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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, 1999.
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
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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
6 3/4% Series A Convertible Cumulative Preferred Shares of
Beneficial Interest par value $.01 per share New York Stock Exchange
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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 [ ]
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 24, 2000, the aggregate market value of the 113,005,779 common
shares and 8,000,000 preferred shares held by non-affiliates of the registrant
was approximately $2.1 billion, based upon the closing price of $17 15/16 for
common shares and $14 for preferred shares on the New York Stock Exchange.
Number of Common Shares outstanding as of March 24, 2000: 121,645,289
Number of Preferred Shares outstanding as of March 24, 2000: 8,000,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 2000 Annual Meeting of Shareholders to be held in
June 2000 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............................................................................ 17
Item 3. Legal Proceedings..................................................................... 29
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............................ 60
Item 8. Financial Statements and Supplementary Data........................................... 62
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 101
PART III.
Item 10. Trust Managers and Executive Officers of the Registrant............................... 101
Item 11. Executive Compensation................................................................ 102
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 102
Item 13. Certain Relationships and Related Transactions........................................ 102
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 102
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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 (a "REIT") for federal income tax purposes, 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 some of its properties.
The term "Company" includes, unless the context otherwise requires,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.
The direct and indirect subsidiaries of Crescent Equities include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP;
The Operating Partnership
o CRESCENT REAL ESTATE EQUITIES, LTD.;
The 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 in properties) 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. Organization and Basis of Presentation 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, 1999, the Company's assets and operations were
composed of five major investment segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics Segment; and
o Behavioral Healthcare Segment.
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Within these segments, the Company owned directly or indirectly the
following real estate assets (the "Properties") as of December 31, 1999:
o OFFICE AND RETAIL SEGMENT consisted of 89 office properties
(collectively referred to as the "Office Properties") located
in 31 metropolitan submarkets in nine states, 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. See "Industry Segments -
Office and Retail Segment - Recent Developments - Property
Dispositions" for a description of the disposition of six of
the Office Properties and four of the Retail Properties
subsequent to December 31, 1999.
o HOSPITALITY SEGMENT consisted of five upscale business class
hotels with a total of 2,168 rooms, three luxury resorts and
spas with a total of 516 rooms and two Canyon Ranch
destination fitness resorts and spas 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"). The Omni Austin Hotel is leased to HCD Austin
Corporation.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of 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, currently own 14 residential
development properties (collectively referred to as the
"Residential Development Properties").
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT (FORMERLY THE
REFRIGERATED STORAGE SEGMENT) consisted of the Company's
indirect 39.6% interest in three partnerships (collectively
referred to as the "Temperature-Controlled Logistics
Partnerships"), each of which owns one or more corporations or
limited liability companies (collectively referred to as the
"Temperature-Controlled Logistics Corporations") which, as of
December 31, 1999, directly or indirectly owned 89
temperature-controlled logistics properties (collectively
referred to as the "Temperature-Controlled Logistics
Properties") with an aggregate of approximately 428.3 million
cubic feet (17.0 million square feet). This segment was
restructured in 1999, and the new ownership structure was
effective as of March 12, 1999.
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 88 properties in 24
states (collectively referred to as the "Behavioral Healthcare
Properties") that were leased to Charter Behavioral Health
Systems, LLC ("CBHS") and its subsidiaries. CBHS was formed to
operate the behavioral healthcare business located at the
Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan Health Services, Inc. ("Magellan") and
90% by COI and an affiliate of COI. On February 16, 2000, CBHS
and all of its subsidiaries that are subject to the master
lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the
District of Delaware. Of the 88 Behavioral Healthcare
Properties, 37 are designated as the "Core Properties" for the
conduct of CBHS's business and remain subject to the master
lease. Since December 31, 1999, CBHS has ceased or is planning
to cease operations at the remaining 51 Behavioral Healthcare
Properties which are designated as the "Non-Core Properties"
and the Company is actively marketing these Properties for
sale. From January 1 through March 24, 2000, the Company sold
11 of these Behavioral Healthcare Properties and entered into
contracts or letters of intent to sell an additional six of
these Behavioral Healthcare Properties. The Company intends to
sell the remaining 37 Core Behavioral Healthcare Properties or
lease them to new tenants. See "Industry Segments - Behavioral
Healthcare Segment" for a description of the current status of
CBHS and the Company's investment in the Behavioral Healthcare
Properties.
See Note 4. Segment Reporting of Item 8. Financial Statements and
Supplementary Data for a table showing revenues and funds from operations for
the years ended December 31, 1999, 1998 and 1997 and identifiable assets for
each of these investment segments at December 31, 1999 and 1998.
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BUSINESS OBJECTIVES AND OPERATING STRATEGIES
The Company's business objective is to provide its shareholders with
attractive but predictable growth in cash flow and underlying asset value. In
addition, the Company seeks to create value by distinguishing itself as the
leader in each of its investment segments through customer service and asset
quality.
STRATEGIC PLAN
In August 1999, the Company announced a strategic plan for the years
2000 - 2002. Under the plan, the Company is intently focused, during this
period, on increasing:
o net asset value per share;
o funds from operations and cash available for distribution per
share; and
o corresponding growth rates in net asset value per share, funds
from operations and cash available for distribution per share.
The strategic plan also includes short-term goals designed to meet
these objectives. These short-term goals are to:
o resolve the issues surrounding the Behavioral Healthcare
Segment;
o refinance 2000 and 2001 debt maturities and reduce exposure to
variable-rate debt;
o dispose of non-strategic or non-core assets within the
investment segments;
o market certain of the Office Properties for joint
ventures; and
o engage in a share repurchase program.
OPERATING AND FINANCING STRATEGIES
Based on management's assessment of current conditions in the real
estate and financial markets, the Company will focus in 2000 on growth in
revenues from its existing Property portfolio. The Company seeks to enhance its
operating performance and financial position by:
o continuing to operate the Office Properties as long-term
investments, providing exceptional tenant services,
improving occupancies, increasing in-place rents to market
rates and seeking to increase revenues by providing tenants
with a broad spectrum of additional services;
o achieving a high tenant retention rate at the Office
Properties through quality service, individualized attention
to its tenants and active preventive maintenance programs;
o seeking to sell the non-core, non-strategic Office
Properties;
o seeking to sell the Non-Core Behavioral Healthcare Properties
and, in cooperation with CBHS, sell or lease the Core
Behavioral Healthcare Properties;
o seeking, over the next two years, to reduce the Company's
investment in its upscale business class Hotel Properties;
o optimizing the use of various sources of capital, including
the refinancing of existing debt to extend debt maturities and
to reducing exposure to variable-rate debt;
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o entering into venture arrangements with private equity
partners under arrangements where the Company would
hold a minority interest in the Properties and would continue
to lease and manage the Properties;
o repurchasing and retiring up to $500 million of common shares
over the next two years;
o entering into arrangements with other businesses, such as
venture capital and technology firms, to exchange office
space, which is difficult to lease due to location, size, or
configuration, for an equity interest in those businesses, and
o empowering management and employing compensation plans which
are designed to continue to attract and retain the best talent
available and are aligned with the interests of the Company's
shareholders.
INVESTMENT STRATEGIES
In 2000, the Company intends to focus primarily on assessing investment
opportunities within each of its existing investment segments that are
consistent with its long-term investment strategy of acquiring value investments
at a significant discount to replacement cost in an environment where the
Company believes values will appreciate to or above replacement cost and
acquiring investments offering growth in cash flow after applying management
skills, renovation and expansion capital, and strategic vision.
The Company's investment strategies include:
o capitalizing on the luxury resorts and spas business through
(a) the formation of an investment partnership headed by one
of the Company's former executives, which will acquire new
resorts that can be converted into luxury spa destinations and
operated under the "Sonoma Spa Resorts" brand and (b)
investments in a management company which will operate and
manage the property or assets of some of the Company's Hotel
Properties as well as any new resort properties acquired by
the investment partnership;
o expansion of the Canyon Ranch franchise and capitalizing on
the "Canyon Ranch" brand through the Company's indirect
approximately 20% equity ownership (the Company has the
opportunity to acquire an additional indirect 10% equity
ownership through July 2000) in a management company that has
all rights to develop and manage any new Canyon Ranch resorts
or spa concepts, both in the United States and
internationally;
o seeking, within the Office Property segment, to provide
tenants a broad spectrum of services, such as
telecommunications services, by providing the vendors of those
services with access to the tenants of the Company's Office
Property portfolio in exchange for potential royalty income
and an equity investment;
o seeking private equity partners for joint ventures, in which
the Company would invest for selected office property
development; and
o continuing to monetize current development through the
Company's five Residential Development Corporations, and
reinvesting in other land developments as capital is returned.
EMPLOYEES
As of March 24, 2000, the Company had 634 employees. None of these
employees are covered by collective bargaining agreements. The Company considers
its employee relations to be good.
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
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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.
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COI. The REIT Modernization Act
is expected to reduce the number of business opportunities that the Company
would otherwise offer to COI pursuant to the Intercompany Agreement between
the Company and COI, which provides each party with rights to participate in
certain transactions. The Company has expressed an interest to COI in certain of
the businesses currently owned or operated by COI that the REIT Modernization
Act would allow the Company to own or operate. The Company is exploring
alternatives with COI regarding a potential future transaction with respect to
certain of COI's assets.
ENVIRONMENTAL MATTERS
The Company and its Properties are subject to a variety of federal,
state and local environmental, health and safety laws, including:
o Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA");
o Resource Conservation & Recovery Act;
o Federal Clean Water Act;
o Federal Clean Air Act;
o Toxic Substances Control Act; and
o Occupational Safety & Health 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 certain environmental laws, principally CERCLA, 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 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 owner or operator of a site also may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. Such costs or liabilities
could exceed the value of the affected real estate. The 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.
Compliance by the Company with existing environmental, health and
safety laws has not had a material adverse effect on the Company's financial
condition and results of operations, and management does not believe it will
have such an impact in the future. In addition, the Company has not incurred,
and does not expect to incur any material costs or liabilities due to
environmental contamination at Properties it currently owns or has owned in the
past. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties or on properties that it may acquire in
the future. Except as set forth below, the Company has no current plans for
substantial capital expenditures with respect to compliance with environmental,
health and safety laws.
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INDUSTRY SEGMENTS
OFFICE AND RETAIL SEGMENT
OWNERSHIP STRUCTURE
As of December 31, 1999, the Company owned 89 Office Properties located
in 31 metropolitan submarkets in nine states, 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
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
substantially all of its Office and Retail Properties. From January 1 through
March 24, 2000, the Company sold six of the Office Properties and four of the
Retail Properties. See "Recent Developments - Property Dispositions" below.
See Item 2. Properties for more information about the Company's Office
and Retail Properties, and Note 1. Organization and Basis of Presentation of
Item 8. Financial Statements and Supplementary Data for a table that lists the
principal subsidiaries of the Company 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
the Dallas/Fort Worth and Houston, Texas metropolitan areas. The southwestern
markets are expected to continue experiencing some of the strongest growth in
the country being "demand-driven" markets because of high levels of in-migration
by corporations and labor. Companies continue to migrate to the southwest with
its friendly state and local governments, lower cost of living, outstanding
transportation systems, strong educational base, and central United States
location.
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 Office
and Retail 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 transactions 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, 1999,
no single tenant accounted for more than 4% of the Company's total Office and
Retail segment rental revenues for 1999.
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; Omaha, Nebraska; and
San Francisco, California), as illustrated in the following table. Subsequent to
December 31, 1999, the Company disposed of its Office Property located in Omaha,
Nebraska and one of its two Office Properties located in New Orleans, Louisiana
and is actively marketing the remaining property in New Orleans, Louisiana for
sale. See "Recent Developments - Property Dispositions" below.
PROJECTED POPULATION GROWTH AND EMPLOYMENT GROWTH FOR ALL COMPANY MARKETS
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Population Employment
Growth Growth
Metropolitan Statistical Area (MSA) 1999-2009 1999-2009
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Albuquerque, NM 13.9% 24.4%
Austin, TX 22.7 26.3
Colorado Springs, CO 12.7 21.9
Dallas, TX 15.5 20.7
Denver, CO 12.7 26.0
Fort Worth, TX 19.2 22.8
Houston, TX 15.5 21.9
Miami, FL 9.3 16.8
New Orleans, LA 1.4 10.1
Omaha, NE 6.8 10.7
Phoenix, AZ 26.8 36.4
San Diego, CA 17.4 19.7
San Francisco, CA 6.4 12.9
Washington, D.C 10.1 21.5
UNITED STATES 8.4 13.6
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Source: Compiled from information published by RFA/Dismal Sciences, 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, 1999 was $20.38 per
square foot, compared to an estimated weighted average full-service replacement
cost rental rate of $28.49 per square foot.
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COMPETITION
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. 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, as of December 31, 1999, on a weighted average
basis, the Company owned 16% of the Class A office space in the 30 submarkets in
which the Company owned Class A office properties, and 9% of the Class B office
space in the five submarkets in which the Company owned 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.
RECENT DEVELOPMENTS
Property Dispositions
For the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16.8 million on one Office Property held for
disposition, which was sold during the first quarter of 2000. The impairment
loss represented the difference between the carrying value of the Office
Property and the sales price less costs of the sale. As of March 24, 2000, the
Company completed the sale of six wholly-owned Office Properties, which were
included in a group of ten Office Properties held for disposition at December
31, 1999, and were actively being marketed for sale. The sales generated
approximately $146.6 million of net proceeds. Excluding the impairment loss on
one of the six Office Properties held for disposition at December 31, 1999, the
Company recognized a net gain of approximately $13.3 million in the first
quarter of 2000, related to the sales of the other five Office Properties that
were classified as held for disposition at December 31, 1999. In addition, the
Company entered into contracts relating to the sale of two additional Office
Properties. The sales of the additional Office Properties are expected to close
by the end of the second quarter of 2000. Management expects to complete any
economically justified sales of the remaining two Office Properties held for
disposition at December 31, 1999 by the end of the second quarter of 2000.
Management is currently in the process of evaluating the bids for the remaining
Office Properties to determine their economic viability as well as the
credit-worthiness of the potential purchasers and their ability to close the
transactions. The disposition of these Office Properties remains subject to the
negotiation of acceptable terms and other customary conditions.
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain property assets (multi-family, retail and office/venture tech
portfolios), located in The Woodlands, which includes the Company's four Retail
Properties and 12 Office Properties located in The Woodlands. The sale of the
four Retail Properties located in The Woodlands, closed on January 5, 2000,
generating net proceeds of approximately $49.8 million, of which the Company's
portion was approximately $37.3 million and a net gain of approximately $9.0
million, of which the Company's portion was approximately $7.7 million. The sale
of The Woodlands Office Properties, is expected to close in the second quarter
of 2000.
Investment in Broadband Office, Inc.
In October 1999, the Company, along with seven other real estate
companies, joined with an unrelated third party venture capitalist as a founding
shareholder in Broadband Office, Inc. ("Broadband"), a national
telecommunications company. Broadband is dedicated to providing state of the art
broadband telecommunications services to commercial office properties across the
country. In addition to significantly improving the Company's office tenant
amenity package to take advantage of evolving technologies, the Company received
an equity interest
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and representation on the board of directors of Broadband in exchange for
granting Broadband marketing access to the tenants within the Company's Office
Property portfolio.
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 nine separate leases. The Omni Austin Hotel has been leased, under a
separate lease, to HCD Austin Corporation. 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 costs
related to the Properties. 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 nine 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.
The leases provide 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 (for
1999, base rent represented approximately 70% of total hotel
rental revenues received from the hotel lessees);
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.
CRL INVESTMENTS, INC.
The Company has a 95% economic interest, representing all of the
non-voting stock in CRL Investments, Inc. ("CRL"), which has a 20% economic
interest in CR License, LLC, the entity which owns the right to the future use
of the "Canyon Ranch" name. CRL has the opportunity through July 2000 to pay
$3.0 million to obtain an additional 10% interest in CR License, LLC. CRL also
has an effective 60% economic interest in the Canyon Ranch Spa Club in the
Venetian Hotel in Las Vegas, Nevada. The Canyon Ranch Spa Club opened in June
1999 and is the first project to expand the franchise value of the "Canyon
Ranch" name.
See Item 2. Properties for more information about the Company's Hotel
Properties.
MARKET INFORMATION
Average hotel room rental rates in the United States grew 4.0%, 4.4%,
6.2% and 6.3%, in 1999, 1998, 1997, and 1996, respectively. Within the luxury
and upscale segments of the industry, average room rental rates increased
approximately 3.3% from 1998 to 1999. Industry information was compiled from
information published by Smith Travel Research.
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.
COMPETITION
Most of the Company's upscale business class Hotel Properties in
Denver, Albuquerque, Austin and Houston are business and convention center
hotels that compete against other business and convention center hotels. The
Company believes, however, that its luxury resorts and spas and destination
fitness resorts and spas are unique properties that have insignificant direct
competitors due either to their high replacement cost or unique concept and
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.
10
<PAGE> 12
RECENT DEVELOPMENTS
In February 2000, the Company entered into an agreement with Sanjay
Varma, a former senior executive officer of the Company, to form an investment
partnership which will seek luxury spa resorts and hotels to acquire and manage
under the "Sonoma Spa Resorts" brand and concept. The Company and Mr. Varma
acquired a 93% and 7% interest, respectively, in this new partnership. Mr. Varma
has also established a new management company, which has contracted with COI to
manage either the property or assets of the Company's existing portfolio of
Hotel Properties (excluding the Canyon Ranch resorts and the Hyatt Regency
Beaver Creek), in addition to new properties the investment partnership
acquires. The Company currently holds a 30% non-voting interest in this
management company.
As part of its strategic plan, the Company will seek to reduce its
investment in the upscale business class Hotel Properties over the next two
years. However, these Hotel Properties are not currently being actively marketed
for sale.
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, currently own interests in 14 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, single-family homes,
condominiums, townhouses and non-owner occupied housing, such as luxury
apartments. Management believes that The Woodlands Land Company, Inc., Crescent
Development Management Corp. ("CDMC") 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. 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, a conference center, 60 parks, 81 holes of golf, two
man-made lakes and a performing arts pavilion. The Woodlands could be adversely
affected by downturns in the Houston economy. CDMC was formed for investing in
resort residential real estate and resort operating opportunities primarily in
Colorado. Management believes CDMC does not have any direct competitors because
the locations of the projects are unique, the land is limited and CDMC owns most
of the land in each location. 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.
11
<PAGE> 13
RECENT DEVELOPMENTS
On April 29, 1999, a partnership in which CDMC has a 64% economic
interest finalized the purchase of Riverfront Park (previously known as "The
Commons"), a master planned residential development on 23 acres in the Central
Platte Valley near downtown Denver, Colorado for approximately $25 million. The
development of Riverfront Park is expected to begin in the spring of 2000. The
first phase will consist of one condominium project and two loft projects with
prices ranging from $0.2 million to $2.5 million. One of the first residential
projects, consisting of 71 lofts, commenced pre-selling in January 2000. As of
March 24, 2000, contracts had been signed on 83% of the 71 lofts. In the first
quarter of 2000, the partnership has entered into contracts relating to the sale
of 9.7 acres of Riverfront Park, which is expected to close in the second
quarter of 2000. The acreage is in close proximity to several major
entertainment and recreational facilities including Coors Field (home to the
Major League Baseball's Colorado Rockies), Elitch Gardens (an amusement park),
the new Pepsi Center (home to the National Hockey League's Colorado Avalanche
and the National Basketball Association's Denver Nuggets) and the new downtown
Commons Park. An adjacent 28 acres is expected to be commercially developed by
another company, thus providing a major mixed-use community adjacent to the
lower downtown area of Denver.
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
ORIGINAL OWNERSHIP STRUCTURE
Prior to the restructuring of its investment in the
Temperature-Controlled Logistics Properties in March 1999, the Company, through
two subsidiaries (the "Crescent Subsidiaries"), owned an indirect 38% interest
in each of the three Temperature-Controlled Logistics Partnerships. One of the
Temperature-Controlled Logistics Partnerships owned AmeriCold Corporation
("AmeriCold"), the second Temperature-Controlled Logistics Partnership owned URS
Logistics, Inc. ("URS") and the third Temperature-Controlled Logistics
Partnership owned the assets and business operations acquired from Freezer
Services, Inc. ("Freezer Services") and Carmar Group, Inc. ("Carmar Group").
Vornado Realty Trust ("Vornado") owned a 60% interest in the
Temperature-Controlled Logistics Partnerships and COI owned a 2% indirect
interest in the Temperature-Controlled Logistics Partnerships.
In order to permit the Company to satisfy certain REIT qualification
requirements, the Company owned its indirect 38% interest in the
Temperature-Controlled Logistics 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
Temperature-Controlled Logistics Partnerships through its ownership of all of
the voting common stock, representing a 5% economic interest, in each of the
Crescent Subsidiaries.
NEW OWNERSHIP STRUCTURE
Effective March 12, 1999, the Company, Vornado, the
Temperature-Controlled Logistics Partnerships, the Temperature-Controlled
Logistics Corporations (including all affiliated entities that owned any portion
of the business operations of the Temperature-Controlled Logistics Properties at
that time) and COI restructured their investment in the Temperature-Controlled
Logistics Properties (the "Restructuring"). In the Restructuring, the
Temperature-Controlled Logistics Corporations (including all affiliated entities
that owned any portion of the business operations of the Temperature-Controlled
Logistics Properties) sold their ownership of the business operations to a newly
formed partnership ("AmeriCold Logistics") 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 AmeriCold Logistics. AmeriCold Logistics, as lessee, entered
into triple-net master leases of the Temperature-Controlled Logistics Properties
with certain of the Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics 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. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance, and repair of properties as
well as property capital expenditures in excess of $5.0 million annually.
12
<PAGE> 14
For the period of March 12, 1999 to December 31, 1999, base rent and percentage
rent was approximately $135.8 million of which base rent represented
approximately 80%. AmeriCold Logistics has the right to defer a portion of the
rent for up to three years beginning on March 12, 1999 to the extent that
available cash, as defined in the leases, is insufficient to pay such rent, and
pursuant thereto, rent was deferred as of December 31, 1999, of which the
Company's share was approximately $2.1 million.
In addition, in connection with the Restructuring and also effective in
March 1999, the Company purchased from COI an additional 4% nonvoting economic
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
Temperature-Controlled Logistics Partnerships and COI holds an indirect 0.4%
interest in the Temperature-Controlled Logistics Partnerships. The Company also
granted COI an option to require the Company to purchase COI's remaining 1%
economic interest, representing all of the voting stock, in each of the Crescent
Subsidiaries at any time within the next two years, provided that such 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 $3.4 million.
The Temperature-Controlled Logistics Corporations, directly or
indirectly owned, as of December 31, 1999, approximately 89
Temperature-Controlled Logistics Properties, with an aggregate of approximately
428.3 million cubic feet (17.0 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
Temperature-Controlled Logistics Properties.
INDUSTRY INFORMATION
AmeriCold Logistics provides frozen food manufacturers with
refrigerated warehousing and transportation management services. The
Temperature-Controlled Logistics 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. AmeriCold Logistics' temperature-controlled logistics expertise and
access to both the frozen food warehouses and distribution channels enable the
customers of AmeriCold Logistics 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., McCain Foods and Tyson
Foods, Inc.
