests, and (iii) thereafter, to all of the Partners
in proportion to their respective Partnership Interests
(iii) The loss of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to the Partners, if any, having
positive Capital Account balances, in the amounts necessary, and in the ratio of
such amounts, so as to cause the positive Capital Account Balance of Crescent
-4-
<PAGE> 77
Equities to equal the Liquidation Preference and the positive Capital Account
balance of each other Partner to equal zero (or, if there is insufficient loss
to accomplish this result, loss shall be allocated in a manner so as to cause
the positive Capital Account balance of Crescent Equities in excess of the
Liquidation Preference and the positive Capital Account balance of each other
Partner to be in the same ratio as their respective Partnership Interests), (B)
second, to Crescent Equities, until its positive Capital Account balance equals
zero, and (C) thereafter, to the Partners in proportion to their respective
Partnership Interests.
(d) In the event that Crescent Equities exercises its redemption right
with respect to the Series A Preferred Shares, the Partnership shall
concurrently redeem a corresponding amount of Series A Preferred Partnership
Units at the same redemption price paid by Crescent Equities for the Series A
Preferred Shares (i.e., a redemption payment of $25 per Series A Preferred
Partnership Unit, plus any accrued, unpaid quarterly distribution thereon).
(e) Upon exercise of any conversion right with respect to Series A
Preferred Shares, (i) Crescent Equities shall, as of the date on which the
conversion is consummated, be deemed to have contributed to the Partnership as
Contributed Funds pursuant to Section 4.2.A(2) of the Effective Agreement an
amount equal to the Value (computed as of the Business Day immediately
preceding the date on which such conversion is consummated) of the REIT Shares
delivered by Crescent Equities to such holder of Series A Preferred Shares, (ii)
the Partnership Interests of Crescent Equities and the other Limited Partners
shall be adjusted as set forth in Section 4.2 of the Effective Agreement, and
(iii) a corresponding portion of Series A Preferred Partnership Units shall be
retired.
3. Except as the context may otherwise require, any terms used in this
First Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this First Amendment as in the Effective
Agreement.
4. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
-----------------------------
Name: David M. Dean
-----------------------------
Title: Senior Vice President, Law
-----------------------------
[EXHIBITS OMITTED]
-5-
<PAGE> 78
SECOND AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SECOND AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of March 2, 1998, is entered into by and among Crescent Real Estate Equities,
Ltd., a Delaware corporation, on its own behalf as sole general partner (the
"General Partner") of Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership (the "Partnership"), and as attorney-in-fact for
each of the existing limited partners (the "Limited Partners") of the
Partnership pursuant to Sections 2.4 and 14.1.B of the Second Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of November 1, 1997, as amended by the First
Amendment to the Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as of February
19, 1998, hereinafter referred to as the "Effective Agreement."
WITNESSETH:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated,
was amended and restated in its entirety by the Effective Agreement:
WHEREAS, on March 2, 1998, the Partnership issued Limited Partnership
Interest including 125,155 Partnership Units to Senterra Real Estate Group,
L.L.C. ("Senterra") in exchange for the contribution by Senterra to the
Partnership of the property and assets, including providing noncompetition
agreements (the "Property"), specified in that certain Asset Contribution
Agreement dated as of October 7, 1996, as amended on December 31, 1997, and
March 2, 1998 (the "Contract");
WHEREAS, Senterra immediately distributed 83,441, 20,857 and 20,857
Partnership Units to Senterra Corporation, a Texas corporation, Myron G.
Blalock III ("Blalock"), and Neil H. Tofsky ("Tofsky"), respectively; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby agree as follows:
<PAGE> 79
1. In order to reflect the issuance of a Limited Partnership interest
including 125,155 Partnership Units to Senterra and Senterra's immediate
distribution of 83,441, 20,857 and 20,857 Partnership Units to Senterra
Corporation, Blalock, and Tofsky, respectively, Exhibit A to the Effective
Agreement is hereby deleted in its entirety and replaced with the Exhibit A
attached to this Second Amendment and made a part hereof.
2. Each of Senterra Corporation, Blalock, and Tofsky hereby
acknowledges that it acquired a Limited Partnership Interest in exchange for a
Capital Contribution by Senterra of the Property, which Capital Contribution
has a Net Asset Value of $8,521,500.
3. Each of Senterra Corporation, Blalock, and Tofsky hereby
acknowledges its acceptance of all of the terms and conditions of the Effective
Agreement, including without limitation the power of attorney granted in Section
2.4 of the Effective Agreement, and all of the terms and conditions hereof.
4. Except as the context may otherwise require, any terms used in this
Second Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this Second Amendment as in the Effective
Agreement.
5. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this Second Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
--------------------------------
Name: DAVID M. DEAN
--------------------------------
Title: Senior Vice President, Law
--------------------------------
-2-
<PAGE> 80
NEW LIMITED PARTNERS:
/s/ MYRON G. BLALOCK, III
---------------------------------------
Myron G. Blalock, III
/s/ NEIL H. TOFSKY
---------------------------------------
Neil H. Tofsky
SENTERRA CORPORATION, a Texas
corporation
By: /s/ DOUGLAS W. SCHNITZER
-----------------------------------
Name: Douglas W. Schnitzer
Title: President
The undersigned is executing this Second Amendment for the sole purpose
of evidencing its contribution to the Partnership of the property and assets
specified in the Contract in exchange for a Limited Partnership Interest
including 123,155 Partnership Units, and its immediate withdrawal as a Partner
in connection with the distribution of 20,857 Partnership Units to each of
Blalock and Tofsky, and 83,441 Partnership Units to Senterra Corporation.
SENTERRA REAL ESTATE GROUP, L.L.C., a
Texas limited liability company
By: /s/ NEIL H. TOFSKY
-----------------------------------
Name: Neil H. Tofsky
Title: President
[EXHIBITS OMITTED]
-3-
<PAGE> 81
THIRD AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP
THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP (this
"Third Amendment"), dated as of April 27, 1998, is entered into by and among
Crescent Real Estate Equities, Ltd., a Delaware corporation, on its own behalf
as sole general partner (the "General Partner") of Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership (the
"Partnership"), and as attorney-in-fact for each of the existing limited
partners (the "Limited Partners") of the Partnership pursuant to Sections 2.4
and 14.1.B of the Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as of November 1,
1997, as amended by the First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of February 19, 1998, and the Second Amendment to the
Second Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of March 2, 1998, hereinafter
referred to as the "Effective Agreement."
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, Armada/Hoffler Holding Company, a Virginia corporation ("AHHC"),
and Lano International, Inc., a Delaware corporation ("Lano"), as assignor, and
the Partnership, as assignee, entered into that certain Assignment and
Assumption Agreement dated as of the 20th day of March, 1998, as amended by a
First Amendment dated March 23, 1998, and a Second Amendment dated April 27,
1998, (hereinafter referred to collectively as the "Assignment and Assumption
Agreement");
WHEREAS, under the Assignment and Assumption Agreement, (i) AHHC has
agreed to contribute to the Partnership its interest in that certain Agreement
of Sale dated May 30, 1997 by and between Rosewood Georgetown Joint Venture, a
Texas joint venture, as seller, and Lano and AHHC, as purchaser (the
"Contract") in exchange for a Limited Partnership Interest in the Partnership,
and (ii) Lano has agreed to transfer a portion of its interest in the Contract
to the Partnership in exchange for cash and to contribute the remainder of its
interest in the Contract to the
<PAGE> 82
Partnership in exchange for the issuance of a Limited Partnership Interest to
Alan R. Novak ("Novak"), the sole shareholder of Lano;
WHEREAS, the General Partner desires to reflect the admission of AHHC and
Novak as Additional Limited Partners, in exchange for the Capital Contributions
described above, pursuant to Section 4.3 of the Effective Agreement, upon the
terms and conditions set forth herein;
WHEREAS, the General Partner further desires to grant Partnership Units
(as defined in Article I of the Effective Agreement) to Novak and AHHC pursuant
to Section 4.3 of the Effective Agreement upon the terms and conditions set
forth herein; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In exchange for the Capital Contribution of AHHC described above
(which Capital Contribution has a Net Asset Value of $4,940,095), the
Partnership hereby admits AHHC as an Additional Limited Partner effective as of
the date hereof, pursuant to Section 4.3 of the Effective Agreement, with AHHC
having the Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite its name.
2. In exchange for the Capital Contribution of Lano described above
(which Capital Contribution has a Net Asset Value of $2,509,905), the
Partnership hereby admits Novak as an Additional Limited Partner effective as
of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with
Novak having the Partnership Interest and number of Partnership Units set forth
on Exhibit A hereto opposite its name.
3. Each of Novak and AHHC hereby acknowledges its acceptance of all of
the terms and conditions of the Effective Agreement, including without
limitation the power of attorney granted in Section 2.4 of the Effective
Agreement, and all of the terms and conditions hereof.
4. Novak and AHHC, each for itself, hereby irrevocably constitutes and
appoints the General Partner, with full power of substitution, its true and
lawful attorney for each of Novak and AHHC and in the name, place, and stead of
each of them, and for each of their use and benefit, to execute a future
amendment to the Effective Agreement and such other documents and instruments,
and to take such actions, as the General Partner deems necessary, desirable or
appropriate to effect the issuance of additional Partnership Units or, as the
case may be, the retirement and cancellation of Partnership Units pursuant to
the provisions of the Assignment and Assumption Agreement. Each of Novak and
AHHC agrees that this power of attorney is a power coupled with an interest and
shall survive and not be effected by the termination of this Third
-2-
<PAGE> 83
Amendment (unless and until replaced by a power of attorney granting at least
the same rights to the General Partner) or by the transfer of all or any
portion of either Novak's or AHHC's Limited Partnership Interest and shall
extend to the successors and assigns of Novak and AHHC. Each of Novak and AHHC
hereby agrees to be bound by any representation made by the General Partner,
acting in good faith under this power of attorney, and each of Novak and AHHC
hereby waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner, taken in good faith under this
power of attorney.
5. Neither Novak nor AHHC may sell, assign, transfer, convey, or
otherwise dispose of its Partnership Units for twelve (12) months from the date
of this Third Amendment.
6. Notwithstanding anything to the contrary contained in Section 2.C of
Exhibit C to the Effective Agreement, for purposes of Section 2.B(1)(a) of such
Exhibit C, the General Partner shall have the authority, in its sole and
absolute discretion, to elect the method to be used under Treasury Regulations
section 1.704-3 to take into account the variation between the fair market
value and the adjusted tax basis of the Contract as of the date of its
contribution to the Partnership.
7. In order to reflect the issuance of a Limited Partnership Interest
including 36,185 Partnership Units to Novak and a Limited Partnership Interest
including 71,222 Partnership Units to AHHC, Exhibit A to the Effective
Agreement is hereby deleted in its entirety and replaced with the Exhibit A
attached to this Third Amendment and made a part hereof.
8. Except as the context may otherwise require, any terms used in this
Third Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this Third Amendment as in the Effective
Agreement.
9. This Third Amendment may be executed in several counterparts, each of
which will be deemed an original, and all of which will constitute but one and
the same instrument.
10. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
-3-
<PAGE> 84
IN WITNESS WHEREOF, the undersigned has executed this Third Amendment as
of the date first written above.
GENERAL PARTNER:
---------------
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own behalf
and as attorney-in-fact for the Limited
Partners pursuant to Sections 2.4 and
14.1.B of the Effective Agreement
By: /s/ David M. Dean
-------------------------------------
Name: David M. Dean
-----------------------------------
Title: Senior Vice President, Law
----------------------------------
NEW LIMITED PARTNERS:
/s/ Alan R. Novak
----------------------------------------
Alan R. Novak
ARMADA/HOFFLER HOLDING COMPANY, a
Virginia corporation
By: /s/ A. Russell Kirk
-------------------------------------
Name: A. Russell Kirk
-----------------------------------
Title: Vice Chairman
----------------------------------
[Exhibits omitted.]
-4-
<PAGE> 85
FOURTH AMENDMENT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FOURTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP (this
"Fourth Amendment"), dated as of June 1, 1998, is entered into by and among
Crescent Real Estate Equities, Ltd., a Delaware corporation, on its own behalf
as sole general partner (the "General Partner") of Crescent Real Estate Equities
Limited Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997, as amended by the
First Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
February 19, 1998, the Second Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of March 2, 1998, and the Third Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 27, 1998 (hereinafter referred
to as the "Effective Agreement"), Myers Group III, Inc. (formerly known as
Freezer Services-West Point, Inc.), a Nebraska corporation and Myers Group IV,
Inc. (formerly known as Freezer Services-Texarkana, Inc.), a Nebraska
corporation.
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain Certificate of
Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in the
office of the Secretary of State of Delaware and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, on April 29, 1998 Crescent Equities issued 1,365,138 REIT Shares
in a public stock offering at a cash price of $32.2742 per REIT Share, which
cash proceeds were contributed to the Partnership by Crescent Equities pursuant
to Section 4.2 of the Effective Agreement;
WHEREAS, the Partnership, Freezer Services-West Point, Inc. ("Myers Group
III"), Freezer Services-Texarkana, Inc. ("Myers Group IV") and certain other
parties entered into that certain Asset Purchase Agreement dated as of the 25th
day of March, 1998 (the "Purchase Agreement");
<PAGE> 86
WHEREAS, under the Purchase Agreement, (i) Myers Group III has agreed to
contribute to the Partnership a 40% undivided interest in certain assets, free
and clear of any all encumbrances other than certain permitted encumbrances, as
more fully set forth in the Purchase Agreement (the "Myers Group III Contributed
Assets") in exchange for a Limited Partnership Interest in the Partnership, and
(ii) Myers Group IV has agreed to contribute to the Partnership a 40% undivided
interest in certain assets, free and clear of any all encumbrances other than
certain permitted encumbrances, as more fully set forth in the Purchase
Agreement (the "Myers Group IV Contributed Assets") in exchange for a Limited
Partnership Interest in the Partnership;
WHEREAS, the General Partner desires to reflect the admission of Myers
Group III and Myers Group IV as Additional Limited Partners, in exchange for the
Capital Contributions described above, pursuant to Section 4.3 of the Effective
Agreement, upon the terms and conditions set forth herein;
WHEREAS, the General Partner further desires to grant Partnership Units (as
defined in Article I of the Effective Agreement) to Myers Group III and Myers
Group IV pursuant to Section 4.3 of the Effective Agreement upon the terms and
conditions set forth herein; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. Crescent Equities shall receive credit for a Capital Contribution to the
Partnership of $44,058,737 on April 29, 1998 pursuant to Sections 4.2 of the
Effective Agreement in connection with the issuance of 1,365,138 REIT Shares in
a public stock offering.
2. In exchange for the Capital Contribution of Myers Group III described
above (which Capital Contribution has a Net Asset Value of $489,183), the
Partnership hereby admits Myers Group III as an Additional Limited Partner
effective as of the date hereof, pursuant to Section 4.3 of the Effective
Agreement, with Myers Group III having the Limited Partnership Interest and
number of Partnership Units set forth on Exhibit A hereto opposite its name.
3. In exchange for the Capital Contribution of Myers Group IV described
above (which Capital Contribution has a Net Asset Value of $3,510,817), the
Partnership hereby admits Myers Group IV as an Additional Limited Partner
effective as of the date hereof, pursuant to Section 4.3 of the Effective
Agreement, with Myers Group IV having the Limited Partnership Interest and
number of Partnership Units set forth on Exhibit A hereto opposite its name.
4. Each of Myers Group III and Myers Group IV hereby acknowledges its
acceptance of all of the terms and conditions of the Effective Agreement,
including without limitation the
-2-
<PAGE> 87
power of attorney granted in Section 2.4 of the Effective Agreement, and all of
the terms and conditions hereof.
5. Myers Group III and Myers Group IV, each for itself, hereby irrevocably
constitutes and appoints the General Partner, with full power of substitution,
its true and lawful attorney for each of Myers Group III and Myers Group IV and
in the name, place, and stead of each of them, and for each of their use and
benefit, to execute a future amendment to the Effective Agreement and such other
documents and instruments, and to take such actions, as the General Partner
deems necessary, desirable or appropriate to effect any adjustment to the
Limited Partnership Interest (and the number of Partnership Units) of Myers
Group III or Myers Group IV pursuant to the provisions of the Purchase
Agreement. Each of Myers Group III and Myers Group IV agrees that this power of
attorney is a power coupled with an interest and shall survive and not be
effected by the termination of this Fourth Amendment (unless and until replaced
by a power of attorney granting at least the same rights to the General Partner)
or by the transfer of all or any portion of either Myers Group III's or Myers
Group IV's Limited Partnership Interest and shall extend to the successors and
assigns of Myers Group III and Myers Group IV. Each of Myers Group III and Myers
Group IV hereby agrees to be bound by any representation made by the General
Partner, acting in good faith under this power of attorney, and each of Myers
Group III and Myers Group IV hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner,
taken in good faith under this power of attorney.
6. Notwithstanding anything to the contrary contained in Section 2.C of
Exhibit C to the Effective Agreement, for purposes of Section 2.B(1)(a) of such
Exhibit C, the General Partner shall have the authority, in its sole and
absolute discretion, to elect the method to be used under Treasury Regulations
section 1.704-3 to take into account the variation between the fair market value
and the adjusted tax basis of the Myers Group III Contributed Assets and the
Myers Group IV Contributed Assets as of their date of contribution to the
Partnership.
7. In addition to the transfer restrictions set forth in Article 11 of the
Effective Agreement, each of Myers Group III and Myers Group IV hereby
acknowledges the transfer restrictions set forth in Section 5.14 of the Purchase
Agreement, and further agrees that it (and any successor owner of its Limited
Partnership Interest) shall not transfer any Limited Partnership Interest owned
by it except in a transfer that constitutes a transfer of all of its Limited
Partnership Interest and Partnership Units, to a Person that constitutes only
one "partner" in the Partnership for purposes of Regulations Section 1.7704-1.
8. In order to reflect the issuance of a Limited Partnership Interest
including 7,123 Partnership Units to Myers Group III and a Limited Partnership
Interest including 51,121 Partnership Units to Myers Group IV, Exhibit A to the
Effective Agreement is hereby deleted in its entirety and replaced with the
Exhibit A attached to this Fourth Amendment and made a part hereof.
9. Each of Myers Group III and Myers Group IV hereby agrees to execute (or
cause its beneficial owners to execute, as required) any and all applications,
documents or disclosures
-3-
<PAGE> 88
which may be required by any regulating agency or commission having jurisdiction
over any aspect of the gaming industry or gaming establishments.
10. The General Partner hereby confirms that, as of the date of this Fourth
Amendment, the Exchange Factor is two (2).
11. Except as the context may otherwise require, any terms used in this
Fourth Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this Fourth Amendment as in the Effective
Agreement.
12. This Fourth Amendment may be executed in several counterparts, each of
which will be deemed an original, and all of which will constitute but one and
the same instrument.
13. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
[SIGATURES ARE CONTAINED ON THE FOLLOWING PAGE.]
-4-
<PAGE> 89
IN WITNESS WHEREOF, the undersigned has executed this Fourth Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD., a Delaware
corporation, on its own behalf and as
attorney-in-fact for the Limited Partners pursuant
to Sections 2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
-----------------------------------------------
Name: DAVID M. DEAN
---------------------------------------------
Title: Senior Vice President, Law
--------------------------------------------
ADDITIONAL LIMITED PARTNERS:
MYERS GROUP III, INC. (formerly Freezer
Services-West Point, Inc.), a Nebraska corporation
By: /s/ CHARLES C. MYERS
-----------------------------------------------
Name: CHARLES C. MYERS
---------------------------------------------
Title:
--------------------------------------------
MYERS GROUP IV, INC. (formerly Freezer
Services-Texarkana, Inc.), a Nebraska corporation
By: /s/ CHARLES C. MYERS
-----------------------------------------------
Name: CHARLES C. MYERS
---------------------------------------------
Title:
--------------------------------------------
[EXHIBITS OMITTED]
-5-
<PAGE> 90
FIFTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP
THIS FIFTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of June 30, 1998, is entered into by Crescent Real Estate Equities, Ltd., a
Delaware corporation, on its own behalf as sole general partner (the "General
Partner") of Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Partnership"), and as attorney-in-fact for each of
the existing limited partners (the "Limited Partners") of the Partnership
pursuant to Sections 2.4 and 14.1.B of the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 1, 1997, as amended by the First Amendment to
the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of February 19, 1998, and
the Second Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
March 2, 1998, and the Third Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of April 27, 1998, and the Fourth Amendment to the Second
Amended and Restate Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of June 1, 1998, hereinafter referred to
as the "Effective Agreement."
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware, and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, on June 30, 1998, Crescent Equities issued 6,948,734 $32.38
Series B Convertible Preferred Shares ("Series B Preferred Shares") and, in
connection therewith, the General Partner, pursuant to Section 8.7.C of the
Effective Agreement, is required to cause the Partnership to issue to Crescent
Equities preferred equity ownership interests in the Partnership ("Series B
Preferred Partnership Units"), and, pursuant to its authority under Sections
6.1.C and 8.7.C of the Effective Agreement, desires to make such revisions to
the Agreement as are necessary to reflect the issuance of the Series B
Preferred Partnership Units; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of
<PAGE> 91
which are hereby acknowledged, the parties hereto, intending legally to be
bound, hereby agree as follows:
1. Pursuant to Section 8.7.C of the Effective Agreement, effective as of
June 30, 1998, the issuance date of Series B Preferred Shares by Crescent
Equities, the Partnership hereby issues 6,948,734 Series B Preferred
Partnership Units to Crescent Equities.
(a) Crescent Equities shall have a zero percentage Partnership Interest
with respect to such Series B Preferred Partnership Units and shall have no
voting rights other than the right to vote on any amendment to the Effective
Agreement if such amendment would (i) convert the Series B Preferred
Partnership Units into a general partner's interest, (ii) modify the limited
liability of Crescent Equities with respect to the Series B Preferred
Partnership Units, or (iii) alter the distribution, redemption, conversion or
liquidation rights of the Series B Preferred Partnership Units as set forth in
paragraphs 1(b) through (e) below.
(b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to
any distributions of Available Cash under such provision, the General Partner
shall cause distributions of Available Cash to be made in cash, on any date on
which Crescent Equities makes a distribution of accrued, unpaid quarterly
distributions to the holders of Series A Preferred Shares or of extraordinary
cash distributions to the holders of Series B Preferred Shares, to Crescent
Equities in an amount equal to the amount that is required to be distributed by
Crescent Equities on that date to the holders of Series A Preferred Shares and
Series B Preferred Shares. Notwithstanding Section 5.4 of the Effective
Agreement, the General Partner shall cause the Partnership to make non-cash
distributions of assets to Crescent Equities on any date on which Crescent
Equities is required to make non-cash distributions of assets to the Series B
Preferred Shares in an amount equal to the amount that is required to be
distributed by Crescent Equities on that date to the holders of the Series B
Preferred Shares.
(c) Notwithstanding Sections 6.1.A and B of the Effective Agreement:
(i) Each year, after giving effect to the special allocations set
forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the
Partnership shall be allocated first to Crescent Equities until the cumulative
amount allocated under this paragraph 1(c)(i) to Crescent Equities for the
current year and all prior years is equal to the cumulative amount for the
current year and all prior years of the sum of (A) the distributions made to
Crescent Equities under paragraph 1(b) above, and (B) the portion of the
distributions made to Crescent Equities under paragraph 2(d) of the First
Amendment (if any) that exceeds $25 per Series A Preferred Partnership Unit.
Any remaining Net Profits or Net Losses (other than gain or loss from a sale or
other disposition of all or substantially all of the assets of the Partnership,
which shall be allocated as set forth in paragraphs 1(c)(ii) and (iii) below)
shall be allocated as set forth in Sections 6.1.A and B of the Effective
Agreement.
(ii) The gain of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to Crescent Equities in the amount
necessary to cause its Capital Account balance to be equal to the liquidation
preferences payable by Crescent Equities on the outstanding Series A Preferred
Shares and Series B Preferred Shares (the "Liquidation Preferences") (i.e., a
liquidation payment of $25 per Series A Preferred Partnership Unit, plus any
accrued, unpaid quarterly distribution thereon, and a liquidation payment of
$32.38 per Series B Preferred Partnership Unit, plus
-2-
<PAGE> 92
any accrued, unpaid extraordinary distribution thereon, subject to reduction on
a pro rata basis (as more fully set forth in the respective "Statements of
Designation" for the Series A Preferred Shares and the Series B Preferred
Shares) to the extent that there are insufficient funds to pay the
aforementioned liquidation preferences in full), (B) second, to the Partners in
the amounts necessary, and in the ratio of such amounts, to cause the Capital
Account balance of Crescent Equities in excess of the Liquidation Preferences
and the Capital Account of each other Partner to be in the same ratio as their
respective Partnership Interests, and (iii) thereafter, to all of the Partners
in proportion to their respective Partnership Interests.
(iii) The loss of the Partnership from a sale or other disposition
of all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to the Partners, if any, having
positive Capital Account balances, in the amounts necessary, and in the ratio
of such amounts, so as to cause the positive Capital Account Balance of
Crescent Equities to equal the Liquidation Preferences and the positive Capital
Account balance of each other Partner to equal zero (or, if there is
insufficient loss to accomplish this result, loss shall be allocated in a
manner so as to cause the positive Capital Account balance of Crescent Equities
in excess of the Liquidation Preference and the positive Capital Account
balance of each other Partner to be in the same ratio as their respective
Partnership Interests), (B) second, to Crescent Equities, until its positive
Capital Account balance equals zero, and (C) thereafter, to the Partners in
proportion to their respective Partnership Interests.
(d) In the event that Crescent Equities exercises its redemption right
with respect to the Series B Preferred Shares and pays the redemption price in
cash, the Partnership shall concurrently redeem a corresponding amount of
Series B Preferred Partnership Units at the same redemption price paid by
Crescent Equities for the Series B Preferred Shares.
(e) Upon exercise of any conversion right with respect to Series B
Preferred Shares or upon any redemption of Series B Preferred Shares in
exchange for REIT shares, (i) Crescent Equities shall, as of the date on which
the conversion (or redemption, as the case may be) is consummated, be deemed to
have contributed to the Partnership as Contributed Funds pursuant to Section
4.2.A(2) of the Effective Agreement an amount equal to the Value (computed as
of the Business Day immediately preceding the date on which such conversion (or
redemption, as the case may be) is consummated) of the REIT Shares delivered by
Crescent Equities to such holder of Series B Preferred Shares, (ii) the
Partnership Interests of Crescent Equities and the other Limited Partners shall
be adjusted as set forth in Section 4.2 of the Effective Agreement, and (iii) a
corresponding portion of Series B Preferred Partnership Units shall be retired.
(f) Notwithstanding anything to the contrary contained in paragraph 2(e)
of the First Amendment or in paragraph 1(e) of this Fifth Amendment, to the
extent that Crescent Equities pays cash to the holder of Series A Preferred
Shares (or Series B Preferred Shares, as the case may be) in lieu of fractional
shares upon conversion of such Series A Preferred Shares (or Series B Preferred
Shares, as the case may be) to REIT Shares, such cash payment shall be treated
as a redemption of the corresponding portion of the Series A Preferred Shares
(or Series B Preferred Shares, as the case may be) in accordance with paragraph
2(d) of the First Amendment (or paragraph 1(d) of this Fifth Amendment, as the
case may be).
2. In order to reflect the issuance of Series B Preferred Partnership
Units, Exhibit A to the Effective Agreement is hereby deleted in its entirety
and replaced with the Exhibit A attached to this Fifth Amendment and made a
part hereof.
-3-
<PAGE> 93
3. Except as the context may otherwise require, any terms used in this
Fifth Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this Fifth Amendment as in the Effective
Agreement.
4. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this Fifth Amendment as
of the date first written above.
GENERAL PARTNER:
---------------
CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation, on
its own behalf and as
attorney-in-fact for the Limited
Partners pursuant to Sections 2.4
and 14.1.B of the Effective
Agreement
By: /s/ Dallas E. Lucas
--------------------------------
Name: Dallas E. Lucas
------------------------------
Title: Chief Financial Officer
-----------------------------
[Exhibits omitted.]
-4-
<PAGE> 94
SIXTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SIXTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of July 15, 1998, is entered into by Crescent Real Estate Equities, Ltd., a
Delaware corporation, on its own behalf as sole general partner (the "General
Partner") of Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Partnership"), and as attorney-in-fact for each of the
existing limited partners (the "Limited Partners") of the Partnership pursuant
to Sections 2.4 and 14.1.B of the Second Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of November 1, 1997, as amended by the First Amendment to the Second Amended
and Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of February 19, 1998, and the Second Amendment to
the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of March 2, 1998, and the
Third Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
April 27, 1998, and the Fourth Amendment to the Second Amended and Restate
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of June 1, 1998, and the Fifth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of June 30, 1998, hereinafter referred to
as the "Effective Agreement."
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Stock Option Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Alan Powers 3/16/98 600 1994 Plan $20,550.00
Alan Powers 3/16/98 1,200 1995 Plan $41,100.00
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
Number of REIT Stock Option Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
John Walker 3/17/98 2,700 1995 Plan $91,462.50
Morton H. Meyerson 3/30/98 2,800 1995 Plan $101,675.00
Mark Stanfield 4/6/98 600 1995 Plan $22,275.00
Jennifer Miller 4/17/98 400 1995 Plan $13,875.00
Richard Hunt 4/17/98 184 First Amended and $6,382.50
Restated 1995 Plan
Marian T. McWilliams 4/17/98 1,000 1995 Plan $34,687.50
Bobby Moore 4/17/98 200 First Amended and $6,937.50
Restated 1995 Plan
Oscar Flores 4/20/98 400 First Amended and $13,550.00
Restated 1995 Plan
Robert Kowalski 5/26/98 200 First Amended and $6,737.50
Restated 1995 Plan
Alfreda Stanley 6/10/98 100 Second Amended and $3,250.00
Restated 1995 Plan
Bobby Vann 6/10/98 100 Second Amended and $3,250.00
Restated 1995 Plan
Fred Hoekstra 6/11/98 100 Second Amended and $3,187.50
Restated 1995 Plan
Anthony Frank 6/12/98 2,800 First Amended and $87,150.00
Restated 1995 Plan
Anthony Frank 6/12/98 2,800 Second Amended and $87,150.00
Restated 1995 Plan
Julie Garrett 6/12/98 100 Second Amended and $3,112.50
Restated 1995 Plan
Melvin Zuckerman 6/25/98 2,800 First Amended and $90,475.00
Restated 1995 Plan
Dory Bentley 6/30/98 100 Second Amended and $3,362.50
Restated 1995 Plan
Elizabeth Corbell 6/30/98 2,400 1995 Plan $80,700.00
</TABLE>
-2-
<PAGE> 96
<TABLE>
<CAPTION>
Number of REIT Stock Option Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
James Petrie 7/2/98 200 First Amended and $6,825.00
Restated 1995 Plan
Bill Armendariz 7/8/98 600 Second Amended and $20,662.50
Restated 1995 Plan
Willie Hollie 7/8/98 100 Second Amended and $3,443.75
Restated 1995 Plan
James Bownds 7/8/98 500 Second Amended and $17,218.75
Restated 1995 Plan
Anthony Tillman 7/8/98 100 Second Amended and $3,443.75
Restated 1995 Plan
Timothy McCoy 7/10/98 70 Second Amended and $2,371.25
Restated 1995 Plan
Bret Angle 7/13/98 100 Second Amended and $3,337.50
Restated 1995 Plan
</TABLE>
WHEREAS, the individuals and entities set forth in the following table
exercised their Exchange Rights with respect to the respective number of
Partnership Units, on the respective date indicated opposite each such
individual's or entity's name:
<TABLE>
<CAPTION>
Number of Partnership
Individual or Entity Exercise Date Units Exchanged
-------------------- ------------- --------------------
<S> <C> <C>
John L. Zogg 4/7/98 292
Peter G. Dann 4/7/98 250
James A. Telling 4/23/98 1,650
Ross E. Bowker 5/27/98 3,250
</TABLE>
WHEREAS, on November 12, 1997, Crescent Equities received $15,406,871
in cash from Kemper Investors Life Insurance Company ("Kemper") and Northwestern
Mutual Life Insurance Company ("Northwestern") for REIT Shares issued to them on
October 7, 1996 (pursuant to section 8.5(b) of that certain Agreement dated
August 15, 1996 among Crescent Equities, Kemper, Northwestern and various other
parties), which cash proceeds were contributed to the Partnership by Crescent
Equities pursuant to Section 4.2 of the Effective Agreement;
-3-
<PAGE> 97
WHEREAS, on February 25, 1998, Crescent Equities issued 525,000 REIT
Shares to Merrill Lynch International at a cash price of $0.01 per share,
pursuant to that certain Swap Agreement, effective as of December 12, 1997, by
and among Crescent Equities and Merrill Lynch International, which cash proceeds
aggregating $5,250 were contributed to the Partnership by Crescent Equities
pursuant to Section 4.2 of the Agreement;
WHEREAS, on April 7, 1998, Crescent Equities issued 179 REIT Shares to
each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment
of trust managers' fees and, in connection therewith, Crescent Equities shall
receive credit for an aggregate Capital Contribution to the Partnership of
$20,103.94;
WHEREAS, on April 27, 1998, Gerald W. Haddock assigned 1,000
Partnership Units to Diane Haddock;
WHEREAS, on June 24, 1998, Crescent Equities issued 759,254 REIT Shares
to Merrill Lynch International at a cash price of $0.01 per share, pursuant to
that certain Swap Agreement, effective as of December 12, 1997, by and among
Crescent Equities and Merrill Lynch International, which cash proceeds
aggregating $7,592.54 were contributed to the Partnership by Crescent Equities
pursuant to Section 4.2 of the Agreement;
WHEREAS, on June 30, 1998, (i) the Partnership issued 1,046 Partnership
Units valued at $70,343.50 to Texas Greenbrier Associates, Inc. ("Greenbrier")
pursuant to that certain Consultant Unit Agreement dated August 15, 1995 between
Greenbrier and the Partnership; and (ii) Greenbrier immediately exercised its
Exchange Right with respect to such 1,046 Partnership Units;
WHEREAS, on July 8, 1998, Crescent Equities issued 194 REIT Shares to
each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment
of trust managers' fees and, in connection therewith, Crescent Equities shall
receive credit for an aggregate Capital Contribution to the Partnership of
$20,042.63;
WHEREAS, the General Partner desires to correct the description of the
January 8, 1998 issuance of REIT Shares to Morton H. Meyerson, William F. Quinn,
and Paul E. Rowsey, III set forth in the Recitals to the First Amendment to the
Second Amended Agreement to indicate that Crescent Equities issued 176 REIT
Shares to each of Morton H. Meyerson. William F. Quinn, and Paul E. Rowsey, III;
and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transactions described above and certain other clarifying
amendments pursuant to its authority under Sections 2.4 and 14.1.B of the
Effective Agreement and the powers of attorney granted to the General Partner by
the Limited Partners.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In order to reflect (i) the Capital Contributions of Crescent
Equities aggregating $778,172.50 in connection with the exercise of options to
purchase REIT Shares by Alan Powers,
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<PAGE> 98
John Walker, Morton H. Meyerson, Mark Stanfield, Jennifer Miller, Richard Hunt,
Marian T. McWilliams, Bobby Moore, Oscar Flores, Robert Kowalski, Alfreda
Stanley, Bobby Vann, Fred Hoekstra, Anthony Frank, Julie Garrett, Melvin
Zuckerman, Dory Bentley, Elizabeth Corbell, James Petrie, Bill Armendariz,
Willie Hollie, James Bownds, Anthony Tillman, Timothy McCoy, and Bret Angle, as
more fully set forth above, (ii) the exercise by John L. Zogg, Peter G. Dann,
James A. Telling, and Ross E. Bowker of their Exchange Rights with respect to
Partnership Units, as more fully set forth above, (iii) the Capital Contribution
by Crescent Equities on November 11, 1997, of $15,406,871 in connection with the
the cash received from Kemper and Northwestern for the REIT Shares issued to
them on October 7, 1996, (iv) the Capital Contribution by Crescent Equities on
February 25, 1998, of $5,250 in connection with the issuance to Merrill Lynch
International of 525,000 REIT Shares at $0.01 per share, (v) the Capital
Contribution by Crescent Equities on April 7, 1998, of $20,103.94 in connection
with the issuance of 179 REIT Shares to each of Morton H. Meyerson, William F.
Quinn, and Paul E. Rowsey, III in payment of trust managers' fees, (vi) the
assignment by Gerald W. Haddock of 1,000 Partnership Units to Diane Haddock,
(vii) the Capital Contribution by Crescent Equities on June 24, 1998, of
$7,592.54 in connection with the issuance to Merrill Lynch International of
759,254 REIT Shares at $0.01 per share, (viii) the issuance of 1,046 Partnership
Units valued at $70,343.50 to Greenbrier, and Greenbrier's immediate exercise of
its Exchange Rights with respect to such Partnership Units, and (ix) the Capital
Contribution by Crescent Equities on July 8, 1998, of $20,042.63 in connection
with the issuance of 194 REIT Shares to each of Morton H. Meyerson, William F.
Quinn, and Paul E. Rowsey, III in payment of trust managers' fees, Exhibit A to
the Effective Agreement is hereby deleted in its entirety and replaced with the
Exhibit A attached to this Sixth Amendment and made a part hereof.
2. The following new sentence is hereby inserted after the second
sentence of Section 12.2.B:
Solely for purposes of the allocations to be made under the
preceding sentence (but not for any other purpose), (i) any
Additional Limited Partner or Employee Limited Partner that is
admitted to the Partnership prior to the eighth day of a month
shall receive allocations under the preceding sentence as if such
Partner had been admitted on the first day of the month, (ii) any
Additional Limited Partner or Employee Limited Partner that is
admitted to the Partnership on or after the eighth day of a month
and prior to the twenty-third day of such month shall receive
allocations under the preceding sentence as if such Partner had
been admitted on the fifteenth day of the month, and (iii) any
Additional Limited Partner or Employee Limited Partner that is
admitted to the Partnership on or after the twenty-third day of a
month shall receive allocations under the preceding sentence as
if such Partner had been admitted on the first day of the next
succeeding month.
3. Except as the context may otherwise require, any terms used in this
Sixth Amendment which are defined in the Effective Agreement shall have the same
meaning for purposes of this Sixth Amendment as in the Effective Agreement.
-5-
<PAGE> 99
4. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this Sixth Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ David M. Dean
-------------------------------------
-------------------------------------
Name: David M. Dean
--------------------------------
Title: Senior Vice President, Law
------------------------------
[EXHIBITS OMITTED]
-6-
<PAGE> 100
SEVENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SEVENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of September 30, 1998, is entered into by and among Crescent Real Estate
Equities, Ltd., a Delaware corporation, on its own behalf as sole general
partner (the "General Partner") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership (other than Crescent Real Estate Equities Company
("Crescent Equities"), a Texas real estate investment trust) pursuant to
Sections 2.4 and 14.1.B of the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
November 1, 1997, as amended by the First Amendment to the Second Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of February 19, 1998, and the Second Amendment to
the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of March 2, 1998, and the
Third Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
April 27, 1998, and the Fourth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of June 1, 1998, and the Fifth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of June 30, 1998, and the Sixth Amendment
to the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of July 15, 1998 (hereinafter
referred to as the "Effective Agreement") and Crescent Equities.
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended, was amended and
restated in its entirety by that certain First Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of May 5, 1994 (the "First Amended Agreement");
WHEREAS, the First Amended Agreement, as previously amended, was
amended and restated in its entirety by the Effective Agreement;
<PAGE> 101
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Stock Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Cheryl Dillon 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
Cheryl Dillon 7/16/98 100 Second Amended and $3,350.00
Restated 1995 Plan
Kurtis Adams 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
Kurtis Adams 7/16/98 100 Second Amended and $3,350.00
Restated 1995 Plan
Bobby Vann 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
John Leathers 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
John Leathers 7/16/98 100 Second Amended and $3,350.00
Restated 1995 Plan
Carlton Jordan 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
Carlton Jordan 7/16/98 100 Second Amended and $3,350.00
Restated 1995 Plan
Mike Howell 7/16/98 200 First Amended and $6,700.00
Restated 1995 Plan
Mike Howell 7/16/98 100 Second Amended and $3,350.00
Restated 1995 Plan
</TABLE>
-2-
<PAGE> 102
<TABLE>
<CAPTION>
Number of REIT Stock Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Henry Cosby 7/16/98 200 First Amended and $ 6,700.00
Restated 1995 Plan
Henry Cosby 7/16/98 100 Second Amended and $ 3,350.00
Restated 1995 Plan
Ramon Cortez 7/16/98 200 First Amended and $ 6,700.00
Restated 1995 Plan
Ramon Cortez 7/16/98 100 Second Amended and $ 3,350.00
Restated 1995 Plan
Fred Hoekstra 7/16/98 200 First Amended and $ 6,700.00
Restated 1995 Plan
Mike Williams 7/20/98 200 First Amended and $ 6,725.00
Restated 1995 Plan
John Walker 7/22/98 1,700 1995 Plan $55,356.25
Carlos Gonzalez 7/22/98 400 First Amended and $13,025.00
Restated 1995 Plan
Carlos Gonzalez 7/22/98 100 Second Amended and $ 3,256.25
Restated 1995 Plan
Bret Angle 8/3/98 200 First Amended and $ 5,750.00
Restated 1995 Plan
Steve Jones 8/6/98 110 First Amended and $ 3,121.25
Restated 1995 Plan
Jim Eidson 8/12/98 1,000 1995 Plan $30,125.00
Jim Eidson 8/12/98 1,000 First Amended and $30,125.00
Restated 1995 Plan
Jim Eidson 8/12/98 1,000 First Amended and $30,125.00
Restated 1995 Plan
</TABLE>
-3-
<PAGE> 103
<TABLE>
<CAPTION>
Number of REIT Stock Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Michael Pugh 8/12/98 400 First Amended and $ 12,050.00
Restated 1995 Plan
Jim Eidson 8/14/98 300 1995 Plan $ 8,850.00
Jim Eidson 8/14/98 300 First Amended and $ 8,850.00
Restated 1995 Plan
Jim Eidson 8/14/98 300 First Amended and $ 8,850.00
Restated 1995 Plan
Daniel Thompson 8/21/98 200 First Amended and $ 5,350.00
Restated 1995 Plan
Robert Kowalski 9/30/98 200 First Amended and $ 5,050.00
Restated 1995 Plan
Joseph Ambrose 9/30/98 8,000 1995 Plan $202,000.00
</TABLE>
WHEREAS, effective April 14, 1998, Morton H. Meyerson conveyed his
entire Limited Partnership Interest (including 18,989 Partnership Units) to Big
Bend III Investments, L.P.;
WHEREAS, on August 6, 1998, Tower Holdings, Inc. and 777 Main Street
Partners assigned 5,035 Partnership Units and 16,648 Partnership Units,
respectively, to Rainwater, Inc., and Rainwater, Inc. immediately assigned such
Partnership Units to Office Towers LLC;
WHEREAS, on August 6, 1998, Richard E. Rainwater assigned 219
Partnership Units to Office Towers LLC;
WHEREAS, on August 14, 1998, Crescent Equities cancelled 6,638
restricted REIT Shares valued at $29.50 per share belonging to Dallas Lucas;
WHEREAS, on September 15, 1998, John H. Anderson exercised his Exchange
Rights with respect to 27,222 Partnership Units;
WHEREAS, as of December 12, 1997, Crescent Equities and Merrill Lynch
International ("MLI"), acting through Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), entered into that certain Swap Agreement (the
"Swap Agreement") relating to certain REIT Shares;
-4-
<PAGE> 104
WHEREAS, as of December 12, 1997, Crescent Equities, the Partnership,
MLI, and Merrill Lynch entered into that certain Purchase Agreement relating,
among other matters, to the purchase of REIT Shares by MLI (the "Purchase
Agreement");
WHEREAS, effective as of December 12, 1997, the Partnership executed
and delivered, in favor of MLI, that certain Guarantee pursuant to which the
Partnership agreed to guarantee certain obligations of Crescent Equities (the
"Guarantee");
WHEREAS, effective as of September 30, 1998, pursuant to that certain
Agreement of Termination, Release and Receipt (the "Termination Agreement"), the
Partnership, Crescent Equities, MLI, and Merrill Lynch agreed to settle the Swap
Agreement and terminate each of the Swap Agreement, the Purchase Agreement and
the Guarantee (the Swap Agreement, the Purchase Agreement and the Guarantee are
hereinafter referred to collectively as the "Prior Agreements");
WHEREAS, pursuant to the Termination Agreement, Crescent Equities
agreed to deliver to Merrill Lynch Mortgage Capital Inc. ("MLMC") a promissory
note of the Partnership in the principal amount of $209,299,016.33 (the "Note"),
secured by a deed of trust (with security agreement and assignment of rents)
which encumbers certain real property owned by the Partnership in Houston, Texas
(the "Deed of Trust") in exchange for the delivery by MLI and Merrill Lynch to
Crescent Equities of 6,659,254 REIT Shares and in settlement of the 1,629,826
additional REIT Shares otherwise due to MLI and Merrill Lynch under the Prior
Agreements;
WHEREAS, pursuant to Section 8.7.E of the Effective Agreement, the
General Partner desires to cause the Partnership to purchase from Crescent
Equities a portion of its Partnership Interest on the same terms under which
Crescent Equities is purchasing REIT Shares from MLI and Merrill Lynch;
WHEREAS, in connection with the Partnership's purchase from Crescent
Equities of a portion of its Partnership Interest, the Partnership has agreed
deliver to MLMC the Note, secured by the Deed of Trust;
WHEREAS, the General Partner desires to correct the description of the
exercise of options by Bret Angle and Timothy McCoy set forth in the recitals to
the Sixth Amendment to the Second Amended Agreement to indicate that Bret Angle
exercised options pursuant to the Second Amended and Restated 1995 Plan to
purchase 100 REIT Shares and Timothy McCoy exercised options pursuant to the
Second Amended and Restated 1995 Plan to purchase 70 REIT Shares on July 16,
1998 (rather than on July 13, 1998, and July 10, 1998, respectively);
WHEREAS, Section 14.1.A of the Effective Agreement incorrectly
references Percentage Interests rather than Partnership Interests;
WHEREAS, the General Partner desires to correct the reference contained
in Section 14.1.A of the Effective Agreement to refer to Partnership Interests
rather than Percentage Interests;
-5-
<PAGE> 105
WHEREAS, paragraph 14 of the Twelfth Amendment to the First Amended
Agreement deleted Section 11.2.B of the First Amended Agreement, and paragraph
15 of such Twelfth Amendment renumbered the existing Section 11.2.C as Section
11.2.B and provided that all references to Section 11.2.C in the First Amended
Agreement were to be renumbered accordingly;
WHEREAS, in connection with the preparation of the Effective Agreement,
the reference in Section 14.1.C of the Effective Agreement to Section 11.2.C was
inadvertently not renumbered to Section 11.2.B;
WHEREAS, the General Partner desires to correct the reference contained
in Section 14.1.C of the Effective Agreement to refer to Section 11.2.B rather
than Section 11.2.C; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transactions described above and certain other clarifying
amendments pursuant to its authority under Sections 2.4 and 14.1.B of the
Effective Agreement and the powers of attorney granted to the General Partner by
the Limited Partners.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In order to reflect (i) the Capital Contributions of
Crescent Equities aggregating $512,358 in connection with the exercise
of options to purchase REIT Shares by Bret Angle, Cheryl Dillon, Kurtis
Adams, Bobby Vann, John Leathers, Carlton Jordan, Mike Howell, Henry
Cosby, Ramon Cortez, Fred Hoekstra, Mike Williams, John Walker, Carlos
Gonzalez, Steve Jones, Jim Eidson, Michael Pugh, Daniel Thompson,
Robert Kowalski, and Joseph Ambrose, as more fully set forth above,
(ii) the exercise by John H. Anderson of his Exchange Rights with
respect to 27,222 Partnership Units, (iii) the conveyance by Morton H.
Meyerson of his entire Limited Partnership Interest (including 18,989
Partnership Units) to Big Bend III Investments, L.P.; (iv) the
assignment by Tower Holdings, Inc. of 5,035 Partnership Units to
Rainwater, Inc., (v) the assignment by 777 Main Street Partners of
16,648 Partnership Units to Rainwater, Inc., (vi) the assignment by
Rainwater, Inc. of 21,683 Partnership Units to Office Towers LLC, (vii)
the assignment by Richard E. Rainwater of 219 Partnership Units to
Office Towers LLC, (viii) the cancellation by Crescent Equities of
6,638 restricted REIT Shares belonging to Dallas Lucas, and (ix) the
purchase by the Partnership of a portion of the Partnership Interest of
Crescent Equities for the Note, secured by the Deed of Trust, Exhibit A
to the Effective Agreement is hereby deleted in its entirety and
replaced with the Exhibit A attached to this Seventh Amendment and made
a part hereof.
2. The last sentence of Section 14.1.A of the Effective
Agreement is hereby deleted in its entirety and replaced with the
following:
Except as provided in Section 14.1.B or 14.1.C, a proposed
amendment shall be adopted and be effective as an amendment
hereto if it is approved by the General Partner and Limited
Partners owning a majority-in-interest of the total
Partnership Interests of the Limited Partners.
-6-
<PAGE> 106
3. Clause (iv) of Section 14.1.C of the Effective Agreement is
hereby deleted in its entirety and replaced with the following:
(iv) alter or modify the Exchange Rights set forth in Section
8.6, or the right set forth in section 11.2.B
4. Except as the context may otherwise require, any terms used
in this Seventh Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Seventh Amendment as
in the Effective Agreement.
5. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all
respects.
-7-
<PAGE> 107
IN WITNESS WHEREOF, the undersigned have executed this Seventh
Amendment as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE
EQUITIES, LTD., a Delaware
corporation, on its own
behalf and as
attorney-in-fact for the
Limited Partners pursuant
to Sections 2.4 and 14.1.B
of the Effective Agreement
(other than Crescent
Equities)
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law
LIMITED PARTNER:
CRESCENT REAL ESTATE EQUITIES
COMPANY, a Texas real estate
investment trust
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law
NEW LIMITED PARTNER:
BIG BEND III INVESTMENTS, L.P.
By: 2M COMPANIES, INC.,
its general partner
By: /s/ Richard W. Slaven
Name: Richard W. Slaven
Title: Vice President
-8-
[EXHIBITS OMITTED]
<PAGE> 108
EIGHTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS EIGHTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of January 31, 1999, is entered into by and among Crescent Real Estate
Equities, Ltd., a Delaware corporation, on its own behalf as sole general
partner (the "General Partner") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997 (the "Second Amended
Agreement"), as amended by the First Amendment to the Second Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of February 19, 1998, and the Second Amendment to
the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of March 2, 1998, and the
Third Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
April 27, 1998, and the Fourth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of June 1, 1998, and the Fifth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of June 30, 1998, and the Sixth Amendment
to the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of July 15, 1998, and the
Seventh Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
September 30, 1998, (hereinafter referred to as the "Effective Agreement"),
Courtney E. Hunley, R. Todd Rainwater, and Matthew J. Rainwater.
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement, as previously amended, was amended and
restated in its entirety by that certain First Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of May 5, 1994 (the "First Amended Agreement");
WHEREAS, the First Amended Agreement, as previously amended, was
amended and restated in its entirety by the Effective Agreement;
<PAGE> 109
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Stock Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
James Wassel 10/6/98 2,000 1994 Plan $ 49,125.00
Barry Gruebbel 11/16/98 2,000 1994 Plan $ 46,125.00
John M. Walker, Jr. 11/24/98 1,600 1995 Plan $ 41,400.00
Bobby Moore 12/11/98 200 First Amended and $ 4,525.00
Restated 1995 Plan
Debra Spears 12/14/98 1,600 1995 Plan $ 37,300.00
Dale B. Herl 12/15/98 400 First Amended and $ 9,450.00
Restated 1995 Plan
Gerald Haddock 1/5/99 50,000 1994 Plan $1,187,500.00
John Zogg 1/20/99 3,000 1994 Plan $ 68,250.00
Murphy Yates 1/29/99 2,000 1994 Plan $ 42,500.00
</TABLE>
WHEREAS, on October 7, 1998, Crescent Equities issued 231 REIT Shares
to each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for an aggregate Capital Contribution of the Partnership of
$16,675.31;
WHEREAS, on November 4, 1998, James Telling exercised his Exchange
Rights with respect to 100 Partnership Units and Ross Bowker exercised his
Exchange Rights with respect to 4,001 Partnership Units;
WHEREAS, on November 20, 1998, Crescent Equities issued 1,852,162 REIT
shares to Warburg Dillon Read LLC, as agent for UBS Securities, LLC, at a cash
price of $0.01 per share, pursuant to that certain Forward Stock Purchase dated
August 12, 1997, by and between Crescent Equities and Union Bank of Switzerland,
London Branch, which cash proceeds aggregating $18,521.62 were contributed to
the Partnership by Crescent Equities pursuant to Section 4.2 of the Agreement;
WHEREAS, on November 30, 1998, Prudential Insurance Company of America
converted all of its Series B Convertible Preferred Shares ("Series B Preferred
Shares") into 8,400,582 REIT Shares;
-2-
<PAGE> 110
WHEREAS, pursuant to Section 1(e) of the Fifth Amendment to the Second
Amended Agreement, in connection with the conversion of the Series B Preferred
Shares, Crescent Equities shall be deemed to have contributed $199,881,347.96to
the Partnership pursuant to Section 4.2 of the Amendment, and all of the
6,948,734 Series B Preferred Partnership Units shall be retired.