COMPETITION
AmeriCold Logistics is the largest operator of public refrigerated
warehouse space in the country. AmeriCold Logistics operated an aggregate of
approximately 30% of total public refrigerated warehouse space as of December
31, 1999. No other person or entity operated more than 8% of total public
refrigerated warehouse space as of December 31, 1999. As a result, AmeriCold
Logistics does not have any competitors of comparable size. AmeriCold Logistics
operates in an environment in which competition is national, regional and local
in nature and in which the range of service, temperature-controlled logistics
facilities, customer mix, service performance and price are the principal
competitive factors.
13
<PAGE> 15
BEHAVIORAL HEALTHCARE SEGMENT
OWNERSHIP STRUCTURE AND RECAPITALIZATION
As of December 31, 1999, the Behavioral Healthcare Segment consisted
of 88 Behavioral Healthcare Properties, all of which were leased to CBHS and its
subsidiaries under a triple-net master lease. CBHS is a Delaware limited
liability company which was formed to operate the behavioral healthcare
businesses located at the Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan and 90% by COI and an affiliate of COI. CBHS operates the
Behavioral Healthcare Properties through wholly owned subsidiaries.
CBHS's business has been negatively affected by many factors, including
adverse industry conditions. During 1999, CBHS failed to perform in accordance
with its operating budget. In the fourth quarter of 1999, the Company, COI,
Magellan and CBHS completed a recapitalization of CBHS. Pursuant to the
recapitalization, Magellan transferred its remaining hospital-based assets to
CBHS, canceled its accrued franchise fees and terminated the franchise
agreements, pursuant to which Magellan had provided certain services to CBHS in
exchange for certain franchise fees. The Company also deferred the monthly
rental payments due from CBHS for November and December 1999 and amended its
master lease with CBHS to provide a mechanism to terminate the master lease as
to certain Non-Core Behavioral Healthcare Properties, and agreed that, upon each
sale by the Company of Non-Core Behavioral Healthcare Properties, the monthly
minimum rent due from CBHS under the master lease would be reduced by a
specified percentage of the net proceeds of such sale. The Non-Core Behavioral
Healthcare Properties consist of 51 Properties at which CBHS has ceased
operations or is planning to cease operations.
PROPERTY ACQUISITIONS AND DISPOSITIONS
During the fourth quarter of 1999, the Company purchased two
Behavioral Healthcare Properties from Magellan for an aggregate purchase price
of approximately $7.1 million in satisfaction of its obligations under an
agreement with Magellan entered into in November 1998. In addition, during the
fourth quarter of 1999, the Company disposed of one Behavioral Healthcare
Property for approximately $1.4 million in net proceeds.
BANKRUPTCY PROCEEDINGS
On February 16, 2000, CBHS and all of its subsidiaries that are subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware.
CBHS has stated in its bankruptcy petitions that it intends to sell all of the
ongoing businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, pursuant to the referenced amendments to
the master lease, the Non-Core Properties ceased to be subject to the master
lease, although the aggregate rent due under the master lease was not reduced as
a result, except as described above with respect to sales of Non-Core
Properties. The Company is actively marketing these Properties for sale. From
January 1 through March 24, 2000, the Company sold 11 Non-Core Properties for
approximately $34.9 million in net proceeds. As a result of these sales and the
sale of the one Behavioral Healthcare Property during the fourth quarter of
1999, the amount of rent due under the master lease was reduced in accordance
with the amendments to the master lease. The Company has also entered into
contracts or letters of intent to sell an additional six Non-Core Properties.
The Company continues to actively market the remaining 34 Non-Core Properties
for sale.
As of December 31, 1999, the 37 Behavioral Healthcare Properties that
were not designated as Non-Core Properties are designated as Core Properties.
The Core Properties remain subject to the master lease. Payment and treatment of
rent for the Behavioral Healthcare Properties is subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
In conjunction with the bankruptcy proceedings, a new subsidiary of
COI entered into an agreement for the purchase of CBHS's core operating assets,
subject to certain conditions, and the Company agreed to lease the Core
Properties to the new subsidiary if it is successful in acquiring the core
operating assets of CBHS, subject to agreement on various terms of the lease and
certain additional conditions. COI has since announced that it does not expect
that the conditions will be satisfied and, therefore, does not expect to
conclude the purchase. The agreements expire on April 16, 2000 if the conditions
are not satisfied.
On April 24, 2000, an auction will be held for the core operating
assets of CBHS as part of the bankruptcy proceedings. The Company has agreed to
provide an acceptable sales price for each of the remaining 37 Behavioral
Healthcare Properties and, to the extent possible, acceptable lease terms for
continued operation of the Behavioral Healthcare Properties. Bidders will have
the opportunity to bid for any or all of the core operating assets of CBHS and,
in connection with a bid, either to bid to purchase the related Behavioral
Healthcare Property or Properties or to seek approval from the Company to lease
the Property or Properties. Proceeds from the sale of core operating assets of
CBHS will be available to pay creditors of CBHS. Proceeds from any sales of the
Behavioral Healthcare Properties will belong to the Company.
14
<PAGE> 16
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 outpatient care. According to the
National Association of Psychiatric Health Systems 1998 Annual Survey Report,
the most recent available report, nearly one in four admissions in 1997 was to a
service other than inpatient hospitalization, compared to just one in ten
admissions in 1992. Although outpatient admissions are increasing and inpatient
admissions also are increasing, average length of stay is decreasing.
Due to these changes in the behavioral healthcare industry, the
position of a hospital or other behavioral care facility, such as the facilities
operated at the Behavioral Healthcare Properties, relative to its competitors
has been affected by its ability to obtain contracts with HMOs, PPOs and other
managed care plans for the provision of health care services. Although such
contracts generally provide for discounted services, pre-admission on
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 the facilities
operated at the Behavioral Healthcare Properties in particular, are influenced
by the cyclical nature of the business, with a reduced demand for services
during the summer months and around major holidays.
15
<PAGE> 17
COMPETITION
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 that are or may be operated at
the Behavioral Healthcare Properties are perceived to help contain mental health
care costs. Each of the facilities operated at the Behavioral Healthcare
Properties competes with other hospitals and behavioral healthcare facilities.
Some competing facilities are owned and operated by governmental agencies,
others by nonprofit organizations supported by endowments and charitable
contributions. The facilities operated at the Behavioral Healthcare Properties
frequently draw patients from areas outside their immediate locale and,
therefore, these facilities may, in certain markets, compete with both local and
distant hospitals and other facilities. In addition, the facilities operated at
the Behavioral Healthcare Properties compete not only with other psychiatric
hospitals, but also with psychiatric units in general hospitals. With respect to
outpatient services, the facilities operated at the Behavioral Healthcare
Properties compete 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 any operator of the behavioral
healthcare facilities will be able to compete effectively with its present or
future competitors, and any such inability could have a material adverse effect
on the operator's business, financial condition and results of operations and,
accordingly, on its ability to make rental payments to the Company.
16
<PAGE> 18
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
As of December 31, 1999, the Company owned 89 Office Properties located
in 31 metropolitan submarkets in nine states with an aggregate of approximately
31.8 million net rentable square feet. The Company's Office Properties are
located primarily in the Dallas/Fort Worth and Houston, Texas metropolitan
areas. As of December 31, 1999, the Company's Office Properties in Dallas/Fort
Worth and Houston represented 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).
In pursuit of management's objective to dispose of non-strategic and
non-core assets, the Company was actively marketing for sale its wholly owned
interests in 10 Office Properties at December 31, 1999. The Office Properties
targeted for disposition represented an aggregate of approximately 2.9 million
net rentable square feet in Dallas, Texas; Denver, Colorado; New Orleans,
Louisiana; and Omaha, Nebraska. As of March 24, 2000, the Company completed the
sale of six of the 10 Office Properties. The Office Properties sold were: The
Amberton, Concourse Office Park, The Meridian, and Walnut Green Office
Properties located in Dallas, Texas; the Energy Centre Office Property located
in New Orleans, Louisiana; and the Central Park Plaza Office Property located in
Omaha, Nebraska.
In addition, the Company has entered into contracts relating to the
sale of two additional Office Properties: the AT&T Building located in Denver,
Colorado; and One Preston Park located in Dallas, Texas. The sales of these
Properties are expected to close by the end of the second quarter of 2000.
Management expects to complete any economically justified sales of the remaining
two Office Properties (Valley Centre located in Dallas, Texas; and 1615 Poydras
located in New Orleans, Louisiana) by the end of the second quarter of 2000.
Management is currently in the process of evaluating the bids for the remaining
Properties to determine their economic viability as well as the
credit-worthiness of the potential purchasers and their ability to close the
transactions. The disposition of these Office Properties remains subject to the
negotiation of acceptable terms and other customary conditions.
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain office/venture tech properties located in The Woodlands, which
includes the Company's 12 Office Properties located in The Woodlands with an
aggregate of approximately 0.8 million net rentable square feet. The sale of The
Woodlands Office Properties is expected to close in the second quarter of 2000.
OFFICE PROPERTIES TABLES
The following table shows, as of December 31, 1999, certain information
about the Company's Office Properties. Based on rental revenues from office and
retail leases in effect as of December 31, 1999, no single tenant accounted for
more than 4% of the Company's total Office and Retail segment rental revenues
for 1999.
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<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)
--------------------- ---------- --------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Bank One Center (2) 1 CBD 1987 1,530,957 76% $21.94
The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 98 30.67
Fountain Place 1 CBD 1986 1,200,266 94 19.42
Trammell Crow Center (3) 1 CBD 1984 1,128,331 78(5) 23.87
Stemmons Place 1 Stemmons Freeway 1983 634,381 86 15.48
Spectrum Center (4) 1 Far North Dallas 1983 598,250 91 22.99
Waterside Commons 1 Las Colinas 1986 458,739 100 19.79
Caltex House 1 Las Colinas 1982 445,993 95 28.78
Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 96 19.77
The Aberdeen 1 Far North Dallas 1986 320,629 100 18.44
MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 99 21.04
Stanford Corporate Centre 1 Far North Dallas 1985 265,507 86(5) 18.69
The Amberton 1 Central Expressway 1982 255,052 79 13.94
Concourse Office Park 1 LBJ Freeway 1972-1986 244,879 89 15.54
12404 Park Central 1 LBJ Freeway 1987 239,103 100 21.24
Palisades Central II 1 Richardson/Plano 1985 237,731 62(5) 17.52
3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 21.13
Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 15.71
The Addison 1 Far North Dallas 1981 215,016 100 18.54
The Meridian 1 LBJ Freeway 1984 213,915 94 17.32
Palisades Central I 1 Richardson/Plano 1980 180,503 84(5) 17.63
Walnut Green 1 Central Expressway 1986 158,669 72 16.21
Greenway II 1 Richardson/Plano 1985 154,329 100 22.59
Addison Tower 1 Far North Dallas 1987 145,886 91 16.82
Greenway I & IA 2 Richardson/Plano 1983 146,704 100 23.00
5050 Quorum 1 Far North Dallas 1981 133,594 89 17.19
Cedar Springs Plaza 1 Uptown/Turtle Creek 1982 110,923 96 18.20
Valley Centre 1 Las Colinas 1985 74,861 87(5) 17.70
One Preston Park 1 Far North Dallas 1980 40,525 71 18.08
-- ---------- --- ------
Subtotal/Weighted Average 30 11,460,229 89% $21.47
-- ---------- --- ------
FORT WORTH
UPR Plaza 1 CBD 1982 954,895 95% $15.29
-- ---------- --- ------
HOUSTON
Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,286,277 91%(5) $17.34
Speedway
Houston Center 3 CBD 1974-1983 2,764,418 96 17.21
Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 93 17.80
The Woodlands Office Properties (6) 12 The Woodlands 1980-1996 811,067 92 16.33
Four Westlake Park 1 Katy Freeway 1992 561,065 100 18.53
Three Westlake Park (7)(8) 1 Katy Freeway 1983 414,251 62 19.81
1800 West Loop South 1 West Loop/Galleria 1982 399,777 60(5) 17.31
-- ---------- --- ------
Subtotal/Weighted Average 31 10,514,371 91% $17.42
-- ---------- --- ------
AUSTIN
Frost Bank Plaza 1 CBD 1984 433,024 96% $22.54
301 Congress Avenue (9) 1 CBD 1986 418,338 97 23.84
Bank One Tower 1 CBD 1974 389,503 94 19.41
Austin Centre 1 CBD 1986 343,665 91 21.61
The Avallon 1 Northwest 1993/1997 232,301 100 22.40
Barton Oaks Plaza One 1 Southwest 1986 99,895 100 21.93
-- ---------- --- ------
Subtotal/Weighted Average 6 1,916,726 96% $22.00
-- ---------- --- ------
</TABLE>
18
<PAGE> 20
<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>
COLORADO
DENVER
MCI Tower 1 CBD 1982 550,807 99% $18.08
Ptarmigan Place 1 Cherry Creek 1984 418,630 97(5) 18.49
Regency Plaza One 1 DTC 1985 309,862 97 22.88
AT&T Building 1 CBD 1982 184,581 82(5) 15.33
The Citadel 1 Cherry Creek 1987 130,652 92 21.97
55 Madison 1 Cherry Creek 1982 137,176 86(5) 18.90
44 Cook 1 Cherry Creek 1984 124,174 99 19.27
-- ---------- --- ------
Subtotal/Weighted Average 7 1,855,882 95% $19.18
-- ---------- --- ------
COLORADO SPRINGS
Briargate Office and
and Research Center 1 Colorado Springs 1988 252,857 100% $18.98
-- ---------- --- ------
LOUISIANA
NEW ORLEANS
Energy Centre 1 CBD 1984 761,500 82%(5) $15.53
1615 Poydras 1 CBD 1984 508,741 83 16.33
-- ---------- --- ------
Subtotal/Weighted Average 2 1,270,241 83% $15.85
-- ---------- --- ------
FLORIDA
MIAMI
Miami Center 1 CBD 1983 782,686 79%(5) $23.46
Datran Center 2 South Dade/Kendall 1986/1988 472,236 91(5) 21.68
-- ---------- --- ------
Subtotal/Weighted Average 3 1,254,922 83% $22.72
-- ---------- --- ------
ARIZONA
PHOENIX
Two Renaissance Square 1 Downtown/CBD 1990 476,373 96% $23.90
6225 North 24th Street 1 Camelback Corridor 1981 86,451 100 21.86
-- ---------- --- ------
Subtotal/Weighted Average 2 562,824 97% $23.57
-- ---------- --- ------
WASHINGTON, D.C.
WASHINGTON, D.C.
Washington Harbour 2 Georgetown 1986 536,206 94%(5) $37.04
-- ---------- --- ------
NEBRASKA
OMAHA
Central Park Plaza 1 CBD 1982 409,850 94% $15.88
-- ---------- --- ------
NEW MEXICO
ALBUQUERQUE
Albuquerque Plaza 1 CBD 1990 366,236 92% $18.97
-- ---------- --- ------
CALIFORNIA
SAN FRANCISCO
160 Spear Street 1 South of Market/CBD 1984 276,420 99% $25.82
-- ---------- --- ------
SAN DIEGO
Chancellor Park (10) 1 UTC 1988 195,733 91%(5) $22.40
-- ---------- --- ------
TOTAL/WEIGHTED AVERAGE 89 31,827,392 91%(5) $19.90(11)
== ========== === ======
</TABLE>
19
<PAGE> 21
- ----------------
(1) Calculated based on base rent payable as of December 31, 1999, 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 0.5% general
partner interest in the partnership that owns Bank One Center.
(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, 1999. If such leases had commenced as of
December 31, 1999, the percent leased for all Office Properties would
have been 93%. The total percent leased for these Properties would have
been as follows: Trammell Crow Center - 89%; Stanford Corporate Center
- 92%; Palisades Central II - 69%; Palisades Central I - 95%; Valley
Centre - 90%; Greenway Plaza Office Portfolio- 96%; 1800 West Loop
South - 65%; Ptarmigan Place - 100%; AT&T Building - 89%; 55 Madison -
93%; Energy Centre - 86%; Miami Center - 87%; Datran Center - 95%;
Washington Harbour - 100%; and Chancellor Park - 94%.
(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 Property was primarily occupied by a major tenant until June 1999,
at which time the tenant made a payment of $4.7 million in connection
with its termination of the lease. Simultaneously with the lease
termination, the Company leased approximately 41% of the vacated space
to a new tenant pursuant to a lease which commenced September 1, 1999.
An additional 21% of the vacated space was leased and commenced prior
to December 31, 1999.
(8) As of December 31, 1999, the Company owned the principal economic
interest in Three Westlake Park through its ownership of a mortgage
note secured by Three Westlake Park. Effective January 7, 2000, the
Property was conveyed to the Company by a deed in lieu of foreclosure,
and as a result, the Company now owns Three Westlake Park in fee
simple.
(9) The Company has a 1% general partner interest and a 49% limited partner
interest in the partnership that owns 301 Congress Avenue.
(10) 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.
(11) The weighted average full-service rental rate per square foot
calculated based on base rent payable for Company Office Properties as
of December 31, 1999, 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 $20.38.
20
<PAGE> 22
The following table provides information, as of December 31, 1999, for the
Company's Office Properties by state, city, and submarket.
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- -------------------------- ---------- ------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD 3 3,859,554 12% 82%(6) 86% 21%
Uptown/Turtle Creek 4 1,923,527 6 97 90 32
Far North Dallas 7 1,897,695 6 94 76 18
Las Colinas 4 1,273,662 4 97 83 12
Richardson/Plano 5 719,267 2 84(6) 82 14
Stemmons Freeway 1 634,381 2 86 76 26
LBJ Freeway 2 453,018 1 97 84 5
-- ---------- --- --- -- ---
Subtotal/Weighted Average 26 10,761,104 33% 90% 83% 17%
-- ---------- --- --- -- ---
FORT WORTH
CBD 1 954,895 3% 95% 87% 24%
-- ---------- --- --- -- ---
HOUSTON
CBD 3 2,764,418 8% 96% 97% 11%
Richmond-Buffalo Speedway 6 2,735,030 8 91(6) 95 56
West Loop/Galleria 4 1,677,293 5 85 94 13
Katy Freeway 2 975,316 3 84 80 13
The Woodlands 7 487,320 2 90 88 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 22 8,639,377 26% 90% 93% 17%
-- ---------- --- --- -- ---
AUSTIN
CBD 4 1,584,530 5% 95% 98% 44%
Northwest 1 232,301 1 100 87 10
Southwest 1 99,895 0 100 99 4
-- ---------- --- --- -- ---
Subtotal/Weighted Average 6 1,916,726 6% 96% 95% 23%
-- ---------- --- --- -- ---
COLORADO
DENVER
Cherry Creek 4 810,632 3% 95% 87% 45%
CBD 2 735,388 2 95 97 7
DTC 1 309,862 1 97 89 6
-- ---------- --- --- -- ---
Subtotal/Weighted Average 7 1,855,882 6% 95% 93% 11%
-- ---------- --- --- -- ---
COLORADO SPRINGS
Colorado Springs 1 252,857 1% 100% 93% 6%
-- ---------- --- --- -- ---
LOUISIANA
NEW ORLEANS
CBD 2 1,270,241 4% 83% 87% 14%
-- ---------- --- --- -- ---
FLORIDA
MIAMI
CBD 1 782,686 3% 79%(6) 93% 23%
South Dade/Kendall 2 472,236 2 91(6) 93 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 3 1,254,922 5% 83% 93% 33%
-- ---------- --- --- -- ---
ARIZONA
PHOENIX
Downtown/CBD 1 476,373 2% 97% 97% 27%
Camelback Corridor 1 86,451 0 100 95 2
-- ---------- --- --- -- ---
Subtotal/Weighted Average 2 562,824 2% 97% 96% 10%
-- ---------- --- --- -- ---
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown 2 536,206 2% 94%(6) 98% 100%
-- ---------- --- --- -- ---
NEBRASKA
OMAHA
CBD 1 409,850 1% 94% 96% 32%
-- ---------- --- --- -- ---
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- -------------------------- ----------- -------- --------
<S> <C> <C> <C>
CLASS A OFFICE PROPERTIES
TEXAS
DALLAS
CBD $22.63 $25.99 $21.57
Uptown/Turtle Creek 26.55 30.06 26.79
Far North Dallas 24.53 24.26 19.33
Las Colinas 25.09 25.39 23.05
Richardson/Plano 23.47 23.25 20.17
Stemmons Freeway 23.10 19.75 15.48
LBJ Freeway 24.00 21.61 19.46
------ ------ ------
Subtotal/Weighted Average $24.10 $25.61 $21.83
------ ------ ------
FORT WORTH
CBD $19.38 $19.54 $15.29
------ ------ ------
HOUSTON
CBD $23.00 $23.82 $17.21
Richmond-Buffalo Speedway 20.60 21.38 18.43
West Loop/Galleria 22.07 23.04 17.71
Katy Freeway 22.26 24.44 18.94
The Woodlands 16.54 16.54 16.81
------ ------ ------
Subtotal/Weighted Average $21.61 $22.56 $17.85
------ ------ ------
AUSTIN
CBD $30.04 $31.08 $21.94
Northwest 27.81 27.00 22.40
Southwest 27.57 24.50 21.93
------ ------ ------
Subtotal/Weighted Average $29.64 $30.24 $22.00
------ ------ ------
COLORADO
DENVER
Cherry Creek $23.59 $22.30 $19.23
CBD 24.71 22.75 17.46
DTC 25.41 26.00 22.88
------ ------ ------
Subtotal/Weighted Average $24.34 $23.09 $19.18
------ ------ ------
COLORADO SPRINGS
Colorado Springs $19.99 $21.29 $18.98
------ ------ ------
LOUISIANA
NEW ORLEANS
CBD $16.43 $16.10 $15.85
------ ------ ------
FLORIDA
MIAMI
CBD $28.96 $30.50 $23.46
South Dade/Kendall 23.46 23.46 21.68
------ ------ ------
Subtotal/Weighted Average $26.89 $27.85 $22.72
------ ------ ------
ARIZONA
PHOENIX
Downtown/CBD $23.02 $22.00 $23.90
Camelback Corridor 27.36 21.00 21.86
------ ------ ------
Subtotal/Weighted Average $23.69 $21.85 $23.57
------ ------ ------
WASHINGTON D.C.
WASHINGTON D.C.