WHEREAS, on December 17, 1998, Richard E. Rainwater assigned 3,436
Partnership Units to Darla Moore;
WHEREAS, on January 1, 1999, the Courtney E. Rainwater Trust UA 4/15/82
assigned 21,098 Partnership Units to Courtney E. Hunley;
WHEREAS, on January 1, 1999, the Richard Todd Rainwater Trust UA
4/15/82 assigned 21,098 Partnership Units to R. Todd Rainwater;
WHEREAS, on January 1, 1999, the Matthew J. Rainwater Trust UA 4/15/82
assigned 21,098 Partnership Units to Matthew J. Rainwater;
WHEREAS, on January 4, 1999, Peter H. Henry exercised his Exchange
Rights with respect to 15,000 Partnership Units;
WHEREAS, on January 6, 1999, Harry H. Frampton, III exercised his
Exchange Rights with respect to 22,753 Partnership Units;
WHEREAS, on January 11, 1999, Crescent Equities issued 290 REIT shares
to each of Morton H. Meyerson, William F. Quinn, and Paul E. Ramsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for an aggregate Capital Contribution of the Partnership of
$20,064.38;
WHEREAS, on January 20, 1999, Darla D. Moore assigned 1,086 Partnership
Units to each of the Scott Irrevocable Asset Trust and the Pridemore Irrevocable
Asset Trust;
WHEREAS, on January 20, 1999, Richard E. Rainwater assigned 1,086
Partnership Units to each of the Scott Irrevocable Asset Trust and the Pridemore
Irrevocable Asset Trust;
WHEREAS, on January 20, 1999, the Scott Irrevocable Asset Trust
exercised its Exchange Rights with respect to 2,172 Partnership Units;
WHEREAS, on January 20, 1999, the Pridemore Irrevocable Asset Trust
exercised its Exchange Rights with respect to 2,172 Partnership Units;
WHEREAS, the Seventh Amendment to the Second Amended Agreement
reflected a purchase of REIT Shares effective as of September 30, 1998 by
Crescent Equities from "MLI" and "Merrill Lynch" pursuant to a "Termination
Agreement" for a "Note" in the amount of $209,299,016.33 (all terms in quotes
are as defined in the Seventh Amendment to the Second Amended Agreement), and a
related purchase by the Partnership from Crescent Equities of a portion of its
Partnership Interest on the same terms pursuant to Section 8.7.E of the
Effective Agreement;
-3-
<PAGE> 111
WHEREAS, the General Partner desires to correct Exhibit A to the
Effective Agreement, effective as of September 30, 1998, to reflect that the
aforementioned $209,299,016.33 purchase price of the REIT Shares by Crescent
Equities (and the related purchase price of a portion of Crescent Equities'
Partnership Interest by the Partnership) was offset by $697,682.17 in cash paid
by Merrill Lynch International to Crescent Equities (and in turn contributed by
Crescent Equities to the Partnership), resulting in a net purchase price of
$208,601.334.16; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transactions described above and certain other clarifying
amendments pursuant to its authority under Sections 2.4 and 14.1.B of the
Effective Agreement and the powers of attorney granted to the General Partner by
the Limited Partners.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In order to reflect (i) the Capital Contributions of
Crescent Equities aggregating $1,486,172 in connection with the
exercise of options to purchase REIT Shares by James Wassel, Barry
Gruebbel, John M. Walker, Jr., Bobby Moore, Debra Spears, Dale B. Herl,
Gerald Haddock, Murphy Yates, and John Zogg, as more fully set forth
above, (ii) the exercise by James Telling, Ross Bowker, Peter G. Henry,
Harry H. Frampton, III, the Scott Irrevocable Asset Trust, and the
Pridemore Irrevocable Asset Trust of their Exchange Rights with respect
to Partnership Units, as more fully set forth above, (iii) the Capital
Contribution by Crescent Equities on October 7, 1998 of $16,687 in
connection with the issuance of 231 REIT Shares to each of Morton H.
Meyerson, William F. Quinn, and Paul E. Rowsey, III, in payment of
trust managers' fees, (iv) the Capital Contribution by Crescent
Equities on November 20, 1998, of $18,521.62 in connection with the
issuance to UBS Securities, LLC of 1,852,162 REIT Shares at $0.01 per
share, (v) the assignment by Richard E. Rainwater of 3,436 Partnership
Units to Darla Moore, (vi) the assignment by the Courtney E. Rainwater
Trust UA 4/15/82 of 21,098 Partnership Units to Courtney E. Hunley,
(vii) the assignment by the Richard Todd Rainwater Trust UA 4/15/82 of
21,098 Partnership Units to R. Todd Rainwater, (viii) the assignment by
the Matthew J. Rainwater Trust UA 4/15/82 of 21,098 Partnership Units
to Matthew J. Rainwater, (ix) the Capital Contribution by Crescent
Equities on January 11, 1999, of $20,062.20 in connection with the
issuance of 290 REIT Shares to each of Morton H. Meyerson, William F.
Quinn, and Paul E. Rowsey, III, in payment of trust managers' fees, (x)
the assignment by Darla D. Moore of 1,086 Partnership Units to each of
the Scott Irrevocable Asset Trust and the Pridemore Irrevocable Asset
Trust; (xi) the assignment by Richard E. Rainwater of 1,086 Partnership
Units to each of the Scott Irrevocable Asset Trust and the Pridemore
Irrevocable Asset Trust; (xii) the Capital Contribution of Crescent
Equities on November 30, 1998, of $199,881,347.96 in connection with
the conversion of the Series B Preferred Shares to REIT Shares; (xiii)
the retirement of the
-4-
<PAGE> 112
Series B Preferred Units on November 30, 1998, in connection with the
conversion of the Series B Preferred Shares to REIT Shares, and (xii)
the adjusted purchase price of $208,601.334.16 for the September 30,
1998, purchase of a portion of Crescent Equities' Partnership Interest,
Exhibit A to the Effective Agreement is hereby deleted in its entirety
and replaced with the Exhibit A attached to this Eighth Amendment and
made a part hereof.
2. Each of Courtney E. Hunley, R. Todd Rainwater, and Matthew
J. Rainwater hereby acknowledges his or her acceptance of all of the
terms and conditions of the Effective Agreement, including without
limitation the power of attorney granted in Section 2.4 of the
Effective Agreement.
3. The General Partner hereby admits each of Courtney E.
Hunley, R. Todd Rainwater, and Matthew J. Rainwater as a Substituted
Limited Partner effective as of January 1, 1999, pursuant to Article 11
of the Effective Agreement, with each of Courtney E. Hunley, R. Todd
Rainwater, and Matthew J. Rainwater having the Partnership Interest and
number of Partnership Units set forth on Exhibit A hereto opposite his
or her name. The Partnership Units of each of Courtney E. Hunley, R.
Todd Rainwater, and Matthew J. Rainwater shall have the Exchange Rights
set forth in Section 8.6 of the Effective Agreement.
4. Except as the context may otherwise require, any terms used
in this Eighth Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Eighth Amendment as in
the Effective Agreement.
5. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed, and reaffirmed for all purposes and in all
respects.
IN WITNESS WHEREOF, the undersigned have executed this Eighth Amendment
as of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
A Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement (other than Crescent Equities)
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law
-5-
<PAGE> 113
SUBSTITUTED LIMITED PARTNERS:
/s/ Courtney E. Hunley
---------------------------------------
Courtney E. Hunley
/s/ R. Todd Rainwater
---------------------------------------
R. Todd Rainwater
/s/ Matthew J. Rainwater
---------------------------------------
Matthew J. Rainwater
-6-
[EXHIBITS OMITTED]
<PAGE> 1
EXHIBIT 10.09
FIFTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
GERALD W. HADDOCK
This FIFTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF GERALD W. HADDOCK
(the "Fifth Amendment"), dated March 1, 1999 is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Fifth Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Fifth
Amendment as in the Effective Agreement.
WITNESSETH:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that
certain Employment Agreement with Gerald W. Haddock ("Haddock") dated April 15,
1994 (the "Original Agreement");
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement
to Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994;
WHEREAS, the Original Agreement was amended by the First Amendment to
the Employment Agreement of Gerald W. Haddock dated July 1, 1995 (the "First
Amendment");
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of Gerald W. Haddock dated March 15, 1996 (the "Second
Amendment");
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of Gerald W. Haddock dated March 3, 1997 (the "Third
Amendment");
WHEREAS, the Third Amendment was amended by the Fourth Amendment to the
Employment Agreement of Gerald W. Haddock dated March 10, 1998 (the "Effective
Agreement");
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership;
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partnership interests in the Operating
Partnership;
<PAGE> 2
WHEREAS, the Executive Compensation Committee of the Board of Trust
Managers of CREE determined on March 1, 1999 that the Effective Agreement should
be amended to provide for an annual salary of $500,000 be paid to Mr. Haddock,
commencing March 1, 1999, in reward for services rendered to Crescent, Ltd. and
the Operating Partnership and for Mr. Haddock's contributions to the success and
prosperity of Crescent, Ltd. and the Operating Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to
the Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Mr. Haddock's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement is amended to provide for an annual salary
in the amount of $500,000 be paid to Mr. Haddock, commencing March 1, 1999, as
provided pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby
ratified, confirmed and affirmed for all purposes and in all respects.
3. This Fifth Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart.
IN WITNESS WHEREOF, the undersigned parties have executed this Fifth
Amendment as of the date first written above.
GERALD W. HADDOCK
/s/ Gerald W. Haddock
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
its sole general partner
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law
<PAGE> 1
EXHIBIT 10.12
CRESCENT REAL ESTATE EQUITIES, LTD.
FIRST AMENDED AND RESTATED
401(K) PLAN
Defined Contribution Plan 7.7
Restated March 17, 1997
<PAGE> 2
SECOND AMENDMENT TO CRESCENT REAL ESTATE
EQUITIES, LTD. FIRST AMENDED AND RESTATED
401(k) PLAN
(ADOPTED BY WRITTEN CONSENT OF THE SOLE DIRECTOR
IN LIEU OF MEETING ON SEPTEMBER 2, 1998)
The definitions of the following terms in Section 1.02 of the Crescent
Real Estate Equities, Ltd. First Amended and Restated 401(k) Plan are hereby
deleted in their entireties and replaced with the following:
* * * * *
EMPLOYEE means an individual who is a common law employee of the
Employer or any other employer required to be aggregated with the
Employer under Code Sections 414(b), (c), (m) or (o). A Controlled
Group member is required to be aggregated with the Employer.
ELIGIBLE EMPLOYEE means an Employee of an Employer who is actually
recorded as an Employee on the Employer's customary and usual payroll
records at the time services are performed by the Employee, except and
Employee:
(a) whose compensation and conditions of employment are covered by
a collective bargaining agreement to which the Employer is a
party unless the agreement calls for the Employee's
participation in the Plan;
(b) who is treated as an Employee because he or she is a Leased
Employee; or
(c) who is a nonresident alien and who either (i) receives no
earned income (within the meaning of Code section 911(d)(2))
from any Controlled Group member which constitutes income from
sources within the United States under Code section 861(a)(3);
or (ii) receives such earned income from such sources within
the United States but such income is exempt from United States
income tax under an applicable income tax convention.
If a person who has performed eligible services for an Employer but has
not been classified as an Employee or an Eligible Employee is
reclassified as an Employee as a result of a determination made by the
Employer, a court or governmental agency, such reclassified person
shall not be an Eligible Employee with respect to any period before the
date the reclassification determination is made.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
INTRODUCTION
<S> <C> <C>
ARTICLE I FORMAT AND DEFINITIONS
Section 1.01 ----- Format
Section 1.02 ----- Definitions
ARTICLE II PARTICIPATION
Section 2.01 ----- Active Participant
Section 2.02 ----- Inactive Participant
Section 2.03 ----- Cessation of Participation
ARTICLE III CONTRIBUTIONS
Section 3.01 ----- Employer Contributions
Section 3.01A ----- Rollover Contributions
Section 3.02 ----- Forfeitures
Section 3.03 ----- Allocation
Section 3.04 ----- Contribution Limitation
Section 3.05 ----- Excess Amounts
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
Section 4.01 ----- Investment of Contributions
Section 4.01A ----- Investment in Qualifying Employer Securities
Section 4.01B ----- Limitation on Investment in Qualifying Employer
Securities by Some Participants
ARTICLE V BENEFITS
Section 5.01 ----- Retirement Benefits
Section 5.02 ----- Death Benefits
Section 5.03 ----- Vested Benefits
Section 5.04 ----- When Benefits Start
Section 5.05 ----- Withdrawal Privileges
Section 5.06 ----- Loans to Participants
</TABLE>
TABLE OF CONTENTS 3
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI DISTRIBUTION OF BENEFITS
Section 6.01 ----- Form of Distribution
Section 6.02 ----- Election Procedures
Section 6.03 ----- Notice Requirements
Section 6.04 ----- Distributions Under Qualified
Domestic Relations Orders
ARTICLE VII TERMINATION OF PLAN
ARTICLE VIII ADMINISTRATION OF PLAN
Section 8.01 ----- Administration
Section 8.02 ----- Records
Section 8.03 ----- Information Available
Section 8.04 ----- Claim and Appeal Procedures
Section 8.05 ----- Unclaimed Vested Account Procedure
Section 8.06 ----- Delegation of Authority
ARTICLE IX GENERAL PROVISIONS
Section 9.01 ----- Amendments
Section 9.02 ----- Direct Rollovers
Section 9.03 ----- Mergers and Direct Transfers
Section 9.04 ----- Provisions Relating to the Insurer and Other Parties
Section 9.05 ----- Employment Status
Section 9.06 ----- Rights to Plan Assets
Section 9.07 ----- Beneficiary
Section 9.08 ----- Nonalienation of Benefits
Section 9.09 ----- Construction
Section 9.10 ----- Legal Actions
Section 9.11 ----- Small Amounts
Section 9.12 ----- Word Usage
Section 9.13 ----- Transfers Between Plans
ARTICLE X TOP-HEAVY PLAN REQUIREMENTS
Section 10.01 ----- Application
Section 10.02 ----- Definitions
Section 10.03 ----- Modification of Vesting Requirements
Section 10.04 ----- Modification of Contributions
Section 10.05 ----- Modification of Contribution Limitation
PLAN EXECUTION
</TABLE>
TABLE OF CONTENTS 4
<PAGE> 5
INTRODUCTION
The Primary Employer previously established a 401(k) savings plan on
July 1, 1994.
The Primary Employer is of the opinion that the plan document should
be amended and restated and that the plan should be continued. It believes
that the best means to accomplish these changes is to completely amend and
restate the plan's terms, provisions and conditions. This amendment and
restatement of the plan document, effective March 17, 1997, is substituted in
lieu of the prior plan document; provided, however, that the plan shall
continue and shall not constitute a new plan.
The plan, as amended and restated herein, continues to be for the
exclusive benefit of employees of the Employer. All persons covered under the
plan on March 16, 1997, shall continue to be covered under the plan, as amended
and restated herein, with no loss of benefits.
It is intended that the plan, as amended and restated herein, shall
continue to qualify as a profit sharing plan under the Internal Revenue Code of
1986, including any later amendments to the Code.
INTRODUCTION 5
<PAGE> 6
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01--FORMAT.
Words and phrases defined in the DEFINITIONS SECTION of Article I
shall have that defined meaning when used in this Plan, unless the context
clearly indicates otherwise.
These words and phrases have an initial capital letter to aid in
identifying them as defined terms.
SECTION 1.02--DEFINITIONS.
ACCOUNT means, for a Participant, his share of the Investment Fund.
Separate accounting records are kept for those parts of his Account
that result from:
(a) Elective Deferral Contributions
(b) Matching Contributions
(c) Other Employer Contributions
If the Employer elects to include any of these Contributions
in computing the percentages in the EXCESS AMOUNTS SECTION of
Article III, a separate accounting record shall be kept for
any part of his Account resulting from such Employer
Contributions.
(d) Rollover Contributions
If the Participant's Vesting Percentage is less than 100% as to any of
the Employer Contributions, a separate accounting record will be kept
for any part of his Account resulting from such Employer Contributions
and, if there has been a prior Forfeiture Date, from such
Contributions made before a prior Forfeiture Date.
A Participant's Account shall be reduced by any distribution of his
Vested Account and by any Forfeitures. A Participant's Account will
participate in the earnings credited, expenses charged and any
appreciation or depreciation of the Investment Fund. His Account is
subject to any minimum guarantees applicable under the Group Contract
or other investment arrangement.
ACCRUAL COMPUTATION PERIOD means a 12-consecutive month period ending
on the last day of each Plan Year, including corresponding
12-consecutive month periods before July 1, 1994.
ACTIVE PARTICIPANT means an Eligible Employee who is actively
participating in the Plan according to the provisions in the ACTIVE
PARTICIPANT SECTION of Article II.
AFFILIATED SERVICE GROUP means any group of corporations, partnerships
or other organizations of which the Employer is a part and which is
affiliated within the meaning of Code Section 414(m) and regulations
thereunder. Such a group includes at least two organizations one of
which is either a service
ARTICLE I 6
<PAGE> 7
organization (that is, an organization the principal business of which
is performing services), or an organization the principal business of
which is performing management functions on a regular and continuing
basis. Such service is of a type historically performed by employees.
In the case of a management organization, the Affiliated Service Group
shall include organizations related, within the meaning of Code
Section 144(a)(3), to either the management organization or the
organization for which it performs management functions. The term
Controlled Group, as it is used in this Plan, shall include the term
Affiliated Service Group.
ALTERNATE PAYEE means any spouse, former spouse, child or other
dependent of a participant who is recognized by a qualified domestic
relations order as having a right to receive all, or a portion of the
benefits payable under the Plan with respect to such Participant.
ANNIVERSARY DATE means December 31.
ANNUAL COMPENSATION means, on any given date, the Employee's
Compensation for the latest Compensation Year ending on or before the
given date.
ANNUITY STARTING DATE means, for a Participant, the first day of the
first period for which an amount is payable in a single sum.
BENEFICIARY means the person or persons named by a Participant to
receive any benefits under this Plan upon the Participant's death.
Unless a qualified election has been made, for the purpose of
distributing any death benefits before Annuity Starting Date, the
Beneficiary of a married Participant shall be the Participant's
spouse. See the BENEFICIARY SECTION of Article IX.
CLAIMANT means any person who has made a claim for benefits under this
Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article VIII.
CODE means the Internal Revenue Code of 1986, as amended.
COMPENSATION means, except as modified in this definition, the total
earnings paid or made available to an Employee by the Employer during
any specified period.
"Earnings" in this definition means Compensation as defined in the
CONTRIBUTION LIMITATION SECTION of Article III.
Compensation shall also include elective contributions. Elective
contributions are amounts excludable from the Employee's gross income
under Code Sections 125, 402(e)(3), 402(h) or 403(b), and contributed
by the Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity. Elective contributions also include
Compensation deferred under a Code Section 457 plan maintained by the
Employer and Employee contributions "picked up" by a governmental
entity and, pursuant to Code Section 414(h)(2), treated as Employer
contributions.
For purposes of the EXCESS AMOUNTS SECTION of Article III, the
Employer may elect to use an alternative nondiscriminatory definition
of Compensation in accordance with the regulations under Code Section
414(s).
Compensation shall exclude earnings paid before the Employee's Entry
Date.
For Plan Years beginning after December 31, 1988, and before January
1, 1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for any
year shall not exceed $200,000. For Plan Years beginning on or after
January 1, 1994, the annual Compensation of each Participant taken
into account for determining all benefits provided under the Plan for
any year shall not exceed $150,000.
ARTICLE I 7
<PAGE> 8
The $200,000 limit shall be adjusted by the Secretary at the same time
and in the same manner as under Code Section 415(d). The $150,000
limit shall be adjusted by the Commissioner for increases in the cost
of living in accordance with Code Section 401(a)(17)(B). The cost of
living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which pay is determined (determination
period) beginning in such calendar year. If a determination period
consists of fewer than 12 months, the annual compensation limit will
be multiplied by a fraction the numerator of which is the number of
months in the determination period, and the denominator of which is
12.
In determining the Compensation of a Participant for purposes of the
annual compensation limit, the rules of Code Section 414(q)(6) shall
apply, except that in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of
the year. If, as a result of the application of such rules the
adjusted annual compensation limit is exceeded, then (except for
purposes of determining the portion of Compensation up to the
integration level if this Plan provides for permitted disparity) the
limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under
this definition prior to the application of this limitation.
If Compensation for any prior determination period is taken into
account in determining a Participant's benefits accruing in the
current Plan Year, the Compensation for that prior determination
period is subject to the annual compensation limit in effect for that
prior determination period. For this purpose, for determination
periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1989, which are used to determine
benefits in Plan Years beginning after December 31, 1988 and before
January 1, 1994, the annual compensation limit is $200,000. For this
purpose, for determination periods beginning before the first day of
the first Plan Year beginning on or after January 1, 1994, which are
used to determine benefits in Plan Years beginning on or after January
1, 1994, the annual compensation limit is $150,000.
Compensation means, for an Employee who is a Leased Employee, the
Employee's Compensation for the services he performs for the Employer,
determined in the same manner as the Compensation of Employees who are
not Leased Employees, regardless of whether such Compensation would be
received directly from the Employer or from the leasing organization.
COMPENSATION YEAR means each one-year period ending on the last day of
the Plan Year, including corresponding periods before July 1, 1994.
CONTRIBUTIONS means
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
Rollover Contributions
ARTICLE I 8
<PAGE> 9
as set out in Article III, unless the context clearly indicates
otherwise.
CONTROLLED GROUP means any group of corporations, trades or businesses
of which the Employer is a part that are under common control. A
Controlled Group includes any group of corporations, trades or
businesses, whether or not incorporated, which is either a
parent-subsidiary group, a brother-sister group, or a combined group
within the meaning of Code Section 414(b), Code Section 414(c) and
regulations thereunder and, for purposes of determining contribution
limitations under the CONTRIBUTION LIMITATION SECTION of Article III,
as modified by Code Section 415(h) and, for the purpose of identifying
Leased Employees, as modified by Code Section 144(a)(3). The term
Controlled Group, as it is used in this Plan, shall include the term
Affiliated Service Group and any other employer required to be
aggregated with the Employer under Code Section 414(o) and the
regulations thereunder.
DIRECT ROLLOVER means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
DISCRETIONARY CONTRIBUTIONS means discretionary contributions made by
the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS
SECTION of Article III.
DISTRIBUTEE means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse or
former spouse.
ELECTIVE DEFERRAL CONTRIBUTIONS means Contributions made by the
Employer to fund this Plan in accordance with a qualified cash or
deferred arrangement as described in Code Section 401(k). See the
EMPLOYER CONTRIBUTIONS SECTION of Article III.
ELIGIBILITY SERVICE means an Employee's Period of Service. If he has
more than one Period of Service, or if all or a part of a Period of
Service is not counted, his Eligibility Service shall be determined by
adjusting his Employment Commencement Date so that he has one
continuous period of Eligibility Service equal to the aggregate of all
his countable Periods of Service. An Employee's Eligibility Service
shall be determined on the basis that 30 days equal one month and 365
days equal one year.
However, Eligibility Service is modified as follows:
Period of Military Duty included:
A Period of Military Duty shall be included as service with
the Employer to the extent it has not already been credited.
Period of Severance included (service spanning rule):
A Period of Severance shall be deemed to be a Period of
Service under either of the following conditions:
(a) the Period of Severance immediately follows a period
during which an Employee is not absent from work and
ends within 12 months; or
(b) the Period of Severance immediately follows a period
during which an Employee is absent from work for any
reason other than quitting, being discharged or
retiring (such as a leave of absence or layoff) and
ends within 12 months of the date he was first
absent.
ARTICLE I 9
<PAGE> 10
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the
Employer.
ELIGIBLE EMPLOYEE means any Employee of the Employer who meets the
following requirement. He is not engaged as an independent contractor
or he is not classified as ineligible for participation in the Plan.
ELIGIBLE RETIREMENT PLAN means an individual retirement account
described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code
Section 403(a) or a qualified trust described in Code Section 401(a),
that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to the
surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all or any
portion of the balance to the credit of the Distributee, except that
an Eligible Rollover Distribution does not include:
(a) Any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Distributee or
the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated Beneficiary, or
for a specified period of ten years or more.
(b) Any distribution to the extent such distribution is required
under Code Section 401(a)(9).
(c) The portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities).
EMPLOYEE means an individual who is employed by the Employer or any
other employer required to be aggregated with the Employer under Code
Sections 414(b), (c), (m) or (o). A Controlled Group member is
required to be aggregated with the Employer.
The term Employee shall also include any Leased Employee deemed to be
an employee of any employer described in the preceding paragraph as
provided in Code Sections 414(n) or 414(o).
EMPLOYER means the Primary Employer. This will also include any
successor corporation or firm of the Employer which shall, by written
agreement, assume the obligations of this Plan or any predecessor
corporation or firm of the Employer (absorbed by the Employer, or of
which the Employer was once a part) which became a predecessor because
of a change of name, merger, purchase of stock or purchase of assets
and which maintained this Plan.
EMPLOYER CONTRIBUTIONS means
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
as set out in Article III, unless the context clearly indicates
otherwise.
EMPLOYMENT COMMENCEMENT DATE means the date an Employee first performs
an Hour-of-Service.
ARTICLE I 10
<PAGE> 11
ENTRY DATE means the date an Employee first enters the Plan as an
Active Participant. See the ACTIVE PARTICIPANT SECTION of Article II.
FISCAL YEAR means the Primary Employer's taxable year. The last day
of the Fiscal Year is December 31.
FORFEITURE means the part, if any, of a Participant's Account that is
forfeited. See the FORFEITURES SECTION of Article III.
FORFEITURE DATE means, as to a Participant, the date the Participant
incurs five consecutive Vesting Breaks in Service. A Participant
incurs a Vesting Break in Service on the last day of the period used
to determine the Vesting Break in Service.
This is the date on which the Participant's Nonvested Account will be
forfeited unless an earlier forfeiture occurs as provided in the
FORFEITURES SECTION of Article III.
GROUP CONTRACT means the group annuity contract or contracts into
which the Trustee enters with the Insurer for the investment of
Contributions and the payment of benefits under this Plan. The term
Group Contract as it is used in this Plan is deemed to include the
plural unless the context clearly indicates otherwise.
HIGHLY COMPENSATED EMPLOYEE means a highly compensated active Employee
or a highly compensated former Employee.
A highly compensated active Employee means any Employee who performs
service for the Employer during the determination year and who, during
the look-back year is:
(a) An Employee who is a 5% owner, as defined in Section
416(i)(1)(B)(i), at any time during the determination year or
the look-back year.
(b) An Employee who receives compensation in excess of $75,000
(indexed in accordance with Section 415(d) during the
look-back year.
(c) An Employee who receives compensation in excess of $50,000
(indexed in accordance with Section 415(d) during the
look-back year and is a member of the top-paid group for the
look-back year.
ARTICLE I 11
<PAGE> 12
(d) An Employee who is an officer, within the meaning of Section
416(i), during the look-back year and who receives
compensation in the look-back year greater than 50% of the
dollar limitation in effect under Section 415(b)(1)(A) for the
calendar year in which the look-back year begins. The number
of officers is limited to 50 (or, if lesser, the greater of 3
employees or 10% of employees) excluding those employees who
may be excluded in determining the top-paid group.
(e) An Employee who is both described in paragraph b, c or d above
when these paragraphs are modified to substitute the
determination year for the look-back year and one of the 100
Employees who receive the most compensation from the Employer
during the determination year.
If no officer has satisfied the compensation requirement of (c) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding
the determination year.
A highly compensated former Employee means any Employee who separated
from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the separation year or any determination year ending on or
after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5 percent owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
highly compensated Employees ranked on the basis of compensation paid
by the Employer during such year, then the family member and the 5
percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or
top-ten highly compensated Employee shall be treated as a single
Employee receiving compensation and Plan contributions or benefits
equal to the sum of such compensation and contributions or benefits of
the family member and 5 percent owner or top-ten highly compensated
Employee. For purposes of this definition, family member includes the
spouse, lineal ascendants and descendants of the Employee or former
Employee and the spouses of such lineal ascendants and descendants.