Georgetown $36.68 $36.68 $37.04
------ ------ ------
NEBRASKA
OMAHA
CBD $18.61 $18.50 $15.88
------ ------ ------
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
PERCENT OFFICE COMPANY
PERCENT OF LEASED AT SUBMARKET SHARE OF
TOTAL TOTAL COMPANY PERCENT OFFICE
NUMBER OF COMPANY COMPANY OFFICE LEASED/ SUBMARKET
STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) NRA(1)(2)
- -------------------------- ---------- ------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEW MEXICO
ALBUQUERQUE
CBD 1 366,236 1% 92% 95% 64%
-- ---------- --- --- -- ---
CALIFORNIA
SAN FRANCISCO
South of Market/CBD 1 276,420 1% 99% 98% 2%
-- ---------- --- --- -- ---
SAN DIEGO
UTC 1 195,733 1% 91%(6) 93% 7%
-- ---------- --- --- -- ---
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 76 29,253,273 92% 91% 90% 16%
== ========== === === == ===
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway 2 413,721 1% 76% 84% 11%
LBJ Freeway 1 244,879 1 89 81 2
Far North Dallas 1 40,525 0 71 83 0
-- ---------- --- --- -- ---
Subtotal/Weighted Average 4 699,125 2% 80% 82% 3%
-- ---------- --- --- -- ---
HOUSTON
Richmond-Buffalo Speedway 4 1,551,247 5% 90% 94% 47%
The Woodlands 5 323,747 1 96 96 100
-- ---------- --- --- -- ---
Subtotal/Weighted Average 9 1,874,994 6% 91% 94% 51%
-- ---------- --- --- -- ---
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE 13 2,574,119 8% 88% 84% 9%
== ========== === === == ===
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE 89 31,827,392 100% 91%(6) 89% 15%
== ========== === === == ===
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED COMPANY
AVERAGE COMPANY FULL-
QUOTED QUOTED SERVICE
MARKET RENTAL RENTAL
RENTAL RATE RATE PER RATE PER
PER SQUARE SQUARE SQUARE
STATE, CITY, SUBMARKET FOOT(2)(3) FOOT(4) FOOT(5)
- -------------------------- ----------- -------- --------
<S> <C> <C> <C>
NEW MEXICO
ALBUQUERQUE
CBD $19.10 $19.50 $18.97
------ ------ ------
CALIFORNIA
SAN FRANCISCO
South of Market/CBD $49.30 $42.00 $25.82
------ ------ ------
SAN DIEGO
UTC $29.88 $30.30 $22.40
------ ------ ------
CLASS A OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $23.70 $24.44 $20.28
------ ------ ------
CLASS B OFFICE PROPERTIES
TEXAS
DALLAS
Central Expressway $18.44 $18.78 $14.78
LBJ Freeway 19.03 18.40 15.54
Far North Dallas 19.88 19.50 18.08
------ ------ ------
Subtotal/Weighted Average $18.73 $18.69 $15.25
------ ------ ------
HOUSTON
Richmond-Buffalo Speedway $18.85 $20.24 $15.37
The Woodlands 15.07 15.07 15.65
------ ------ ------
Subtotal/Weighted Average $18.20 $19.35 $15.42
------ ------ ------
CLASS B OFFICE PROPERTIES
SUBTOTAL/WEIGHTED
AVERAGE $18.34 $19.17 $15.38
====== ====== ======
CLASS A AND CLASS B
OFFICE PROPERTIES
TOTAL/WEIGHTED AVERAGE $23.27 $24.01 $19.90(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 CoStar/Jamison, (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), The Baca Group (for the
Houston Richmond-Buffalo Speedway, CBD and West Loop/Galleria and Katy
Freeway submarkets), The Woodlands Operating Company, L.P. (for The
Woodlands submarket), CB Richard Ellis (for the Austin CBD, Northwest and
Southwest submarkets), Cushman & Wakefield of Colorado, Inc. (for the Denver
Cherry Creek, CBD and DTC submarkets), Turner Commercial Research (for the
Colorado Springs market), Grubb and Ellis Company (for the Phoenix
Downtown/CBD, Camelback Corridor and San Francisco South of Market/CBD
submarkets), Grubb and Ellis Company and the Company (for the Washington
D.C. Georgetown submarket), Grubb and Ellis/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 CoStar/John Burnham & Company (for the San
Diego UTC submarket).
(3)Represents full-service quoted market rental rates. These rates do not
necessarily represent the amounts at which available space at the Office
Properties will be leased. The weighted average subtotals and total are
based on total net rentable square feet of Company Office Properties in the
submarket.
(4)For Office Properties, represents weighted average rental rates per square
foot quoted by the Company as of December 31, 1999, 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, 1999, 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, 1999. If such leases had commenced as of
December 31, 1999, the percent leased for all Office Properties in the
Company's submarkets would have been 93%. The total percent leased for these
Class A Company submarkets would have been as follows: Dallas CBD - 86%;
Dallas Richardson/Plano - 88%; Houston Richmond - Buffalo Speedway - 96%;
Miami CBD - 87%; Miami South Dade/Kendall - 95%; Washington D.C. Georgetown
- 100%; and San Diego UTC - 94%.
(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,
1999, 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 $20.38.
22
<PAGE> 24
The following table shows, as of December 31, 1999, 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) 27%
Financial Services (2) 20
Energy (3) 19
Telecommunications 7
Technology 6
Retail 4
Medical 3
Food Service 3
Manufacturing 3
Government 2
Other (4) 6
---
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 19% of energy tenants at the Company's Office Properties, 63% are
located in Houston, 24% are located in Dallas, 7% are located in Denver and
6% are located in New Orleans. Of the 63% of energy tenants located in
Houston (approximately 3.7 million square feet), 66% (approximately 2.4
million square feet) are obligated under long-term leases (expiring in 2004
or later).
(4) Includes construction, real estate, transportation and other industries.
AGGREGATE LEASE EXPIRATIONS OF OFFICE PROPERTIES
The following tables show schedules of lease expirations for leases in
place as of December 31, 1999 for the Company's total Office Properties and for
Dallas and Houston, Texas, individually, for each of the 10 years beginning
with 2000, assuming that none of the tenants exercises or has exercised renewal
options.
TOTAL OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
- -------------------- ------------ ------------------ --------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 588 3,733,754(2) 13.1% 72,033,578 11.9% $19.29
2001 413 3,757,711 13.2 72,588,010 12.0 19.32
2002 407 4,054,356 14.2 85,179,300 14.0 21.01
2003 294 2,892,182 10.1 56,714,636 9.3 19.61
2004 297 4,436,077 15.6 95,012,506 15.7 21.42
2005 91 2,475,989 8.7 55,123,113 9.0 22.26
2006 44 1,173,796 4.1 26,581,991 4.4 22.65
2007 40 1,406,752 4.9 32,078,424 5.3 22.80
2008 32 1,111,917 3.9 27,829,120 4.6 25.03
2009 19 624,431 2.2 16,345,094 2.7 26.18
2010 and thereafter 25 2,851,241 10.0 67,484,874 11.1 23.67
----- ---------- ----- ------------ ----- ------
2,250 28,518,206(3) 100.0% $606,970,646 100.0% $21.28
===== ========== ===== ============ ===== ======
</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, 1999, leases have been signed for approximately
1,655,276 net rentable square feet (including renewed leases and leases
of previously unleased space) commencing in 2000.
(3) Reconciliation to the Company's total Office Property net rentable
area is as follows:
23
<PAGE> 25
<TABLE>
<CAPTION>
SQUARE PERCENTAGE
FEET OF TOTAL
------ ----------
<S> <C> <C>
Square footage leased to tenants 28,518,206 89.6 %
Square footage reflecting
management offices, building use,
and remeasurement adjustments 284,295 0.9
Square footage vacant 3,024,891 9.5
---------- -----
Total net rentable square footage 31,827,392 100.0%
========== =====
</TABLE>
DALLAS OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
- -------------------- ------------ --------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
2000 212 1,873,892(2) 18.5 % $ 39,003,440 17.1% $20.81
2001 143 1,171,410 11.6 24,947,776 10.9 21.30
2002 123 1,068,631 10.5 25,562,095 11.2 23.92
2003 88 1,185,742 11.7 23,486,432 10.3 19.81
2004 95 1,088,124 10.7 26,986,381 11.8 24.80
2005 20 1,199,492 11.8 25,654,231 11.3 21.39
2006 14 240,536 2.4 6,341,975 2.8 26.37
2007 15 606,309 6.0 14,603,527 6.4 24.09
2008 12 586,526 5.8 14,519,218 6.4 24.75
2009 8 380,025 3.7 9,516,050 4.2 25.04
2010 and thereafter 4 738,666 7.3 17,399,764 7.6 23.56
--- ---------- ----- ------------ ----- ------
734 10,139,353 100.0% $228,020,889 100.0% $22.49
=== ========== ===== ============ ===== ======
</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, 1999, leases have been signed for approximately 738,506
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing in 2000.
HOUSTON OFFICE PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
NET RENTABLE PERCENTAGE OF TOTAL OF ANNUAL FULL-
AREA LEASED NET ANNUAL ANNUAL FULL- SERVICE RENT
NUMBER OF REPRESENTED RENTABLE AREA FULL-SERVICE SERVICE RENT PER SQUARE
TENANTS WITH BY EXPIRING REPRESENTED RENT UNDER REPRESENTED FOOT OF NET
YEAR OF LEASE EXPIRING LEASES BY EXPIRING EXPIRING BY EXPIRING RENTABLE AREA
EXPIRATION LEASES (SQUARE FEET) LEASES LEASES (1) LEASES EXPIRING (1)
- -------------------- ------------ ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
2000 194 959,986(2) 10.1% $ 15,058,758 8.2% $15.69
2001 131 1,640,539 17.3 28,202,207 15.4 17.19
2002 150 1,288,025 13.6 23,726,974 12.9 18.42
2003 96 849,835 9.0 15,321,601 8.3 18.03
2004 98 1,817,969 19.2 34,374,426 18.7 18.91
2005 19 201,470 2.1 3,900,181 2.1 19.36
2006 12 604,927 6.4 12,553,291 6.8 20.75
2007 8 502,817 5.3 9,986,515 5.4 19.86
2008 7 183,719 1.9 3,242,296 1.8 17.65
2009 2 48,538 0.5 1,150,095 0.6 23.69
2010 and thereafter 10 1,394,957 14.6 36,004,607 19.8 25.81
--- --------- ----- ------------ ----- ------
727 9,492,782 100.0% $183,520,951 100.0% $19.33
=== ========= ===== ============ ===== ======
</TABLE>
24
<PAGE> 26
- ----------
(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, 1999, leases have been signed for approximately 469,939
net rentable square feet (including renewed leases and leases of previously
unleased space) commencing in 2000.
RETAIL PROPERTIES
As of December 31, 1999, the Company owned seven Retail Properties,
which in the aggregate contain approximately 779,000 net rentable square feet.
Four of the Retail Properties, The Woodlands Retail Properties, with an
aggregate of approximately 358,000 net rentable square feet, were located in The
Woodlands, a master-planned development located 27 miles north of downtown
Houston, Texas. On January 5, 2000, the sale of The Woodlands Retail Properties
was completed. 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, 1999, the Retail
Properties were 95% leased.
25
<PAGE> 27
HOTEL PROPERTIES
HOTEL PROPERTIES TABLES
The following table shows certain information for the year ended
December 31, 1999 and 1998, 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 resorts and
spas that measure their performance based on available guest nights.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
AVERAGE AVERAGE
OCCUPANCY DAILY
YEAR RATE RATE
COMPLETED/ --------------- ---------------
HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 1999 1998 1999 1998
- ----------------- -------- --------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center Denver, CO 1982/1994 613 80% 80% $124 $124
Four Seasons Hotel-Houston(2) Houston, TX 1982 399 66 65 197 181
Hyatt Regency Albuquerque Albuquerque,NM 1990 395 66 69 106 103
Omni Austin Hotel Austin, TX 1986 372(4) 76 77 125 114
Renaissance Houston Hotel(3) Houston, TX 1975 389 63 67 94 93
----- -- -- ---- ----
TOTAL/WEIGHTED AVERAGE 2,168 71% 72% $129 $123
===== == == ==== ====
LUXURY RESORTS AND SPAS:
Hyatt Regency Beaver Creek Avon, CO 1989 276(5) 72% 69% $244 $233
Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 178(6) 79 82 225 235
Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62 78 63(7) 388 387
----- -- -- ---- ----
TOTAL/WEIGHTED AVERAGE 516 75% 73% $255 $249
===== == == ==== ====
GUEST
NIGHTS
------
DESTINATION FITNESS RESORTS AND SPAS:
Canyon Ranch-Tucson Tucson, AZ 1980 250(8)
Canyon Ranch-Lenox Lenox, MA 1989 212(8)
----- -- -- ---- ----
TOTAL/WEIGHTED AVERAGE 462 87%(9) 86%(9) $543(10) $508(10)
===== == == ==== ====
GRAND TOTAL/WEIGHTED AVERAGE FOR ALL HOTEL PROPERTIES 3,146 74% 75% $218 $207
===== == == ==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
REVENUE
PER
AVAILABLE
ROOM
--------------
HOTEL PROPERTY(1) 1999 1998
- ----------------- ---- ----
<S> <C> <C>
UPSCALE BUSINESS CLASS HOTELS:
Denver Marriott City Center $ 99 $100
Four Seasons Hotel-Houston(2) 129 118
Hyatt Regency Albuquerque 70 71
Omni Austin Hotel 94 88
Renaissance Houston Hotel(3) 59 62
---- ----
TOTAL/WEIGHTED AVERAGE $ 91 $ 89
==== ====
LUXURY RESORTS AND SPAS:
Hyatt Regency Beaver Creek $175 $162
Sonoma Mission Inn & Spa 179 194
Ventana Inn & Spa 302 245(7)
---- ----
TOTAL/WEIGHTED AVERAGE $191 $183
==== ====
DESTINATION FITNESS RESORTS AND SPAS:
Canyon Ranch-Tucson
Canyon Ranch-Lenox
---- ----
TOTAL/WEIGHTED AVERAGE $451(11) $422(11)
==== ====
GRAND TOTAL/WEIGHTED AVERAGE FOR ALL HOTEL PROPERTIES $161 $154
==== ====
</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 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.
(2) The hotel is undergoing a $5 million renovation of all guest rooms and
common areas scheduled to be completed during the third quarter of 2000.
(3) The hotel is undergoing a $15 million renovation project scheduled to be
completed in October 2000. The renovation includes improvements to all guest
rooms, the lobby, corridor, and exterior and interior systems.
(4) As of December 31, 1999, 58 condominiums have been converted to hotel
suites.
(5) In 1998, the number of rooms was reduced to 276 due to 19 rooms being
converted into a 20,000 square foot spa.
(6) In February 1999, 20 rooms were taken out of commission for construction of
the spa, which is part of an approximately $20 million expansion scheduled
to be completed in April 2000. The expansion will also include the
construction of 30 additional guest rooms. Rates were discounted during the
construction period, which resulted in a lower average daily rate and
revenue per available room in 1999, as compared to 1998.
(7) Temporarily closed from February 1, 1998 through May 1, 1998 due to flooding
in the region, affecting the roadway passage to the hotel.
(8) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(9) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(10) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(11) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
26
<PAGE> 28
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES TABLE
The following table shows the number and aggregate size of
Temperature-Controlled Logistics Properties by state as of December 31, 1999:
<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 4 9.4 0.3 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 9 28.6 1.1 New York 1 11.8 0.4
Colorado 2 3.4 0.1 North Carolina 3 8.5 0.3
Florida 5 7.5 0.3 Oklahoma 2 2.1 0.1
Georgia 7 44.5 1.6 Oregon 6 40.4 1.7
Idaho 2 18.7 0.8 Pennsylvania 2 27.4 0.9
Illinois 2 11.6 0.4 South Carolina 1 1.6 0.1
Indiana 1 9.1 0.3 South Dakota 1 2.9 0.1
Iowa 2 12.5 0.5 Tennessee 3 10.6 0.4
Kansas 2 5.0 0.2 Texas 2 6.6 0.2
Kentucky 1 2.7 0.1 Utah 1 8.6 0.4
Maine 1 1.8 0.2 Virginia 2 8.7 0.3
Massachusetts 6 15.2 0.7 Washington 6 28.7 1.1
Wisconsin 3 17.4 0.7
-- ----- ----
TOTAL 89(3) 428.3(3) 17.0(3)
== ===== ====
</TABLE>
- ----------
(1) As of December 31, 1999, the Company held an indirect 39.6% interest in the
Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly
owned the Temperature-Controlled Logistics Properties. The business
operations associated with the Temperature-Controlled Logistics Properties
are owned by AmeriCold Logistics, in which the Company has no interest. The
Temperature-Controlled Logistics Corporations are entitled to receive lease
payments (base rent and percentage rent) from AmeriCold Logistics.
(2) Includes an underground storage facility, with approximately 33.1 million
cubic feet.
(3) As of December 31, 1999, AmeriCold Logistics operated 104
temperature-controlled logistics properties with an aggregate of
approximately 519.2 million cubic feet (19.9 million square feet).
27
<PAGE> 29
RESIDENTIAL DEVELOPMENT PROPERTIES
RESIDENTIAL DEVELOPMENT PROPERTIES TABLE
The following table shows certain information as of December 31, 1999,
relating to the Residential Development Properties.
<TABLE>
<CAPTION>
TOTAL TOTAL AVERAGE
RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS LOTS/UNITS CLOSED
RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED CLOSED SALE PRICE
DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE SINCE PER LOT/
CORPORATION (1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION INCEPTION UNIT ($)(3)
- ---------------- ----------- ------- -------- ------------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ
Development 93.0% 2,665 2,265 1,980 480,000
Corp. ------ ------ ------
The Woodlands The Woodlands SF The Woodlands, TX
Land Company, 42.5% 36,385 22,240 20,721 48,131
Inc. ------ ------ ------
Crescent Deer Trail SFH Avon, CO 60.0% 16(6) 11 11 2,930,000
Development Buckhorn
Management Townhomes TH Avon, CO 60.0% 24(6) 22 22 1,300,000
Corp. Bear Paw Lodge CO Avon, CO 60.0% 53(6) 11 11 1,675,000
QuarterMoon TH Avon, CO 64.0% 13(6) -- -- N/A
Eagle Ranch SF Eagle, CO 60.0% 1,100(6) 90 88 111,500
Main Street
Junction CO Breckenridge, CO 60.0% 36(6) 18 13 475,000
Riverbend SF Charlotte, NC 60.0% 650 -- -- N/A
Three Peaks
(Eagle's Nest)SF Silverthorne, CO 30.0% 391(6) 75 71 220,000
------ ------ ------
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP. 2,283 227 216
------ ------ ------
Mira Vista Mira Vista SF Fort Worth, TX 100.0% 757 740 628 100,000
Development The Highlands SF Breckenridge, CO 12.3% 750 323 311 148,000
Corp. ------ ------ ------
TOTAL MIRA VISTA DEVELOPMENT CORP. 1,507 1,063 939
------ ------ ------
Houston Area Falcon Point SF Houston, TX 100.0% 1,205 556 543 31,000
Development Spring Lakes SF Houston, TX 100.0% 536 161 110 28,000
Corp. ------ ------ ------
TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,741 717 653
------ ------ ------
TOTAL 44,581 26,512 24,509
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
RESIDENTIAL RANGE OF
RESIDENTIAL DEVELOPMENT PROPOSED
DEVELOPMENT PROPERTIES TYPE OF SALE PRICES
CORPORATION (1) (RDP) RDP(2) LOCATION PER LOT/UNIT ($)(4)
- ---------------- ----------- ------- -------- -------------------
<S> <C> <C> <C> <C>
Desert Mountain Desert Mountain SF Scottsdale, AZ 375,000 - 3,000,000(5)
Development
Corp.
The Woodlands The Woodlands SF The Woodlands, TX 13,600 - 500,000
Land Company,
Inc.
Crescent Deer Trail SFH Avon, CO 2,695,000 - 4,075,000
Development Buckhorn
Management Townhomes TH Avon, CO 1,420,000 - 1,870,000
Corp. Bear Paw Lodge CO Avon, CO 665,000 - 2,025,000
QuarterMoon TH Avon, CO 1,850,000 - 2,795,000
Eagle Ranch SF Eagle, CO 80,000 - 150,000
Main Street
Junction CO Breckenridge, CO 300,000 - 580,000
Riverbend SF Charlotte, NC 23,000 - 30,000
Three Peaks
(Eagle's Nest)SF Silverthorne, CO 135,000 - 425,000
TOTAL CRESCENT DEVELOPMENT MANAGEMENT CORP.
Mira Vista Mira Vista SF Fort Worth, TX 50,000 - 265,000
Development The Highlands SF Breckenridge, CO 55,000 - 450,000
Corp.
TOTAL MIRA VISTA DEVELOPMENT CORP.
Houston Area Falcon Point SF Houston, TX 22,000 - 60,000
Development Spring Lakes SF Houston, TX 22,000 - 33,000
Corp.
TOTAL HOUSTON AREA DEVELOPMENT CORP.
TOTAL
</TABLE>
(1) The Company has an approximately 95%, 95%, 90%, 94% and 94%, ownership
interest in Desert Mountain Development Corp., The Woodlands Land Company,
Inc., Crescent Development Management Corp., Mira Vista Development Corp.,
and Houston Area Development Corp., 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) Includes golf membership, which for 1999, is approximately $175,000.
(6) As of December 31, 1999, two units were under contract at Deer Trail
representing $5.9 million in sales, two units were under contract at
Buckhorn Townhomes representing $3.3 million in sales, 32 units were under
contract at Bear Paw Lodge representing $43.6 million in sales, 11 units
were under contract at QuarterMoon representing $24.7 million in sales, 73
lots were under contract at Eagle Ranch representing $10.5 million in
sales, six units were under contract at Main Street Junction representing
$2.5 million in sales, and 27 lots were under contract at Three Peaks
representing $6.4 million in sales.
28
<PAGE> 30
BEHAVIORAL HEALTHCARE PROPERTIES
BEHAVIORAL HEALTHCARE PROPERTIES
As of December 31, 1999, the Behavioral Healthcare Segment consisted of
88 Behavioral Healthcare Properties, all of which were leased to CBHS and its
subsidiaries under a triple-net master lease. CBHS is a Delaware limited
liability company which was formed to operate the behavioral healthcare
businesses located at the Behavioral Healthcare Properties and is owned 10% by a
subsidiary of Magellan and 90% by COI and an affiliate of COI. CBHS operates the
Behavioral Healthcare Properties through wholly owned subsidiaries.
During the fourth quarter of 1999, the Company purchased two Behavioral
Healthcare Properties from Magellan for an aggregate purchase price of
approximately $7.1 million in satisfaction of its obligations under an agreement
with Magellan entered into in November 1998. In addition, during the fourth
quarter of 1999, the Company disposed of one Behavioral Healthcare Property for
approximately $1.4 million in net proceeds.
On February 16, 2000, CBHS and all of its subsidiaries that are subject
to the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware.
CBHS has stated in its bankruptcy petitions that it intends to sell all of the
ongoing businesses of CBHS and its subsidiaries by mid-May of 2000 or develop an
appropriate liquidation procedure if the sales have not taken place by that
time.
Effective February 29, 2000, the Non-Core Properties ceased to be
subject to the master lease, although the aggregate rent due under the master
lease was not reduced as a result except with respect to sales of Non-Core
Properties. The Company is actively marketing these Properties for sale. From
January 1 through March 24, 2000, the Company sold 11 Non-Core Properties for
approximately $34.9 million in net proceeds. As a result of these sales and the
sale of the one Behavioral Healthcare Property during the fourth quarter of
1999, the amount of rent due under the master lease was reduced in accordance
with the amendments to the master lease. The Company has also entered into
contracts or letters of intent to sell an additional six Non-Core Properties.
The Company continues to actively market the remaining 34 Non-Core Properties
for sale.
The Core Properties remain subject to the master lease. The Company
intends to sell the Core Properties or lease them to new tenants in connection
with CBHS's bankruptcy proceedings.
For more information on CBHS, the voluntary filing of the Chapter 11
bankruptcy petitions, the Company's investment in the Behavioral Healthcare
Properties and the master lease, see Item 1. Business - Industry Segments -
Behavioral Healthcare Segment and Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Behavioral Healthcare
Segment.
ITEM 3. LEGAL PROCEEDINGS
None.
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 Company's fiscal year ended December 31, 1999.
29
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares have been traded on the New York Stock
Exchange under the symbol "CEI" since the completion of its initial public
offering at a price of $12.50 per share in May 1994. For each calendar quarter
indicated, the following table reflects the high and low sales prices during the
quarter for the common shares and the distributions declared by the Company with
respect to each quarter.