Compensation is compensation within the meaning of Code Section
415(c)(3), including elective or salary reduction contributions to a
cafeteria plan, cash or deferred arrangement or tax-sheltered annuity.
The top- paid group consists of the top 20% of employees ranked on the
basis of compensation received during the year.
Employers aggregated under Section 414(b), (c), (m) or (o) are treated
as a single Employer.
HOUR-OF-SERVICE means, for the elapsed time method of crediting
service in this Plan, each hour for which an Employee is paid, or
entitled to payment, for performing duties for the Employer.
Hour-of-Service means, for the hours method of crediting service in
this Plan, the following:
(a) Each hour for which an Employee is paid, or entitled to
payment, for performing duties for the Employer during the
applicable computation period.
ARTICLE I 12
<PAGE> 13
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer because of a period of time in which
no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence. Notwithstanding
the preceding provisions of this subparagraph (b), no credit
will be given to the Employee
(1) for more than 501 Hours-of-Service under this
subparagraph (b) because of any single continuous
period in which the Employee performs no duties
(whether or not such period occurs in a single
computation period); or
(2) for an Hour-of-Service for which the Employee is
directly or indirectly paid, or entitled to payment,
because of a period in which no duties are performed
if such payment is made or due under a plan
maintained solely for the purpose of complying with
applicable worker's or workmen's compensation, or
unemployment compensation or disability insurance
laws; or
(3) for an Hour-of-Service for a payment which solely
reimburses the Employee for medical or medically
related expenses incurred by him.
For purposes of this subparagraph (b), a payment shall be
deemed to be made by, or due from the Employer, regardless of
whether such payment is made by, or due from the Employer,
directly or indirectly through, among others, a trust fund or
insurer, to which the Employer contributes or pays premiums
and regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit of
particular employees or are on behalf of a group of employees
in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours-of-Service shall not be credited both under
subparagraph (a) or subparagraph (b) above (as the case may
be) and under this subparagraph (c). Crediting of
Hours-of-Service for back pay awarded or agreed to with
respect to periods described in subparagraph (b) above will be
subject to the limitations set forth in that subparagraph.
The crediting of Hours-of-Service above shall be applied under the
rules of paragraphs (b) and (c) of the Department of Labor Regulation
2530.200b-2 (including any interpretations or opinions implementing
said rules); which rules, by this reference, are specifically
incorporated in full within this Plan. The reference to paragraph (b)
applies to the special rule for determining hours of service for
reasons other than the performance of duties such as payments
calculated (or not calculated) on the basis of units of time and the
rule against double credit. The reference to paragraph (c) applies to
the crediting of hours of service to computation periods.
Hours-of-Service shall be credited for employment with any other
employer required to be aggregated with the Employer under Code
Sections 414(b), (c), (m) or (o) and the regulations thereunder for
purposes of eligibility and vesting. Hours-of-Service shall also be
credited for any individual who is considered an employee for purposes
of this Plan pursuant to Code Section 414(n) or Code Section 414(o)
and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service
has occurred for eligibility or vesting purposes, during a Parental
Absence an Employee shall be credited with the Hours-of-Service which
otherwise would normally have been credited to the Employee but for
such absence, or in any case
ARTICLE I 13
<PAGE> 14
in which such hours cannot be determined, eight Hours-of-Service per
day of such absence. The Hours-of-Service credited under this
paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a break in
service in that period; or in all other cases, in the following
computation period.
INACTIVE PARTICIPANT means a former Active Participant who has an
Account. See the INACTIVE PARTICIPANT SECTION of Article II.
INSURER means Principal Mutual Life Insurance Company and any other
insurance company or companies named by the Trustee or Primary
Employer.
INVESTMENT FUND means the total assets held for the purpose of
providing benefits for Participants. These funds result from
Contributions made under the Plan.
INVESTMENT MANAGER means any fiduciary (other than a trustee or Named
Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets
of the Plan; and
(b) who (1) is registered as an investment adviser under the
Investment Advisers Act of 1940, or (2) is a bank, as defined
in the Investment Advisers Act of 1940, or (3) is an insurance
company qualified to perform services described in
subparagraph (a) above under the laws of more than one state;
and
(c) who has acknowledged in writing being a fiduciary with respect
to the Plan.
LATE RETIREMENT DATE means the Anniversary Date coinciding with or
next following a Participant's Normal Retirement Date and on which
retirement benefits begin. If a Participant continues to work for the
Employer after his Normal Retirement Date, his Late Retirement Date
shall be the earliest Anniversary Date on or after he ceases to be an
Employee. An earlier or a later Retirement Date may apply if the
Participant so elects. An earlier Retirement Date may apply if the
Participant is age 70 1/2. See the WHEN BENEFITS START SECTION of
Article V.
LEASED EMPLOYEE means any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient and any
other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in
accordance with Code Section 414(n)(6)) on a substantially full time
basis for a period of at least one year, and such services are of a
type historically performed by employees in the business field of the
recipient employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to service
performed for the recipient employer shall be treated as provided by
the recipient employer.
A Leased Employee shall not be considered an employee of the recipient
if:
(a) such employee is covered by a money purchase pension plan
providing (1) a nonintegrated employer contribution rate of at
least 10 percent of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the
employee's gross income under Code Sections 125, 402(e)(3),
402(h) or 403(b), (2) immediate participation, and (3) full
and immediate vesting and
ARTICLE I 14
<PAGE> 15
(b) Leased Employees do not constitute more than 20 percent of the
recipient's nonhighly compensated workforce.
LOAN ADMINISTRATOR means the person or positions authorized to
administer the Participant loan program.
The Loan Administrator is the H.R. Director.
MATCHING CONTRIBUTIONS means matching contributions made by the
Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of
Article III.
MONTHLY DATE means each Yearly Date and the same day of each following
month during the Plan Year beginning on such Yearly Date.
NAMED FIDUCIARY means the person or persons who have authority to
control and manage the operation and administration of the Plan.
The Named Fiduciary is the Employer.
NONHIGHLY COMPENSATED EMPLOYEE means an Employee of the Employer who
is neither a Highly Compensated Employee nor a Family Member.
NONVESTED ACCOUNT means the part, if any, of a Participant's Account
that is in excess of his Vested Account.
NORMAL RETIREMENT AGE means the age at which the Participant's normal
retirement benefit becomes nonforfeitable. A Participant's Normal
Retirement Age is the older of age 65 or his age on the date five
years after the first day of the Plan Year in which his Entry Date
occurred.
NORMAL RETIREMENT DATE means the Anniversary Date coinciding with or
next following the date the Participant reaches his Normal Retirement
Age. Unless otherwise provided in this Plan, a Participant's
retirement benefits shall begin on a Participant's Normal Retirement
Date if he has ceased to be an Employee on such date and has a Vested
Account. Even if the Participant is an Employee on his Normal
Retirement Date, he may choose to have his retirement benefit begin on
such date. See the WHEN BENEFITS START SECTION of Article V.
PARENTAL ABSENCE means an Employee's absence from work which begins on
or after the first Yearly Date after December 31, 1984,
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in
connection with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
ARTICLE I 15
<PAGE> 16
PARTICIPANT means either an Active Participant or an Inactive
Participant.
PERIOD OF MILITARY DUTY means, for an Employee
(a) who served as a member of the armed forces of the United
States, and
(b) who was reemployed by the Employer at a time when the Employee
had a right to reemployment in accordance with seniority
rights as protected under Section 2021 through 2026 of Title
38 of the U. S. Code,
the period of time from the date the Employee was first absent from
active work for the Employer because of such military duty to the date
the Employee was reemployed.
PERIOD OF SERVICE means a period of time beginning on an Employee's
Employment Commencement Date or Reemployment Commencement Date
(whichever applies) and ending on his Severance from Service Date.
PERIOD OF SEVERANCE means a period of time beginning on an Employee's
Severance from Service Date and ending on the date he again performs
an Hour-of-Service.
A one-year Period of Severance means a Period of Severance of 12
consecutive months.
Solely for purposes of determining whether a one-year Period of
Severance has occurred for eligibility or vesting purposes, the
12-consecutive month period beginning on the first anniversary of the
first date of a Parental Absence shall not be a one-year Period of
Severance.
PLAN means the 401(k) savings plan of the Employer set forth in this
document, including any later amendments to it.
PLAN ADMINISTRATOR means the person or persons who administer the
Plan.
The Plan Administrator is the Employer.
PLAN YEAR means a period beginning on a Yearly Date and ending on the
day before the next Yearly Date.
PRIMARY EMPLOYER means Crescent Real Estate Equities, Ltd.
QUALIFIED NONELECTIVE CONTRIBUTIONS means contributions (other than
Employer Contributions made to the Plan on behalf of a Participant on
account of Elective Deferral Contributions or on account of
contributions made by the Participant) made by the Employer to fund
this Plan which an Employee may not elect to have paid to him in cash
instead of being contributed to the Plan and which are subject to the
distribution and nonforfeitability requirements under Code Section
401(k). See the EMPLOYER CONTRIBUTIONS SECTION of Article III.
QUALIFYING EMPLOYER SECURITIES means any instrument issued by the
Employer and meeting the requirements of Section 4975(e)(8) of the
Code.
ARTICLE I 16
<PAGE> 17
QUALIFYING EMPLOYER SECURITIES ACCOUNT means for a Participant, his
share of Qualifying Employer Securities.
QUARTERLY DATE means each Yearly Date and the third, sixth and ninth
Monthly Date after each Yearly Date which is within the same Plan
Year.
REEMPLOYMENT COMMENCEMENT DATE means the date an Employee first
performs an Hour-of-Service following a Period of Severance.
REENTRY DATE means the date a former Active Participant reenters the
Plan. See the ACTIVE PARTICIPANT SECTION of Article II.
RETIREMENT DATE means the date a retirement benefit will begin and is
a Participant's Normal or Late Retirement Date, as the case may be.
ROLLOVER CONTRIBUTIONS means the Rollover Contributions which are made
by or for a Participant according to the provisions of the ROLLOVER
CONTRIBUTIONS SECTION of Article III.
SEVERANCE FROM SERVICE DATE means the earlier of
(a) the date on which an Employee quits, retires, dies or is
discharged, or
(b) the first anniversary of the date an Employee begins a
one-year absence from service (with or without pay). This
absence may be the result of any combination of vacation,
holiday, sickness, disability, leave of absence or layoff.
Solely to determine whether a one-year Period of Severance has
occurred for eligibility or vesting purposes for an Employee who is
absent from service beyond the first anniversary of the first day of a
Parental Absence, Severance from Service Date is the second
anniversary of the first day of the Parental Absence. The period
between the first and second anniversaries of the first day of the
Parental Absence is not a Period of Service and is not a Period of
Severance. TEFRA means the Tax Equity and Fiscal Responsibility Act
of 1982.
TEFRA COMPLIANCE DATE means the date a plan is to comply with the
provisions of TEFRA. The TEFRA Compliance Date as used in this Plan
is,
(a) for purposes of contribution limitations, Code Section 415,
(1) if the plan was in effect on July 1, 1982, the first
day of the first limitation year which begins after
December 31, 1982, or
(2) if the plan was not in effect on July 1, 1982, the
first day of the first limitation year which ends
after July 1, 1982.
(b) for all other purposes, the first Yearly Date after December
31, 1983.
ARTICLE I 17
<PAGE> 18
TOTALLY AND PERMANENTLY DISABLED means that a Participant is disabled
as a result of a physical or mental condition resulting from bodily
injury, disease or mental disorder that renders him incapable of
continuing any gainful occupation and is eligible for and receives a
disability benefit under Title II of the Federal Social Security Act.
TRUST means an agreement of trust between the Primary Employer and
Trustee established for the purpose of holding and distributing the
Trust Fund under the provisions of the Plan. The Trust may provide
for the investment of all or any portion of the Trust Fund in the
Group Contract.
TRUST FUND means the total funds held under the Trust for the purpose
of providing benefits for Participants. These funds result from
Contributions made under the Plan which are forwarded to the Trustee
to be deposited in the Trust Fund.
TRUSTEE means the trustee or trustees under the Trust. The term
Trustee as it is used in this Plan is deemed to include the plural
unless the context clearly indicates otherwise.
VALUATION DATE means for the purposes of the date on which the value
of the assets of the Trust is determined. The value of each Account
which is maintained under this Plan shall be determined on the
Valuation Date. In each Plan Year, the Valuation Date shall be the
close of each business day.
VESTED ACCOUNT means the vested part of a Participant's Account. The
Participant's Vested Account is determined as follows.
If the Participant's Vesting Percentage is 100%, his Vested Account
equals his Account.
If the Participant's Vesting Percentage is less than 100%, his Vested
Account equals the sum of (a) and (b) below:
(a) The part of the Participant's Account that results from
Employer Contributions made before a prior Forfeiture Date and
all other Contributions which were 100% vested when made.
(b) The balance of the Participant's Account in excess of the
amount in (a) above multiplied by his Vesting Percentage.
If the Participant has withdrawn any part of his Account resulting
from Employer Contributions, other than the vested Employer
Contributions included in (a) above, the amount determined under this
subparagraph (b) shall be equal to P(AB + D) - D as defined below:
P The Participant's Vesting Percentage.
AB The balance of the Participant's Account in excess of the
amount in (a) above.
D The amount of withdrawal resulting from Employer
Contributions, other than the vested Employer Contributions
included in (a) above.
The Participant's Vested Account is nonforfeitable.
ARTICLE I 18
<PAGE> 19
VESTING BREAK IN SERVICE means a Vesting Computation Period in which
an Employee is credited with 500 or fewer Hours-of-Service. An
Employee incurs a Vesting Break in Service on the last day of a
Vesting Computation Period in which he has a Vesting Break in Service.
If any former Participant is reemployed after a Vesting Break in
Service has occurred, Vesting Service shall include Vesting Service
prior to his Vesting Break in Service subject to the following rules:
(i) If a former Participant has a Vesting Break in Service, his
pre-break and post-break service shall be used for computing
Vesting Service only after he has been employed for one (1)
Year of Service following the date of his reemployment with
the Employer.
(ii) Any former Participant who under the Plan does not have a
nonforfeitable right to any interest in the Plan resulting
from Employer Contributions shall lose credits otherwise
allowable under (i) above if his consecutive Vesting Breaks in
Service equal or exceed the greater of (A) five (5) or (B) the
aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive Vesting Breaks in Service, a former
Participant's Vested Account balance attributable to pre-break
service shall not be increased as a result of post-break
service;
(iv) If a former Participant who has not had his Years of Service
before a Vesting Break in Service disregarded pursuant to (ii)
above completes a Year of Service (a Vesting Break in Service
previously occurred, but employment had not terminated), he
shall participate in the Plan retroactively from the first day
of the Plan Year during which he completes one (1) Year of
Service.
VESTING COMPUTATION PERIOD means a 12-consecutive month period ending
on the last day of each Plan Year, including corresponding
12-consecutive month periods before July 1, 1994.
VESTING PERCENTAGE means the percentage used to determine the
nonforfeitable portion of a Participant's Account attributable to
Employer Contributions which were not 100% vested when made.
A Participant's Vesting Percentage is shown in the following schedule
opposite the number of whole years of his Vesting Service.
<TABLE>
<CAPTION>
------------------------------------------------
VESTING SERVICE VESTING
(whole years) PERCENTAGE
------------------------------------------------
<S> <C>
Less than 1 0
------------------------------------------------
2 20
------------------------------------------------
2 40
------------------------------------------------
3 60
------------------------------------------------
4 80
------------------------------------------------
5 or more 100
------------------------------------------------
</TABLE>
However, the Vesting Percentage for a Participant who is an Employee
on or after the earliest of (i) the date he reaches his Normal
Retirement Age, (ii) the date of his death, or (iii) the date he
becomes Totally and Permanently Disabled, shall be 100% on such date.
If the schedule used to determine a Participant's Vesting Percentage
is changed, the new schedule shall not
ARTICLE I 19
<PAGE> 20
apply to a Participant unless he is credited with an Hour-of-Service
on or after the date of the change and the Participant's
nonforfeitable percentage on the day before the date of the change is
not reduced under this Plan. The amendment provisions of the
AMENDMENT SECTION of Article IX regarding changes in the computation
of the Vesting Percentage shall apply.
VESTING SERVICE means one year of service for each Vesting Computation
Period in which an Employee is credited with at least 1,000
Hours-of-Service.
However, Vesting Service is modified as follows:
Service before a date excluded:
Service accrued for a Vesting Computation Period ending before
July 1, 1994, is excluded.
Period of Military Duty included:
A Period of Military Duty shall be included as service with
the Employer to the extent it has not already been credited.
For purposes of crediting Hours-of-Service during the Period
of Military Duty, an Hour-of-Service shall be credited
(without regard to the 501 Hour-of-Service limitation) for
each hour an Employee would normally have been scheduled to
work for the Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group
while both that firm and the Employer were members of the
Controlled Group shall be included as service with the
Employer.
YEARLY DATE means July 1, 1994, and each following January 1.
YEARS OF SERVICE means an Employee's Vesting Service disregarding any
modifications which exclude service.
ARTICLE I 20
<PAGE> 21
ARTICLE II
PARTICIPATION
SECTION 2.01--ACTIVE PARTICIPANT.
(a) An Employee shall first become an Active Participant (begin
active participation in the Plan) on the earliest
Monthly Date on or after March 17, 1997, on which he
is an Eligible Employee and has met both of the
eligibility requirements set forth below. This date
is his Entry Date.
(1) He has completed one month of Eligibility Service
before his Entry Date.
(2) He is age 21 or older.
The requirements in items (1) and (2) above are waived for any
Carter Crowley Properties employee who transfers and becomes a
Crescent Real Estate Equities, Ltd. Employee. This date shall
be an Entry Date if the Eligible Employee has met all the
other eligibility requirements.
Each Employee who was an Active Participant under the Plan on
March 16, 1997, shall continue to be an Active Participant if
he is still an Eligible Employee on March 17, 1997, and his
Entry Date shall not change.
If a person has been an Eligible Employee who has met all the
eligibility requirements above, but is not an Eligible
Employee on the date which would have been his Entry Date, he
shall become an Active Participant on the date he again
becomes an Eligible Employee. This date is his Entry Date.
(b) An Inactive Participant shall again become an Active
Participant (resume active participation in the Plan) on the
date he again performs an Hour-of-Service as an Eligible
Employee. This date is his Reentry Date.
Upon again becoming an Active Participant, he shall cease to
be an Inactive Participant.
(c) A former Participant shall again become an Active Participant
(resume active participation in the Plan) on the date he again
performs an Hour-of-Service as an Eligible Employee. This
date is his Reentry Date.
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate
must be communicated to the Employer, in writing, at least 30 days before the
beginning of the Plan Year.
There shall be no duplication of benefits for a Participant under this
Plan because of more than one period as an Active Participant.
ARTICLE II 21
<PAGE> 22
ARTICLE III
CONTRIBUTIONS
SECTION 3.01--EMPLOYER CONTRIBUTIONS.
Employer Contributions for Plan Years which end on or after March 17,
1997, may be made without regard to current or accumulated net income,
earnings, or profits of the Employer. Notwithstanding the foregoing, the Plan
shall continue to be designed to qualify as a profit sharing plan for purposes
of Code Sections 401(a), 402, 412, and 417. Such Contributions will be equal
to the Employer Contributions as described below:
(a) The amount of each Elective Deferral Contribution for a
Participant shall be equal to any percentage (not less than 1%
nor more than 15%) of his Compensation for the pay period as
elected in his elective deferral agreement. An Employee who
is eligible to participate in the Plan may file an elective
deferral agreement with the Employer. The elective deferral
agreement to start Elective Deferral Contributions may be
effective on a Participant's Entry Date (Reentry Date, if
applicable) or any following Quarterly Date. The Participant
shall make any change or terminate the elective deferral
agreement by filing a new elective deferral agreement. A
Participant's elective deferral agreement making a change may
be effective on any date an elective deferral agreement to
start Elective Deferral Contributions could be effective. A
Participant's elective deferral agreement to stop Elective
Deferral Contributions may be effective on any date. The
elective deferral agreement must be in writing and effective
before the beginning of the pay period in which Elective
Deferral Contributions are to start, change or stop.
Elective Deferral Contributions are fully (100%) vested and
nonforfeitable.
(b) The amount of each Matching Contribution for a Participant
eligible for an allocation shall be equal to a percentage as
determined by the Employer of the Elective Deferral
Contributions made for him for the Matching Contribution
period, disregarding any Elective Deferral Contributions in
excess of 4% of his Compensation for the Matching Contribution
period. The Matching Contribution period may be a month,
quarter, half-year, or year as determined by the Employer.
Matching Contributions are subject to the Vesting Percentage.
(c) The amount of each Qualified Nonelective Contribution shall be
determined by the Employer. A Qualified Nonelective
Contribution shall be made for a Participant only if he is a
Nonhighly Compensated Employee or a Non-key Employee (as
defined in Article X).
Qualified Nonelective Contributions are fully (100%) vested
and nonforfeitable.
(d) The amount of each Discretionary Contribution shall be
determined by the Employer.
Discretionary Contributions are subject to the Vesting
Percentage.
No Participant shall be permitted to have Elective Deferral
Contributions, as defined in the EXCESS AMOUNTS SECTION of Article III, made
under this Plan, or any other qualified plan maintained by the Employer,
ARTICLE III 22
<PAGE> 23
during any taxable year, in excess of the dollar limitation contained in Code
Section 402(g) in effect at the beginning of such taxable year.
The Employer shall pay to the Trustee its Contributions used to
determine the Actual Deferral Percentage, as defined in the EXCESS AMOUNTS
SECTION of Article III, to the Plan for each Plan Year not later than the end of
the twelve-month period immediately following the Plan Year for which they are
deemed to be paid. Any such Contributions accumulated through payroll
deductions shall be paid to the Trustee as soon as administratively practicable
and in no event later than the 15th business day of the month after the month in
which such amounts otherwise would have been paid to the Participant.
A portion of the Plan assets resulting from Employer Contributions
(but not more than the original amount of those Contributions) may be returned
if the Employer Contributions are made because of a mistake of fact or are more
than the amount deductible under Code Section 404 (excluding any amount which
is not deductible because the Plan is disqualified). The amount involved must
be returned to the Employer within one year after the date the Employer
Contributions are made by mistake of fact or the date the deduction is
disallowed, whichever applies. Except as provided under this paragraph and
Article VII, the assets of the Plan shall never be used for the benefit of the
Employer and are held for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and for defraying reasonable expenses of
administering the Plan.
SECTION 3.01A--ROLLOVER CONTRIBUTIONS.
A Rollover Contribution may be made by or for an Eligible Employee if
the following conditions are met:
(a) The Contribution is a rollover contribution which the Code
permits to be transferred to a plan that meets the
requirements of Code Section 401(a).
(b) If the Contribution is made by the Eligible Employee, it is
made within sixty days after he receives the distribution.
(c) The Eligible Employee furnishes evidence satisfactory to the
Plan Administrator that the proposed transfer is in fact a
rollover contribution that meets conditions (a) and (b) above.
The Rollover Contribution may be made by the Eligible Employee or the
Eligible Employee may direct the trustee or named fiduciary of another plan to
transfer the funds which would otherwise be a Rollover Contribution directly to
this Plan. Such transferred funds shall be called a Rollover Contribution.
The Contribution shall be made according to procedures set up by the Plan
Administrator.
If the Eligible Employee is not an Active Participant at the time the
Rollover Contribution is made, he shall be deemed to be a Participant only for
the purposes of investment and distribution of the Rollover Contribution. He
shall not share in the allocation of Employer Contributions until the time he
meets all the requirements to become an Active Participant.
Rollover Contributions made by or for an Eligible Employee shall be
credited to his Account. The part of the Participant's Account resulting from
Rollover Contributions is fully (100%) vested and nonforfeitable at all times.
A separate accounting record shall be maintained for that part of his Rollover
Contribution which consists of voluntary contributions that were deducted from
the Participant's gross income for Federal income tax purposes.
SECTION 3.02--FORFEITURES.
The Nonvested Account of a Participant shall be forfeited as of the
earlier of the following: the date of the Participant's death, if prior to
such date he had ceased to be an Employee; or his Forfeiture Date. All or a
ARTICLE III 23
<PAGE> 24
part of a Participant's Nonvested Account will be forfeited if, after he
ceases to be an Employee, he receives a distribution of his entire Vested
Account or a distribution of his Vested Account derived from Employer
Contributions which were not 100% vested when made according to the provisions
of the VESTED BENEFITS SECTION of Article V or the SMALL AMOUNTS SECTION of
Article IX. If a Participant's Vested Account is zero on the date he ceases to
be an Employee, he shall be deemed to have received a distribution of his
entire Vested Account on such date. The forfeiture will occur as of the date
he receives the distribution or on the date such provision became effective, if
later. If he receives a distribution of his entire Vested Account, his entire
Nonvested Account will be forfeited. If he receives a distribution of his
Vested Account from Employer Contributions which were not 100% vested when
made, but less than his entire Vested Account, the amount to be forfeited will
be determined by multiplying his Nonvested Account by a fraction. The
numerator of the fraction is the amount of the distribution derived from
Employer Contributions which were not 100% vested when made and the denominator
of the fraction is his entire Vested Account derived from such Employer
Contributions on the date of distribution.
A Forfeiture shall also occur as described in the EXCESS AMOUNTS
SECTION of Article III.
Forfeitures may first be applied to pay expenses under the Plan which
would otherwise be paid by the Employer.
Forfeitures not used to pay expenses shall be applied to reduce the
earliest Employer Contributions made after the Forfeitures are determined.
Forfeitures shall be determined at least once during each taxable year of the
Employer. Upon their application, such Forfeitures shall be deemed to be
Employer Contributions.
Forfeitures of Matching Contributions which relate to excess amounts
shall be applied as provided in the EXCESS AMOUNTS SECTION of Article III.
If a Participant again becomes an Eligible Employee after receiving a
distribution which caused his Nonvested Account to be forfeited, he shall have
the right to repay to the Plan the entire amount of the distribution he
received (excluding any amount of such distribution resulting from
Contributions which were 100% vested when made). The repayment must be made
before the earlier of the date five years after the date he again becomes an
Eligible Employee or the end of the first period of five consecutive Vesting
Breaks in Service which begin after the date of the distribution.
If the Participant makes the repayment provided above, the Plan
Administrator shall restore to his Account an amount equal to his Nonvested
Account which was forfeited on the date of distribution, unadjusted for any
investment gains or losses. If the amount of the repayment is zero dollars
because the Participant was deemed to have received a distribution or the plan
did not have repayment provisions in effect on the date the distribution was
made and he again performs an Hour-of-Service as an Eligible Employee within
the repayment period, the Plan Administrator shall restore the Participant's
Account as if he had made a required repayment on the date he performed such
Hour-of-Service. Restoration of the Participant's Account shall include
restoration of all Code Section 411(d)(6) protected benefits with respect to
that restored Account, according to applicable Treasury regulations. Provided,
however, the Plan Administrator shall not restore the Nonvested Account if a
Forfeiture Date has occurred after the date of the distribution and on or
before the date of repayment and that Forfeiture Date would result in a
complete forfeiture of the amount the Plan Administrator would otherwise
restore.