<TABLE>
<CAPTION>
PRICE
--------------------------------
HIGH LOW DISTRIBUTIONS
------------- -------------- -----------------
1998
<S> <C> <C> <C>
First Quarter $ 40.38 $ 33.06 $ 0.38
Second Quarter $ 37.44 $ 30.75 $ 0.38
Third Quarter $ 34.69 $ 21.13 $ 0.55
Fourth Quarter $ 26.38 $ 21.06 $ 0.55
1999
First Quarter $ 23.94 $ 20.50 $ 0.55
Second Quarter $ 24.94 $ 20.00 $ 0.55
Third Quarter $ 24.13 $ 17.38 $ 0.55
Fourth Quarter $ 18.44 $ 15.13 $ 0.55
</TABLE>
As of March 24, 2000, there were approximately 1,274 holders of record
of the common shares.
DISTRIBUTION POLICY
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;
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 cash flows from unconsolidated entities;
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 cash reserves.
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 $140.6 million and $136.8 million for
1999 and 1998, respectively. Actual distributions by the Company were $298.1
million and $220.6 million for 1999 and 1998, 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
30
<PAGE> 32
shareholder's shares. No assurances can be given regarding what portion, if any,
of distributions in 2000 or subsequent years will constitute a return of capital
for federal income tax purposes.
Following is the income tax status of distributions paid during the
years ended December 31, 1999 and 1998 to common shareholders:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ordinary income 50.1% 58.8%
Capital gain 2.0% 5.6%
Return of capital 47.9% 35.6%
</TABLE>
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.
Following is the income tax status of distributions paid during the
years ended December 31, 1999 and 1998 to preferred shareholders:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ordinary income 96.4% 94.4%
Capital gain 3.6% 5.6%
</TABLE>
31
<PAGE> 33
ITEM 6. SELECTED FINANCIAL DATA
The following table includes certain financial information for the
Company on a consolidated historical basis. 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. You should read this section in conjunction with Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data.
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue ....................... $ 746,279 $ 698,343 $ 447,373 $ 208,861 $ 129,960
Operating income (loss) ............. (54,954) 143,893 111,281 44,101 30,858
Income before minority
interests and extraordinary
item .......................... 13,343 183,210 135,024 47,951 36,358
Basic earnings per common share:
Income (loss) before extraordinary
item .......................... $ (0.06) $ 1.26 $ 1.25 $ 0.72 $ 0.66
Net income (loss) ................ $ (0.06) 1.26 1.25 0.70 0.66
Diluted earnings per common share:
Income (loss) before extraordinary
item .......................... $ (0.06) $ 1.21 $ 1.20 $ 0.70 $ 0.65
Net income (loss) ................ $ (0.06) 1.21 1.20 0.68 0.65
BALANCE SHEET DATA
(AT PERIOD END):
Total assets ........................ $ 4,950,561 $ 5,043,447 $ 4,179,980 $ 1,730,922 $ 964,171
Total debt .......................... 2,598,929 2,318,156 1,710,124 667,808 444,528
Total shareholders' equity .......... 2,056,774 2,422,545 2,197,317 865,160 406,531
OTHER DATA:
Funds from Operations(1) ............ $ 355,777 $ 360,148 $ 214,396 $ 87,616 $ 64,475
Cash distribution declared per
common share ..................... $ 2.20 $ 1.86 $ 1.37 $ 1.16 $ 1.05
Weighted average
common shares and units
outstanding - basic .............. 135,954,043 132,429,405 106,835,579 64,684,842 54,182,186
Weighted average
common shares and units
outstanding - diluted ............ 137,891,561 140,388,063 110,973,459 65,865,517 54,499,690
Cash flow provided by
(used in):
Operating activities ............. $ 296,377 $ 277,075 $ 211,714 $ 77,384 $ 65,011
Investing activities ............. (166,128) (798,085) (2,294,428) (513,038) (421,406)
Financing activities ............. (167,615) 564,680 2,123,744 444,315 343,079
</TABLE>
- ------------------------------
(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,
excluding adjustments not of a normal recurring nature, 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.
32
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read this section in conjunction with the selected financial
data and the consolidated financial statements and the accompanying notes in
Item 6. Selected Financial Data and Item 8. Financial Statements and
Supplementary Data, respectively, of this report. Historical results and
percentage relationships set forth in these Items and this section should not be
taken as indicative of future operations of the Company. Capitalized terms used
but not otherwise defined in this section, have the meanings given to them in
Items 1 - 6 of this Form 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 are generally
characterized by 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 given in the forward-looking
statements.
The following factors might cause such a difference:
o The Company's ability to timely lease unoccupied square
footage and timely re-lease occupied square footage upon
expiration;
o Changes in real estate conditions (including rental rates and
competition from other properties and new development of
competing properties);
o The concentration of a significant percentage of the Company's
assets in Texas;
o Financing risks, such as the ability to generate revenue
sufficient to service existing debt, increases in debt service
associated with variable-rate debt, the ability to meet
existing financial covenants and the Company's ability to
consummate planned financings and refinancings on the terms
and within the time frames anticipated;
o The Company's ability to close anticipated sales of assets or
joint venture transactions or other pending transactions;
o The failure of CBHS as debtor in possession to negotiate or
consummate an acceptable sale of its core operating assets in
the on-going bankruptcy proceedings;
o The failure of CBHS, any successful purchaser or purchasers of
such core operating assets out of bankruptcy, and the Company
to negotiate and consummate leases for the core facilities or
the inability of the Company to secure on a timely basis the
release of hospital facilities from the debtor in possession;
o The failure of the purchaser or purchasers of the core
operating assets of CBHS, following any purchase and
bankruptcy restructuring, to fulfill all new lease obligations
to the Company over the long term;
o The Company's ability to close sales of the Behavioral
Healthcare Properties;
o The Company's ability to find acquisition and development
opportunities which meet the Company's investment strategy;
o The existence of complex regulations relating to the Company's
status as a REIT, the effect of future changes in REIT
requirements as a result of new legislation and the adverse
consequences of the failure to qualify as a REIT;
o Adverse changes in the financial condition of existing
tenants; and
o Other risks detailed from time to time in the Company's
filings with the SEC.
Given these uncertainties, readers are cautioned not to place undue
reliance on such statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.
33
<PAGE> 35
STRATEGIC PLAN UPDATE
John C. Goff, Vice-Chairman of the Board of Trust Managers of the
Company, was appointed to the positions of President and Chief Executive Officer
of the Company on June 11, 1999. As announced in August, 1999, Mr. Goff and the
management team outlined the following immediate objectives:
o resolve the issues surrounding the Behavioral Healthcare
Segment;
o refinance 2000 and 2001 debt maturities and reduce exposure to
variable-rate debt;
o dispose of non-strategic or non-core assets within the
investment segments;
o market certain of the Office Properties for joint ventures;
and
o engage in a share repurchase program.
CBHS
CBHS's business has been negatively affected by many factors, including
adverse industry conditions. During 1999, CBHS failed to perform in accordance
with its operating budget. In the fourth quarter of 1999, the Company, COI,
Magellan and CBHS completed a recapitalization of CBHS. Pursuant to the
recapitalization, Magellan transferred its remaining hospital-based assets to
CBHS, canceled its accrued franchise fees and terminated the franchise
agreements, pursuant to which Magellan had provided certain services to CBHS in
exchange for certain franchise fees. The Company also has deferred the monthly
rental payments due from CBHS for November and December 1999 and amended its
master lease with CBHS to provide a mechanism to terminate the master lease as
to certain non-core Behavioral Healthcare Properties, and agreed that, upon each
sale by the Company of non-core Behavioral Healthcare Properties, the monthly
minimum rent due from CBHS under the master lease would be reduced by a
specified percentage of the net proceeds of such sale. The non-core Behavioral
Healthcare Properties consists of 51 properties at which CBHS has ceased
operations or is planning to cease operations (the "Non-Core Properties").
As of December 31, 1999, the Behavioral Healthcare Segment consisted of
88 Behavioral Healthcare Properties in 24 states, all of which were leased to
CBHS and its subsidiaries under a triple-net master lease. On February 16, 2000,
CBHS and all of its subsidiaries that are subject to the master lease with the
Company filed voluntary Chapter 11 bankruptcy petitions in the United States
Bankruptcy Court for the District of Delaware. CBHS has stated in its bankruptcy
petitions that it intends to sell all of the ongoing businesses of CBHS and its
subsidiaries by mid-May of 2000 or develop an appropriate liquidation procedure
if the sales have not taken place by that time.
Effective February 29, 2000, pursuant to the referenced amendments to
the master lease, the Non-Core Properties ceased to be subject to the master
lease, although the aggregate rent due under the master lease was not reduced as
a result except as described above with respect to Non-Core Properties. The
Company is actively marketing these Properties for sale. From January 1 through
March 24, 2000, the Company sold 11 Non-Core Properties for approximately $34.9
million in net proceeds. As a result of these sales and the sale of the one
Behavioral Healthcare Property during the fourth quarter of 1999, the amount of
rent due under the master lease was reduced in accordance with the amendments to
the master lease. The Company has also entered into contracts or letters of
intent to sell an additional six Non-Core Properties. The Company continues to
actively market the remaining 34 Non-Core Properties for sale.
As of December 31, 1999, the 37 Behavioral Healthcare Properties that
were not designated as Non-Core Properties are designated as "Core Properties."
The Core Properties remain subject to the master lease. Payment and treatment of
rent for the Behavioral Healthcare Properties is subject to a rent stipulation
agreed to by certain of the parties involved in the CBHS bankruptcy proceeding.
The Company intends to sell the Core Properties or lease them to new
tenants.
On April 24, 2000, an auction will be held for the core operating
assets of CBHS as part of the bankruptcy proceedings. The Company has agreed to
provide an acceptable sales price for each of the remaining 37 Behavioral
Healthcare Properties and, to the extent possible, acceptable lease terms for
continued operation of the Behavioral Healthcare Properties. Bidders will have
the opportunity to bid for any or all of the core operating assets of CBHS and,
in connection with a bid, either to bid to purchase the related Behavioral
Healthcare Property or Properties or to seek approval from the Company to lease
the Property or Properties. Proceeds from the sale of core operating assets of
CBHS will be available to pay creditors of CBHS. Proceeds from any sales of the
Behavioral Healthcare Properties will belong to the Company.
34
<PAGE> 36
Exposure to Variable-rate Debt
Since the announcement of the Company's Strategic Plan in August 1999,
the Company fixed or hedged approximately $400 million of its variable-rate debt
in 1999. During the first quarter of 2000, the Company repaid and retired its
unsecured, variable-rate credit facility (the "Credit Facility") from a group of
banks led by BankBoston, N.A ("BankBoston") and its term note with BankBoston
primarily with the proceeds of a new secured, variable-rate facility (the "New
Facility") from UBS AG ("UBS"). Effective February 4, 2000, the Company entered
into a three-year cash flow hedge agreement with Fleet Boston Financial,
relating to a portion of the New Facility, for a notional amount of $200.0
million. As a result, 200.0 million of the amount due under the note, which was
originally issued at a floating rate of LIBOR plus 250 basis points, was
effectively converted to a fixed weighted average interest rate of 9.61% through
maturity. The refinancings and cash flow hedges reduced the Company's
variable-rate debt exposure to less than 30% of total debt. See "Liquidity and
Capital Resources - New Facility" and "Liquidity and Capital Resources -
Interest Rate Hedging Transactions" for additional information.
Assets Held for Disposition
During 1999, the Company identified the following assets for
disposition. These assets are either non-strategic or non-core assets within the
Company's investment segments. The proceeds generated from the remaining assets
held for disposition are expected to be used to further reduce the Company's
remaining variable-rate debt, make investments, fund a share repurchase program,
or any combination of these options.
o Dallas Mavericks Interest - On October 27, 1999, the Company completed
the sale of its non-core equity and debt interests in the Dallas
Mavericks, interest in the new Dallas sports arena development and
surrounding mixed-use development projects and certain promissory notes
related to the Dallas Mavericks for approximately $89 million in cash.
In connection with the sale, the Company recognized a net loss of
approximately $0.7 million. The proceeds were primarily used to pay
down variable-rate debt.
o The Woodlands Commercial Properties - The Woodlands Commercial
Properties Company, L.P., owned by the Company and Morgan Stanley Real
Estate Fund II, L.P., has been actively marketing for sale certain
property assets (multi-family, retail and office/venture tech
portfolios) located in The Woodlands. As of December 31, 1999, the
multi-family portfolio had been sold, generating net proceeds of
approximately $28.8 million, of which the Company's portion was
approximately $12.2 million. The sale generated a net gain of
approximately $11.6 million, of which the Company's portion was
approximately $4.9 million. The sale of the retail portfolio, including
the Company's four Retail Properties located in The Woodlands, closed
on January 5, 2000, and generated approximately $49.8 million of net
proceeds, of which the Company's portion was approximately $37.3
million. The Woodlands Retail Properties were sold at a net gain of
approximately $9.0 million, of which the Company's portion was
approximately $7.7 million. The proceeds from these sales were used
primarily to pay down variable-rate debt. In addition, the sale of the
office/venture tech portfolio, consisting of the Company's 12 Office
Properties located in The Woodlands, is expected to close in the second
quarter of 2000.
o Office Properties - For the year ended December 31, 1999, the Company
recognized an impairment loss of approximately $16.8 million on one of
the Office Properties held for disposition at December 31, 1999, which
was sold during the first quarter of 2000. The impairment loss
represented the difference between the carrying value of the Office
Property and the sales price less costs of the sale. As of March 24,
2000, the Company completed
35
<PAGE> 37
the sale of six wholly-owned Office Properties which were included in
the group of ten Office Properties held for disposition at December 31,
1999 and were being actively marketed for sale. The sales generated
approximately $146.6 million of net proceeds. The proceeds were
primarily used to pay down variable-rate debt. Excluding the impairment
loss on one of the six Office Properties held for disposition at
December 31, 1999, the Company recognized a net gain of approximately
$13.3 million in the first quarter of 2000 related to the sales of the
other five Office Properties that were classified as held for
disposition at December 31, 1999. The Company has entered into
contracts relating to the sale of two additional Office Properties. The
sale of these Properties are expected to close by the end of the second
quarter of 2000. Management expects to complete any economically
justified sales of the remaining two Office Properties held for
disposition as of December 31, 1999, by the end of the second quarter
of 2000.
o Behavioral Healthcare Properties - The Behavioral Healthcare Segment
consisted of 88 Properties in 24 states as of December 31, 1999. From
January 1 through March 24, 2000, 11 Non-Core Properties were sold for
approximately $34.9 million in net proceeds. The proceeds were
primarily used to pay down variable-rate debt. The Company has also
entered into contracts or letters of intent to sell an additional six
Non-Core Properties. The Company continues to actively market the
remaining 34 Non-Core Properties for sale. The Company intends to sell
the 37 Core Properties or lease them to new tenants.
Management is currently in the process of evaluating the bids for the
remaining Properties held for disposition to determine their economic viability
as well as the credit-worthiness of the potential purchasers and their ability
to close the transactions. The disposition of these Properties remains subject
to the negotiation of acceptable terms and other customary conditions.
Joint Ventures
The Company is currently seeking to enter into venture arrangements
with private equity partners for arrangements where the Company would hold a
minority interest in the Properties and would continue to lease and manage the
Properties.
Share Repurchase Program
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500.0 million. The proposed repurchases will be subject to
prevailing market conditions and other considerations. The Company expects the
share repurchase program to be funded through a combination of asset sales and
financing arrangements, which, in some cases, may be secured by the repurchased
shares. The amount of shares that the Company actually will purchase will be
determined from time to time, in its reasonable judgement, based on market
conditions and the availability of funds, among other factors. There can be no
assurance that any number of shares actually will be purchased within any
particular time period.
On November 19, 1999, the Company entered into an agreement with UBS
which was amended on January 4, 2000 and which, as amended, obligates the
Company to repurchase approximately 5.8 million common shares from UBS, or
settle in common shares, on specified terms, before January 4, 2001. See
"Liquidity and Capital Resources - Share Repurchase Agreement" for a description
of this transaction.
36
<PAGE> 38
OFFICE AND RETAIL SEGMENT
The following tables show the same-store net operating income growth
for the 27.1 million square feet of Office Property space owned as of January 1,
1998.
<TABLE>
<CAPTION>
FOR THE YEAR PERCENTAGE/
ENDED DECEMBER 31, POINT
--------------------------
1999 1998 INCREASE
------- ------- -----------
<S> <C> <C> <C>
Same-store Revenues $ 518.0 $ 488.8 6.0%
Same-store Expenses (225.4) (213.8) 5.4%
------- -------
Net Operating Income $ 292.6 $ 275.0 6.4%
======= =======
Weighted Average Occupancy 91.1% 90.1% 1.0 pt
</TABLE>
The following table shows selected leasing and rental rate information
for the 31.8 million square feet of Office Property owned as of December 31,
1999.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------
SIGNED EXPIRING PERCENTAGE
LEASES LEASES INCREASE
----------------------- ------------------------ -----------------
<S> <C> <C> <C>
Renewed or re-leased (1) 2,646,000 sq. ft. N/A N/A
Weighted average full-
service rental rate (2) $21.72 per sq. ft. $18.30 per sq. ft. 19%
FFO annual net effective
rental rate (3) $13.63 per sq. ft. $10.26 per sq. ft. 33%
</TABLE>
(1) All of which have commenced or will commence during the next twelve months.
(2) Including free rent, scheduled rent increases taken into account under GAAP
and expense recoveries.
(3) Calculated as weighted average full-service rental rate minus operating
expenses.
o For the year ended December 31, 1999, leases executed for renewal or
re-leased Office Property space required tenant improvements of $1.15
per square foot per year and leasing costs of $0.72 per square foot per
year. "Renewal" refers to leases executed by existing tenants for
exactly the same net rentable area currently occupied by those tenants.
"Re-lease" refers to leases executed by new or existing tenants for net
rentable area which has been vacant for six months or less.
o The overall office portfolio was approximately 92.7% leased, based on
executed leases, or approximately 90.5% leased based on commenced
leases, at December 31, 1999. Average occupancy for 1999 based on
commenced leases was approximately 90.9%.
Investment in Broadband Office, Inc.:
In October 1999, the Company, along with seven other real estate
companies, joined with an unrelated third party venture capitalist as a founding
shareholder in Broadband, a national telecommunications company. Broadband is
dedicated to providing state of the art broadband telecommunications services to
commercial office properties across the country. In addition to significantly
improving the Company's office tenant amenity package to take advantage of
evolving technologies, the Company received an equity interest and
representation on the board of directors of Broadband in exchange for granting
Broadband marketing access to the tenants within the Company's Office Property
portfolio.
37
<PAGE> 39
HOSPITALITY SEGMENT
The following table shows the percentage increases in occupancy,
average daily rate and revenue per available room for the Hotel Properties for
the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
FOR THE YEAR PERCENTAGE/
ENDED DECEMBER 31, POINT
-------------------------------- INCREASE
1999 1998 (DECREASE)
------------- ------------- -------------
<S> <C> <C> <C>
Weighted average occupancy 74% 75% (1)pt
Average daily rate $ 218 $ 207 5%
Revenue per available room $ 161 $ 154 5%
</TABLE>
o For the year ended December 31, 1999, hotel property rental income
growth, including weighted average base rent(1) and percentage rent,
was approximately 12.3%(2) compared with the same period of 1998, for
the eight Hotel Properties owned as of January 1, 1998.
- -----------------------
(1) Including scheduled rent increases that would be taken into account under
GAAP.
(2) This growth was impacted by returns generated on approximately $38 million
of capital invested during 1998 and 1999 in connection with the
construction of The Allegria Spa at the Hyatt Regency Beaver Creek hotel,
the construction of The Allegria Spa at Ventana Inn & Spa, the Sonoma
Mission Inn & Spa expansion and the renovation of guest rooms at the Four
Seasons - Houston hotel.
Investment Partnership:
In February 2000, the Company entered into an agreement with Sanjay
Varma, a former senior executive officer of the Company, to form an investment
partnership, which will seek luxury spa resorts and hotels to acquire and manage
under the "Sonoma Spa Resorts" brand and concept. The Company and Mr. Varma
acquired a 93% and 7% interest, respectively, in this new partnership. Mr. Varma
has also established a new management company, which has contracted with COI to
manage either the property or assets of the Company's existing portfolio of
Hotel Properties (excluding the Canyon Ranch resorts and the Hyatt Regency
Beaver Creek), in addition to new properties the investment partnership
acquires. The Company currently holds a 30% non-voting interest in this
management company.
CRL Investments, Inc.:
The Company has a 95% economic interest, representing all of the
non-voting stock in CRL Investments, Inc. ("CRL"), which has a 20% economic
interest in CR License, LLC, the entity which owns the right to the future use
of the "Canyon Ranch" name. CRL has the opportunity through July 2000 to pay
$3.0 million to obtain an additional 10% interest in CR License, LLC. CRL also
has an effective 60% economic interest in the Canyon Ranch Spa Club in the
Venetian Hotel in Las Vegas, Nevada. The Canyon Ranch Spa Club opened in June
1999 and is the first project to expand the franchise value of the "Canyon
Ranch" name.
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, currently own interests in 14 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
residential development projects that it expects to achieve comparable rates of
return.
38
<PAGE> 40
The Woodlands Land Development, L.P. and The Woodlands Commercial Properties
Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
----------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Residential lot sales 1,991 1,462
Average sales price per lot(1) $ 45,843 $ 52,581
Commercial land sales 76 acres 205 acres
Average sales price per acre $ 344,995 $ 227,383
</TABLE>
- ----------
(1) Decrease in average sales price per lot between years is due to a change in
product mix.
o Residential lot sales increased by 529 or 36%, in 1999 compared with
1998.
o Future buildout of The Woodlands is estimated at approximately 15,600
residential lots and approximately 1,972 acres of commercial land, of
which 1,519 residential lots and 991 acres are currently in inventory.
o The Woodlands estimates that sales of approximately 2,000 to 2,100
residential lots and 75 to 85 acres of commercial land will close
during 2000.
Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale,
Arizona:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Residential lot sales 258 258
Average sales price per lot(1) $ 533,000 $ 430,000
</TABLE>
- ----------
(1) Including equity golf memberships.
o The average price per lot for the year ended 1999 increased 24%
compared to the year ended 1998, as a result of a higher price product
mix sold in 1999 versus 1998.
o During 1999, Desert Mountain opened five new villages in Saguaro Forest
consisting of 160 additional lots. Desert Mountain has sold 95 of these
lots with an average sales price of $619,000 per lot.
o Future buildout of Desert Mountain is estimated at approximately 685
residential lots, of which 285 are currently in inventory.
o Desert Mountain is anticipating the release in the year 2000 of three
new villages within Saguaro Forest consisting of approximately 106 lots
with prices from $500,000 to $2.6 million per lot.
39
<PAGE> 41
Crescent Development Management Corporation ("CDMC"), Beaver Creek, Colorado:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Active projects 11 5
Residential lot sales 410 48
Townhome sales 32 27
Single-family home sales 11 --
Equivalent timeshare unit sales 6 32
Condominium sales 24 --
</TABLE>
o On April 29, 1999, a partnership in which CDMC has a 64% economic interest
finalized the purchase of Riverfront Park (previously known as "The
Commons"), a master planned residential development on 23 acres in the
Central Platte Valley near downtown Denver, Colorado for approximately $25
million. The development of Riverfront Park is expected to begin in the
spring of 2000. The first phase will consist of one condominium project and
two loft projects with prices ranging from $0.2 million to $2.5 million.