The Plan Administrator shall restore the Participant's Account by the
close of the Plan Year following the Plan Year in which repayment is made.
Permissible sources for restoration are Forfeitures or Employer Contributions.
The Employer shall contribute, without regard to any requirement or condition
of the EMPLOYER
ARTICLE III 24
<PAGE> 25
CONTRIBUTIONS SECTION of Article III, such additional amount needed to make the
required restoration. The repaid and restored amounts are not included in the
Participant's Annual Addition, as defined in the CONTRIBUTION LIMITATION
SECTION of Article III.
SECTION 3.03--ALLOCATION.
The following Contributions for the Plan Year shall be allocated among
all eligible persons:
Qualified Nonelective Contributions
Discretionary Contributions
The eligible persons are all Participants and former Participants who
(i) are Active Participants on the last day of the Plan Year and had 1,000 or
more Hours-of-Service in the Accrual Computation Period that ends in the Plan
Year or (ii) were Active Participants at any time in the Plan Year and have
died, retired or become Totally and Permanently Disabled. The amount allocated
to such a person shall be determined below and under Article X.
The following Contributions for each Plan Year shall be allocated to
each Participant for whom such Contributions were made under the EMPLOYER
CONTRIBUTIONS SECTION of Article III:
Elective Deferral Contributions
Matching Contributions
These Contributions shall be allocated when made and credited to the
Participant's Account.
The following Contributions are allocated as of the last day of the
Plan Year to each eligible person for whom they are made and credited to his
Account:
Qualified Nonelective Contributions are allocated as of the last day
of each Plan Year. For purposes of this allocation, only Nonhighly Compensated
Employees and Non-key Employees (as defined in Article X) shall be eligible
persons. The amount allocated to each eligible person for the Plan Year shall
be equal to Qualified Nonelective Contributions for the Plan Year, multiplied
by the ratio of (a) his Annual Compensation as of the last day of the Plan Year
to (b) the total of such compensation for all eligible persons. This amount is
credited to his Account.
Discretionary Contributions are allocated as of the last day of each
Plan Year. The amount allocated to each eligible person for the Plan Year
shall be equal to the Discretionary Contributions for the Plan Year, multiplied
by the ratio of (a) his Annual Compensation as of the last day of the Plan Year
to (b) the total of such compensation for all eligible persons. This amount is
credited to his Account.
Notwithstanding anything to the contrary, if this is a Plan that would
otherwise fail to meet the requirements of Code Sections 401(a)(26), 410(b)(1)
or 410(b)(2)(A)(i) and the Regulations thereunder because Employer
Contributions would not be allocated to a sufficient number or percentage of
Participants for a Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in the Employer's
Contribution for the Plan Year shall be expanded to include
the minimum number of Participants who would not otherwise be
eligible as are necessary to satisfy the applicable test. The
specific Participants who shall become eligible
ARTICLE III 25
<PAGE> 26
under the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed
the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's Contribution for the Plan
Year shall be further expanded to include the minimum number
of Participants who are not actively employed on the last day
of the Plan Year as are necessary to satisfy the applicable
test. The specific Participants who shall become eligible to
share shall be those Participants, when compared to similarly
situated Participants, who have completed the greatest number
of Hours-of-Service in the Plan Year before terminating
employment.
In determining the amount of Employer Contributions to be allocated to
a Participant who is a Leased Employee, contributions and benefits provided by
the leasing organization which are attributable to services such Leased
Employee performs for the Employer shall be treated as provided by the Employer
and there shall be no duplication of those contributions or benefits under this
Plan.
SECTION 3.04--CONTRIBUTION LIMITATION.
(a) For the purpose of determining the contribution limitation set
forth in this section, the following terms are defined:
Aggregate Annual Addition means, for a Participant with
respect to any Limitation Year, the sum of his Annual
Additions under all defined contribution plans of the
Employer, as defined in this section, for such Limitation
Year. The nondeductible participant contributions which the
Participant makes to a defined benefit plan shall be treated
as Annual Additions to a defined contribution plan. The
Contributions the Employer, as defined in this section, made
for the Participant for a Plan Year beginning on or after
March 31, 1984, to an individual medical benefit account, as
defined in Code Section 415(l)(2), under a pension or annuity
plan of the Employer, as defined in this section, shall be
treated as Annual Additions to a defined contribution plan.
Also, amounts derived from contributions paid or accrued after
December 31, 1985, in Fiscal Years ending after such date,
which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee, as
defined in Code Section 419A(d)(3), under a welfare benefit
fund, as defined in Code Section 419(e), maintained by the
Employer, as defined in this section, are treated as Annual
Additions to a defined contribution plan. The 25% of
Compensation limit under Maximum Permissible Amount does not
apply to Annual Additions resulting from contributions made to
an individual medical account, as defined in Code Section
415(l)(2), or to Annual Additions resulting from contributions
for medical benefits, within the meaning of Code Section 419A,
after separation from service.
Annual Addition means the amount added to a Participant's
account for any Limitation Year which may not exceed the
Maximum Permissible Amount. The Annual Addition under any
plan for a Participant with respect to any Limitation Year,
shall be equal to the sum of (1) and (2) below:
(1) Employer contributions and forfeitures credited to
his account for the Limitation Year.
(2) Participant contributions made by him for the
Limitation Year.
ARTICLE III 26
<PAGE> 27
Before the first Limitation Year beginning after December 31,
1986, the amount under (2) above is the lesser of (i) 1/2 of his
nondeductible participant contributions made for the Limitation Year,
or (ii) the amount, if any, of his nondeductible participant
contributions made for the Limitation Year which is in excess of six
percent of his Compensation, as defined in this section, for such
Limitation Year.
Compensation means all wages for Federal income tax
withholding purposes, as defined under Code Section 3401(a)
(for purposes of income tax withholding at the source),
disregarding any rules limiting the remuneration included as
wages based on the nature or location of the employment or the
services performed.
For any self-employed individual Compensation will mean earned
income.
For purposes of applying the limitations of this section,
Compensation for a Limitation Year is the Compensation
actually paid or made available during such Limitation Year.
Defined Benefit Plan Fraction means, with respect to a
Limitation Year for a Participant who is or has been a
participant in a defined benefit plan ever maintained by the
Employer, as defined in this section, the quotient, expressed
as a decimal, of
(1) the Participant's Projected Annual Benefit under all
such plans as of the close of such Limitation Year,
divided by
(2) on and after the TEFRA Compliance Date, the lesser of
(i) or (ii) below:
(i) 1.25 multiplied by the maximum dollar
limitation which applies to defined benefit
plans determined for the Limitation Year
under Code Sections 415(b) or (d) or
(ii) 1.4 multiplied by the Participant's highest
average compensation as defined in the
defined benefit plan(s),
including any adjustments under Code Section 415(b).
Before the TEFRA Compliance Date, this denominator is
the Participant's Projected Annual Benefit as of the
close of the Limitation Year if the plan(s) provided
the maximum benefit allowable.
The Defined Benefit Plan Fraction shall be modified as
follows:
If the Participant was a participant as of the first day of
the first Limitation Year beginning after December 31, 1986,
in one or more defined benefit plans maintained by the
Employer, as defined in this section, which were in existence
on May 6, 1986, the denominator of this fraction will not be
less than 125 percent of the sum of the annual benefits under
such plans which the Participant had accrued as of the close
of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the
plan after May 5, 1986. The preceding sentence applies only
if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 for all
Limitation Years beginning before January 1, 1987.
ARTICLE III 27
<PAGE> 28
Defined Contribution Plan Fraction means, for a Participant
with respect to a Limitation Year, the quotient, expressed as
a decimal, of
(1) the Participant's Aggregate Annual Additions for such
Limitation Year and all prior Limitation Years, under
all defined contribution plans (including the
Aggregate Annual Additions attributable to
nondeductible accounts under defined benefit plans
and attributable to all welfare benefit funds, as
defined in Code Section 419(e) and attributable to
individual medical accounts, as defined in Code
Section 415(l)(2)) ever maintained by the Employer,
as defined in this section, divided by
(2) on and after the TEFRA Compliance Date, the sum of
the amount determined for the Limitation Year under
(i) or (ii) below, whichever is less, and the amounts
determined in the same manner for all prior
Limitation Years during which he has been an Employee
or an employee of a predecessor employer:
(i) 1.25 multiplied by the maximum permissible
dollar amount for each such Limitation Year,
or
(ii) 1.4 multiplied by the maximum permissible
percentage of the Participant's Compensation,
as defined in this section, for each such
Limitation Year.
Before the TEFRA Compliance Date, this denominator is
the sum of the maximum allowable amount of Annual
Addition to his account(s) under all the plan(s) of
the Employer, as defined in this section, for each
such Limitation Year.
The Defined Contribution Plan Fraction shall be modified as
follows:
If the Participant was a participant as of the first day of
the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the
Employer, as defined in this section, which were in existence
on May 6, 1986, the numerator of this fraction shall be
adjusted if the sum of the Defined Contribution Plan Fraction
and Defined Benefit Plan Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, the
dollar amount determined below shall be permanently subtracted
from the numerator of this fraction. The dollar amount is
equal to the excess of the sum of the two fractions, before
adjustment, over 1.0 multiplied by the denominator of his
Defined Contribution Plan Fraction. The adjustment is
calculated using his Defined Contribution Plan Fraction and
Defined Benefit Plan Fraction as they would be computed as of
the end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the
Code Section 415 limitations applicable to the first
Limitation Year beginning on or after January 1, 1987.
The Annual Addition for any Limitation Year beginning before
January 1, 1987, shall not be recomputed to treat all employee
contributions as Annual Additions.
For a plan that was in existence on July 1, 1982, for purposes
of determining the Defined Contribution Plan Fraction for any
Limitation Year ending after December 31, 1982, the Plan
Administrator may elect, in accordance with the provisions of
Code Section 415, that the
ARTICLE III 28
<PAGE> 29
denominator for each Participant for all Limitation Years
ending before January 1, 1983, will be equal to
(1) the Defined Contribution Plan Fraction denominator
which would apply for the last Limitation Year ending
in 1982 if an election under this paragraph were not
made, multiplied by.
(2) a fraction, equal to (i) over (ii) below:
(i) the lesser of (A) $51,875, or (B) 1.4,
multiplied by 25% of the Participant's
Compensation, as defined in this section, for
the Limitation Year ending in 1981;
(ii) the lesser of (A) $41,500, or (B) 25% of the
Participant's Compensation, as defined in
this section, for the Limitation Year ending
in 1981.
The election described above is applicable only if the plan
administrators under all defined contribution plans of the
Employer, as defined in this section, also elect to use the
modified fraction.
Employer means any employer that adopts this Plan and all
Controlled Group members and any other entity required to be
aggregated with the employer pursuant to regulations under
Code Section 414(o).
Limitation Year means the 12-consecutive month period within
which it is determined whether or not the limitations of Code
Section 415 are exceeded. Limitation Year means each
12-consecutive month period ending on the last day of each
Plan Year, including corresponding 12-consecutive month
periods before July 1, 1994. If the Limitation Year is other
than the calendar year, execution of this Plan (or any
amendment to this Plan changing the Limitation Year)
constitutes the Employer's adoption of a written resolution
electing the Limitation Year. If the Limitation Year is
changed, the new Limitation Year shall begin within the
current Limitation Year, creating a short Limitation Year.
Maximum Permissible Amount means, for a Participant with
respect to any Limitation Year, the lesser of (1) or (2)
below:
(1) The greater of $30,000 or one-fourth of the maximum
dollar limitation which applies to defined benefit
plans set forth in Code Section 415(b)(1)(A) as in
effect for the Limitation Year. (Before the TEFRA
Compliance Date, $25,000 multiplied by the cost of
living adjustment factor permitted by Federal
regulations.)
(2) 25% of his Compensation, as defined in this section,
for such Limitation Year.
The compensation limitation referred to in (2) shall not apply
to any contribution for medical benefits (within the meaning
of Code Section 401(h) or Code Section 419A(f)(2)) which is
otherwise treated as an annual addition under Code Section
415(l)(1) or Code Section 419A(d)(2).
If there is a short Limitation Year because of a change in
Limitation Year, the Maximum Permissible Amount will not
exceed the maximum dollar limitation which would otherwise
apply multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
Projected Annual Benefit means a Participant's expected annual
benefit under all defined benefit plan(s) ever maintained by
the Employer, as defined in this section. The Projected
Annual Benefit
ARTICLE III 29
<PAGE> 30
shall be determined assuming that the Participant will
continue employment until the later of current age or normal
retirement age under such plan(s), and that the Participant's
compensation for the current Limitation Year and all other
relevant factors used to determine benefits under such plan(s)
will remain constant for all future Limitation Years. Such
expected annual benefit shall be adjusted to the actuarial
equivalent of a straight life annuity if expressed in a form
other than a straight life or qualified joint and survivor
annuity.
(b) The Annual Addition under this Plan for a Participant during a
Limitation Year shall not be more than the Maximum Permissible
Amount.
(c) Contributions which would otherwise be credited to the
Participant's Account shall be limited or reallocated to the
extent necessary to meet the restrictions of subparagraph (b)
above for any Limitation Year in the following order.
Discretionary Contributions shall be reallocated in the same
manner as described in the ALLOCATION SECTION of Article III
to the remaining Participants to whom the limitations do not
apply for the Limitation Year. The Discretionary
Contributions shall be limited if there are no such remaining
Participants. Qualified Nonelective Contributions shall be
reallocated in the same manner as described in the ALLOCATION
SECTION of Article III to the remaining Participants to whom
the limitations do not apply for the Limitation Year. The
Qualified Nonelective Contributions shall be limited if there
are no such remaining Participants. Elective Deferral
Contributions that are not the basis for Matching
Contributions shall be limited. Matching Contributions shall
be limited to the extent necessary to limit the Participant's
Annual Addition under this Plan to his maximum amount. If
Matching Contributions are limited because of this limit,
Elective Deferral Contributions that are the basis for
Matching Contributions shall be reduced in proportion.
If, due to (i) an error in estimating a Participant's
Compensation as defined in this section, (ii) because the
amount of the Forfeitures to be used to offset Employer
Contributions is more than the amount of the Employer
Contributions due for the remaining Participants, (iii) as a
result of a reasonable error in determining the amount of
elective deferrals (within the meaning of Code Section
402(g)(3)) that may be made with respect to any individual
under the limits of Code Section 415, or (iv) other limited
facts and circumstances, a Participant's Annual Addition is
greater than the amount permitted in (b) above, such excess
amount shall be applied as follows. Matching Contributions
based on Elective Deferral Contributions which are returned
shall be forfeited. If after the return of Elective Deferral
Contributions, an excess amount still exists, and the
Participant is an Active Participant as of the end of the
Limitation Year, the excess amount shall be used to offset
Employer Contributions for him in the next Limitation Year.
If after the return of Elective Deferral Contributions, an
excess amount still exists, and the Participant is not an
Active Participant as of the end of the Limitation Year, the
excess amount will be held in a suspense account which will be
used to offset Employer Contributions for all Participants in
the next Limitation Year. No Employer Contributions that
would be included in the next Limitation Year's Annual
Addition may be made before the total suspense account has
been used.
ARTICLE III 30
<PAGE> 31
(d) A Participant's Aggregate Annual Addition for a Limitation
Year shall not exceed the Maximum Permissible Amount.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or a
welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section
415(l)(2), maintained by the Employer, as defined in this
section, and such plans and welfare benefit funds and
individual medical accounts do not otherwise limit the
Aggregate Annual Addition to the Maximum Permissible Amount,
any reduction necessary shall be made first to the profit
sharing plans, then to all other such plans and welfare
benefit funds and individual medical accounts and, if
necessary, by reducing first those that were most recently
allocated. Welfare benefit funds and individual medical
accounts shall be deemed to be allocated first. However,
elective deferral contributions shall be the last
contributions reduced before the welfare benefit fund or
individual medical account is reduced.
If some of the Employer's defined contribution plans were not
in existence on July 1, 1982, and some were in existence on
that date, the Maximum Permissible Amount which is based on a
dollar amount may differ for a Limitation Year. The Aggregate
Annual Addition for the Limitation Year in which the dollar
limit differs shall not exceed the lesser of (1) 25% of
Compensation as defined in this section, (2) $45,475, or (3)
the greater of $30,000 or the sum of the Annual Additions for
such Limitation Year under all the plan(s) to which the
$45,475 amount applies.
(e) If a Participant is or has been a participant in both defined
benefit and defined contribution plans (including a welfare
benefit fund or individual medical account) ever maintained by
the Employer, as defined in this section, the sum of the
Defined Benefit Plan Fraction and the Defined Contribution
Plan Fraction for any Limitation Year shall not exceed 1.0
(1.4 before the TEFRA Compliance Date).
After all other limitations set out in the plans and funds
have been applied, the following limitations shall apply so
that the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction shall not
exceed 1.0 (1.4 before the TEFRA Compliance Date). The
Projected Annual Benefit shall be limited first. If the
Participant's annual benefit(s) equal his Projected Annual
Benefit, as limited, then Annual Additions to the defined
contribution plan(s) shall be limited to the extent needed to
reduce the sum to 1.0 (1.4). First, the voluntary
contributions the Participant may make for the Limitation Year
shall be limited. Next, in the case of a profit sharing plan,
any forfeitures allocated to the Participant shall be
reallocated to remaining participants to the extent necessary
to reduce the decimal to 1.0 (1.4). Last, to the extent
necessary, employer contributions for the Limitation Year
shall be reallocated or limited, and any required and optional
employee contributions to which such employer contributions
were geared shall be reduced in proportion.
If, for the Limitation Year, the Participant has an Annual
Addition under more than one defined contribution plan or
welfare benefit fund or individual medical account maintained
by the Employer, as defined in this section, any reduction
above shall be made first to the profit sharing plans, then to
all other such plans and welfare benefit plans and individual
medical accounts and, if necessary, by reducing first those
that were most recently allocated. However, elective deferral
contributions shall be the last contributions reduced before
the welfare benefit fund or individual medical account is
reduced. The annual addition to the welfare benefit fund and
individual medical account shall be limited last.
ARTICLE III 31
<PAGE> 32
SECTION 3.05--EXCESS AMOUNTS.
(a) For the purposes of this section, the following terms are
defined:
Actual Deferral Percentage means the ratio (expressed as a
percentage) of Elective Deferrall Contributions under this
Plan on behalf of the Eligible Participant for the Plan Year
to the Eligible Participant's Compensation for the Plan Year.
In modification of the foregoing, Compensation shall be
limited to the Compensation received while an Active
Participant. The Elective Deferral Contributions used to
determine the Actual Deferral Percentage shall include Excess
Elective Deferrals (other than Excess Elective Deferrals of
Nonhighly Compensated Employees that arise solely from
Elective Deferral Contributions made under this Plan or any
other plans of the Employer or a Controlled Group member), but
shall exclude Elective Deferral Contributions that are used in
computing the Contribution Percentage (provided the Average
Actual Deferral Percentage test is satisfied both with and
without exclusion of these Elective Deferral Contributions).
Under such rules as the Secretary of the Treasury shall
prescribe in Code Section 401(k)(3)(D), the Employer may elect
to include Qualified Nonelective Contributions and Qualified
Matching Contributions under this Plan in computing the Actual
Deferral Percentage. For an Eligible Participant for whom
such Contributions on his behalf for the Plan Year are zero,
the percentage is zero.
Aggregate Limit means the greater of (1) or (2) below:
(1) The sum of
(i) 125 percent of the greater of the Average
Actual Deferral Percentage of the Nonhighly
Compensated Employees for the Plan Year or
the Average Contribution Percentage of
Nonhighly Compensated Employees under the
Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(ii) the lesser of 200% or two plus the lesser of
such Average Actual Deferral Percentage or
Average Contribution Percentage.
(2) The sum of
(i) 125 percent of the lesser of the Average
Actual Deferral Percentage of the Nonhighly
Compensated Employees for the Plan Year or
the Average Contribution Percentage of
Nonhighly Compensated Employees under the
Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan
Year of the cash or deferred arrangement and
(ii) the lesser of 200% or two plus the greater of
such Average Actual Deferral Percentage or
Average Contribution Percentage.
Average Actual Deferral Percentage means the average
(expressed as a percentage) of the Actual Deferral Percentages
of the Eligible Participants in a group.
Average Contribution Percentage means the average (expressed
as a percentage) of the Contribution Percentages of the
Eligible Participants in a group.
Contribution Percentage means the ratio (expressed as a
percentage) of the Eligible Participant's Contribution
Percentage Amounts to the Eligible Participant's Compensation
for the Plan Year. In
ARTICLE III 32
<PAGE> 33
modification of the foregoing, Compensation shall be limited
to the Compensation received while an Active Participant. For
an Eligible Participant for whom such Contribution Percentage
Amounts for the Plan Year are zero, the percentage is zero.
Contribution Percentage Amounts means the sum of the
Participant Contributions and Matching Contributions (that are
not Qualified Matching Contributions) under this Plan on
behalf of the Eligible Participant for the Plan Year. Such
Contribution Percentage Amounts shall not include Matching
Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the Contributions to which
they relate are Excess Elective Deferrals, Excess
Contributions or Excess Aggregate Contributions. Under such
rules as the Secretary of the Treasury shall prescribe in Code
Section 401(k)(3)(D), the Employer may elect to include
Qualified Nonelective Contributions and Qualified Matching
Contributions under this Plan which were not used in computing
the Actual Deferral Percentage in computing the Contribution
Percentage. The Employer may also elect to use Elective
Deferral Contributions in computing the Contribution
Percentage so long as the Average Actual Deferral Percentage
test is met before the Elective Deferral Contributions are
used in the Average Contribution Percentage test and continues
to be met following the exclusion of those Elective Deferral
Contributions that are used to meet the Average Contribution
Percentage test.
Elective Deferral Contributions means employer contributions
made on behalf of a participant pursuant to an election to
defer under any qualified cash or deferred arrangement as
described in Code Section 401(k), any simplified employee
pension cash or deferred arrangement as described in Code
Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code
Section 501(c)(18), and any employer contributions made on
behalf of a participant for the purchase of an annuity
contract under Code Section 403(b) pursuant to a salary
reduction agreement. Elective Deferral Contributions shall
not include any deferrals properly distributed as excess
Annual Additions.
Eligible Participant means, for purposes of the Actual
Deferral Percentage, any Employee who is eligible to make an
Elective Deferral Contribution, and shall include the
following: any Employee who would be a plan participant if he
chose to make required contributions; any Employee who can
make Elective Deferral Contributions but who has changed the
amount of his Elective Deferral Contribution to 0%, or whose
eligibility to make an Elective Deferral Contribution is
suspended because of a loan, distribution or hardship
withdrawal; and, any Employee who is not able to make an
Elective Deferral Contribution because of Code Section
415(c)(1) - Annual Additions limits. The Actual Deferral
Percentage for any such included Employee is zero.
Eligible Participant means, for purposes of the Average
Contribution Percentage, any Employee who is eligible to make
a Participant Contribution or to receive a Matching
Contribution, and shall include the following: any Employee
who would be a plan participant if he chose to make required
contributions; any Employee who can make a Participant
Contribution or receive a matching contribution but who has
made an election not to participate in the Plan; and any
Employee who is not able to make a Participant Contribution or
receive a matching contribution because of Code Section
415(c)(1) or 415(e) limits. The Average Contribution
Percentage for any such included Employee is zero.
Excess Aggregate Contributions means, with respect to any Plan
Year, the excess of:
(1) The aggregate Contributions taken into account in
computing the numerator of the Contribution
Percentage actually made on behalf of Highly
Compensated Employees for such Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Average Contribution
ARTICLE III 33
<PAGE> 34
Percentage test (determined by reducing Contributions
made on behalf of Highly Compensated Employees in
order of their Contribution Percentages beginning
with the highest of such percentages).
Such determination shall be made after first determining
Excess Elective Deferrals and then determining Excess
Contributions.
Excess Contributions means, with respect to any Plan Year, the
excess of:
(1) The aggregate amount of Contributions actually taken
into account in computing the Actual Deferral
Percentage of Highly Compensated Employees for such
Plan Year, over
(2) The maximum amount of such Contributions permitted by
the Actual Deferral Percentage test (determined by
reducing Contributions made on behalf of Highly
Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such
percentages).
A Participant's Excess Contributions for a Plan Year will be
reduced by the amount of Excess Elective Deferrals, if any,
previously distributed to the Participant for the taxable year
ending in that Plan Year.
Excess Elective Deferrals means those Elective Deferral
Contributions that are includible in a Participant's gross
income under Code Section 402(g) to the extent such
Participant's Elective Deferral Contributions for a taxable
year exceed the dollar limitation under such Code section.
Excess Elective Deferrals shall be treated as Annual
Additions, as defined in the CONTRIBUTION LIMITATION SECTION
of Article III, under the Plan, unless such amounts are
distributed no later than the first April 15 following the
close of the Participant's taxable year.
Matching Contributions means employer contributions made to
this or any other defined contribution plan, or to a contract
described in Code Section 403(b), on behalf of a participant
on account of a Participant Contribution made by such
participant, or on account of a participant's Elective
Deferral Contributions, under a plan maintained by the
employer.
Participant Contributions means contributions made to any plan
by or on behalf of a participant that are included in the
participant's gross income in the year in which made and that
are maintained under a separate account to which earnings and
losses are allocated.
Qualified Matching Contributions means Matching Contributions
which are subject to the distribution and nonforfeitability
requirements under Code Section 401(k) when made.
Qualified Nonelective Contributions means any employer
contributions (other than Matching Contributions) which an
employee may not elect to have paid to him in cash instead of
being contributed to the plan and which are subject to the
distribution and nonforfeitability requirements under Code
Section 401(k).
(b) A Participant may assign to this Plan any Excess Elective
Deferrals made during a taxable year by notifying the Plan
Administrator in writing on or before the first following
March 1 of the amount of the Excess Elective Deferrals to be
assigned to the Plan. A Participant is deemed to notify the
Plan Administrator of any Excess Elective Deferrals that arise
by taking into account only those Elective Deferral
Contributions made to this Plan and any other plans of the
Employer or a Controlled Group member and reducing such Excess
Elective Deferrals by the amount of Excess Contributions, if
any, previously distributed for the Plan Year beginning in
that taxable year. The Participant's claim for Excess
Elective Deferrals shall be accompanied by the Participant's
written statement that if such
ARTICLE III 34
<PAGE> 35
amounts are not distributed, such Excess Elective Deferrals,
when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k) or
403(b), will exceed the limit imposed on the Participant by
Code Section 402(g) for the year in which the deferral
occurred. The Excess Elective Deferrals assigned to this Plan
can not exceed the Elective Deferral Contributions allocated
under this Plan for such taxable year.
Notwithstanding any other provisions of the Plan, Elective
Deferral Contributions in an amount equal to the Excess
Elective Deferrals assigned to this Plan, plus any income and
minus any loss allocable thereto, shall be distributed no
later than April 15 to any Participant to whose Account Excess
Elective Deferrals were assigned for the preceding year and
who claims Excess Elective Deferrals for such taxable year.
The income or loss allocable to such Excess Elective Deferrals
shall be equal to the income or loss allocable to the
Participant's Elective Deferral Contributions for the taxable
year in which the excess occurred multiplied by a fraction.
The numerator of the fraction is the Excess Elective
Deferrals. The denominator of the fraction is the closing
balance without regard to any income or loss occurring during
such taxable year (as of the end of such taxable year) of the
Participant's Account resulting from Elective Deferral
Contributions.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Elective Deferrals, plus any income and minus any loss
allocable thereto, shall be forfeited. These Forfeitures
shall be used to offset the earliest Employer Contribution due
after the Forfeiture arises.
(c) As of the end of each Plan Year after Excess Elective
Deferrals have been determined, one of the following tests
must be met:
(1) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average Actual
Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the
Average Actual Deferral Percentages is not more than
2.
The Actual Deferral Percentage for any Eligible Participant
who is a Highly Compensated Employee for the Plan Year and who
is eligible to have Elective Deferral Contributions (and
Qualified
ARTICLE III 35
<PAGE> 36
Nonelective Contributions or Qualified Matching
Contributions, or both, if used in computing the Actual
Deferral Percentage) allocated to his account under two or
more plans or arrangements described in Code Section 401(k)
that are maintained by the Employer or a Controlled Group
member shall be determined as if all such Elective Deferral
Contributions (and, if applicable, such Qualified Nonelective
Contributions or Qualified Matching Contributions, or both)
were made under a single arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated
as separate if mandatorily disaggregated under the regulations
under Code Section 401(k).
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code sections only if aggregated with
this Plan, then this section shall be applied by determining
the Actual Deferral Percentage of employees as if all such
plans were a single plan. Plans may be aggregated in order to
satisfy Code Section 401(k) only if they have the same Plan
Year.
For purposes of determining the Actual Deferral Percentage of
an Eligible Participant who is a five-percent owner or one of
the ten most highly-paid Highly Compensated Employees, the
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
used in computing the Actual Deferral Percentage) and
Compensation of such Eligible Participant include the Elective
Deferral Contributions (and, if applicable, Qualified
Nonelective Contributions or Qualified Matching Contributions,
or both) and Compensation for the Plan Year of Family Members.
Family Members, with respect to such Highly Compensated
Employees, shall be disregarded as separate employees in
determining the Actual Deferral Percentage both for
Participants who are Nonhighly Compensated Employees and for
Participants who are Highly Compensated Employees.
For purposes of determining the Actual Deferral Percentage,
Elective Deferral Contributions, Qualified Nonelective
Contributions and Qualified Matching Contributions must be
made before the last day of the 12-month period immediately
following the Plan Year to which contributions relate.
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Actual Deferral Percentage test
and the amount of Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, used in such test.
The determination and treatment of the Contributions used in
computing the Actual Deferral Percentage shall satisfy such
other requirements as may be prescribed by the Secretary of
the Treasury.
If the Plan Administrator should determine during the Plan
Year that neither of the above tests is being met, the Plan
Administrator may adjust the amount of future Elective
Deferral Contributions of the Highly Compensated Employees.
Notwithstanding any other provisions of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose Accounts such Excess
Contributions were allocated for the preceding Plan
ARTICLE III 36
<PAGE> 37
Year. If such excess amounts are distributed more than 2 1/2
months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be
imposed on the employer maintaining the plan with respect to
such amounts. Such distributions shall be made beginning with
the Highly Compensated Employee(s) who has the greatest Actual
Deferral Percentage, reducing his Actual Deferral Percentage
to the next highest Actual Deferral Percentage level. Then,
if necessary, reducing the Actual Deferral Percentage of the
Highly Compensated Employees at the next highest level, and
continuing in this manner until the average Actual Deferral
Percentage of the Highly Compensated Group satisfies the
Actual Deferral Percentage test. Excess Contributions of
Participants who are subject to the family member aggregation
rules shall be allocated among the Family Members in
proportion to the Elective Deferral Contributions (and amounts
treated as Elective Deferral Contributions) of each Family
Member that is combined to determine the combined Actual
Deferral Percentage.
Excess Contributions shall be treated as Annual Additions, as
defined in the CONTRIBUTION LIMITATION SECTION of Article III,
under the Plan.
The Excess Contributions shall be adjusted for income or loss.
The income or loss allocable to such Excess Contributions
shall be equal to the income or loss allocable to the
Participant's Elective Deferral Contributions (and, if
applicable, Qualified Nonelective Contributions or Qualified
Matching Contributions, or both) for the Plan Year in which
the excess occurred multiplied by a fraction. The numerator
of the fraction is the Excess Contributions. The denominator
of the fraction is the closing balance without regard to any
income or loss occurring during such Plan Year (as of the end
of such Plan Year) of the Participant's Account resulting from
Elective Deferral Contributions (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if
used in computing the Actual Deferral Percentage).
Excess Contributions shall be distributed from the
Participant's Account resulting from Elective Deferral
Contributions. If such Excess Contributions exceed the
balance in the Participant's Account resulting from Elective
Deferral Contributions, the balance shall be distributed from
the Participant's Account resulting from Qualified Matching
Contributions (if applicable) and Qualified Nonelective
Contributions, respectively.
Any Matching Contributions which were based on the Elective
Deferral Contributions which are distributed as Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be forfeited. These Forfeitures shall be used
to offset the earliest Employer Contribution due after the
Forfeiture arises.
(d) As of the end of each Plan Year, one of the following tests
must be met:
(1) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average
Contribution Percentage for Eligible Participants who
are Nonhighly Compensated Employees for the Plan Year
multiplied by 1.25.
(2) The Average Contribution Percentage for Eligible
Participants who are Highly Compensated Employees for
the Plan Year is not more than the Average
Contribution Percentage for Eligible Participants who
are Nonhighly Compensated Employees for the Plan Year
multiplied by 2 and the difference between the
Average Contribution Percentages is not more than 2.
If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to the
Average Contribution Percentage test maintained by the
Employer or a Controlled Group member and the sum of the
Average Actual Deferral Percentage and Average
ARTICLE III 37
<PAGE> 38
Contribution Percentage of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit,
then the Contribution Percentage of those Highly Compensated
Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly
Compensated Employees whose Contribution Percentage is the
highest) so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution
Percentage is reduced shall be treated as an Excess Aggregate
Contribution. The Average Actual Deferral Percentage and
Average Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to
meet the Average Actual Deferral Percentage and Average
Contribution Percentage tests. Multiple use does not occur if
either the Average Actual Deferral Percentage or Average
Contribution Percentage of the Highly Compensated Employees
does not exceed 1.25 multiplied by the Average Actual Deferral
Percentage and Average Contribution Percentage of the
Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Participant who
is a Highly Compensated Employee for the Plan Year and who is
eligible to have Contribution Percentage Amounts allocated to
his account under two or more plans described in Code Section
401(a) or arrangements described in Code Section 401(k) that
are maintained by the Employer or a Controlled Group member
shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated
as separate if mandatorily disaggregated under the regulations
under Code Section 401(m) or permissibly disaggregated as
provided.
In the event that this Plan satisfies the requirements of Code
Sections 401(m), 401(a)(4), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of Code sections only if aggregated with this
Plan, then this section shall be applied by determining the
Contribution Percentages of Eligible Participants as if all
such plans were a single plan. Plans may be aggregated in
order to satisfy Code Section 401(m) only if they have the
same Plan Year.
For purposes of determining the Contribution Percentage of an
Eligible Participant who is a five-percent owner or one of the
ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of such
Participant shall include Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members. Family
Members, with respect to Highly Compensated Employees, shall
be disregarded as separate employees in determining the
Contribution Percentage both for employees who are Nonhighly
Compensated Employees and for employees who are Highly
Compensated Employees.
For purposes of determining the Contribution Percentage,
Participant Contributions are considered to have been made in
the Plan Year in which contributed to the Plan. Matching
Contributions and Qualified Nonelective Contributions will be
considered made for a Plan Year if made no later than the end
of the 12-month period beginning on the day after the close of
the Plan Year.
ARTICLE III 38
<PAGE> 39
The Employer shall maintain records sufficient to demonstrate
satisfaction of the Average Contribution Percentage test and
the amount of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage
of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
Notwithstanding any other provisions of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if not vested, or
distributed, if vested, no later than the last day of each
Plan Year to Participants to whose Accounts such Excess
Aggregate Contributions were allocated for the preceding Plan
Year. If such Excess Aggregate Contributions are distributed
more than 2 1/2 months after the last day of the Plan Year in
which such excess amounts arose, a ten (10) percent excise tax
will be imposed on the employer maintaining the plan with
respect to those amounts. Excess Aggregate Contributions will
be distributed beginning with the Highly Compensated
Employee(s) who has the greatest Contribution Percentage,
reducing his contribution percentage to the next highest
level. Then, if necessary, reducing the Contribution
Percentage of the Highly Compensated Employee at the next
highest level, and continuing in this manner until the Actual
Contribution Percentage of the Highly Compensated Group
satisfies the Actual Contribution Percentage Test. Excess
Aggregate Contributions of Participants who are subject to the
family member aggregation rules shall be allocated among the
Family Members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching Contributions)
of each Family Member that is combined to determine the
combined Contribution Percentage. Excess Aggregate
Contributions shall be treated as Annual Additions, as defined
in the CONTRIBUTION LIMITATION SECTION of Article III, under
the Plan.
The Excess Aggregate Contributions shall be adjusted for
income or loss. The income or loss allocable to such Excess
Aggregate Contributions shall be equal to the income or loss
allocable to the Participant's Contribution Percentage Amounts
for the Plan Year in which the excess occurred multiplied by a
fraction. The numerator of the fraction is the Excess
Aggregate Contributions. The denominator of the fraction is
the closing balance without regard to any income or loss
occurring during such Plan Year (as of the end of such Plan
Year) of the Participant's Account resulting from Contribution
Percentage Amounts.
Excess Aggregate Contributions shall be distributed from the
Participant's Account resulting from Participant Contributions
that are not required as a condition of employment or
participation or for obtaining additional benefits from
Employer Contributions. If such Excess Aggregate
Contributions exceed the balance in the Participant's Account
resulting from such Participant Contributions, the balance
shall be forfeited, if not vested, or distributed, if vested,
on a pro-rata basis from the Participant's Account resulting
from Contribution Percentage Amounts. These Forfeitures shall
be used to offset the earliest Employer Contribution due after
the Forfeiture arises.
ARTICLE III 39
<PAGE> 40
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01--INVESTMENT OF CONTRIBUTIONS.
All Contributions are forwarded by the Employer to the Trustee to be
deposited in the Trust Fund.
Investment of Contributions is governed by the provisions of the
Trust, the Group Contract and any other funding arrangement in which the Trust
Fund is or may be invested. To the extent permitted by the Trust, Group
Contract or other funding arrangement, the parties named below shall direct the
Contributions to any of the accounts available under the Trust or Group
Contract and may request the transfer of assets resulting from those
Contributions between such accounts. A Participant may not direct the Trustee
to invest the Participant's Account in collectibles. Collectibles means any
work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage or
other tangible personal property specified by the Secretary of Treasury. To
the extent that a Participant does not direct the investment of his Account,
such Account shall be invested ratably in the accounts available under the
Trust or Group Contract in the same manner as the undirected Accounts of all
other Participants. The Vested Accounts of all Inactive Participants may be
segregated and invested separately from the Accounts of all other Participants.
The Trust Fund shall be valued at current fair market value as of the
last day of the last calendar month ending in the Plan Year and, at the
discretion of the Trustee, may be valued more frequently. The valuation shall
take into consideration investment earnings credited, expenses charged,
payments made and changes in the value of the assets held in the Trust Fund.
The Account of a Participant shall be credited with its share of the gains and
losses of the Trust Fund. That part of a Participant's Account invested in a
funding arrangement which establishes an account or accounts for such
Participant thereunder shall be credited with the gain or loss from such
account or accounts. That part of a Participant's Account which is invested in
other funding arrangements shall be credited with a proportionate share of the
gain or loss of such investments. The share shall be determined by multiplying
the gain or loss of the investment by the ratio of the part of the
Participant's Account invested in such funding arrangement to the total of the
Trust Fund invested in such funding arrangement.
At least annually, the Named Fiduciary shall review all pertinent
Employee information and Plan data in order to establish the funding policy of
the Plan and to determine appropriate methods of carrying out the Plan's
objectives. The Named Fiduciary shall inform the Trustee and any Investment
Manager of the Plan's short-term and long-term financial needs so the
investment policy can be coordinated with the Plan's financial requirements.
(a) Employer Contributions other than Elective Deferral
Contributions: The Participant shall direct the investment of
such Employer Contributions and transfer of assets resulting
from those Contributions.
(b) Elective Deferral Contributions: The Participant shall direct
the investment of Elective Deferral Contributions and transfer
of assets resulting from those Contributions.
(c) Rollover Contributions: The Participant shall direct the
investment of Rollover Contributions and transfer of assets
resulting from those Contributions.
ARTICLE IV 40
<PAGE> 41
However, the Named Fiduciary may delegate to the Investment Manager
investment discretion for Contributions and Plan assets which are not subject
to Participant direction.
SECTION 4.01A--INVESTMENT IN QUALIFYING EMPLOYER SECURITIES.
Participants in the Plan shall be entitled to invest all or any
portion of their Elective Deferral Contributions in Qualifying Employer
Securities.
Once investment in Qualifying Employer Securities is made available to
Eligible Employees, then it shall continue to be available unless the Plan and
Trust is amended to disallow such available investment. In the absence of such
election, such Eligible Employees shall be deemed to have elected to have their
Accounts invested wholly in the Investment Funds. Once an election is made, it
shall be considered to continue until a new election is made.
Any dividends payable on the Qualifying Employer Securities shall
unless otherwise directed by the Participant be invested in additional shares
of Qualifying Employer Securities hereunder.
If the securities of the Employer are not publicly traded and if no
market or an extremely thin market exists for the Qualifying Employer
Securities, so that a reasonable valuation may not be obtained from the market
place, then such Qualifying Employer Securities must be valued at least
annually by an independent appraiser who is not associated with the Employer,
the Plan Administrator, the Trustee, or any person related to any fiduciary
under the Plan. The independent appraiser may be associated with a person who
is merely a contract administrator with respect to the Plan, but who exercises
no discretionary authority and is not a Plan fiduciary.
If there is a public market for Qualifying Employer Securities of the
type held by the Plan, then the Plan Administrator may use as the value of the
shares the price at which such shares traded in such market, or an average of
the bid and asked prices for such shares in such market, provided that such
value is representative of the fair market value of such shares in the opinion
of the Plan Administrator. If the Qualifying Employer Securities do not trade
on the annual valuation date or if the market is very thin on such date, then
the Plan Administrator may use the average of trade prices for a period of time
ending on such date, provided that such value is representative of the fair
market value of such shares in the opinion of the Plan Administrator. The
value of a Participant's Qualifying Employer Securities Account may be
expressed in units.
For purposes of determining the annual valuation of the Plan and for
reporting to Participants and regulatory authorities, the assets of the Plan
shall be valued at least annually on the Valuation Date which corresponds to
the last day of the Plan Year. The fair market value of Qualifying Employer
Securities shall be determined on such a Valuation Date. The average of the
bid and asked prices of Qualifying Employer Securities as of the date of the
transaction shall apply for purposes of valuing distributions and other
transactions of the Plan to the extent such value is representative of the fair
market value of such shares in the opinion of the Plan Administrator.
All purchases of Qualifying Employer Securities shall be made at a
price, or prices, which, in the judgment of the Plan Administrator, do not
exceed the fair market value of such Qualifying Employer Securities.
In the event that the Trustee acquires shares of Qualifying Employer
Securities by purchase from a "disqualified person" as defined in Code Section
4975(e)(2), in exchange for cash or other assets of the Trust, the terms of
such purchase shall contain the provision that in the event that there is a
final determination by the Internal Revenue Service or court of competent
jurisdiction that a fair market value of such shares of Qualifying
ARTICLE IV 41
<PAGE> 42
Employer Securities, as of the date of purchase was less than the purchase
price paid by the Trustee, then the seller shall pay or transfer, as the case
may be, to the Trustee, an amount of cash, shares of Qualifying Employer
Securities, or any combination thereof equal in value to the difference between
the purchase price and said fair market value for all such shares. In the
event that cash and/or shares of Qualifying Employer Securities are paid and/or
transferred to the Trustee under this provision, shares of Qualifying Employer
Securities shall be valued at their fair market value as of the date of said
purchase, and interest at a reasonable rate from the date of purchase to the
date of payment shall be paid by the seller on the amount of cash paid.
The Plan Administrator may direct the Trustee to sell, resell or
otherwise dispose of Qualifying Employer Securities to any person, including
the Employer, provided that any such sales to any disqualified person,
including the Employer, will be made at not less than the fair market value and
no commission is charged. Any such sale shall be made in conformance with
Section 408(e) of ERISA.
In the event the Plan Administrator directs the Trustee to dispose of
any Qualifying Employer Securities held as Trust Assets under circumstances
which require registration and/or qualification of the securities under
applicable Federal or state securities laws, then the Employer, at its own
expense, will take or cause to be taken any and all such action as may be
necessary or appropriate to effect such registration and/or qualification.
The Plan Administrator may exercise the right to vote with respect to
Qualifying Employer Securities or may pass-through such vote to participants in
a manner determined by the Plan Administrator in its sole discretion. As of
the date hereof, the Plan Administrator shall exercise all voting rights with
respect to Qualifying Employer Securities.
SECTION 4.01B -- LIMITATION OF INVESTMENT IN QUALIFYING
EMPLOYER SECURITIES BY SOME PARTICIPANTS.
Participants who are directors, officers, 10% stockholders of the
Employer, and other persons subject to Section 16 of the Securities Exchange
Act of 1934 (the "1934 Act") will be permitted to change the level of
investment in the Qualifying Employer Securities Account only once every six
months. Additionally, Participants who are directors, officers, 10%
stockholders of the Employer, and other persons subject to Section 16 of the
1934 Act who cease participation in the Qualifying Employer Securities Account,
or who reduce their participation in such account to a nominal level, may not
participate (e.g., direct that investments be made on their behalf) under the
Qualifying Employer Securities Account again for at least six months.
Intra-plan transfers by such Participants between the Qualifying Employer
Securities Account and the other investment accounts available under the Plan
may only be made pursuant to an investment election made during the period
beginning on the third business day following the date of release of annual or
quarterly financial information by the Employer and ending on the twelfth
business day following such date. Subject to certain limited exceptions,
Participants who are directors, officers, 10% stockholders of the Employer, and
other persons subject to Section 16 of the 1934 Act making withdrawals of
investments under the Qualifying Employer Securities Account must cease further
purchases/investment under the Qualifying Employer Securities Account for six
months.
With respect to Participants who are directors, officers, 10%
stockholders of the Employer, and other persons subject to the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b- 3 or its successors under the 1934 Act. To the extent
any provisions of the Plan or action by the Plan Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan Administrator.
ARTICLE IV 42
<PAGE> 43
ARTICLE V
BENEFITS
SECTION 5.01--RETIREMENT BENEFITS.
On a Participant's Retirement Date, his Vested Account shall be
distributed to him according to the distribution of benefits provisions of
Article VI and the provisions of the SMALL AMOUNTS SECTION of Article IX.
SECTION 5.02--DEATH BENEFITS.
If a Participant dies before his Annuity Starting Date, his Vested
Account shall be distributed according to the distribution of benefits
provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of
Article IX.
SECTION 5.03--VESTED BENEFITS.
A Participant may receive a distribution of his Vested Account at any
time after he ceases to be an Employee, provided he has not again become an
Employee. If such amount is not payable under the provisions of the SMALL
AMOUNTS SECTION of Article IX, it will be distributed only if the Participant
so elects.
If a Participant does not receive an earlier distribution according to
the provisions of this section or the SMALL AMOUNTS SECTION of Article IX, upon
his Retirement Date or death, his Vested Account shall be applied according to
the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION
of Article V.
The Nonvested Account of a Participant who has ceased to be an
Employee shall remain a part of his Account until it becomes a Forfeiture;
provided, however, if the Participant again becomes an Employee so that his
Vesting Percentage can increase, the Nonvested Account may become a part of his
Vested Account.
SECTION 5.04--WHEN BENEFITS START.
Benefits under the Plan begin when a Participant retires, dies or
ceases to be an Employee, whichever applies, as provided in the preceding
sections of this article. Benefits which begin before Normal Retirement Date
for a Participant who became Totally and Permanently Disabled when he was an
Employee shall be deemed to begin because he is Totally and Permanently
Disabled. The start of benefits is subject to the qualified election
procedures of Article VI.
Unless otherwise elected, benefits shall begin before the sixtieth day
following the close of the Plan Year in which the latest date below occurs:
(a) The date the Participant attains age 65 (Normal Retirement
Age, if earlier).
(b) The tenth anniversary of the Participant's Entry Date.
(c) The date the Participant ceases to be an Employee.
ARTICLE V 43
<PAGE> 44
Notwithstanding the foregoing, the failure of a Participant and spouse
to consent to a distribution while a benefit is immediately distributable,
within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be
deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
The Participant may elect to have his benefits begin after the latest
date for beginning benefits described above, subject to the provisions of this
section. The Participant shall make the election in writing and deliver the
signed statement of election to the Plan Administrator before Normal Retirement
Date or the date he ceases to be an Employee, if later. The election must
describe the form of distribution and the date the benefits will begin. The
Participant shall not elect a date for beginning benefits or a form of
distribution that would result in a benefit payable when he dies which would be
more than incidental within the meaning of governmental regulations.
Benefits shall begin by the Participant's required beginning date, as
defined in the FORM OF DISTRIBUTION SECTION of Article VI.
Contributions which are used to compute the Actual Deferral
Percentage, as defined in the EXCESS AMOUNTS SECTION of Article III, may be
distributed upon disposition by the Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) used by the Employer in a trade
or business or disposition by the Employer of the Employer's interest in a
subsidiary (within the meaning of Code Section 409(d)(3)) if the transferee
corporation is not a Controlled Group member, the Employee continues employment
with the transferee corporation and the transferor corporation continues to
maintain the Plan. Such distributions made after March 31, 1988, must be made
in a single sum.
SECTION 5.05--WITHDRAWAL PRIVILEGES.
A Participant who has attained age 59 1/2 may withdraw all or any
portion of his Vested Account which results from the following Contributions:
Elective Deferral Contributions
Matching Contributions
Qualified Nonelective Contributions
Discretionary Contributions
Rollover Contributions
No distribution from the Participant's Account shall occur prior to
100% vesting.
A Participant may make such a withdrawal at any time.
A Participant may withdraw all or any portion of his Vested Account
which results from the following Contributions
Elective Deferral Contributions
in the event of hardship due to an immediate and heavy financial need.
Withdrawals from the Participant's Account resulting from Elective Deferral
Contributions shall be limited to the amount of the Participant's Elective
Deferral Contributions. Immediate and heavy financial need shall be limited
to: (i) expenses incurred or necessary for medical care, described in Code
Section 213(d), of the Participant, the Participant's spouse, or any
ARTICLE V 44
<PAGE> 45
dependents of the Participant (as defined in Code Section 152); (ii) purchase
(excluding mortgage payments) of a principal residence for the Participant;
(iii) payment of tuition and related educational fees for the next 12 months of
post-secondary education for the Participant, his spouse, children or
dependents; (iv) the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or (v) any other distribution which is deemed by the
Commissioner of Internal Revenue to be made on account of immediate and heavy
financial need as provided in Treasury regulations. The Participant's request
for a withdrawal shall include his written statement that an immediate and
heavy financial need exists and explain its nature.
No withdrawal shall be allowed which is not necessary to satisfy such
immediate and heavy financial need. Such withdrawal shall be deemed necessary
only if all of the following requirements are met: (i) the distribution is not
in excess of the amount of the immediate and heavy financial need of the
Participant (including amounts necessary to pay any Federal, state or local
income taxes or penalties reasonably anticipated to result from the
distribution); (ii) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under all
plans maintained by the Employer; (iii) the Plan, and all other plans
maintained by the Employer, provide that the Participant's elective
contributions and employee contributions will be suspended for at least 12
months after receipt of the hardship distribution; and (iv) the Plan, and all
other plans maintained by the Employer, provide that the Participant may not
make elective contributions for the Participant's taxable year immediately
following the taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next taxable year less the
amount of such Participant's elective contributions for the taxable year of the
hardship distribution. The Plan will suspend elective contributions and
employee contributions for 12 months and limit elective deferrals as provided
in the preceding sentence. A Participant shall not cease to be an Eligible
Participant, as defined in the EXCESS AMOUNTS SECTION of Article III, merely
because his elective contributions or employee contributions are suspended.
A request for withdrawal shall be in writing on a form furnished for
that purpose and delivered to the Plan Administrator before the withdrawal is
to occur.
A forfeiture shall not occur solely as a result of a withdrawal.
SECTION 5.06--LOANS TO PARTICIPANTS.
Loans shall be made available to all Participants on a reasonably
equivalent basis. For purposes of this section, Participant means any
Participant or Beneficiary who is a party-in-interest, within the meaning of
Section 3(14) of the Employee Retirement Income Security Act of 1974. Loans
shall not be made to highly compensated employees, as defined in Code Section
414(q), in an amount greater than the amount made available to other
Participants.
No loans will be made to any shareholder-employee or owner-employee.
For purposes of this requirement, a shareholder-employee means an employee or
officer of an electing small business (Subchapter S) corporation who owns (or
is considered as owning within the meaning of Code Section 318(a)(1)), on any
day during the taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
ARTICLE V 45
<PAGE> 46
A loan to a Participant shall be a Participant-directed investment of
his Account. No Account other than the borrowing Participant's Account shall
share in the interest paid on the loan or bear any expense or loss incurred
because of the loan.
The number of outstanding loans shall be limited to one. No more than
one loan will be approved for any Participant in any 12-month period. The
minimum amount of any loan shall be $1,000.
Loans must be adequately secured and bear a reasonable rate of
interest.
The amount of the loan shall not exceed the maximum amount that may be
treated as a loan under Code Section 72(p) (rather than a distribution) to the
Participant and shall be equal to the lesser of (a) or (b) below:
(a) $50,000 reduced by the highest outstanding loan balance of
loans during the one-year period ending on the day before the
new loan is made.
(b) The greater of (1) or (2), reduced by (3) below:
(1) One-half of the Participant's Vested Account.
(2) $10,000.
(3) Any outstanding loan balance on the date the new loan
is made.
For purposes of this maximum, a Participant's Vested Account does not include
any accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and all qualified employer plans, as defined in Code Section
72(p)(4), of the Employer and any Controlled Group member shall be treated as
one plan.
The foregoing notwithstanding, the amount of such loan shall not
exceed 50% of the amount of the Participant's Vested Account. For purposes of
this maximum, a Participant's Vested Account does not include any accumulated
deductible employee contributions, as defined in Code Section 72(o)(5)(B). No
collateral other than a portion of the Participant's Vested Account (as limited
above) shall be accepted. The Loan Administrator shall determine if the
collateral is adequate for the amount of the loan requested.
Notwithstanding any other provision of this Plan, the portion of the
Participant's Vested Account used as a security interest held by the Plan by
reason of a loan outstanding to the Participant shall be taken into account for
purposes of determining the amount of the Vested Account payable at the time of
death or distribution, but only if the reduction is used as repayment of the
loan.