One of the first residential projects, consisting of 71 lofts, commenced
pre-selling in January 2000. As of March 24, 2000, contracts had been
signed on 83% of the 71 lofts. In the first quarter of 2000, the
partnership has entered into contracts relating to the sale of 9.7 acres of
Riverfront Park, which is expected to close in the second quarter of 2000.
The acreage is in close proximity to several major entertainment and
recreational facilities including Coors Field (home to the Major League
Baseball's Colorado Rockies), Elitch Gardens (an amusement park), the new
Pepsi Center (home to the National Hockey League's Colorado Avalanche and
the National Basketball Association's Denver Nuggets) and the new downtown
Commons Park. An adjacent 28 acres is expected to be commercially developed
by another company, thus providing a major mixed-use community adjacent to
the lower downtown area of Denver.
o CDMC estimates the following sales for the year 2000 from its 10 active
projects: 383 residential lots, 17 townhomes, 5 single-family homes, and 44
condominiums.
o 99% of the sales anticipated during the first quarter and 71% of the sales
anticipated for the full year of 2000 have been pre-sold as of December 31,
1999.
Mira Vista Development Corp. ("Mira Vista"), Fort Worth, Texas:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Residential lot sales 69 79
Average sales price per lot $121,000 $111,000
</TABLE>
Houston Area Development Corp. ("Houston Area Development"), Houston, Texas:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Residential lot sales 243 181
Average sales price per lot $ 28,000 $ 25,000
</TABLE>
40
<PAGE> 42
TEMPERATURE-CONTROLLED LOGISTICS SEGMENT
As of December 31, 1999, the Company held an indirect 39.6% interest in
the Temperature-Controlled Logistics Partnerships, which owns the
Temperature-Controlled Logistics Corporations, which directly or indirectly
owned the Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, in which the Company has no interest. The
Temperature-Controlled Logistics Corporations are entitled to receive lease
payments (base rent and percentage rent) from AmeriCold Logistics.
Management believes that earnings before interest, taxes, depreciation
and amortization ("EBITDA") is a useful financial performance measure for
assessing the relative stability of the financial condition of the AmeriCold
Logistics, which is the sole lessee of the Temperature-Controlled Logistics
Properties.
This table shows AmeriCold Logistics, pro forma EBITDA for the year
ended December 31, 1999 and 1998, assuming that the acquisitions by one of the
Temperature-Controlled Logistics Corporations of 14 Temperature-Controlled
Logistics Properties had occurred on January 1, 1998.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
(IN MILLIONS)
-------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Pro forma EBITDA(1) $ 164.8 $ 152.4
Pro forma lease payment $ 164.0 $ 149.1
</TABLE>
- ----------
(1) EBITDA does not represent net income or cash flows from operating,
financing or investing activities as defined by GAAP.
o During 1999, the Temperature-Controlled Logistics Corporations completed
and opened $46 million of expansion and new product, representing
approximately 15.1 million cubic feet (0.5 million square feet).
o The Temperature-Controlled Logistics Corporations currently have
approximately $30.6 million of expansion and new temperature-controlled
logistics facilities under construction, which management of AmeriCold
Logistics expects will be completed in the second quarter of 2000, and
which are expected to contain approximately 16.6 million cubic feet (0.8
million square feet).
o The Temperature-Controlled Logistics Corporations have approximately $50 to
$75 million of expansion and new product temperature-controlled logistics
facilities under review for development or acquisition during 2000.
BEHAVIORAL HEALTHCARE SEGMENT
During the year ended December 31, 1999, the Company received cash
rental payments of approximately $35.3 million from CBHS. CBHS's business has
been negatively affected by many factors, including adverse industry conditions.
During 1999, CBHS failed to perform in accordance with its operating budget. See
"Strategic Plan Update - CBHS" above for a complete description of the current
status of CBHS, the voluntary filing of Chapter 11 bankruptcy petitions by CBHS
and its subsidiaries and the Company's investment in the Behavioral Healthcare
Properties.
The following financial statement charges were made with respect to the
Company's investment in the Behavioral Healthcare Properties for the year ended
December 31, 1999:
o CBHS rent is reflected on a cash basis beginning in the third
quarter of 1999 and CBHS rent will continue to be reflected on
a cash basis going forward;
o The Company wrote-off the rent that was deferred according to
the CBHS lease agreement from the commencement of the lease in
June of 1997 through June 30, 1999. The balance written-off
totaled $25.6 million;
41
<PAGE> 43
o The Company wrote-down its behavioral healthcare real estate
assets by approximately $103.8 million to a book value of
$245.0 million;
o The Company recorded approximately $15.0 million of additional
expense to be used by CBHS as working capital; and
o The Company has not recorded depreciation expense on the
Non-Core Properties since November 1999 when such Properties
were classified as held for disposition.
At December 31, 1999, the Company's investment in the Behavioral
Healthcare Properties represented approximately 5% of its total assets (after
the impairment and other charges related to the behavioral healthcare assets)
and approximately 5% of consolidated rental revenues for the year ended December
31, 1999 (after the write-off of the rent that was deferred for 1999).
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC staff released Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition", which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
SAB No. 101 prohibits contingent revenue from being accrued until the thresholds
upon which it is based have been met. In 1999, percentage rental income was
recognized on an accrual basis. However, SAB No. 101 had no material impact on
the Company's financial statements for the year ended December 31, 1999 because
all of the thresholds upon which percentage rental income is based had been met
by December 31, 1999. In accordance with SAB No. 101, percentage rental income
will not be recognized in the year 2000 until the thresholds upon which it is
based are met. Management does not believe this change will have a material
impact on its interim or annual financial statements.
42
<PAGE> 44
RESULTS OF OPERATIONS
The following table shows the Company's financial data as a percentage
of total revenues for the three years ended December 31, 1999, 1998, and 1997
and the variance in dollars between the years ended December 31, 1999 and 1998
and the years ended December 31, 1998 and 1997. See Note 4. Segment Reporting
included in Item 8. Financial Statements and Supplementary Data for financial
information about investment segments.
<TABLE>
<CAPTION>
FINANCIAL DATA AS A PERCENTAGE OF TOTAL TOTAL VARIANCE IN DOLLARS BETWEEN
REVENUES FOR THE YEAR ENDED DECEMBER 31, THE YEARS ENDED DECEMBER 31,
---------------------------------------- ---------------------------------
1999 1998 1997 1999 AND 1998 1998 AND 1997
------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES
Office and retail properties 82.3% 80.6% 81.2% $ 51.5 $ 199.7
Hotel properties 8.8 7.7 8.3 11.9 16.0
Behavioral healthcare properties 5.5 7.9 6.7 (14.2) 25.5
Interest and other income 3.4 3.8 3.8 (1.2) 9.7
------ ------ ------ ------------- -------------
TOTAL REVENUES 100.0 100.0 100.0 48.0 250.9
------ ------ ------ ------------- -------------
EXPENSES
Operating expenses 34.4 34.8 35.5 14.1 84.1
Corporate general and administrative 2.2 2.3 2.9 -- 3.4
Interest expense 25.7 21.8 19.3 39.8 65.8
Amortization of deferred financing costs 1.4 0.9 0.8 3.8 3.0
Depreciation and amortization 17.6 16.9 16.6 13.6 43.7
Settlement of merger dispute 2.0 -- -- 15.0 --
Carrying value in excess of market value of
asset held for sale 2.3 -- -- 16.8 --
Impairment and other charges related to
the behavioral healthcare assets 21.7 -- -- 162.0 --
Write-off of costs associated with
unsuccessful acquisitions -- 2.7 -- (18.4) 18.4
------ ------ ------ ------------- -------------
TOTAL EXPENSES 107.3 79.4 75.1 246.7 218.4
------ ------ ------ ------------- -------------
OPERATING INCOME (LOSS) (7.3) 20.6 24.9 (198.7) 32.5
OTHER INCOME
Equity in net income of unconsolidated companies:
Office and retail properties 0.7 0.6 0.1 1.1 3.6
Temperature-controlled logistics properties 2.0 0.1 0.3 14.5 (0.7)
Residential development properties 5.7 4.8 4.2 9.4 14.7
Other 0.7 0.1 0.7 4.0 (2.0)
------ ------ ------ ------------- -------------
TOTAL OTHER INCOME 9.1 5.6 5.3 29.0 15.6
------ ------ ------ ------------- -------------
INCOME BEFORE MINORITY INTERESTS 1.8 26.2 30.2 (169.7) 48.1
Minority interests (0.3) (2.5) (4.0) 15.2 0.1
------ ------ ------ ------------- -------------
NET INCOME 1.5 23.7 26.2 (154.5) 48.2
Preferred share dividends (1.8) (1.7) -- (1.8) (11.7)
Return on share repurchase agreement (0.1) -- -- (0.6) --
Forward share purchase
agreement return (0.6) (0.4) -- (1.0) (3.3)
------ ------ ------ ------------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS (1.0)% 21.6% 26.2% $ (157.9) $ 33.2
====== ====== ====== ============= =============
</TABLE>
43
<PAGE> 45
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
REVENUES
Total revenues increased $48.0 million, or 6.9%, to $746.3 million for
the year ended December 31, 1999, as compared to $698.3 million for the year
ended December 31, 1998.
The increase in Office and Retail Property revenues of $51.5 million,
or 9.1%, compared to the year ended December 31, 1998, is attributable to:
o the acquisition of nine Office Properties in 1998, which
contributed revenues for a full year in 1999, as compared with
a partial year in 1998, resulting in $17.1 million in
incremental revenues;
o increased revenues of $27.8 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998, primarily
as a result of rental rate increases at these Properties; and
o increased revenues of $6.6 million as a result of the receipt
of lease termination fees during 1999.
The increase in Hotel Property revenues of $11.9 million, or 22.3%,
compared to the year ended December 31, 1998, is attributable to:
o the acquisition of one golf course affiliated with one of the
Hotel Properties during 1998, which contributed to revenues
for a full year in 1999, as compared with a partial year in
1998, resulting in $1.7 million of incremental revenues;
o the reclassification of the Renaissance Houston Hotel from the
Office Property segment to the Hotel Property segment as a
result of the restructuring of its lease on July 1, 1999,
which contributed $2.8 million of incremental revenues under
the new lease;
o increased revenues of $1.3 million from the re-leasing of the
Omni Austin Hotel to HCD Austin Corporation as of January 1,
1999; and
o increased revenues of $6.1 million from the eight Hotel
Properties acquired prior to January 1, 1998, as a result of
an increase in base rents of $4.8 million because of lease
amendments entered into in connection with contributions made
by the Company for capital improvements at some of the Hotel
Properties, and an increase in percentage rent of $1.3
million.
The decrease in Behavioral Healthcare Property revenue of $14.2
million, or 25.7%, is attributable to the reflection of rent from CBHS on a cash
basis beginning in the third quarter of 1999, and also is attributable to the
deferral of the November and December 1999 rent payments from CBHS.
EXPENSES
Total expenses increased $246.7 million, or 44.5%, to $801.2 million
for the year ended December 31, 1999, as compared to $554.5 million for the year
ended December 31, 1998.
The increase in rental property operating expenses of $14.1 million, or
5.8%, compared to the year ended December 31, 1998, is attributable to:
o the acquisition of nine Office Properties during 1998, which
incurred expenses during the full year of 1999, as compared to
only a portion of the year of 1998, resulting in $7.1 million
of incremental expenses; and
o increased expenses of $7.0 million from the 80 Office and
Retail Properties acquired prior to January 1, 1998, primarily
as a result of an increase in real estate taxes.
44
<PAGE> 46
The increase in interest expense of $39.8 million, or 26.1%, compared
to the year ended December 31, 1998, is primarily attributable to:
o $0.9 million of incremental 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 $5.9 million of incremental interest payable due to the
promissory note secured by the Houston Center Office Property
complex, contributing approximately 8 months of interest in
1999 compared with only three months of interest in 1998. This
promissory note was issued in conjunction with the termination
of the equity swap agreement with Merrill Lynch International
on September 30, 1998;
o $4.9 million of incremental interest payable due to the
refinancing of the Houston Center Office Property complex in
September 1999;
o $20.4 million of incremental interest payable due to draws
under the Credit Facility and under the term loans with
BankBoston N.A. (average balance outstanding on the Credit
Facility and under the term loans for the year ended December
31, 1999 and 1998 was $1,043.3 million and $745.0 million,
respectively); and
o $5.7 million of incremental interest payable due to the
refinancing of the Greenway Plaza Office Property complex in
June 1999 with a $280 million secured, fixed-rate note which
generated $165.0 million in net proceeds which were primarily
used to settle the Forward Share Purchase Agreement with UBS.
All of these financing arrangements were used to fund investments,
obligations associated with investments, and to provide working capital.
The increase in amortization of deferred financing costs of $3.8
million, or 58.5%, compared to the year ended December 31, 1998, is primarily
attributable to the incremental amortization of financing costs associated with
new debt obtained in 1998 and 1999.
The increase in depreciation and amortization expense of $13.6 million,
or 11.5%, compared to the year ended December 31, 1998, is primarily
attributable to the acquisition during 1998 of nine Office Properties.
An additional increase in expenses of $175.4 million is attributable
to:
o $162.0 million due to the impairment and other charges related
to the Behavioral Healthcare Properties;
o $16.8 million due to the impairment charge on one of the
Office Property assets held for disposition which represents
the difference between the carrying value of this property and
the subsequent sales price less costs of sale;
o non-recurring costs of $15.0 million associated with the
settlement of litigation relating to the merger agreement
entered into in January 1998 between the Company and Station
Casinos, Inc.; and
o offset by a decrease of $18.4 million due to a non-recurring
write-off in 1998 of costs associated with unsuccessful
acquisitions.
EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES
Equity in net income of unconsolidated companies increased $29.0
million, or 73.8%, to $68.3 million for the year ended December 31, 1999, as
compared to $39.3 million for the year ended December 31, 1998.
The increase is attributable to:
o An increase in equity in net income of the unconsolidated
office and retail properties of $1.1 million, or 26.2%
compared to the year ended December 31, 1998, attributable to
increased revenues at the Woodlands Commercial Properties
Company L.P., due to the sale of the multi-family portfolio in
the third quarter of 1999;
o an increase in equity in net income of the
Temperature-Controlled Logistics Corporations of $14.5
million, or 2900.0%, compared to the year ended December 31,
1998, primarily as a result of the change in ownership. Prior
to March 12, 1999 the Temperature-Controlled Logistics
Corporations reflected its equity in the operations of the
Temperature-Controlled Logistics Properties. Subsequent to
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March 12, 1999, the Temperature-Controlled Logistics
Corporations receives rent from AmeriCold Logistics, the
lessee and owner of business operations. In addition, the
Company's 1999 equity in net income includes 12 months of
income from nine and five Temperature-Controlled Logistics
Properties which were acquired in June 1998 and July 1998,
respectively.
o an increase in equity in net income of the Residential
Development Corporations of $9.4 million, or 28.1%, compared
to the year ended December 31, 1998, primarily as a result of
(i) the increased sales activity at CDMC, primarily due to
increased residential lot sales, which resulted in $5.1
million of incremental equity in net income to the Company;
(ii) the increased lot sales and average price per lot sold
and the sale of 16 acres at Houston Area Development, which
resulted in $3.0 million of incremental equity in net income
to the Company, (iii) an increase in sales activity at The
Woodlands, which resulted in $1.6 million of incremental
equity in net income to the Company; (iv) the increase in
average sales price per lot at Desert Mountain with constant
lot absorption between years, which resulted in $0.6 million
of incremental equity in net income to the Company; and (v) a
decrease in lot sales at Mira Vista, which resulted in a
decrease of $0.9 million in equity in net income to the
Company; and
o an increase in equity in net income of the other
unconsolidated companies of $4.0 million, or 363.6%, compared
to the year ended December 31, 1998, primarily attributable to
the 7.5% dividend income from the $85 million preferred member
interest in Metropolitan Partners, LLC, which the Company
purchased in May 1999.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE 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 primarily 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 $16.0 million, or 42.9%,
compared to 1997 is primarily attributable to:
o the acquisition of one Hotel Property and a golf course in
1998, which resulted in $3.9 million of incremental revenues;
o the acquisition of two 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
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.
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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.
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;
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 Term
Note I, 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.
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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 unsuccessful 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 $14.7 million, or 78.2%, 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 $14.2 million of incremental net income;
o an increase in equity in net income of other unconsolidated
office and retail properties of $3.5 million, or 600.0%,
compared to 1997, which is primarily attributable to the
investment in The Woodlands Commercial Properties Company,
L.P. in July 1997, which resulted in $4.0 million of
incremental net income; partially offset by
o a decrease in equity in net income of the other unconsolidated
companies of $2.0 million, or 64.5%, compared to 1997, which
is primarily attributable to 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).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $72.9 million and $110.3 million at
December 31, 1999 and 1998, respectively. This 33.9% decrease is attributable to
$166.1 million and $167.6 million used in investing and financing activities,
respectively, partially offset by $296.4 million of cash provided by operating
activities.
INVESTING ACTIVITIES
The Company's cash used in investing activities of $166.1 million is
primarily attributable to:
o $93.9 million for increased investments in unconsolidated
companies primarily as a result of a $75.0 million preferred
interest in Metropolitan Partners, LLC;
o $58.5 million for recurring and non-recurring tenant
improvement and leasing costs for the Office and Retail
Properties;
o $20.3 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 $31.4 million attributable to increased restricted cash and
cash equivalents primarily due to the escrow requirements
related to the refinancings of the Greenway Plaza Office
Property complex and the Houston Center Office Property
complex. Escrow funds of $23.0 million will be released during
the renovation phase of the Renaissance Houston Hotel over the
next 12 to 18 months; and
o $27.8 million for the development of investment properties,
including expansions and renovations at the Hotel
Properties.
The cash used in investing activities is partially offset by:
o $52.4 million for decreased notes receivable, primarily due to
the sale of certain promissory notes related to the Dallas
Mavericks; and
o $13.7 million for return of investment in the Residential
Development Corporations.
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OPERATING ACTIVITIES
The Company's cash provided by operating activities of $296.4 million
is primarily attributable to:
o $268.4 million from property operations;
o $21.5 million from an increase in accounts payable, accrued
liabilities and other liabilities;
o $30.9 million from a decrease in other assets, primarily due
to the sale of marketable securities; and
o $2.4 million from minority interests.
The cash provided by operating activities is partially offset by:
o $17.2 million from equity in earnings in excess of
distributions received from unconsolidated companies; and
o $9.7 million from an increase in restricted cash and cash
equivalents primarily as a result of increased property tax
escrow amounts related to 1999 debt refinancings.
FINANCING ACTIVITIES
The Company's use of cash for financing activities of $167.6 million is
primarily attributable to:
o distributions paid to common shareholders and unitholders of
$298.3 million;
o settlement of the Forward Share Purchase Agreement with UBS
for $149.4 million;
o debt financing costs of $16.7 million primarily related to the
refinancing of the Greenway Plaza Office Property complex, the
Houston Center Office Property complex and the BankBoston
Term Note II;
o distributions paid to preferred shareholders of $13.5 million;
o net payments under the Credit Facility of $150.0 million; and
o capital distributions to a joint venture partner of $3.2
million.
The use of cash for financing activities is partially offset by:
o net proceeds under short-term and long-term facilities of
$430.8 million primarily due to net proceeds from the
refinancing of the Greenway Plaza Office Property complex of
$165.0 million; net proceeds from the refinancing of the
BankBoston Term Note I of $60.0 million; net proceeds from the
refinancing of the BankBoston Term Note II of $200.0
million; net proceeds of $15.0 million from the refinancing of
the Houston Center Office Property complex; and net payments
of $7.1 million from the refinancing of the Datran Center
Office Property; and
o proceeds from the exercise of common share options of $32.6
million.
CBHS
In 1999, the Company experienced a decrease in liquidity as a result of
its investment in the Behavioral Healthcare Properties. The Behavioral
Healthcare Properties were leased to CBHS and its subsidiaries under a
triple-net lease. CBHS is a Delaware limited liability company which was formed
to operate the behavioral healthcare business located at the Behavioral
Healthcare Properties and is owned 10% by a subsidiary of Magellan and 90% by
COI and an affiliate of COI. CBHS's business has been negatively affected by
many factors, including adverse industry conditions. During 1999, CBHS failed to
perform in accordance with its operating budget. On February 16, 2000, CBHS and
all of its subsidiaries that are subject to the master lease with the Company
filed voluntary Chapter 11 bankruptcy proceedings in the United States
Bankruptcy Court for the District of Delaware. See "Strategic Plan Update -
CBHS" above for a complete description of the current status of CBHS, the
voluntary filing of Chapter 11 bankruptcy petitions by CBHS and its
subsidiaries, and the Company's investment in the Behavioral Healthcare
Properties.
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SHELF REGISTRATION STATEMENT
On October 29, 1997, the Company filed a shelf registration statement
(the "Shelf Registration Statement") with the SEC relating to the future
offering of up to an aggregate of $1.5 billion of common shares, preferred
shares and warrants exercisable for common shares. Management believes the Shelf
Registration Statement will provide the Company with more efficient and
immediate access to capital markets when considered appropriate. As of December
31, 1999, approximately $782.7 million was available under the Shelf
Registration Statement for the issuance of securities.
FORWARD SHARE PURCHASE AGREEMENT
On June 30, 1999, the Company settled the Forward Share Purchase
Agreement with UBS. As settlement of the Forward Share Purchase Agreement, the
Company made a cash payment of approximately $149.0 million to UBS in exchange
for the return by UBS to the Company of 7,299,760 common shares. The payment was
made with proceeds generated from the refinancing of the Greenway Plaza Office
Property complex.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The settlement
price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 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
represented a guaranteed rate of return to UBS.
SHARE REPURCHASE PROGRAM
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500.0 million. The proposed repurchases will be subject to
prevailing market conditions and other considerations. The Company expects the
share repurchase program to be funded through a combination of asset sales and
financing arrangements, which, in some cases, may be secured by the repurchased
shares. The amount of shares that the Company actually will purchase will be
determined from time to time, in its reasonable judgement, based on market
conditions and the availability of funds, among other factors. There can be no
assurance that any number of shares actually will be purchased within any
particular time period.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
repurchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to repurchase 4,789,580 common shares, or approximately
$84.1 million of the Company's common shares. The agreement was amended on
January 4, 2000, increasing the number of common shares the Company was
obligated to repurchase from UBS by January 4, 2001 to approximately 5,800,000
common shares, or approximately $102.0 million of the Company's common shares,
(as amended, the "Share Repurchase Agreement"). The price the Company will pay
for the common shares (the "Settlement Price") will be calculated based on the
average cost of the common shares purchased by UBS in connection with the Share
Repurchase Agreement plus a return to UBS of 30-day LIBOR plus 250 basis points,
minus an adjustment for the Company's distributions during the term of the Share
Repurchase Agreement. The guaranteed rate of return to UBS under the agreement
is equal to 30-day LIBOR plus 250 basis points.
The Company may settle the Share Repurchase Agreement in cash or common
shares. The Company currently intends to settle the Share Repurchase Agreement
to UBS in cash, by purchasing and retiring the shares with proceeds from Office
Property joint ventures and financing arrangements. This 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 Share Repurchase
Agreement or until such earlier time as it determines to settle the Share
Repurchase Agreement.
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In the event that the Company elects to fulfill the Share Repurchase
Agreement in common shares, UBS will sell the common shares on behalf of the
Company on the open market. If, as a result of a decrease in the market price of
the common shares, the number of common shares required to be sold to achieve
the Settlement Price exceeds the number of common shares purchased by UBS in
connection with the agreement, the Company will deliver additional cash or
common shares to UBS. If the Company elects to fulfill the Share Repurchase
Agreement in common shares, and the market price of the common shares is greater
than the Settlement Price, UBS will return a portion of the common shares that
it purchased in the open market to the Company.
If the common share price on the NYSE falls below the Settlement Price
calculated approximately every two weeks, the Company is required to remit cash
collateral to UBS equal to the product of the number of common shares purchased
by UBS and 115% of the difference between the Settlement Price and the closing
price of the common shares as reported on the NYSE. If the Company elects to
settle the Share Repurchase Agreement in cash, any cash collateral held by UBS
will be used to "pay-down" the Settlement Price. If the Company elects to settle
the Share Repurchase Agreement in common shares, UBS will release all claims to
any cash collateral they hold at that time. As of December 31, 1999, no cash
collateral was due to UBS. On February 18, 2000, the Company posted cash
collateral of $8.7 million to UBS, as a result of a decline in the common share
price.
According to the terms of the Share Repurchase Agreement, had the
agreement been settled, and the average cost of common shares to UBS on December
31, 1999 of approximately $17.55 been used, the Company would have had to
repurchase the 4,789,580 common shares from UBS for approximately $84.1 million.
In that event, the Company's liquidity would have decreased and the Company's
net income - diluted per common share would have been approximately $(0.06) for
the year ended December 31, 1999 and the net book value per common share
outstanding at December 31, 1999 would have been approximately $15.93.
STATION CASINOS, INC. ("STATION")
On April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15.0 million to Station on April 22,
1999.
METROPOLITAN
On December 8, 1998, Tower Realty Trust ("Tower"), Reckson Associates
Realty Corporation ("Reckson"), and Metropolitan Partners, LLC ("Metropolitan")
entered into a revised agreement and plan of merger that superseded the merger
agreement to which the Company was a party. Under the revised agreement,
Metropolitan agreed to acquire Tower for a combination of cash and Reckson
exchangeable Class B common shares. The Company, Reckson and Metropolitan agreed
that the Company's investment in Metropolitan would be an $85.0 million
preferred member interest in Metropolitan. In connection with the revised
agreement, the Company contributed $10.0 million of the $85.0 million required
capital contribution to Metropolitan in December 1998 and contributed the
remaining $75.0 million to Metropolitan upon satisfaction of all of the
conditions to the funding on May 19, 1999. The Company's $85.0 million preferred
member interest in Metropolitan at December 31, 1999 would equate to an
approximate 20% equity interest.
The investment has a cash flow preference of 7.5% for a two-year period
and may be redeemed by Metropolitan within the two-year period for
$85.0 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
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.
CREDIT FACILITY
At December 31, 1999, the Company's borrowing capacity under the Credit
Facility was limited to $560.0 million, of which $510.0 million was outstanding.
The interest rate on advances under the Credit Facility was the Eurodollar rate
plus 137 basis points. As of December 31, 1999, the weighted average interest
rate was 7.65%. The Credit Facility was unsecured and was scheduled to expire in
June 2000. The Credit Facility required 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. The Company was in compliance with the financial covenants related
to the Credit Facility for the December 31, 1999 reporting period. During the
first quarter of 2000, the Credit Facility was repaid and retired primarily with
the proceeds of the New Facility described below.
NEW FACILITY
On February 4, 2000, the Company repaid and retired the Credit Facility
and the BankBoston Term Note I primarily with the proceeds of the New Facility,
a new $850.0 million secured, variable-rate facility fully underwritten and
funded by UBS. The New Facility is comprised of three tranches: a three-year
$300.0 million revolving line of credit (the "UBS Line of Credit"), a $275.0
million three-year term loan ("UBS Term Loan I") and a $275.0 million four-year
term loan ("UBS Term Loan II"). Borrowings under the UBS Line of Credit, the UBS
Term Loan I and the UBS Term Loan II at March 24, 2000 were approximately $258.5
million, $257.2 million and $257.2 million, respectively. The UBS Line of Credit
and the UBS Term Loan I bear interest at LIBOR plus 250 basis points. The UBS
Term Loan II bears interest at LIBOR plus 275 basis points. The Company also
entered into a cash flow hedge agreement related to a portion of the New
Facility in a separate transaction subsequent to December 31, 1999, which is
intended to mitigate its exposure to variable rate debt as more fully described
in "Interest Rate Hedging Transactions" below. The New Facility is secured by 41
Office Properties and four Hotel Properties.
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INTEREST RATE HEDGING TRANSACTIONS
The Company does not use derivative financial instruments for trading
purposes, but utilizes them to manage exposure to variable rate debt. The
Company accounts for its derivative instruments under SFAS 133, which was
adopted in the third quarter of 1999. On September 1, 1999, the Company entered
into a four-year cash flow hedge agreement with Salomon Brothers Holding
Company, Inc.("Salomon"), relating to the BankBoston Term Note II, for a
notional amount of $200.0 million. The underlying note, which was originally
issued at a floating interest rate of 30-day LIBOR plus 325 basis points was
effectively converted to a fixed weighted average interest rate of 9.43% through
maturity. Effective February 1, 2000, the Company renegotiated certain terms and
covenants under the BankBoston Term Note II. At such time, the interest rate on
the facility increased to 30-day LIBOR plus 400 basis points, and consequently
increased the effective fixed weighted average interest rate to 10.18% through
maturity. As of December 31, 1999, the cash flow hedge agreement with Salomon
resulted in approximately $0.3 million of additional interest expense.
Effective February 4, 2000, the Company entered into a three-year cash
flow hedge agreement with Fleet Boston Financial, relating to a portion of the
New Facility, for a notional amount of $200.0 million. As a result, $200.0
million of the amount due under the note which was originally issued at a
floating interest rate of LIBOR plus 250 basis points, was effectively converted
to a fixed weighted average interest rate of 9.61% through maturity.
ASSET JOINT VENTURES
The Company has entered into agreements with Chadwick Saylor & Co.,
Inc. and Warburg Dillon Read to provide investment advisory services to the
Company in the successful execution of the Company's joint-venture strategy. The
Company intends to hold a minority interest in these assets and will continue to
lease and manage these Properties.
LIQUIDITY REQUIREMENTS
As of December 31, 1999, the Company's short-term liquidity
requirements consisted of secured and unsecured debt maturities, its
obligations under the Share Repurchase Agreement with UBS and amounts payable
in connection with the expansion or renovation of two Hotel Properties. The
Company had approximately $515.9 million of secured and unsecured debt that was
scheduled to expire during 2000, consisting primarily of $510.0 million due
under the Credit Facility with BankBoston, which was scheduled to expire in
June 2000. In addition, the Company, at that time, had approximately $445.0
million of secured debt that was scheduled to expire in 2001, consisting
primarily of $320.0 million due under the BankBoston Term Note I. Effective
January 31, 2000, the Company entered into the New Facility. The Company used
the proceeds of the New Facility to retire the Credit Facility and BankBoston
Term Note I, which made up 86% of the Company's maturing debt in 2000 and 2001.
The Company's Share Repurchase Agreement with UBS, as described in
"Share Repurchase Agreement" above, expires on January 4, 2001, at which time
the Company is required to settle in cash or common shares. The Company
currently intends to fulfill the Share Repurchase Agreement to UBS in cash, by
purchasing and retiring the shares with proceeds from Office Property joint
ventures and financing arrangements. This 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 Share Repurchase Agreement or until such
earlier time as it determines to settle the Share Repurchase Agreement.
The Sonoma Mission Inn & Spa, located north of San Francisco,
California, is scheduled to complete its estimated $20 million expansion
consisting of 30 additional guest rooms and a 30,000 square foot full-service
spa in April of 2000. The 389 guest room Renaissance Houston Hotel, located in
the center of Greenway Plaza, will undergo substantial renovation including
improvements to all guest rooms, the lobby, corridors and exterior and interior
systems. The estimated $15.0 million renovation project is scheduled to be
completed in October of 2000. Both of these projects will be funded from cash
flows provided by operating activities, additional debt financing or combination
thereof.
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
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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 or 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 December 31, 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:
o Additional proceeds from the refinancing of existing secured and
unsecured debt;
o Additional debt secured by existing unencumbered properties, investment
properties, or by investment property acquisitions or developments;
o Issuances of Operating Partnership units; and
o Joint venture arrangements.
REIT QUALIFICATION
The Company intends to maintain its qualification as a REIT under
Section 856(c) of 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.
On December 17, 1999, President Clinton signed into law the REIT
Modernization Act which will become effective after December 31, 2000, and
contains a provision that would permit the Company to own and operate certain
types of investments that are currently owned by COI. The REIT Modernization Act
is expected to reduce the number of business opportunities that the Company
would otherwise offer to COI pursuant to the Intercompany Agreement between the
Company and COI, which provides each party with rights to participate in certain
transactions. The Company has expressed an interest to COI in certain of the
businesses currently owned or operated by COI that the REIT Modernization Act
would allow the Company to own or operate. The Company is exploring alternatives
with COI regarding a potential future transaction with respect to certain of
COI's assets.
53
<PAGE> 55
DEBT FINANCING ARRANGEMENTS
The significant terms of the Company's primary debt financing
arrangements existing as of December 31, 1999 are shown below (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST BALANCE
RATE AT OUTSTANDING AT
MAXIMUM DECEMBER 31, EXPIRATION DECEMBER 31,
DESCRIPTION BORROWINGS 1999 DATE 1999
- ---------------------------------------- --------------- --------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Secured Fixed Rate Debt:
AEGON Note (1) $ 278,392 7.53% July 2009 $ 278,392
LaSalle Note I (2) 239,000 7.83 August 2027 239,000
JP Morgan Mortgage Note (3) 200,000 8.31 October 2016 200,000
LaSalle Note II (4) 161,000 7.79 March 2028 161,000
CIGNA Note (5) 63,500 7.47 December 2002 63,500
Metropolitan Life Note I (6)(7) 11,388 8.88 September 2001 11,388
Metropolitan Life Note II (8) 43,623 6.93 December 2002 43,623
Metropolitan Life Note V (9) 39,700 8.49 December 2005 39,700
Northwestern Life Note (10) 26,000 7.65 January 2003 26,000
Nomura Funding VI Note (7)(11) 8,480 10.07 July 2020 8,480
Rigney Promissory Note (12) 723 8.50 November 2012 723
----------- ----- -----------
Subtotal/Weighted Average $ 1,071,806 7.83% $ 1,071,806
----------- ----- -----------
Secured Variable Rate Debt (13):
BankBoston Term Note I (14)(18) $ 320,000 9.38% October 2001 $ 320,000
BankBoston Term Note II (15) 200,000 9.38 August 2003 200,000
SFT Whole Loans, Inc. Note (16) 97,123 7.36 September 2001 97,123
----------- ----- -----------
Subtotal/Weighted Average $ 617,123 9.06% $ 617,123
----------- ----- -----------
Unsecured Fixed Rate Debt:
Notes due 2007 (17) $ 250,000 7.50% September 2007 $ 250,000
Notes due 2002 (17) 150,000 7.00 September 2002 150,000
----------- ----- -----------
Subtotal/Weighted Average $ 400,000 7.31% $ 400,000
----------- ----- -----------
Unsecured Variable Rate Debt:
Credit Facility (18) $ 560,000 7.65% June 2000 $ 510,000
----------- ----- -----------
Total/Weighted Average $ 2,648,929 8.01% $ 2,598,929
=========== ===== ===========
</TABLE>
- ----------
(1) The outstanding principal balance at maturity of this note will be
approximately $223 million.
(2) 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, to be applied first against principal until the note is paid in
full and thereafter, against accrued excess interest. 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. Organization and Basis of
Presentation of Item 8. Financial Statements and Supplementary Data). The
note agreement restricts Funding I from engaging in certain activities,
including incurring liens on the Properties securing the note, pledging the
Properties securing the note, incurring certain other indebtedness
canceling a material claim or debt owed to it, entering into certain
transactions 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) On September 14, 1999, the Company refinanced the $184,299 Salomon Brothers
Realty Corp. Note with this note. The additional proceeds of $15,701 were
used to pay indebtedness outstanding under the BankBoston Credit Facility.
The refinancing did not include the Four Seasons Hotel - Houston that had
served as partial collateral for the Salomon Brothers Realty Corp. Note. At
the end of seven years (October 2006), the loan reprices based on current
interest rates at this time. It is the Company's intention to repay the
note in full at such time (October 2006) by making a final payment of
approximately $179.0 million.
(4) 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 $154.0 million. LaSalle Note II is
secured by Properties owned by Funding II (See Note 1. Organization and
Basis of Presentation of Item 8. Financial Statements and Supplementary
Data). The note agreement restricts Funding II from engaging in certain
activities, including incurring liens on the Properties securing the note,
pledging the Properties securing the note, incurring certain other
indebtedness canceling a material claim or debt owed to it, entering into
certain affiliate transactions, 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.
(5) The note requires payments of interest only during its term. The CIGNA Note
is secured by the MCI Tower and Denver Marriott City Center Hotel Property.
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.
54
<PAGE> 56
(6) The note requires monthly payments of principal and interest based on
20-year amortization schedule through maturity, at which time the
outstanding principal balance is due and payable. The Metropolitan Note I
is secured by five of The Woodlands Office Properties which are under
contract for sale. The note agreement has no negative covenants.
(7) The note was assumed in connection with an acquisition and was not
subsequently retired by the Company because of prepayment penalties.
(8) 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 the Energy Centre Office 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.
This note was transferred to the new owner of Energy Centre upon its sale
on January 18, 2000.
(9) On December 1, 1999, the Company refinanced the Metropolitan Life Note III
with the Metropolitan Life Note V. The original note of $40 million had a
fixed interest rate of 7.74% and was scheduled to mature on December 1,
1999. The Metropolitan Life Note V requires monthly principal and interest
payments based on a 25-year amortization schedule through maturity, at
which time the outstanding principal balance is due and payable. The
Metropolitan Note is secured by the Datran Center Office Property.
(10) The note requires payments of interest only during its term. The
Northwestern Life Note is secured by the 301 Congress Avenue Office
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.
(11) 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. Organization and Basis of Presentation of 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.
(12) 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.
(13) For the method of calculation of the interest rate for the Company's
variable-rate debt (other than the Credit Facility), see Note 7. Notes
Payable and Borrowings under Credit Facility of Item 8. Financial
Statements and Supplementary Data.
(14) 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. 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. The note is secured by a first lien on the 3333 Lee Parkway, Frost
Bank Plaza, Four Westlake, Central Park Plaza, Bank One Tower, Washington
Harbour and Greenway I and IA Office Properties in addition to the two
Properties listed above. 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.
(15) The Company entered into the BankBoston Term Note II on September 14, 1999.
The loan bears interest at LIBOR plus 325 basis points. This loan is
secured by partnership interests in two pools of underleveraged assets. 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. The proceeds were used to repay the $150 million
BankBoston Bridge Loan, and to repay $50 million of outstanding
indebtedness under the BankBoston Credit Facility. On February 1, 2000, the
Company renegotiated certain terms and covenants under this note. As a
result, the interest rate on the facility increased to 30-day LIBOR plus
400 basis points. The Company entered into a four-year $200 million cash
flow hedge agreement with Salomon in a separate transaction related to the
BankBoston Term Note II. Pursuant to this agreement, the Company will pay
Salomon on a quarterly basis a 6.183% fixed interest rate, and Salomon will
pay the Company a floating 90-day LIBOR rate based on the same quarterly
reset dates.
(16) The note bears interest at the rate of LIBOR plus 175 basis points and
requires payment of interest only during its term. The SFT 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.
(17) The notes are unsecured and require payments of interest only during their
terms. 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. The notes were issued in an offering registered with the SEC.
(18) At December 31, 1999, the Company's borrowing capacity under the Credit
Facility was limited to $560.0 million, of which $510.0 million was
outstanding. The interest rate on advances under the Credit Facility was
the Eurodollar rate plus 137 basis points. The Credit Facility required 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. The
Company was in compliance with the financial covenants related to the
Credit Facility for the December 31, 1999 reporting period. On February 4,
2000, the Credit Facility and the BankBoston Term Note I were repaid and
retired primarily with the proceeds from the New Facility, a new $850.0
million secured, variable-rate facility from UBS. See "Liquidity and
Capital Resources - New Facility" for a description of the New Facility.
55
<PAGE> 57
Below are the aggregate principal amounts due as of December 31, 1999
under the Credit Facility and other indebtedness of the Company by year.
Scheduled principal installments and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
----------- --------- -----------
(in thousands)
<S> <C> <C> <C>
2000 $ 5,913 $ 510,000 $ 515,913
2001 444,975 - 444,975
2002 105,560 150,000 255,560
2003 315,515 - 315,515
2004 53,129 - 53,129
Thereafter 763,837 250,000 1,013,837
----------- --------- -----------
$ 1,688,929 $ 910,000 $ 2,598,929
=========== ========= ===========
</TABLE>
See "Liquidity and Capital Resources - New Facility" above for a
description of the repayment and retiring of the Credit Facility subsequent to
December 31, 1999, primarily with the proceeds of the New Facility.
The Company's policy with regard to the incurrence and maintenance of
debt is based on a review and analysis of:
o investment opportunities for which capital is required and the
cost of debt in relation to such investment opportunities;
o the type of debt available (secured or unsecured);
o the effect of additional debt on existing coverage ratios;
o the maturity of the proposed debt in relation to maturities of
existing debt; and
o exposure to variable-rate debt and alternatives such as
interest rate swaps and cash flow hedges to reduce this
exposure.
The Company's debt service coverage ratio for the years ended December
31, 1999 and 1998 was approximately 2.8 and 3.1, respectively. Debt service
coverage for a 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 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. The Company's New Facility requires a debt service
coverage ratio of 2.0.
SIGNIFICANT DEBT REFINANCINGS
On June 30, 1999, the Company refinanced the Greenway Plaza Office
Property complex with a $280 million, secured, fixed-rate mortgage loan, bearing
interest at a fixed rate of 7.53%. The proceeds were primarily used to repay
the $115 million existing note on the complex and to pay approximately $149
million in settlement of the Forward Share Purchase Agreement with UBS.
On September 14, 1999, the Company obtained a $200 million note from
BankBoston ("BankBoston Term Note II") secured by partnership interests in two
pools of assets which also secure the La Salle Notes I an II. This new loan has
a four-year term and a floating interest rate based on 30-day LIBOR plus 325
basis points. On February 1, 2000, the Company renegotiated certain terms and
covenants under this note. As a result, the interest rate on the facility
increased to 30-day LIBOR plus 400 basis points. The proceeds were used to repay
the $150 million short-term Bridge Loan with BankBoston in full and reduce the
amount outstanding under the BankBoston Credit Facility by $50 million. The
Company has entered into a four-year $200 million cash flow hedge agreement with
Salomon in a separate transaction related to this financing. Pursuant to this
agreement, the Company will pay Salomon a 6.183% fixed interest rate on a
quarterly basis, and Salomon will pay the Company a floating 90-day LIBOR rate
based on the same quarterly reset dates.
On September 15, 1999, the Company refinanced the $184 million Salomon
Brothers Note which secured the Houston Center mixed-use Office Property
complex, with a $200 million, secured, fixed-rate mortgage loan through J.P.
Morgan Investment Management, Inc. The replacement loan has a seven-year term
and bears interest at a fixed rate of 8.31%. The Houston Center mixed-use
Office Property secures the replacement loan but the Four Seasons Hotel -
Houston, which served as partial collateral for the original loan, does not
serve as collateral for the replacement loan. The proceeds of the replacement
loan were primarily used to repay the $184 million Salomon Brothers Note in
full and to reduce the amount outstanding under the BankBoston Credit Facility
by approximately $15 million.
56
<PAGE> 58
FUNDS FROM OPERATIONS
FFO, based on the definition adopted by the Board of Governors of the
NAREIT and as used in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring
and sales of property;
o excluding adjustments not of a normal or recurring
nature;
o plus depreciation and amortization of real estate
assets; and
o after adjustments for unconsolidated partnerships
and joint ventures.
NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT 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:
o 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);
o is not necessarily indicative of cash flow available to fund
cash needs; and
o should not be considered as an alternative to net income
determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from
operating activities determined in accordance with GAAP as a
measure of either liquidity or the Company's ability to make
distributions.
The Company has historically distributed an amount less than FFO,
primarily due to reserves required for capital expenditures, including leasing
costs. The aggregate cash distributions paid to shareholders and unitholders for
the year ended December 31, 1999 and 1998 were $298.1 and $220.6 million,
respectively.
An increase or decrease in FFO does not necessarily result in an
increase or decrease in aggregate distributions because the Company's Board of
Trust Managers is not required to increase distributions on a quarterly basis
unless necessary for 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 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 reported in the consolidated financial statements and notes to the
financial statements. However, the Company's measure of FFO may not be
comparable to similarly titled measures of other REITs because these REITs may
apply the definition of FFO in a different manner than the Company.
57
<PAGE> 59
STATEMENTS OF FUNDS FROM OPERATIONS
(DOLLARS AND SHARES/UNITS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net income $ 10,959 $ 165,600
Adjustments:
Depreciation and amortization of real estate assets 128,403 115,678
Settlement of merger dispute 15,000 --
Gain on behavioral healthcare facility disposition (439) --
Carrying value in excess of market value of
assets held for sale 16,800 --
Impairment and other charges related to the
behavioral healthcare assets 136,435 --
Write-off of costs associated with unsuccessful
acquisitions -- 18,435
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and retail properties 6,110 2,530
Temperature-Controlled Logistics Segment 22,400 28,115
Residential development properties 31,725 25,379
Other 611 --
Unitholder minority interest 1,273 16,111
Preferred share dividends (13,500) (11,700)
--------- ---------
Funds from operations(1) $ 355,777 $ 360,148
========= =========
Investment Segments:
Office and Retail Segment $ 367,830 $ 325,442
Hospitality Segment 64,079 52,375
Behavioral Healthcare Segment 15,488 55,295
Temperature-Controlled Logistics Segment 37,439 28,626
Residential Development Segment 74,597 58,892
Corporate general & administrative (16,274) (16,264)
Interest expense (192,033) (152,214)
Preferred share dividends (13,500) (11,700)
Other(2) 18,151 19,696
--------- ---------
Funds from operations $ 355,777 $ 360,148
========= =========
Basic weighted average shares/units 135,954 132,429
========= =========
Diluted weighted average shares/units(3) 137,892 140,388
========= =========
</TABLE>
- ------------------------
(1) To calculate basic funds from operations, deduct Unitholder minority
interest.
(2) Includes interest and other income, net of gain on behavioral healthcare
facility dispostion, less depreciation and amortization of non-real assets
and amortization of deferred financing costs.
(3) See calculations for the amounts presented in the reconciliation following
this table.