Each loan shall bear a reasonable fixed rate of interest to be
determined by the Loan Administrator. In determining the interest rate, the
Loan Administrator shall take into consideration fixed interest rates currently
being charged by commercial lenders for loans of comparable risk on similar
terms and for similar durations, so
ARTICLE V 46
<PAGE> 47
that the interest will provide for a return commensurate with rates currently
charged by commercial lenders for loans made under similar circumstances. The
Loan Administrator shall not discriminate among Participants in the matter of
interest rates; but loans granted at different times may bear different
interest rates in accordance with the current appropriate standards.
The loan shall by its terms require that repayment (principal and
interest) be amortized in level payments, not less frequently than quarterly,
over a period not extending beyond five years from the date of the loan. A
loan is not subject to this five-year repayment requirement if it is used to
buy any dwelling unit, which within a reasonable time, is to be used as the
principal residence of the Participant. The "reasonable time" will be
determined at the time the loan is made. The period of repayment for any loan
shall be arrived at by mutual agreement between the Loan Administrator and the
Participant.
The Participant shall make a written application for a loan from the
Plan on forms provided by the Loan Administrator. The application must specify
the amount and duration requested. No loan will be approved unless the
Participant is creditworthy. The Participant must grant authority to the Loan
Administrator to investigate the Participant's creditworthiness so that the
loan application may be properly considered.
Information contained in the application for the loan concerning the
income, liabilities, and assets of the Participant will be evaluated to
determine whether there is a reasonable expectation that the Participant will
be able to satisfy payments on the loan as due. Additionally, the Loan
Administrator will pursue any appropriate further investigations concerning the
creditworthiness and/or credit history of the Participant to determine whether
a loan should be approved.
Each loan shall be fully documented in the form of a promissory note
signed by the Participant for the face amount of the loan, together with
interest determined as specified above.
There will be an assignment of collateral to the Plan executed at the
time the loan is made.
In those cases where repayment through payroll deduction by the
Employer is available, installments are so payable, and a payroll deduction
agreement will be executed by the Participant at the time of making the loan.
Where payroll deduction is not available, payments are to be timely
made.
Any payment that is not by payroll deduction shall be made payable to
the Employer or Trustee, as specified in the promissory note, and delivered to
the Loan Administrator, including prepayments, service fees and penalties, if
any, and other amounts due under the note.
The promissory note may provide for reasonable late payment penalties
and/or service fees. Any penalties or service fees shall be applied to all
Participants in a nondiscriminatory manner. If the promissory note so
provides, such amounts may be assessed and collected from the Account of the
Participant as part of the loan balance.
Each loan may be paid prior to maturity, in part or in full, without
penalty or service fee, except as may be set out in the promissory note.
If any amount remains unpaid for more than 31 days after due, a
default is deemed to occur.
ARTICLE V 47
<PAGE> 48
Upon default, the Plan has the right to pursue any remedy available by
law to satisfy the amount due, along with accrued interest, including the right
to enforce its claim against the security pledged and execute upon the
collateral as allowed by law.
If any payment of principal or interest or any other amount due under
the promissory note, or any portion thereof, is not made for a period of 90
days after due, the entire principal balance whether or not otherwise then due,
shall become immediately due and payable without demand or notice, and subject
to collection or satisfaction by any lawful means, including specifically but
not limited to the right to enforce the claim against the security pledged and
to execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of
security or use of amounts pledged to satisfy the amount then due, will not
occur until a distributable event occurs in accordance with the Plan, and will
not occur to an extent greater than the amount then available upon any
distributable event which has occurred under the Plan.
All reasonable costs and expenses, including but not limited to
attorney's fees, incurred by the Plan in connection with any default or in any
proceeding to enforce any provision of a promissory note or instrument by which
a promissory note for a Participant loan is secured, shall be assessed and
collected from the Account of the Participant as part of the loan balance.
If payroll deduction is being utilized, in the event that a
Participant's available payroll deduction amounts in any given month are
insufficient to satisfy the total amount due, there will be an increase in the
amount taken subsequently, sufficient to make up the amount that is then due.
If the subsequent deduction is also insufficient to satisfy the amount due
within 31 days, a default is deemed to occur as above. If any amount remains
past due more than 90 days, the entire principal amount, whether or not
otherwise then due, along with interest then accrued and any other amount then
due under the promissory note, shall become due and payable, as above.
If the Participant ceases to be a party-in-interest (as defined in
this section), the balance of the outstanding loan becomes due and payable, and
the Participant's Vested Account will be used as available for distribution(s)
to pay the outstanding loan. The Participant's Vested Account will not be used
to pay any amount due under the outstanding loan before the date which is 31
days after the date he ceased to be an Employee, and the Participant may elect
to repay the outstanding loan with interest on the day of repayment. If no
distributable event has occurred under the Plan at the time that the
Participant's Vested Account would otherwise be used under this provision to
pay any amount due under the outstanding loan, this will not occur until the
time, or in excess of the extent to which, a distributable event occurs under
the Plan.
ARTICLE V 48
<PAGE> 49
ARTICLE VI
DISTRIBUTION OF BENEFITS
SECTION 6.01--FORM OF DISTRIBUTION.
The form of benefit payable to or on behalf of a Participant is a
single sum payment. The entire interest of a Participant must be distributed no
later than the Participant's required beginning date. The Participant's
required beginning date is the first day of April of the calendar year
following the calendar year in which the Participant attains age 70 1/2, unless
otherwise provided in (a), (b) or (c) below:
(a) The required beginning date for a Participant who attains age
70 1/2 before January 1, 1988, and who is not a 5-percent
owner is the first day of April of the calendar year following
the calendar year in which the later of retirement or
attainment of age 70 1/2 occurs.
(b) The required beginning date for a Participant who attains age
70 1/2 before January 1, 1988, and who is a 5-percent owner is
the first day of April of the calendar year following the
later of
(1) the calendar year in which the Participant attains
age 70 1/2, or
(2) the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a
5-percent owner, or the calendar year in which the
Participant retires.
(c) The required beginning date of a Participant who is not a
5-percent owner and who attains age 70 1/2 during 1988 and who
has not retired as of January 1, 1989, is April 1. 1990.
A Participant is treated as a 5-percent owner for purposes of this section if
such Participant is a 5-percent owner as defined in Code Section 416(i)
(determined in accordance with Code Section 416 but without regard to whether
the Plan is top-heavy) at any time during the Plan Year ending with or within
the calendar year in which such owner attains age 66 1/2 or any subsequent Plan
Year.
SECTION 6.02--ELECTION PROCEDURES.
The Participant shall make any election under this section in writing.
The Plan Administrator may require such individual to complete and sign any
necessary documents as to the provisions to be made. Any election permitted
under (a) below shall be subject to the qualified election provisions of (b)
below.
(a) Death Benefits. A Participant may elect his Beneficiary.
(b) Qualified Election. The Participant may make an election at
any time during the election period. The Participant revoke
the election made (or make a new election) at any time and any
number of times during the election period. An election is
effective only if it meets the consent requirements below.
A Participant may make an election as to death benefits at any
time before he dies.
ARTICLE VI 49
<PAGE> 50
If the Participant's Vested Account has at any time exceeded
$3,500, any benefit which is immediately distributable
requires the consent of the Participant. The consent of the
Participant to a benefit which is immediately distributable
must not be made before the date the Participant is provided
with the notice of the ability to defer the distribution. Such
consent shall be made in writing. The consent shall not be
made more than 90 days before the Annuity Starting Date. The
consent of the Participant shall not be required to the extent
that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination
of this Plan if the Plan does not offer an annuity option
(purchased from a commercial provider), the Participant's
Account balance may, without the Participant's consent, be
distributed to the Participant or transferred to another
defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(e)(7)) within
the same Controlled Group. A benefit is immediately
distributable if any part of the benefit could be distributed
to the Participant before the Participant attains the older of
Normal Retirement Age or age 62. Spousal consent is needed to
name a Beneficiary other than the spouse. If the Participant
names a Beneficiary other than his spouse, the spouse has the
right to limit consent only to a specific Beneficiary. The
spouse can relinquish such right. Such consent shall be made
in writing. The spouse's consent shall be witnessed by a plan
representative or notary public. The spouse's consent must
acknowledge the effect of the election, including that the
spouse had the right to limit consent only to a specific
Beneficiary and that the relinquishment of such right was
voluntary. Unless the consent of the spouse expressly permits
designations by the Participant without a requirement of
further consent by the spouse, the spouse's consent must be
limited to the Beneficiary, class of Beneficiaries, or
contingent Beneficiary named in the election. Spousal consent
is not required, however, if the Participant establishes to
the satisfaction of the plan representative that the consent
of the spouse cannot be obtained because there is no spouse or
the spouse cannot be located. A spouse's consent under this
paragraph shall not be valid with respect to any other spouse.
A Participant may revoke a prior election without the consent
of the spouse. Any new election will require a new spousal
consent, unless the consent of the spouse expressly permits
such election by the Participant without further consent by
the spouse. A spouse's consent may be revoked at any time
within the Participant's election period.
SECTION 6.03--NOTICE REQUIREMENTS.
The Plan Administrator shall furnish to the Participant a written
explanation of the right of the Participant to defer distribution until the
benefit is no longer immediately distributable. The Plan Administrator shall
furnish the written explanation by a method reasonably calculated to reach the
attention of the Participant no less than 30 days and no more than 90 days
before the Annuity Starting Date.
SECTION 6.04--DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS.
The Plan specifically permits distributions to an Alternate Payee
under a qualified domestic relations order as defined in Code Section 414(p),
at any time, irrespective of whether the Participant has attained his earliest
retirement age as defined in Code Section 414(p), under the Plan. A
distribution to an Alternate Payee before the Participant's attainment of
earliest retirement age, as defined in Code Section 414(p), is available only
if:
a) the order specifies distributions at that time or permits an
agreement between the Plan and the Alternate Payee to
authorize an earlier distribution; and
ARTICLE VI 50
<PAGE> 51
b) if the present value of the Alternate Payee's benefits under
the Plan exceeds $3,500, and the order requires, the Alternate
Payee consents to any distribution occurring before the
Participant's attainment of earliest retirement age, as
defined in Code Section 414(p).
Nothing in this section shall permit a Participant a right to receive
a distribution at a time otherwise not permitted under the Plan nor shall it
permit the Alternate Payee to receive a form of payment not permitted under the
Plan.
The Plan Administrator shall establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Plan Administrator promptly shall notify the
Participant and an Alternate Payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Plan Administrator shall determine the qualified
status of the order and shall notify the Participant and each Alternate Payee,
in writing, of its determination. The Plan Administrator shall provide notice
under this paragraph by mailing to the individual's address specified in the
domestic relations order, or in a manner consistent with Department of Labor
regulations. The Plan Administrator may treat as qualified any domestic
relations order entered before January 1, 1985, irrespective of whether it
satisfies all the requirements described in Code Section 414(p).
If any portion of the Participant's Vested Account is payable during
the period the Plan Administrator is making its determination of the qualified
status of the domestic relations order, a separate accounting shall be made of
the amount payable. If the Plan Administrator determines the order is a
qualified domestic relations order within 18 months of the date amounts are
first payable following receipt of the order, the payable amount shall be
distributed in accordance with the order. If the Plan Administrator does not
make its determination of the qualified status of the order within the 18 month
determination period, the payable amounts shall be distributed in the manner
the Plan would distribute if the order did not exist and the order shall apply
prospectively if the Plan Administrator later determines the order is a
qualified domestic relations order.
The Plan shall make payments or distributions required under this
section by separate benefit checks or other separate distribution to the
Alternate Payee(s).
ARTICLE VI 51
<PAGE> 52
ARTICLE VII
TERMINATION OF PLAN
The Employer expects to continue the Plan indefinitely but reserves
the right to terminate the Plan in whole or in part at any time upon giving
written notice to all parties concerned. Complete discontinuance of
Contributions under the Plan constitutes complete termination of Plan.
The Account of each Participant shall be fully (100%) vested and
nonforfeitable as of the effective date of complete termination of Plan. The
Account of each Participant who is included in the group of Participants deemed
to be affected by the partial termination of the Plan shall be fully (100%)
vested and nonforfeitable as of the effective date of the partial Plan
termination. The Participant's Account shall continue to participate in the
earnings credited, expenses charged and any appreciation or depreciation of the
Investment Fund until the Vested Account is distributed. A distribution under
this article will be a retirement benefit and shall be distributed to the
Participant according to the provisions of Article VI.
A Participant's Account which does not result from Contributions which
are used to compute the Actual Deferral Percentage, as defined in the EXCESS
AMOUNTS SECTION of Article III, may be distributed to the Participant after the
effective date of the complete or partial Plan termination. A Participant's
Account resulting from Contributions which are used to compute such percentage
may be distributed upon termination of the Plan without the establishment or
maintenance of another defined contribution plan, other than an employee stock
ownership plan (as defined in Code Section 4975(e) or Code Section 409) or a
simplified employee pension plan (as defined in Code Section 408(k)). Such a
distribution made after March 31, 1988, must be in a single sum.
Upon complete termination of Plan, no more Employees shall become
Participants and no more Contributions shall be made.
The assets of this Plan shall not be paid to the Employer at any time,
except that, after the satisfaction of all liabilities under the Plan, any
assets remaining may be paid to the Employer. The payment may not be made if
it would contravene any provision of law.
ARTICLE VII 52
<PAGE> 53
ARTICLE VIII
ADMINISTRATION OF PLAN
SECTION 8.01--ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has
complete control of the administration of the Plan. The Plan Administrator has
all the powers necessary for it to properly carry out its administrative
duties. Not in limitation, but in amplification of the foregoing, the Plan
Administrator has the power to construe the Plan, including ambiguous
provisions, and to determine all questions that may arise under the Plan,
including all questions relating to the eligibility of Employees to participate
in the Plan and the amount of benefit to which any Participant or Beneficiary
may become entitled. The Plan Administrator's decisions upon all matters
within the scope of its authority shall be final.
Unless otherwise set out in the Plan or Group Contract, the Plan
Administrator may delegate recordkeeping and other duties which are necessary
for the administration of the Plan to any person or firm which agrees to accept
such duties. The Plan Administrator shall be entitled to rely upon all tables,
valuations, certificates and reports furnished by the consultant or actuary
appointed by the Plan Administrator and upon all opinions given by any counsel
selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by
Participants, former Participants and Beneficiaries. The Plan Administrator
shall determine all facts necessary to establish the right of any Claimant to
benefits and the amount of those benefits under the provisions of the Plan.
The Plan Administrator may establish rules and procedures to be followed by
Claimants in filing claims for benefits, in furnishing and verifying proofs
necessary to determine age, and in any other matters required to administer the
Plan.
The Plan Administrator shall direct the Trustee as to the exercise of
all voting powers over any shares of Qualifying Employer Securities.
SECTION 8.02--RECORDS.
All acts and determinations of the Plan Administrator shall be duly
recorded. All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Administrator's
custody.
Writing (handwriting, typing, printing), photostating, photographing,
microfilming, magnetic impulse, mechanical or electrical recording or other
forms of data compilation shall be acceptable means of keeping records.
SECTION 8.03--INFORMATION AVAILABLE.
Any Participant in the Plan or any Beneficiary may examine copies of
the Plan description, latest annual report, any bargaining agreement, this
Plan, the Group Contract or any other instrument under which the Plan was
established or is operated. The Plan Administrator shall maintain all of the
items listed in this section in its office, or in such other place or places as
it may designate in order to comply with governmental regulations. These items
may be examined during reasonable business hours. Upon the written request of
a Participant or
ARTICLE VIII 53
<PAGE> 54
Beneficiary receiving benefits under the Plan, the Plan Administrator will
furnish him with a copy of any of these items. The Plan Administrator may make
a reasonable charge to the requesting person for the copy.
SECTION 8.04--CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information
when making a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan
Administrator shall provide adequate written notice to the Claimant whose claim
for benefits under the Plan has been denied. The notice must be furnished
within 90 days of the date that the claim is received by the Plan
Administrator. The Claimant shall be notified in writing within this initial
90-day period if special circumstances require an extension of time needed to
process the claim and the date by which the Plan Administrator's decision is
expected to be rendered. The written notice shall be furnished no later than
180 days after the date the claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the
reason for the denial; specify references to pertinent Plan provisions on which
denial is based; describe any additional material and information needed for
the Claimant to perfect his claim for benefits; explain why the material and
information is needed; inform the Claimant that any appeal he wishes to make
must be in writing to the Plan Administrator within 60 days after receipt of
the Plan Administrator's notice of denial of benefits and that failure to make
the written appeal within such 60-day period shall render the Plan
Administrator's determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant, or
his authorized representative, may submit in writing whatever issues and
comments the Claimant, or his representative, feels are pertinent. The
Claimant, or his authorized representative may review pertinent Plan documents.
The Plan Administrator shall reexamine all facts related to the appeal and make
a final determination as to whether the denial of benefits is justified under
the circumstances. The Plan Administrator shall advise the Claimant of its
decision within 60 days of his written request for review, unless special
circumstances (such as a hearing) would make rendering a decision within the
60-day limit unfeasible. The Claimant must be notified within the 60-day limit
if an extension is necessary. The Plan Administrator shall render a decision
on a claim for benefits no later than 120 days after the request for review is
received.
SECTION 8.05--UNCLAIMED VESTED ACCOUNT PROCEDURE.
At the time the Participant's Vested Account is distributable to the
Participant, spouse or Beneficiary without his consent according to the
provisions of Article VI or Article IX, the Plan Administrator, by certified or
registered mail addressed to his last known address and in accordance with the
notice requirements of Article VI, will notify him of his entitlement to a
benefit. If the Participant, spouse or Beneficiary fails to claim the Vested
Account or make his whereabouts known in writing within six months from the
date of mailing the notice, the Plan Administrator may treat such unclaimed
Vested Account as a forfeiture and apply it according to the forfeiture
provisions of Article III. If Article III contains no forfeiture provisions,
such amount will be applied to reduce the earliest Employer Contributions due
after the forfeiture arises.
If a Participant's Vested Account is forfeited according to the
provisions of the above paragraph and the Participant, his spouse or his
Beneficiary at any time make a claim for benefits, the forfeited Vested Account
shall be reinstated, unadjusted for any gains or losses occurring after the
date it was forfeited. The reinstated Vested Account shall then be distributed
to the Participant, spouse or Beneficiary according to the preceding provisions
of the Plan.
SECTION 8.06--DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities
under this article may be delegated by the Plan Administrator to a retirement
committee. The duties and responsibilities of the retirement committee shall
be set out in a separate written agreement.
ARTICLE VIII 54
<PAGE> 55
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01--AMENDMENTS.
The Employer may amend this Plan at any time, including any remedial
retroactive changes (within the specified period of time as may be determined
by Internal Revenue Service regulations) to comply with the requirements of any
law or regulation issued by any governmental agency to which the Employer is
subject. An amendment may not diminish or adversely affect any accrued
interest or benefit of Participants or their Beneficiaries or eliminate an
optional form of distribution with respect to benefits attributable to service
before the amendment nor allow reversion or diversion of Plan assets to the
Employer at any time, except as may be necessary to comply with the
requirements of any law or regulation issued by any governmental agency to
which the Employer is subject. No amendment to this Plan shall be effective to
the extent that it has the effect of decreasing a Participant's accrued
benefit. However, a Participant's Account may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan
amendment which has the effect of decreasing a Participant's Account or
eliminating an optional form of benefit, with respect to benefits attributable
to service before the amendment shall be treated as reducing an accrued
benefit. Furthermore, if the vesting schedule of the Plan is amended, in the
case of an Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the nonforfeitable
percentage (determined as of such date) of such Employee's employer-derived
accrued benefit will not be less than his percentage computed under the Plan
without regard to such amendment.
An amendment shall not decrease a Participant's vested interest in the
Plan. If an amendment to the Plan, or a deemed amendment in the case of a
change in top-heavy status of the Plan as provided in the MODIFICATION OF
VESTING REQUIREMENTS SECTION of Article X, changes the computation of the
percentage used to determine that portion of a Participant's Account
attributable to Employer Contributions which is nonforfeitable (whether
directly or indirectly), each Participant or former Participant
(a) who has completed at least three Years of Service on the date
the election period described below ends (five Years of
Service if the Participant does not have at least one
Hour-of-Service in a Plan Year beginning after December 31,
1988) and
(b) whose nonforfeitable percentage will be determined on any date
after the date of the change
may elect, during the election period, to have the nonforfeitable percentage of
his Account that results from Employer Contributions determined without regard
to the amendment. This election may not be revoked. An election does not need
to be provided for any Participant or former Participant whose nonforfeitable
percentage, determined according to the Plan provisions as changed, cannot at
any time be less than the percentage determined without regard to such change.
The election period shall begin no later than the date the Plan amendment is
adopted, or deemed adopted in the case of a change in the top-heavy status of
the Plan, and end no earlier than the sixtieth day after the latest of the date
the amendment is adopted (deemed adopted) or becomes effective, or the date the
Participant is issued written notice of the amendment (deemed amendment) by the
Employer or the Plan Administrator.
SECTION 9.02--DIRECT ROLLOVERS.
This section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this section, a Distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan, specified by the Distributee, in a Direct Rollover.
ARTICLE IX 55
<PAGE> 56
SECTION 9.03--MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets
or liabilities transferred to, any other retirement plan, unless each
Participant in the plan would (if the plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit the Participant would have been entitled to receive
immediately before the merger, consolidation or transfer (if this Plan had then
terminated). The Employer may enter into merger agreements or direct transfer
of assets agreements with the employers under other retirement plans which are
qualifiable under Code Section 401(a), including an elective transfer, and may
accept the direct transfer of plan assets, or may transfer plan assets, as a
party to any such agreement. The Employer shall not consent to, or be a party
to a merger, consolidation or transfer of assets with a defined benefit plan if
such action would result in a defined benefit feature being maintained under
this Plan. The Employer shall not consent to, or be a party to a merger,
consolidation or transfer of assets with a plan which is subject tot he
survivor annuity requirements of Code Section 401(a)(11) if such action would
result in a survivor annuity feature being maintained under the Plan.
The Plan may accept a direct transfer of plan assets on behalf of an
Eligible Employee. If the Eligible Employee is not an Active Participant when
the transfer is made, the Eligible Employee shall be deemed to be an Active
Participant only for the purpose of investment and distribution of the
transferred assets. Employer Contributions shall not be made for or allocated
to the Eligible Employee, until the time he meets all of the requirements to
become an Active Participant.
The Plan shall hold, administer and distribute the transferred assets
as a part of the Plan. The Plan shall maintain a separate account for the
benefit of the Employee on whose behalf the Plan accepted the transfer in order
to reflect the value of the transferred assets.
This Plan shall not accept any direct or indirect transfers (as that
term is defined and interpreted under Code Section 401(a)(11) and the
Regulations thereunder) from a defined benefit plan, money purchase plan
(including a target benefit plan), stock bonus or profit sharing plan which
would otherwise have provided for a life annuity form of payment to the
Participant.
SECTION 9.04 -- PROVISIONS RELATING TO THE INSURER
AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the
provisions of the Group Contract. The Insurer shall not be required to perform
any act not provided in or contrary to the provisions of the Group Contract.
See the CONSTRUCTION SECTION of this article.
Any issuer or distributor of investment contracts or securities is
governed solely by the terms of its policies, written investment contract,
prospectuses, security instruments, and any other written agreements entered
into with the Trustee.
ARTICLE IX 56
<PAGE> 57
Such Insurer, issuer or distributor is not a party to the Plan, nor
bound in any way by the Plan provisions. Such parties shall not be required to
look to the terms of this Plan, nor to determine whether the Employer, the Plan
Administrator, the Trustee, or the Named Fiduciary have the authority to act in
any particular manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or a change
in Trustee has been received by the Insurer at its home office or an issuer or
distributor at their principal address, they are and shall be fully protected
in assuming that the Plan has not been amended or terminated and in dealing
with any party acting as Trustee according to the latest information which they
have received at their home office or principal address.
SECTION 9.05--EMPLOYMENT STATUS.
Nothing contained in this Plan gives an Employee the right to be
retained in the Employer's employ or to interfere with the Employer's right to
discharge any Employee.
SECTION 9.06--RIGHTS TO PLAN ASSETS.
No Employee shall have any right to or interest in any assets of the
Plan upon termination of his employment or otherwise except as specifically
provided under this Plan, and then only to the extent of the benefits payable
to such Employee in accordance with Plan provisions.
Any final payment or distribution to a Participant or his legal
representative or to any Beneficiaries, of such Participant under the Plan
provisions shall be in full satisfaction of all claims against the Plan, the
Named Fiduciary, the Plan Administrator, the Trustee, the Insurer, and the
Employer arising under or by virtue of the Plan.
SECTION 9.07--BENEFICIARY.
Each Participant may name a Beneficiary to receive any death benefit
that may arise out of his participation in the Plan. The Participant may
change his Beneficiary from time to time. Unless a qualified election has been
made, for purposes of distributing any death benefits before Retirement Date,
the Beneficiary of a Participant who has a spouse shall be the Participant's
spouse. The Participant's Beneficiary designation and any change of
Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES
SECTION of Article VI. It is the responsibility of the Participant to give
written notice to the Insurer of the name of the Beneficiary on a form
furnished for that purpose.
With the Employer's consent, the Plan Administrator may maintain
records of Beneficiary designations for Participants before their Retirement
Dates. In that event, the written designations made by Participants shall be
filed with the Plan Administrator. If a Participant dies before his Retirement
Date, the Plan Administrator shall certify to the Insurer the Beneficiary
designation on its records for the Participant.
If, at the death of a Participant, there is no Beneficiary named or
surviving, any death benefit under the Group Contract shall be paid under the
applicable provisions of the Group Contract.
SECTION 9.08--NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any
creditor of any Participant, Beneficiary, or spouse. A Participant,
Beneficiary or spouse does not have any rights to alienate, anticipate,
commute, pledge, encumber or assign any of such benefits, except in the case of
a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The
preceding sentences shall also apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a Participant
according to a domestic relations order, unless such order is determined by the
Plan Administrator to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985.
ARTICLE IX 57
<PAGE> 58
SECTION 9.09--CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under
and construed according to Federal law and, to the extent permissible,
according to the laws of the state in which the Employer has its principal
office. In case any provision of this Plan is held illegal or invalid for any
reason, such determination shall not affect the remaining provisions of this
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included.
In the event of any conflict between the provisions of the Plan and
the terms of any contract or policy issued hereunder, the provisions of the
Plan control the operation and administration of the Plan.
SECTION 9.10--LEGAL ACTIONS.
The Plan, the Plan Administrator, the Trustee and the Named Fiduciary
are the necessary parties to any action or proceeding involving the assets held
with respect to the Plan or administration of the Plan or Trust. No person
employed by the Employer, no Participant, former Participant or their
Beneficiaries or any other person having or claiming to have an interest in the
Plan is entitled to any notice of process. A final judgment entered in any
such action or proceeding shall be binding and conclusive on all persons having
or claiming to have an interest in the Plan.
SECTION 9.11--SMALL AMOUNTS.
If the Vested Account of a Participant has never exceeded $3,500
($5,000 for Plan Years beginning after December 31, 1997), the entire Vested
Account shall be payable in a single sum as of the earliest of his Retirement
Date, the date he dies, or the date he ceases to be an Employee for any other
reason. This is a small amounts payment. If a small amount is payable as of
the date the Participant dies, the small amounts payment shall be made to the
Participant's Beneficiary. If a small amount is payable while the Participant
is living, the small amounts payment shall be made to the Participant. The
small amounts payment is in full settlement of all benefits otherwise payable.
No other small amounts payments shall be made.
SECTION 9.12--WORD USAGE.
The masculine gender, where used in this Plan, shall include the
feminine gender and the singular words as used in this Plan may include the
plural, unless the context indicates otherwise.
SECTION 9.13--TRANSFERS BETWEEN PLANS.
If an Employee previously participated in another plan of the Employer
which credited service under the elapsed time method for any purpose which
under this Plan is determined using the hours method, then the Employee's
service shall be equal to the sum of (a), (b) and (c) below:
(a) The number of whole years of service credited to him under the
other plan as of the date he became an Eligible Employee under
this Plan.
(b) One year or a part of a year of service for the applicable
service period in which he became an Eligible Employee if he
is credited with the required number of Hours-of-Service. If
the Employer does not have sufficient records to determine the
Employee's actual Hours-of-Service in that part of the service
period before the date he became an Eligible Employee, the
Hours-of-Service shall be determined using an equivalency.
For any month in which he would be required to be credited
with one Hour-of-Service, the Employee shall be deemed for
purposes of this section to be credited with 190
ARTICLE IX 58
<PAGE> 59
Hours-of-Service.
(c) The Employee's service determined under this Plan using the
hours method after the end of the applicable service period in
which he became an Eligible Employee.
If an Employee previously participated in another plan of the Employer
which credited service under the hours method for any purpose which under this
Plan is determined using the elapsed time method, then the Employee's service
shall be equal to the sum of (d), (e) and (f) below:
(d) The number of whole years of service credited to him under the
other plan as of the beginning of the applicable service
period under that plan in which he became an Eligible Employee
under this Plan.
(e) The greater of (1) the service that would be credited to him
for that entire service period using the elapsed time method
or (2) the service credited to him under the other plan as of
the date he became an Eligible Employee under this Plan.
(f) The Employee's service determined under this Plan using the
elapsed time method after the end of the applicable service
period under the other plan in which he became an Eligible
Employee.
Any modification of service contained in this Plan shall be applicable
to the service determined pursuant to this section.
If the Employee previously participated in the plan of a Controlled
Group member which credited service under a different method than is used in
this Plan, for purposes of determining eligibility and vesting the provisions
above shall apply as though the plan of the Controlled Group member were a plan
of the Employer.
ARTICLE IX 59
<PAGE> 60
ARTICLE X
TOP-HEAVY PLAN REQUIREMENTS
SECTION 10.01--APPLICATION.
The provisions of this article shall supersede all other provisions in
the Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this
article, all members of the Controlled Group shall be treated as one Employer.
The term Employer as used in this article shall be deemed to include all
members of the Controlled Group unless the term as used clearly indicates only
the Employer is meant.
The accrued benefit or account of a participant which results from
deductible voluntary contributions shall not be included for any purpose under
this article.
The minimum vesting and contribution provisions of the MODIFICATION OF
VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of Article X
shall not apply to any Employee who is included in a group of Employees covered
by a collective bargaining agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee representatives and one or
more employers, including the Employer, if there is evidence that retirement
benefits were the subject of good faith bargaining between such
representatives. For this purpose, the term "employee representatives" does
not include any organization more than half of whose members are employees who
are owners, officers, or executives.
SECTION 10.02--DEFINITIONS.
The following terms are defined for purposes of this article.
Aggregation Group means
(a) each of the Employer's retirement plans in which a Key
Employee is a participant during the Year containing the
Determination Date or one of the four preceding Years,
(b) each of the Employer's other retirement plans which allows the
plan(s) described in (a) above to meet the nondiscrimination
requirement of Code Section 401(a)(4) or the minimum coverage
requirement of Code Section 410, and
(c) any of the Employer's other retirement plans not included in
(a) or (b) above which the Employer desires to include as part
of the Aggregation Group. Such a retirement plan shall be
included only if the Aggregation Group would continue to
satisfy the requirements of Code Section 401(a)(4) and Code
Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation
Group. The plans in (a), (b) and (c) above constitute the
"permissive" Aggregation Group.
Compensation means, as to an Employee for any period, compensation as
defined in the CONTRIBUTION LIMITATION SECTION of Article III. For
purposes of determining who is a Key Employee, Compensation shall
include, in addition to compensation as defined in the CONTRIBUTION
LIMITATION SECTION of
ARTICLE IX 60
<PAGE> 61
Article III, elective contributions. Elective contributions are
amounts excludable from the Employee's gross income under Code
Sections 125, 402(e)(3), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code Section 401(k)
arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity.
For purposes of Compensation as defined in this section, Compensation
shall be limited in the same manner and in the same time as the
Compensation defined in the DEFINITION SECTION of Article I.
Determination Date means as to this Plan for any Year, the last day of
the preceding Year. However, if there is no preceding Year, the
Determination Date is the last day of such Year.
Key Employee means any Employee or former Employee (including
Beneficiaries of deceased Employees) who at any time during the
determination period was
(a) one of the Employer's officers (subject to the maximum below)
whose Compensation (as defined in this section) for the Year
exceeds 50 percent of the dollar limitation under Code Section
415(b)(1)(A),
(b) one of the ten Employees who owns (or is considered to own,
under Code Section 318) more than a half percent ownership
interest and one of the largest interests in the Employer
during any Year of the determination period if such person's
Compensation (as defined in this section) for the Year exceeds
the dollar limitation under Code Section 415(c)(1)(A),
(c) a five-percent owner of the Employer, or
(d) a one-percent owner of the Employer whose Compensation (as
defined in this section) for the Year is more than $150,000.
Each member of the Controlled Group shall be treated as a separate
employer for purposes of determining ownership in the Employer.
The determination period is the Year containing the Determination Date
and the four preceding Years. If the Employer has fewer than 30
Employees, no more than three Employees shall be treated as Key
Employees because they are officers. If the Employer has between 30
and 500 Employees, no more than ten percent of the Employer's
Employees (if not an integer, increased to the next integer) shall be
treated as Key Employees because they are officers. In no event will
more than 50 Employees be treated as Key Employees because they are
officers if the Employer has 500 or more Employees. The number of
Employees for any Plan Year is the greatest number of Employees during
the determination period. Officers who are employees described in
Code Section 414(q)(8) shall be excluded. If the Employer has more
than the maximum number of officers to be treated as Key Employees,
the officers shall be ranked by amount of annual Compensation (as
defined in this section), and those with the greater amount of annual
Compensation during the determination period shall be treated as Key
Employees. To determine the ten Employees owning the largest
interests in the Employer, if more than one Employee has the same
ownership interest, the Employee(s) having the greater annual
Compensation shall be treated as owning the larger interest(s). The
determination of who is a Key Employee shall be made according to Code
Section 416(i)(1) and the regulations thereunder.
ARTICLE IX 61
<PAGE> 62
Non-key Employee means a person who is a non-key employee within the
meaning of Code Section 416 and regulations thereunder.
Present Value means the present value of a participant's accrued
benefit under a defined benefit plan as of his normal retirement age
(attained age if later) or, if the plan provides non-proportional
subsidies, the age at which the benefit is most valuable. The accrued
benefit of any Employee (other than a Key Employee) shall be
determined under the method which is used for accrual purposes for all
plans of the Employer or if there is no one method which is used for
accrual purposes for all plans of the Employer, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
Code Section 411(b)(1)(C). For purposes of establishing Present
Value, any benefit shall be discounted only for 7.5% interest and
mortality according to the 1971 Group Annuity Table (Male) without the
7% margin but with projection by Scale E from 1971 to the later of (a)
1974, or (b) the year determined by adding the age to 1920, and
wherein for females the male age six years younger is used. If the
Present Value of accrued benefits is determined for a participant
under more than one defined benefit plan included in the Aggregation
Group, all such plans shall use the same actuarial assumptions to
determine the Present Value.
Top-heavy Plan means a plan which is a top-heavy plan for any plan
year beginning after December 31, 1983. This Plan shall be a
Top-heavy Plan if
(a) the Top-heavy Ratio for this Plan alone exceeds 60 percent and
this Plan is not part of any required Aggregation Group or
permissive Aggregation Group.
(b) this Plan is a part of a required Aggregation Group, but not
part of a permissive Aggregation Group, and the Top-heavy
Ratio for the required Aggregation Group exceeds 60 percent.
(c) this Plan is a part of a required Aggregation Group and part
of a permissive Aggregation Group and the Top-heavy Ratio for
the permissive Aggregation Group exceeds 60 percent.
Top-heavy Ratio means the ratio calculated below for this Plan or for
the Aggregation Group.
(a) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer has not maintained any defined benefit plan which
during the five-year period ending on the determination date
has or has had accrued benefits, the Top-heavy Ratio for this
Plan alone or for the required or permissive Aggregation Group
as appropriate is a fraction, the numerator of which is the
sum of the account balances of all Key Employees as of the
determination date and the denominator of which is the sum of
all account balances of all employees as of the determination
date. Both the numerator and denominator of the Top-heavy
Ratio are adjusted for any distribution of an account balance
(including those made from terminated plan(s) of the Employer
which would have been part of the required Aggregation Group
had such plan(s) not been terminated) made in the five-year
period ending on the determination date. Both the numerator
and denominator of the Top-heavy Ratio are increased to
reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the
regulations thereunder.
(b) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the
Employer maintains or has maintained one or more defined
benefit plans which during the five-year period ending on the
determination date has or has had accrued benefits,
ARTICLE IX 62
<PAGE> 63
the Top-heavy Ratio for any required or permissive Aggregation
Group as appropriate is a fraction, the numerator of which is
the sum of the account balances under the defined contribution
plan(s) of all Key Employees and the Present Value of accrued
benefits under the defined benefit plan(s) for all Key
Employees, and the denominator of which is the sum of the
account balances under the defined contribution plan(s) for
all employees and the Present Value of accrued benefits under
the defined benefit plans for all employees. Both the
numerator and denominator of the Top-heavy Ratio are adjusted
for any distribution of an account balance or an accrued
benefit (including those made from terminated plan(s) of the
Employer which would have been part of the required
Aggregation Group had such plan(s) not been terminated) made
in the five-year period ending on the determination date.
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits will be
determined as of the most recent valuation date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Code Section 416 and
the regulations thereunder for the first and second plan years
of a defined benefit plan. The account balances and accrued
benefits of an employee who is not a Key Employee but who was
a Key Employee in a prior year will be disregarded. The
calculation of the Top-heavy Ratio and the extent to which
distributions, rollovers and transfers during the five-year
period ending on the determination date are to be taken into
account, shall be determined according to the provisions of
Code Section 416 and regulations thereunder. The account
balances and accrued benefits of an individual who has
performed no service for the Employer during the five-year
period ending on the determination date shall be excluded from
the Top-heavy Ratio until the time the individual again
performs service for the Employer. Deductible employee
contributions will not be taken into account for purposes of
computing the Top-heavy Ratio. When aggregating plans, the
value of account balances and accrued benefits will be
calculated with reference to the determination dates that fall
within the same calendar year.
Account, as used in this definition, means the value of an employee's
account under one of the Employer's retirement plans on the latest
valuation date. In the case of a money purchase plan or target
benefit plan, such value shall be adjusted to include any
contributions made for or by the employee after the valuation date and
on or before such determination date or due to be made as of such
determination date but not yet forwarded to the insurer or trustee.
In the case of a profit sharing plan, such value shall be adjusted to
include any contributions made for or by the employee after the
valuation date and on or before such determination date. During the
first Year of any profit sharing plan such adjustment in value shall
include contributions made after such determination date that are
allocated as of a date in such Year. The nondeductible employee
contributions which an employee makes under a defined benefit plan of
the Employer shall be treated as if they were contributions under a
separate defined contribution plan.
Valuation Date means, as to this Plan, the last day of the last
calendar month ending in a Year.
Year means the Plan Year unless another year is specified by the
Employer in a separate written resolution in accordance with
regulations issued by the Secretary of the Treasury or his delegate.
SECTION 10.03--MODIFICATION OF VESTING REQUIREMENTS.
If a Participant's Vesting Percentage determined under Article I is
not at least as great as his Vesting Percentage would be if it were determined
under a schedule permitted in Code Section 416, the following shall
ARTICLE IX 63
<PAGE> 64
apply. During any Year in which the Plan is a Top-heavy Plan, the
Participant's Vesting Percentage shall be the greater of the Vesting Percentage
determined under Article I or the schedule below.
<TABLE>
<CAPTION>
------------------------------------------
VESTING SERVICE NONFORFEITABLE
------------------------------------------
<S> <C>
Less than 2 0
------------------------------------------
2 20
------------------------------------------
3 40
------------------------------------------
4 60
------------------------------------------
5 80
------------------------------------------
6 or more 100
------------------------------------------
</TABLE>
The schedule above shall not apply to Participants who are not
credited with an Hour-of-Service after the Plan first becomes a Top-heavy Plan.
The Vesting Percentage determined above applies to all of the Participant's
Account resulting from Employer Contributions, including Contributions the
Employer makes before the TEFRA Compliance Date or when the Plan is not a
Top-heavy Plan.
If, in a later Year, this Plan is not a Top-heavy Plan, a
Participant's Vesting Percentage shall be determined under Article I. A
Participant's Vesting Percentage determined under either Article I or the
schedule above shall never be reduced and the election procedures of the
AMENDMENTS SECTION of Article IX shall apply when changing to or from the
schedule as though the automatic change were the result of an amendment.
The part of the Participant's Vested Account resulting from the
minimum contributions required pursuant to the MODIFICATION OF CONTRIBUTIONS
SECTION of Article X shall not be forfeited because of a period of reemployment
after benefit payments have begun.
SECTION 10.04--MODIFICATION OF CONTRIBUTIONS.
During any Year in which this Plan is a Top-heavy Plan, the Employer
shall make a minimum contribution or allocation on the last day of the Year for
each person who is a Non-key Employee on that day and who either was or could
have been an Active Participant during the Year. A Non-key Employee is not
required to have a minimum number of hours-of-service or minimum amount of
Compensation, or to have had any Elective Deferral Contributions made for him
in order to be entitled to this minimum. The minimum contribution or
allocation for such person shall be equal to the lesser of (a) or (b) below:
(a) Three percent of such person's Compensation (as defined in this
article).
(b) The "highest percentage" of Compensation (as defined in this
article) for such Year at which the Employer's contributions
are made for or allocated to any Key Employee. The highest
percentage shall be determined by dividing the Employer
Contributions made for or allocated to each Key Employee
during such Year by the amount of his Compensation (as defined
in this article), which is not more than the maximum set out
above, and selecting the greatest quotient (expressed as a
percentage). To determine the highest percentage, all of the
Employer's defined contribution plans within the Aggregation
Group shall be treated as one plan. The provisions of this
paragraph shall not apply if this Plan and a defined benefit
plan of the Employer are required to be included in the
Aggregation Group and this Plan enables the defined benefit
plan to meet the requirements of Code Section 401(a)(4) or
Code Section 410.
If the Employer's contributions and allocations otherwise required
under the defined contribution plan(s) are at
ARTICLE IX 64
<PAGE> 65
least equal to the minimum above, no additional contribution or reallocation
shall be required. If the Employer's contributions and allocations are less
than the minimum above and Employer Contributions under this Plan are allocated
to Participants, any Employer Contributions (other than those which are
allocated on the basis of the amount made for such person) shall be reallocated
to provide the minimum. The remaining Contributions shall be allocated as
provided in the preceding articles of this Plan taking into account any amount
which was reallocated to provide the minimum. If the Employer's total
contributions and allocations are less than the minimum above after any
reallocation provided above, the Employer shall contribute the difference for
the Year.
The minimum contribution or allocation applies to all of the
Employer's defined contribution plans in the aggregate which are Top-heavy
Plans. If an additional contribution or allocation is required to meet the
minimum above, it shall be provided in this Plan.
A minimum allocation under a profit sharing plan shall be made without
regard to whether or not the Employer has profits.
If a person who is otherwise entitled to a minimum contribution or
allocation above is also covered under a defined benefit plan of the Employer's
which is a Top-heavy Plan during that same Year, the minimum benefits for him
shall not be duplicated. The defined benefit plan shall provide an annual
benefit for him on, or adjusted to, a straight life basis of the lesser of (c)
two percent of his average pay multiplied by his years of service or (d) twenty
percent of his average pay. Average pay and years of service shall have the
meaning set forth in such defined benefit plan for this purpose.
For purposes of this section, any employer contribution made according
to a salary reduction or similar arrangement shall not apply before the first
Yearly Date in 1985. On and after the first Yearly Date in 1989, any such
employer contributions and employer contributions which are matching
contributions, as defined in Code Section 401(m), shall not apply in
determining if the minimum contribution requirement has been met, but shall
apply in determining the minimum contribution required. Forfeitures credited
to a Participant's Account are treated as employer contributions.
The requirements of this section shall be met without regard to
contributions under Chapter 2 of the Code (relating to tax on self-employment),
Chapter 21 of the Code (relating to Federal Insurance Contributions Act), Title
II of the Social Security Act or any other Federal or state law.
SECTION 10.05--MODIFICATION OF CONTRIBUTION LIMITATION.
If the provisions of subsection (e) of the CONTRIBUTION LIMITATION
SECTION of Article III are applicable for any Limitation Year during which this
Plan is a Top-heavy Plan, the benefit limitations shall be modified. The
definitions of Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction in the CONTRIBUTION LIMITATION SECTION of Article III shall be
modified by substituting "1.0" in lieu of "1.25." The optional denominator for
determining the Defined Contribution Plan Fraction shall be modified by
substituting "$41,500" in lieu of "$51,875." In addition, an adjustment shall
be made to the numerator of the Defined Contribution Plan Fraction. The
adjustment is a reduction of that numerator similar to the modification of the
Defined Contribution Plan Fraction described in the CONTRIBUTION LIMITATION
SECTION of Article III, and shall be made with respect to the last Plan Year
beginning before January 1, 1984.
The modifications in the paragraph above shall not apply with respect
to a Participant so long as employer contributions, forfeitures or
nondeductible employee contributions are not credited to his account under this
or any
ARTICLE IX 65
<PAGE> 66
of the Employer's other defined contribution plans and benefits do not accrue
for such Participant under the Employer's defined benefit plan(s), until the
sum of his Defined Contribution and Defined Benefit Plan Fractions is less than
1.0.
ARTICLE IX 66
<PAGE> 67
By executing this Plan, the Primary Employer acknowledges having
counseled to the extent necessary with selected legal and tax advisors
regarding the Plan's legal and tax implications.
Executed this 30th day of December, 1997.
CRESCENT REAL ESTATE EQUITIES, LTD.
By: /s/ BRUCE A. PICKER
-------------------------------
Vice-President and Treasurer
-----------------------------------
Title
PLAN EXECUTION 67
<PAGE> 68
FIRST AMENDMENT TO CRESCENT REAL ESTATE
EQUITIES, LTD. FIRST AMENDED AND RESTATED
401(k) PLAN
(ADOPTED BY WRITTEN CONSENT OF THE SOLE DIRECTOR
IN LIEU OF MEETING ON SEPTEMBER 1, 1998)
Page 22 of the Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan is hereby deleted and replaced with the following:
* * * * *
ARTICLE III
CONTRIBUTIONS
SECTION 3.01 - EMPLOYER CONTRIBUTIONS
Employer Contributions for Plan Years which end on or after March 17,
1997, may be made without regard to current or accumulated net income, earnings,
or profits of the Employer. Notwithstanding the foregoing, the Plan shall
continue to be designed to qualify as a profit sharing plan for purposes of Code
Sections 401(a), 402, 412, and 417. Such Contributions will be equal to the
Employer Contributions as described below:
(a) The amount of each Elective Deferral Contribution for a
Participant shall be equal to any percentage (not less than 1%
nor more than 25%) of his Compensation for the pay period as
elected in his elective deferral agreement. An Employee who is
eligible to participate in the Plan may file an elective
deferral agreement with the Employer. The elective deferral
agreement to start Elective Deferral Contributions may be
effective on a Participant's Entry Date (Reentry Date, if
applicable) or any following Quarterly Date. The Participant
shall make any change or terminate the elective deferral
agreement by filing a new elective deferral agreement. A
Participant's elective deferral agreement making a change may
be effective on any date an elective deferral agreement to
start Elective Deferral Contributions could be effective. A
Participant's elective deferral agreement to stop Elective
Deferral Contributions may be effective on any date. The
elective deferral agreement must be in writing and effective
before the beginning of the pay period in which Elective
Deferral Contributions are to start, change or stop.
Elective Deferral Contributions are fully (100%) vested and
nonforfeitable.
(b) The amount of each Matching Contribution for a Participant,
shall be equal to the percentage shown in the schedule below
based on his Years of Service and based on the amount of the
Elective Deferral Contributions made for him for the calendar
quarter, disregarding any Elective Deferral Contributions in
excess of 7% of his Compensation for the calendar quarter.
<TABLE>
<CAPTION>
Years of Service Percentage Matched
<S> <C>
Less than 2 25%
2 50%
3 75%
4 or more 100%
</TABLE>
Notwithstanding the foregoing, for Participants who met the
eligibility requirements of Article II before September 1,
1998, the Percentage Matched shall be determined in accordance
with the following:
<TABLE>
<CAPTION>
Elective Deferral Period Percentage Matched
<S> <C>
September 1, 1998 through August 31, 1999 25%
September 1, 1999 through August 31, 2000 50%
September 1, 2000 through August 31, 2001 75%
after September 1, 2001 100%
</TABLE>
Matching Contributions shall be made only on behalf of
Participants who are actively employed on the last day of the
calendar quarter to which the Matching Contribution relates.
Matching Contributions are subject to the Vesting Percentage.
(c) The amount of each Qualified Nonelective Contribution shall be
determined by the Employer. A Qualified Nonelective
Contribution shall be made for a Participant only if he is a
Nonhighly Compensated Employee or a Non-key Employee (as
defined in Article X).
Qualified Nonelective Contributions are fully (100%) vested
and nonforfeitable.
(d) The amount of each Discretionary Contribution shall be
determined by the Employer.
Discretionary Contributions are subject to the Vesting
Percentage.
No participant shall be permitted to have Elective Deferral
Contributions, as defined in the EXCESS AMOUNTS section of Article III, made
under this Plan, or any other qualified plan maintained by the Employer,
ARTICLE III 22
<PAGE> 1
EXHIBIT 12.01
CRESCENT REAL ESTATE EQUITIES COMPANY
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year For the Year For the Year
Ended Ended Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Pretax Income from Continuing Operations 183,210 135,024 $ 47,951
Interest Expense 152,214 86,441 42,926
Amortization of Deferred Financing Costs 6,486 3,499 2,812
------- ------- --------
Earnings 341,910 224,964 $ 93,689
======= ======= ========
Interest Expense 152,214 86,441 42,926
Capitalized Interest 575 2,030 946
Amortization of Deferred Financing Costs 6,486 3,499 2,812
------- ------- --------
Fixed Charges 159,275 91,970 $ 46,684
======= ======= ========
Ratio of Earnings to Fixed Charges 2.15 2.45 2.01
======= ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES
1. Crescent Real Estate Equities, Ltd., a Delaware corporation
2. Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership
3. CRE Management I Corp., a Delaware corporation
4. CRE Management II Corp., a Delaware corporation
5. CRE Management III Corp., a Delaware corporation
6. CRE Management IV Corp., a Delaware corporation
7. CRE Management V Corp., a Delaware corporation
8. CRE Management VI Corp., a Delaware corporation
9. CRE Management VII Corp., a Delaware corporation
10. Crescent Real Estate Funding I, L.P., a Delaware limited partnership
11. Crescent Real Estate Funding II, L.P., a Delaware limited partnership
12. Crescent Real Estate Funding III, L.P., a Delaware limited partnership
13. Crescent Real Estate Funding IV, L.P., a Delaware limited partnership
14. Crescent Real Estate Funding V, L.P., a Delaware limited partnership
15. Crescent Real Estate Funding VI, L.P., a Delaware limited partnership
16. Crescent Real Estate Funding VII, L.P., a Delaware limited partnership
17. Crescent Entertainment Company, L.P., a Texas limited partnership
18. Crescent Entertainment Management L.L.C., a Texas limited liability company
19. CEC Management, L.L.C., a Texas limited liability company
20. Crescent Duddleston Hotel Partnership, L.P., a Texas limited partnership
21. CresCal Properties, L.P., a Delaware limited partnership
22. CresCal Properties, Inc., a Delaware corporation
23. Woodlands Office Equities - '95 Limited, a Texas limited partnership
24. Woodlands Retail Equities - '96 Limited, a Texas limited partnership
25. CresWood Development, L.L.C. - a Texas limited liability company
26. 301 Congress Avenue, L.P., a Delaware limited partnership
27. Crescent/301, LLC, a Delaware limited liability company
28. Crescent Commercial Realty Corp., a Delaware corporation
1
<PAGE> 2
29. Crescent Commercial Realty Holdings, L.P., a Delaware limited partnership
30. CresTex Development L.L.C., a Delaware limited liability company
31. G/C Waterside Associates LLC, a Texas limited liability company
32. Crescent 1717 Main, L.L.C., a Texas limited liability company
33. Crescent E&M, L.L.C., a Texas limited liability company
34. Crescent Ervay & Main, L.P., a Texas limited partnership
35. Main Street Partners, L.P., a Texas limited partnership
36. Main Street Partners Management Company, L.P., a Texas limited partnership.
37. Spectrum Mortgage Associates, L.P., a Delaware limited partnership
38. Crescent Washington Harbour, LLC, a Delaware limited partnership
39. Crescent Potomac Harbour, LLC, a Delaware limited partnership
40. Crescent Costa Mesa, LLC, a Delaware limited partnership
41. Crescent Woodfield, LLC, a Delaware limited partnership
42. Hudson Bay Partners II, L.P., a Delaware limited partnership
43. Hudson Bay Partners IV, L.P., a Delaware limited partnership
2
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 17, 1999 (except with respect to the
matters discussed in Note 14, as to which the date is March 19, 1999) included
in this Form 10-K into Crescent Real Estate Equities Company's previously filed
Registration Statements File No. 33-91438, No. 33-92548, No. 333-03450, No.
333-03452, No. 333-08454, No. 333-13521, No. 333-21905, No. 333-23005, No.
333-33893, No. 333-37273, No. 333-38071, No. 333-37565, No. 333-41049, No.
333-37553, No. 333-47563, No. 333-42417, and No. 333-57863.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 58 AND
59 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 110,292
<SECURITIES> 0
<RECEIVABLES> 106,365
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,084,875
<PP&E> 4,129,372
<DEPRECIATION> (387,457)
<TOTAL-ASSETS> 5,043,447
<CURRENT-LIABILITIES> 149,444
<BONDS> 2,318,156
0
200,000
<COMMON> 1,245
<OTHER-SE> 2,374,602
<TOTAL-LIABILITY-AND-EQUITY> 5,043,442
<SALES> 0
<TOTAL-REVENUES> 693,343
<CGS> 0
<TOTAL-COSTS> 402,236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,214
<INCOME-PRETAX> 150,584
<INCOME-TAX> 0
<INCOME-CONTINUING> 150,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,584
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.21
</TABLE>