The following schedule reconciles the Company's basic weighted average
shares/units to the diluted weighted average shares/units presented above:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------
(SHARES/UNITS IN THOUSANDS) 1999 1998
------- -------
<S> <C> <C>
Basic weighted average shares/units: 135,954 132,429
Add: Assumed conversion of preferred shares -- 3,478
Share and unit options 1,675 3,903
Forward Share Purchase Agreement 263 395
Equity Swap Agreement -- 183
------- -------
Diluted weighted average shares/units 137,892 140,388
======= =======
</TABLE>
58
<PAGE> 60
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Funds from operations $ 355,777 $ 360,148
Adjustments:
Depreciation and amortization of non-real estate assets 2,311 1,631
Settlement of merger dispute (15,000) --
Write-off costs associated with unsuccessful acquisitions -- (18,435)
Other charges related to the behavioral healthcare assets (32,662) --
Gain on behavioral healthcare property disposition 439 --
Amortization of deferred financing costs 10,283 6,486
Minority interest in joint ventures profit and depreciation
and amortization 2,054 2,272
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies (60,846) (56,024)
Change in deferred rent receivable (636) (34,047)
Change in current assets and liabilities 38,241 (6,138)
Equity in earnings in excess of distributions received from
unconsolidated companies (17,202) --
Distributions received in excess of equity in earnings from
unconsolidated companies -- 9,308
Preferred share dividends 13,500 11,700
Non-cash compensation 118 174
--------- ---------
Net cash provided by operating activities $ 296,377 $ 277,075
========= =========
</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, 1999, 1998 and 1997, attributable to signed leases, all of which have
commenced or will commence during the next twelve months (i.e. the renewal or
replacement tenant began or will begin to pay rent) for the Office 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 necessarily equal the cash paid for tenant
improvement and leasing costs during such period due to timing of payments.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Capital Expenditures (in thousands) $ 6,048 $ 5,107 $ 3,310
Per square foot $ 0.19 $ 0.16 $ 0.15
TENANT IMPROVEMENT AND LEASING COSTS:(1)
Replacement Tenant Square Feet 1,259,660 850,325 584,116
Renewal Tenant Square Feet 1,385,911 923,854 1,001,653
Tenant Improvement Costs (in thousands) $ 14,339 $ 8,552 $ 10,958
Per square foot leased $ 5.42 $ 4.82 $ 6.91
Tenant Leasing Costs (in thousands) $ 7,804 $ 5,358 $ 6,601
Per square foot leased $ 2.95 $ 3.02 $ 4.16
Total (in thousands) $ 22,143 $ 13,910 $ 17,559
Total per square foot $ 8.37 $ 7.84 $ 11.07
Average lease term 4.5 years 5.4 years 6.4 years
Total per square foot per year $ 1.87 $ 1.44 $ 1.73
</TABLE>
- -------------------------
(1) Excludes leasing activity for leases that have less than a one-year term
(i.e., storage and temporary space).
59
<PAGE> 61
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
Office and Retail Property portfolio. The Company maintains an active preventive
maintenance program in order to minimize required capital improvements. In
addition, certain capital improvement costs are recoverable from tenants.
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 and Retail Properties will approximate on average for "renewal
tenants" $6.00 to $10.00 per square foot, or $1.20 to $2.00 per square foot per
year based on an average five-year lease term, and, on average for "replacement
tenants," $12.00 to $16.00 per square foot, or $2.40 to $3.20 per square foot
per year based on an average five-year lease term.
YEAR 2000 COMPLIANCE
Overview
The year 2000 issue related 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 related to whether non-Information Technology ("IT") systems
that depend on embedded computer technology would recognize the year 2000.
Systems that did 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 issues
associated with the year 2000 problem. The group completed its assessment of the
Company's year 2000 readiness by way of a comprehensive review of IT and non-IT
systems at the Company's principal executive offices and at the Company's
Properties. The group completed its remediation and testing of any systems that
were identified as being date sensitive.
YEAR 2000 DISCLOSURE
The Company did not experience any significant disruptions as a result
of the year 2000 issues. The Company dismantled the year 2000 command center and
re-deployed the members of the year 2000 project team. However, the Company will
continue to monitor all areas of the Company for any year 2000 related issues
that may surface, but with the passing of time, the likelihood of an issue is
negligible.
The total costs to repair and replace IT and non-IT systems were
$0.75 million which was below the estimated costs of $1.2 million, and did not
have a material adverse effect on the Company's financial condition or results
of operations.
Although unlikely, given that the Company has not experienced any year
2000 problems to date, there can be no certainty that any future unforeseen year
2000 problem will not adversely affect the Company's results of operations,
liquidity or financial position or adversely affect the Company's relationships
with its customers, suppliers, vendors or others.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's use of financial instruments, such as debt instruments
and its Share Repurchase 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, investment
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 the Company's variable-rate debt and the
Share Repurchase Agreement and in the market price of the Company's common
shares as such changes relate to the Share Repurchase 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 had total
outstanding debt of approximately $2.6 billion at December 31, 1999, of which
approximately $0.9 billion, or 34.6%, was variable-rate unhedged debt. The
weighted average interest rate on such variable-rate debt was 8.22% as of
December 31, 1999. A 10% (82.2 basis point) increase in the weighted average
interest rate on such variable-rate debt would result in an annual decrease in
net income and cash flows of approximately $7.6 million based on the
variable-rate debt outstanding as of December 31, 1999, as a result of the
increased interest expense associated with the change in rate. Conversely, a 10%
(82.2 basis point) decrease in the weighted average interest rate on such
variable-rate debt would result in an annual increase in net income and cash
flows of approximately $7.6 million based on the variable rate debt outstanding
as of December 31, 1999, as a result of the decreased interest expense
associated with the change in rate.
In September 1999, the Company entered into a four-year cash flow hedge
agreement with Salomon Brothers Holding Company, Inc. ("Salomon") The cash flow
hedge agreement has a notional amount of $200.0 million relating to the
BankBoston Term Note II. Pursuant to this agreement, the Company will pay
Salomon on a quarterly basis at 6.183% fixed interest rate and Salomon will pay
the Company at a floating 90-day LIBOR rate based on the same quarterly reset
dates. The underlying note, which was originally issued at a floating interest
rate of 30-day LIBOR plus 325 basis points, was effectively converted to a fixed
weighted average interest rate of 9.43% through maturity. Effective February 1,
2000, the Company renegotiated certain terms and covenants under the BankBoston
Term Note II. At such time, the interest rate on the facility increased to
30-day LIBOR plus 400 basis points, and consequently increased the effective
fixed weighted average interest rate to 10.18% through maturity. As of December
31, 1999, the cash flow hedge agreement resulted in $0.3 million of additional
interest expense.
In addition, the Company's settlement obligations under the Share
Repurchase Agreement with UBS described in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Share Repurchase
Agreement, are subject to interest rate risk, specifically changes in the 30-day
LIBOR rate.
60
<PAGE> 62
MARKET PRICE RISK
The Share Repurchase 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. Assuming the Company elects to settle in common
shares on January 4, 2001 and the market price of the common shares decreases by
10% from the $18.38 per share closing price of the common shares on December 31,
1999, and assuming no change in the 30-day LIBOR rate from the rate at December
31, 1999, the Company will issue an additional 133,982 common shares. Assuming
the Company elects to settle in common shares on January 4, 2001, and the market
price of the common shares increases by 10% from the $18.38 per share closing
price of the common shares of December 31, 1999, and assuming no change in the
30-day LIBOR rate from December 31, 1999, UBS will return to the Company 133,982
common shares. The issuance of additional common shares under the terms of the
Share Repurchase Agreement would 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 Share
Repurchase Agreement in cash.
61
<PAGE> 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants......................................................... 63
Consolidated Balance Sheets at December 31, 1999 and 1998........................................ 64
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997....... 65
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998
and 1997 ........................................................................................ 66
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997....... 67
Notes to Consolidated Financial Statements....................................................... 68
Schedule III Consolidated Real Estate Investments and Accumulated Depreciation .................. 98
</TABLE>
62
<PAGE> 64
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, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, 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 a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our 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,
March 24, 2000
63
<PAGE> 65
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Investments in real estate:
Land $ 398,754 $ 400,690
Land held for development or sale 95,760 95,282
Buildings and improvements 3,529,344 3,569,774
Furniture, fixtures and equipment 71,716 63,626
Less - accumulated depreciation (507,520) (387,457)
----------- -----------
Net investments in real estate 3,588,054 3,741,915
Cash and cash equivalents 72,926 110,292
Restricted cash and cash equivalents 87,939 46,841
Accounts receivable, net 37,204 32,730
Deferred rent receivable 74,271 73,635
Investments in real estate mortgages and equity
of unconsolidated companies 812,494 743,516
Notes receivable, net 131,542 183,974
Other assets, net 146,131 110,544
----------- -----------
Total assets $ 4,950,561 $ 5,043,447
=========== ===========
LIABILITIES:
Borrowings under Credit Facility $ 510,000 $ 660,000
Notes payable 2,088,929 1,658,156
Accounts payable, accrued expenses and other liabilities 170,984 149,444
----------- -----------
Total liabilities 2,769,913 2,467,600
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS:
Operating partnership, 6,975,952 and 6,545,528 units,
respectively 99,226 126,575
Investment joint ventures 24,648 26,727
----------- -----------
Total minority interests 123,874 153,302
----------- -----------
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, 1999
and 1998 200,000 200,000
Common shares, $.01 par value, authorized 250,000,000 shares,
121,537,353 and 124,555,447 shares issued and outstanding
at December 31, 1999 and 1998, respectively 1,208 1,245
Additional paid-in capital 2,229,680 2,336,621
Deferred compensation on restricted shares (41) (88)
Retained deficit (386,532) (110,196)
Accumulated other comprehensive income (loss) 12,459 (5,037)
----------- -----------
Total shareholders' equity 2,056,774 2,422,545
----------- -----------
Total liabilities and shareholders' equity $ 4,950,561 $ 5,043,447
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
64
<PAGE> 66
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Office and retail properties $ 614,493 $ 563,005 $ 363,324
Hotel properties 65,237 53,355 37,270
Behavioral healthcare properties 41,091 55,295 29,789
Interest and other income 25,458 26,688 16,990
--------- --------- ---------
Total revenues 746,279 698,343 447,373
--------- --------- ---------
EXPENSES:
Real estate taxes 84,401 75,076 44,154
Repairs and maintenance 44,024 41,160 27,783
Other rental property operating 128,723 126,733 86,931
Corporate general and administrative 16,274 16,264 12,858
Interest expense 192,033 152,214 86,441
Amortization of deferred financing costs 10,283 6,486 3,499
Depreciation and amortization 131,657 118,082 74,426
Settlement of merger dispute 15,000 -- --
Carrying value in excess of market value of
asset held for sale 16,800 -- --
Impairment and other charges related to the
behavioral healthcare properties 162,038 -- --
Write-off of costs associated with
unsuccessful acquisitions -- 18,435 --
--------- --------- ---------
Total expenses 801,233 554,450 336,092
--------- --------- ---------
Operating income (loss) (54,954) 143,893 111,281
OTHER INCOME AND EXPENSES:
Equity in net income of unconsolidated
companies:
Office and retail properties 5,265 4,159 629
Temperature-controlled logistics properties 15,039 512 1,200
Residential development properties 42,871 33,517 18,770
Other 5,122 1,129 3,144
--------- --------- ---------
Total other income and expenses 68,297 39,317 23,743
--------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 13,343 183,210 135,024
Minority interests (2,384) (17,610) (17,683)
--------- --------- ---------
NET INCOME 10,959 165,600 117,341
PREFERRED SHARE DISTRIBUTIONS (13,500) (11,700) --
RETURN ON SHARE REPURCHASE AGREEMENT (583) -- --
FORWARD SHARE PURCHASE
AGREEMENT RETURN (4,317) (3,316) --
--------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ (7,441) $ 150,584 $ 117,341
========= ========= =========
PER COMMON SHARE DATA:
Net Income (loss) - Basic $ (0.06) $ 1.26 $ 1.25
========= ========= =========
Net Income (loss) - Diluted $ (0.06) $ 1.21 $ 1.20
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
65
<PAGE> 67
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Shares Common Shares
---------------------------- ----------------------------
Shares Net Value Shares Par Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 -- -- -- --
Unrealized Net Loss on Available-For-Sale Securities -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 1998 8,000,000 200,000 124,555,447 1,245
Issuance of Common Shares -- -- 168,140 1
Exercise of Common Share Options -- -- 2,899,960 24
Cancellation of Restricted Shares -- -- (216) --
Amortization of Deferred Compensation -- -- -- --
Issuance of Common Shares in Exchange for Operating
Partnership Units -- -- 453,828 4
Preferred Share Conversion Adjustment -- -- 12,356 --
Forward Share Purchase Agreement -- -- 747,598 7
Settlement of Forward Share Purchase Agreement -- -- (7,299,760) (73)
Dividends Paid -- -- -- --
Net Loss -- -- -- --
Unrealized Net Gain on Available-For-Sale Securities -- -- -- --
Other Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY, December 31, 1999 8,000,000 $ 200,000 121,537,353 $ 1,208
============ ============ ============ ============
<CAPTION>
Deferred Accumulated
Additional Compensation Retained Other
Paid-in on Restricted Earnings Comprehensive
Capital Shares (Deficit) Income Total
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, December 31, 1996 $ 905,724 $ (364) $ (40,561) $ -- $ 865,160
Common Share Offerings 1,317,873 -- -- -- 1,318,324
Issuance of Common Shares 28,245 -- -- -- 28,248
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 -- -- -- 1,018
Exercise of Common Share Options 1,421 -- -- -- 1,422
Amortization of Deferred Compensation -- 91 -- -- 91
Crescent Operating, Inc. share distribution -- -- (10,474) -- (10,474)
Dividends Paid -- -- (123,813) -- (123,813)
Net Income -- -- 117,341 -- 117,341
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1997 2,253,928 (283) (57,507) -- 2,197,317
Issuance of Common Shares 62,072 -- 687 -- 62,786
Issuance of Preferred Shares (9,000) -- -- -- 416,000
Exercise of Common Share Options 725 -- -- -- 725
Cancellation of Restricted Shares (100) 100 -- -- --
Amortization of Deferred Compensation -- 95 -- -- 95
Issuance of Common Shares in Exchange for Operating
Partnership Units 4,846 -- -- -- 4,849
Settlement of Equity Swap Agreement (200,766) -- (8,466) -- (209,299)
Preferred Share Conversion 224,916 -- -- -- --
Forward Share Purchase Agreement -- -- -- -- 19
Dividends Paid -- -- (198,810) -- (198,810)
Net Income -- -- 153,900 -- 153,900
Unrealized Net Loss on Available-For-Sale Securities -- -- -- (5,037) (5,037)
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31,1998 2,336,621 (88) (110,196) (5,037) 2,422,545
Issuance of Common Shares 3,850 -- -- -- 3,851
Exercise of Common Share Options 32,610 -- -- -- 32,634
Cancellation of Restricted Shares (6) 6 -- -- --
Amortization of Deferred Compensation -- 41 -- -- 41
Issuance of Common Shares in Exchange for Operating
Partnership Units 1,935 -- -- -- 1,939
Preferred Share Conversion Adjustment -- -- -- -- --
Forward Share Purchase Agreement -- -- -- -- 7
Settlement of Forward Share Purchase Agreement (145,330) -- (3,981) -- (149,384)
Dividends Paid -- -- (269,814) -- (269,814)
Net Loss -- -- (2,541) -- (2,541)
Unrealized Net Gain on Available-For-Sale Securities -- -- -- 17,216 17,216
Other Comprehensive Income -- -- -- 280 280
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY, December 31, 1999 $ 2,229,680 $ (41) $ (386,532) $ 12,459 $ 2,056,774
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
66
<PAGE> 68
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,959 $ 165,600 $ 117,341
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 141,940 124,568 77,925
Impairment charge related to the
behavioral healthcare real estate assets 103,773 -- --
Carrying value in excess of market value of
asset held for sale 16,800 -- --
Minority interests 2,384 17,610 17,683
Non-cash compensation 118 174 172
Distributions received in excess of equity in earnings
from unconsolidated companies -- 9,308 --
Equity in earnings net of distributions received
from unconsolidated companies (17,202) -- (12,536)
Changes in assets and liabilities:
Accounts receivable (4,474) (2,551) (14,850)
Deferred rent receivable (636) (34,047) (23,371)
Other assets 30,857 (22,612) (29,029)
Restricted cash and cash equivalents (9,682) (3,161) (417)
Accounts payable, accrued expenses and other
liabilities 21,540 22,186 78,796
----------- ----------- -----------
Net cash provided by operating activities 296,377 277,075 211,714
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investment properties -- (530,807) (1,523,735)
Development of investment properties (27,781) (31,875) (9,012)
Capital expenditures - rental properties (20,254) (31,339) (22,005)
Tenant improvement and leasing costs - rental properties (58,462) (68,779) (53,886)
Changes in assets and liabilities:
Restricted cash and cash equivalents (31,416) (2,152) (4,229)
Investment in unconsolidated companies (93,869) (147,208) (278,001)
Investment in residential development corporations 13,722 35,613 (270,174)
Notes receivable 52,432 (27,298) (127,786)
Escrow deposits (500) 5,760 (5,600)
----------- ----------- -----------
Net cash used in investing activities (166,128) (798,085) (2,294,428)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (16,665) (9,567) (12,132)
Borrowings under Credit Facility 51,920 672,150 1,171,000
Payments under Credit Facility (201,920) (362,150) (861,000)
Debt proceeds 929,700 418,100 1,127,596
Debt payments (498,927) (376,301) (493,203)
Capital distributions - joint venture partner (3,190) (2,951) (2,522)
Net proceeds from common share offerings -- 40,992 1,345,291
Proceeds from exercise of common share options 32,634 725 1,422
Net proceeds from preferred share offerings -- 416,000 --
Distribution of Crescent Operating, Inc. shares to
unitholders of Operating Partnership and shareholders
of Crescent Equities -- -- (11,907)
Settlement of Forward Share Purchase Agreement (149,384) -- --
Preferred dividends (13,500) (11,700) --
Dividends and unitholder distributions (298,283) (220,618) (140,801)
----------- ----------- -----------
Net cash (used in) provided by financing activities (167,615) 564,680 2,123,744
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,366) 43,670 41,030
CASH AND CASH EQUIVALENTS,
Beginning of period 110,292 66,622 25,592
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
End of period $ 72,926 $ 110,292 $ 66,622
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
67
<PAGE> 69
CRESCENT REAL ESTATE EQUITIES COMPANY
NOTES TO CONSOLIDATED 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 (a "REIT") for federal income tax purposes, and,
together with its subsidiaries, provides management, leasing and development
services to some of its properties.
The term "Company" includes, unless the context otherwise requires,
Crescent Equities, a Texas REIT, and all of its direct and indirect
subsidiaries.
The direct and indirect subsidiaries of Crescent Equities at December
31, 1999 include:
o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP;
The Operating Partnership
o CRESCENT REAL ESTATE EQUITIES, LTD.; The General
Partner of the Operating Partnership
o SEVEN SEPARATE 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 the qualification of Crescent Equities as a REIT.
SEGMENTS
As of December 31, 1999, the Company's assets and operations were
composed of five major investment segments:
o Office and Retail Segment;
o Hospitality Segment;
o Residential Development Segment;
o Temperature-Controlled Logistics Segment; and
o Behavioral Healthcare Segment.
Within these segments, the Company owned directly or indirectly the
following real estate assets (the "Properties") as of December 31, 1999:
o OFFICE AND RETAIL SEGMENT consisted of 89 office properties
(collectively referred to as the "Office Properties") located in
31 metropolitan submarkets in nine states, with an aggregate of
approximately 31.8 million net rentable square feet and seven
retail properties (collectively referred to as the "Retail
68
<PAGE> 70
Properties") with an aggregate of approximately 0.8 million net
rentable square feet. See Note 17. Dispositions.
o HOSPITALITY SEGMENT consisted of five upscale business class
hotels with a total of 2,168 rooms, three luxury resorts and spas
with a total of 516 rooms and two Canyon Ranch destination
fitness resorts and spas 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"). The Omni Austin
Hotel is leased to HCD Austin Corporation.
o RESIDENTIAL DEVELOPMENT SEGMENT consisted of 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,
currently own 14 residential development properties (collectively
referred to as the "Residential Development Properties").
o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT (FORMERLY THE
REFRIGERATED STORAGE SEGMENT) consisted of the Company's indirect
39.6% interest in three partnerships (collectively referred to as
the "Temperature-Controlled Logistics Partnerships"), each of
which owns one or more corporations or limited liability
companies (collectively referred to as the
"Temperature-Controlled Logistics Corporations") which, as of
December 31, 1999, directly or indirectly owned 89
temperature-controlled logistics properties (collectively
referred to as the "Temperature-Controlled Logistics Properties")
with an aggregate of approximately 428.3 million cubic feet (17.0
million square feet). This segment was restructured in 1999, and
the new ownership structure was effective as of March 12, 1999.
See Note 5. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies.
o BEHAVIORAL HEALTHCARE SEGMENT consisted of 88 properties in 24
states (collectively referred to as the "Behavioral Healthcare
Properties") that were leased to Charter Behavioral Health
Systems, LLC ("CBHS") and its subsidiaries. CBHS was formed to
operate the behavioral healthcare business located at the
Behavioral Healthcare Properties and is owned 10% by a subsidiary
of Magellan Health Services, Inc. ("Magellan") and 90% by COI and
an affiliate of COI. On February 16, 2000, CBHS and all of its
subsidiaries that are subject to the master lease with the
Company filed voluntary Chapter 11 bankruptcy petitions in the
United States Bankruptcy Court of the District of Delaware. Of
these 88 Behavioral Healthcare Properties, 37 are designated as
the "Core Properties" for the conduct of CBHS's business and
remain subject to a master lease. The other 51 Behavioral
Healthcare Properties, at which CBHS has ceased operations or is
planning to cease operations, are designated as the "Non-Core
Properties", and were being actively marketed for sale at
December 31, 1999. See Note 17. Dispositions and Note 18. CBHS
for a description of the current status of CBHS and the Company's
investment in the Behavioral Healthcare Properties.
See Note 4. Segment Reporting for a table showing revenues and funds
from operations for each of these investment segments for the years ended
December 31, 1999, 1998, and 1997 and identifiable assets for each of these
investment segments at December 31, 1999 and 1998.
The following table shows, by subsidiary, the Properties such subsidiaries owned
as of December 31, 1999:
<TABLE>
<CAPTION>
<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,
Funding I, L.P.: The Crescent Atrium, The Crescent Office Towers,
("Funding I") Regency Plaza One, UPR Plaza and Waterside Commons
Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Briargate
Funding II, L.P.: Office and Research Center, Hyatt Regency Albuquerque,
("Funding II") Hyatt Regency Beaver Creek, Las Colinas Plaza,
Liberty Plaza I & II, MacArthur Center I & II,
Ptarmigan Place, Stanford Corporate Centre, Two
Renaissance Square and 12404 Park Central
Crescent Real Estate Greenway Plaza Office Properties and Renaissance
Funding III, IV and V, L.P.: Houston Hotel(1)
("Funding III, IV and V")
</TABLE>
69
<PAGE> 71
<TABLE>
<S> <C>
Crescent Real Estate Canyon Ranch-Lenox
Funding VI, L.P.:
("Funding VI")
Crescent Real Estate 88 Behavioral Healthcare
Properties
Funding VII, L.P.
("Funding VII")
</TABLE>
- -------------------
(1) Funding III owns nine of the 10 Office Properties in the Greenway Plaza
Office portfolio and the Renaissance Houston Hotel; Funding IV owns the
central heated and chilled water plant building located at Greenway
Plaza; and Funding V owns Coastal Tower, the remaining Office Property
in the Greenway Plaza Office portfolio.
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.
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:
NET 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, improvements and leasing of real estate are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings and Improvements 5 to 40 years
Tenant Improvements Terms of leases
Furniture, Fixtures and Equipment 3 to 10 years
</TABLE>
An impairment loss is recognized on a property by property basis on
Properties classified as held for use, when expected undiscounted cash flows are
less than the carrying value of the Property. In cases where the Company does
not expect to recover its carrying costs on a Property, the Company reduces its
carrying costs to fair value, and for Properties held for disposition, the
Company reduces its carrying costs to the fair value less costs to sell. See
Note 17. Dispositions and Note 18. CBHS for a description of
impairment losses recognized during 1999 for one of the Office Properties and
the Behavioral Healthcare Properties.
Depreciation expense is not recognized on Properties once classified as
held for disposition.
CONCENTRATION OF REAL ESTATE INVESTMENTS
The Company's Office Properties are located primarily in the
Dallas/Fort Worth and Houston, Texas metropolitan areas. As of December 31,
1999, the Office Properties in Dallas/Fort Worth and Houston represented
approximately 72% of the Company's office portfolio based on total net rentable
square feet. The Dallas/Fort Worth Office Properties accounted for approximately
39% of that amount, and the Houston Office Properties accounted for the
remaining approximately 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.
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<PAGE> 72
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash and cash equivalents.
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, deferred financing
costs, and marketable securities. Leasing costs are amortized on a straight-line
basis during the terms of the respective leases, and unamortized leasing 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. Marketable securities are considered available-for-sale and are marked to
market value on a monthly basis. The corresponding unrealized gains and losses
are included in accumulated other comprehensive income.
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
The Company does not use derivative financing instruments for trading
purposes, but utilizes them to manage exposure to variable rate debt. The
Company accounts for its derivative instruments under Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which was adopted in the third quarter of 1999.
Under SFAS No. 133, the Company's derivatives are considered cash flow
hedges which are used to mitigate the variability of cash flows. On a monthly
basis, the cash flow hedge is marked to fair value through comprehensive income
(outside earnings), and on a monthly basis the cash flow hedge's gain or loss
is reported in earnings when the interest on the underlying debt affects
earnings.
On November 19, 1999, the Company entered into an agreement with UBS AG
("UBS") that UBS would purchase the Company's common shares, and the Company
would be obligated to repurchase a portion of its common shares from UBS. The
Company may settle the agreement in cash or common shares at its option.
Therefore, the Company accounts for the transaction as an equity transaction.
The guaranteed return to UBS is equal to 30-day LIBOR plus 250 basis points, and
is accounted for as a preferred dividend.
71
<PAGE> 73
FAIR VALUE OF FINANCIAL INSTRUMENTS
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 with BankBoston N.A. ("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, 1999 and 1998.
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 COI pursuant to nine
separate leases (See Note 16. 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. 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. In 1999, percentage
rental income was recognized on an accrual basis. In December 1999, the SEC
staff released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition",
which prohibits contingent revenue from being accrued until the thresholds upon
which it is based have been met. However, SAB No. 101 had no material impact on
the Company's financial statements for the year ended December 31, 1999, because
all of the thresholds upon which percentage rental income is based had been met
by December 31, 1999. In accordance with SAB No. 101, percentage rental income
will not be recognized in the year 2000 until the thresholds upon which it is
based are met. Management does not believe this change will have a material
impact on its interim or annual financial statements.
BEHAVIORAL HEALTHCARE PROPERTIES The Company has leased the Behavioral
Healthcare Properties to CBHS and its subsidiaries under a triple-net lease.
CBHS's business has been negatively affected by many factors, including adverse
industry conditions. During 1999, CBHS failed to perform in accordance with its
operating budget. In the third quarter of 1999, the Company began to reflect
CBHS rent on a cash basis, and will continue to reflect rent on a cash basis
going forward. In the third quarter of 1999, the Company wrote-off the rent that
was deferred according to the CBHS lease agreement from the commencement of the
lease in June 1997 through June 30, 1999. The balance written-off totaled
$25,600. The Company deferred cash rent payments for November and December 1999
due from CBHS. See Note 18. CBHS for further discussion regarding the status of
CBHS, including the filing of voluntary Chapter 11 bankruptcy petitions
subsequent to December 31, 1999, and the status of the Company's investment in
the Behavioral Healthcare Properties.
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<PAGE> 74
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.
EARNINGS PER SHARE
SFAS No. 128 "Earnings Per Share" ("EPS") specifies the computation,
presentation and disclosure requirements for earnings per share. Basic EPS
excludes all dilution while 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,
-------------------------------------------------------------------------
1999 1998
---------------------------------- -----------------------------------
Wtd. Avg. Per Share Wtd. Avg. Per Share
Loss Shares Amount Income Shares Amount
--------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS -
Net income (loss) available
to common shareholders $ (7,441) 122,876 $ (0.06) $ 150,584 119,443 $ 1.26
========= =========
Effect of dilutive securities:
Share and unit options -- 1,674 -- 3,903
Assumed conversion of Series B
preferred shares -- -- -- 3,478
Additional common shares
obligation relating to:
Equity swap agreement -- -- -- 183
Forward share purchase
agreement -- 263 3,316 395
--------- --------- --------- --------- --------- ---------
Diluted EPS -
Net income (loss) available
to common shareholders $ (7,441) 124,813 $ (0.06) $ 153,900 127,402 $ 1.21
========= ========= ========= ========= ========= =========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997
---------------------------------
Wtd. Avg. Per Share
Income Shares Amount
--------- ------ ---------
<S> <C> <C> <C>
Basic EPS -
Net income (loss) available
to common shareholders $ 117,341 93,709 $ 1.25
=========
Effect of dilutive securities:
Share and unit options -- 4,138
Assumed conversion of
preferred shares -- --
Additional common shares
obligation relating to:
Equity swap agreement -- --
Forward share purchase
agreement -- --
--------- --------- ---------
Diluted EPS -
Net income (loss) available
to common shareholders $ 117,341 97,847 $ 1.20
========= ========= =========
</TABLE>
The effect of the conversion of the Series A Convertible Cumulative
Preferred Shares is not included in the computation of Diluted EPS for the years
ended December 31, 1999 and 1998, since the effect of their conversion is
antidilutive.
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<PAGE> 75
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.
SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid ................................................... $ 188,819 $ 145,603 $ 78,980
Additional interest paid in conjunction with cash flow
hedge ........................................................ 344 -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Operating Partnership units to common
shares with resulting reduction in minority interest
and increases in common shares and additional
paid-in capital .............................................. $ 1,939 $ 4,849 $ 1,018
Issuance of Operating Partnership units in conjunction
with settlement of an obligation ............................ 1,786 19,972 --
Common share obligation in conjunction with an
investment................................................... -- 21,000 1,200
Two-for-one common share dividend ............................... -- -- 362
Mortgage note assumed in conjunction with property
acquisitions ................................................. -- 46,934 97,923
Debt incurred in conjunction with the termination of
equity swap agreement ....................................... -- 184,299 --
Acquisition of partnership interests ............................ 3,774 -- --
Unrealized gain (loss) on available-for-sale securities ......... 17,216 5,037 --
Forward Share Purchase Agreement Return ......................... 4,317 3,316 --
Return on Share Repurchase Agreement ............................ 583 -- --
Impairment and other charges related to the
behavioral healthcare assets ............................... 162,038 -- --
Carrying value in excess of market value of asset held
for sale ................................................... 16,800 -- --
Adjustment of cash flow hedge to fair value...................... 280 -- --
</TABLE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted 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 statements of
shareholders' equity. At December 31, 1999, the Company's comprehensive income
balance was $12,459, primarily attributable to unrealized gains on marketable
securities. In 1998, the Company's comprehensive income balance was ($5,037),
primarily attributable to unrealized losses on marketable securities. Prior to
1998, the Company's comprehensive income was not material to the Company's
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
74
<PAGE> 76
shareholders. This statement was effective for financial statements for periods
beginning after December 15, 1997. See Note 4. Segment Reporting.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, 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. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", which
deferred the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company elected
to implement SFAS No. 133 in the third quarter of 1999. See Note 8. Cash Flow
Hedges for a description of the impact on the Company's financial statements for
the year ended December 31,1999.
In December 1999, the SEC staff released SAB No. 101, which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB No. 101 prohibits contingent revenue from being
accrued until the thresholds upon which it is based have been met. In 1999,
percentage rental income was recognized on an accrual basis. However, SAB No.
101 had no material impact on the Company's financial statements for the year
ended December 31, 1999, because all of the thresholds upon which percentage
rental income is based had been met by December 31, 1999. In accordance with SAB
No. 101, percentage rental income will not be recognized in the year 2000 until
the thresholds upon which it is based are met. Management does not believe this
change will have a material impact on its interim or annual financial
statements.
3. PROPERTIES HELD FOR DISPOSITION:
Office and Retail Segment
In pursuit of management's objective to dispose of non-strategic or
non-core assets, at December 31, 1999, the Company was actively marketing for
sale its wholly-owned interests in 10 Office Properties, which are included in
the Net Investment in Real Estate of $3,588,054. The carrying value of these
Properties at December 31, 1999 was approximately $183,323. The Company
continually evaluates the portfolio of Properties held for disposition. In the
fourth quarter of 1999, two Properties in Dallas, Texas were removed from the
original pool of 12 Properties held for disposition. Six of the Properties are
located in Dallas, Texas, two are located in New Orleans, Louisiana, one is
located in Denver, Colorado and one is located in Omaha, Nebraska. During the
year ended December 31, 1999, bids were received on these Properties either
individually or in various combinations. Management is currently in the process
of evaluating the bids for the remaining Office Properties to determine their
economic viability as well as the credit-worthiness of the potential purchasers
and their ability to close the transactions. The disposition of these Properties
remains subject to the negotiation of acceptable terms and other customary
conditions. The Company anticipates completing any economically justified sales
of these Office Properties by the end of the second quarter of 2000.
The following table summarizes the condensed results of operations for
the year ended December 31, 1999 and 1998 for the 10 Office Properties held for
disposition. These Properties are classified as held for sale, and depreciation
expense has not been recognized since June 30, 1999.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998
------- -------
<S> <C> <C>
Revenue $39,214 $38,190
Operating Expenses 18,120 16,390
------- -------
Net Operating Income $21,094 $21,800
======= =======
</TABLE>
See Note 17. Dispositions for a description of the impairment loss
recognized on one of these Office Properties and a description of the
disposition of certain properties subsequent to December 31, 1999.
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<PAGE> 77
Behavioral Healthcare Segment
The 51 Non-Core Behavioral Healthcare Properties were classified as
held for disposition at December 31, 1999, and depreciation expense has not been
recognized since November 10, 1999. The carrying value for these Properties at
December 31, 1999 was approximately $124,700. The Company is actively marketing
the Non-Core Properties for sale. See Note 17. Dispositions for a description of
the sale of certain Non-Core Properties.
Other
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain property assets (multi-family, retail, and office/venture tech
portfolios) located in The Woodlands. These assets include the Company's 12
Office Properties and four Retail Properties located in The Woodlands.
4. SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" beginning with the year ended December 31,
1998. The Company currently has five major investment segments: the Office and
Retail Segment; the Hospitality Segment; the Temperature-Controlled Logistics
Segment; the Residential Development Segment; and the Behavioral Healthcare
Segment. Management organizes the segments within the Company based on property
type for making operating decisions and assessing performance. Investment
segments for SFAS No. 131 are determined on the same basis.
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 in this document, means:
o Net Income (Loss) - determined in accordance with GAAP;
o excluding gains (or losses) from debt restructuring and sales of
property;
o excluding adjustments not of a normal or recurring nature;
o plus depreciation and amortization of real estate assets; and
o after adjustments for unconsolidated partnerships and joint
ventures.
NAREIT developed FFO as a relative measure of performance and liquidity
of an equity REIT 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 for an equity REIT, and for its
operating segments. However, the Company's measure of FFO may not be comparable
to similarly titled measures of other REITs because these REITs may apply the
definition of FFO in a different manner than the Company.
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<PAGE> 78
Selected financial information related to each segment for the years
ended December 31, 1999, 1998 and 1997 is presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Office and Retail Properties $ 614,493 $ 563,005 $ 363,324
Hospitality Properties 65,237 53,355 37,270
Behavioral Healthcare Properties 41,091 55,295 29,789
Temperature-Controlled Logistics Properties -- -- --
Residential Development Properties -- -- --
Corporate and Other 25,458 26,688 16,990
----------- ----------- -----------
TOTAL CONSOLIDATED REVENUE $ 746,279 $ 698,343 $ 447,373
=========== =========== ===========
FUNDS FROM OPERATIONS:
Office and Retail Segment $ 367,830 $ 325,442 $ 204,243
Hospitality Segment 64,079 52,375 36,439
Behavioral Healthcare Segment 15,488 55,295 29,789
Temperature-Controlled Logistics Segment 37,439 28,626 2,200
Residential Development Segment 74,597 58,892 25,623
Corporate and other adjustments
Interest expense (192,033) (152,214) (86,441)
Preferred share dividends (13,500) (11,700) --
Interest and other income 18,151 19,696 15,401
Corporate general & administrative (16,274) (16,264) (12,858)
----------- ----------- -----------
TOTAL FUNDS FROM OPERATIONS $ 355,777 $ 360,148 $ 214,396
----------- ----------- -----------
ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO
CONSOLIDATED NET INCOME:
Depreciation and amortization of real estate assets $ (128,403) $ (115,678) $ (72,503)
Settlement of merger dispute (15,000) -- --
Carrying value in excess of market value of asset
held for sale (16,800) -- --
Impairment and other charges related to the
behavioral healthcare assets (136,435) -- --
Write-off costs associated with unsuccessful acquisitions -- (18,435) --
Gain on behavioral healthcare property disposition 439 -- --
Unitholder minority interests (1,273) (16,111) (16,249)
Adjustment for investments in real estate mortgages
and equity of unconsolidated companies:
Office and Retail Properties (6,110) (2,530) (451)
Temperature-Controlled Logistics Properties (22,400) (28,115) (1,000)
Residential Development Properties (31,725) (25,379) (6,852)
Other (611) -- --
Preferred share dividends 13,500 11,700 --
----------- ----------- -----------
CONSOLIDATED NET INCOME $ 10,959 $ 165,600 $ 117,341
=========== =========== ===========
EQUITY IN NET INCOME OF UNCONSOLIDATED
COMPANIES:
Office and Retail Properties $ 5,265 $ 4,159 $ 629
Hospitality Properties -- -- --
Behavioral Healthcare Properties -- -- --
Temperature-Controlled Logistics Properties 15,039 512 1,200
Residential Development Properties 42,871 33,517 18,770
Corporate and other 5,122 1,129 3,144
----------- ----------- -----------
TOTAL EQUITY IN NET INCOME OF
UNCONSOLIDATED COMPANIES $ 68,297 $ 39,317 $ 23,743
=========== =========== ===========
IDENTIFIABLE ASSETS:
Office and Retail Segment $ 3,301,979 $ 3,214,208 $ 2,651,877
Hospitality Segment 458,266 453,583 363,424
Behavioral Healthcare Segment 249,049 386,434 384,796
Temperature-Controlled Logistics Segment 293,243 277,856 153,994
Residential Development Segment 279,197 289,615 317,950
Other 368,827 421,751 307,939
----------- ----------- -----------
TOTAL IDENTIFIABLE ASSETS $ 4,950,561 $ 5,043,447 $ 4,179,980
=========== =========== ===========
</TABLE>
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<PAGE> 79
During 1999, COI and CBHS were the Company's two largest lessees in
terms of total consolidated rental revenues derived from leases. Total rental
revenues from COI and total cash rental revenues from CBHS for the year ended
December 31, 1999 were approximately 8% and 5% respectively, of the Company's
total consolidated rental revenues. COI was the lessee for nine of the Hotel
Properties for the year ended December 31, 1999, and CBHS was the sole lessee of
the Behavioral Healthcare Properties during that period. Due to its
reorganization and bankruptcy proceedings, CBHS will no longer be one of the
Company's largest lessees. See Note 18. CBHS.
See Note 5. Investments in Real Estate Mortgages and Equity of
Unconsolidated Companies for a description of the sole lessee of the
Temperature-Controlled Logistics Properties.
5. 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, 1999
- -------------------------------------------- ------------------------------------- --------------------------------
<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 99%(2)
Crescent CS Holdings II Corp. Crescent Subsidiary 99%(2)
The Woodlands Commercial Office and Retail (various commercial
Properties Company, L.P. properties)(3) 42.50%
Main Street Partners, L.P. Office and Retail (office property -
Bank One Center) 50%
DBL Holdings, Inc. Other(4) 95%
Metropolitan Partners, LLC Other (5)
CRL Investments, Inc. Other 95%
</TABLE>
- ---------------------
(1) See Item 2. Properties and the Residential Development Properties Table
included in that section for the Residential Development Corporation's
ownership interest in the Residential Development Properties.
(2) The Crescent Subsidiaries have a 39.6% interest in each of the
Temperature-Controlled Logistics Partnerships. Accordingly, each of the
Crescent Subsidiaries has an indirect 39.6% interest in the
Temperature-Controlled Logistics Properties. See "Temperature-Controlled
Logistics" section below.
(3) See the "Office and Retail Segment" section below for more information
regarding certain commercial property assets that the Company intends to
sell.
(4) See Note 17. Dispositions for more information regarding certain interests
that the Company has sold.
(5) See "Other" section below for a description of the Company's investment in
Metropolitan Partners, LLC.
RESIDENTIAL DEVELOPMENT PROPERTIES
On April 29, 1999, a partnership in which Crescent Development
Management Corporation ("CDMC") has a 64% economic interest finalized the
purchase of Riverfront Park (previously known as "The Commons"), a master
planned residential development on 23 acres in the Central Platte Valley near
downtown Denver, Colorado for approximately $25,000. In the first quarter of
2000, the partnership has entered into contracts relating to the sale of 9.7
acres of Riverfront Park, which is expected to close in the second quarter of
2000. The acreage is in close proximity to several major entertainment and
recreational facilities including Coors Field (home to the Major League
Baseball's Colorado Rockies), Elitch Gardens (an amusement park) the new Pepsi
Center (home to the National Hockey League's Colorado Avalanche and the National
Basketball Association's Denver Nuggets), and the new downtown Commons Park.
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<PAGE> 80
TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES
As of December 31, 1999, the Company held an indirect 39.6% interest in
the Temperature-Controlled Logistics Partnerships, which own the
Temperature-Controlled Logistics Corporations, which directly or indirectly own
the Temperature-Controlled Logistics Properties. The business operations
associated with the Temperature-Controlled Logistics Properties are owned by
AmeriCold Logistics, which is owned 60% by Vornado Operating L.P. and 40% by a
subsidiary of COI, in which the Company has no interest. COI holds an indirect
0.4% interest in the Temperature-Controlled Logistics Partnerships. COI has an
option to require the Company to purchase COI's remaining 1% economic interest,
representing all of the voting stock, 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 $3,400.
AmeriCold Logistics, as sole lessee of the Temperature-Controlled
Logistics Properties, entered into triple-net master leases of the
Temperature-Controlled Logistics Properties with certain of the
Temperature-Controlled Logistics Corporations. Each of the
Temperature-Controlled Logistics 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. Under the leases, AmeriCold Logistics is required to pay for
all costs arising from the operation, maintenance and repair of property, as
well as property capital expenditures in excess of $5,000 annually. For the
period of March 12, 1999 to December 31, 1999, base rent and percentage rent was
approximately $135,800 of which base rent represented approximately 80%.
AmeriCold Logistics has the right to defer a portion of the rent for up to three
years beginning on March 12, 1999 to the extent that available cash, as defined
in the leases, is insufficient to pay such rent, and pursuant thereto, rent was
deferred as of December 31, 1999, of which the Company's share was $2,138.
OFFICE AND RETAIL PROPERTIES
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain property assets (multi-family, retail and office/venture tech
portfolios) located in The Woodlands. As of December 31, 1999, the multi-family
portfolio had been sold. See Note 17. Dispositions for a description of the sale
of these properties.
OTHER
Metropolitan
On December 8, 1998, Tower Realty Trust ("Tower"), Reckson Associates
Realty Corporation ("Reckson"), and Metropolitan Partners, LLC ("Metropolitan")
entered into a revised agreement and plan of merger that superseded the merger
agreement to which the Company was a party. Under the revised agreement,
Metropolitan agreed to acquire Tower for a combination of cash and Reckson
exchangeable Class B common shares. The Company, Reckson and Metropolitan agreed
that the Company's investment in Metropolitan would be an $85,000 preferred
member interest in Metropolitan. In connection with the revised agreement, the
Company contributed $10,000 of the $85,000 required capital contribution to
Metropolitan in December 1998 and contributed the remaining $75,000 to
Metropolitan upon satisfaction of all of the conditions to the funding on May
19, 1999. The Company's $85,000 preferred member interest in Metropolitan at
December 31, 1999 would equate to an approximate 20% equity interest.
The investment has 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
79
<PAGE> 81
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.
CRL Investments, Inc.
The Company has a 95% economic interest, representing all of the
non-voting stock in CRL Investments, Inc. ("CRL"), which has a 20% economic
interest in CR License, LLC, the entity which owns the right to the future use
of the "Canyon Ranch" name. CRL has the opportunity through July 2000 to pay
$3,000 to obtain an additional 10% interest in CR License, LLC. CRL also has an
effective 60% economic interest in the Canyon Ranch Spa Club in the Venetian
Hotel in Las Vegas, Nevada. The Canyon Ranch Spa Club opened in June 1999 and is
the first project to expand the franchise value of the "Canyon Ranch" name.
The Company reports its share of income and losses based on its
ownership interest in its respective equity investments. The following
summarized information for all unconsolidated companies is presented on an
aggregate basis and classified under the captions "Residential Development
Corporations", "Temperature-Controlled Logistics Corporations", "Office and
Retail" and "Other", as applicable, as of December 31, 1999, 1998, and 1997.
80
<PAGE> 82
BALANCE SHEETS:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Real estate, net $ 692,033 $1,335,326 $ 433,632
Cash 30,184 8,295 24,223
Other assets 193,712 187,695 40,067
---------- ---------- ----------
Total assets $ 915,929 $1,531,316 $ 497,922
========== ========== ==========
Notes payable $ 321,655 $ 594,398 $ 296,858
Notes payable to the Company 148,990 11,333 --
Other liabilities 228,657 168,777 24,467
Equity 216,627 756,808 176,597
---------- ---------- ----------
Total liabilities and equity $ 915,929 $1,531,316 $ 497,922
========== ========== ==========
Company's share of unconsolidated debt $ 160,169 $ 235,382 $ 137,779
========== ========== ==========
Company's investments in real estate
mortgages and equity of uncon-
solidated companies $ 279,197 $ 293,243 $ 100,131 $139,923
========== ========== ========== ========
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total revenues $ 502,583 $ 264,266 $ 78,534
Expenses:
Operating expense 394,858 127,516 (1) 27,008
Interest expense 4,920 47,273 19,321
Depreciation and amortization 14,295 54,574 19,273
Taxes 22,549 (6,084) --
--------- -------- --------
Total expenses 436,622 223,279 65,602
--------- -------- --------
Net income $ 65,961 $ 40,987 (1) $ 12,932
========= ======== =========
Company's equity in net income
of unconsolidated companies $ 42,871 $ 15,039 $ 5,265 $ 5,122
========= ========= ========= =========
</TABLE>
- ----------------------------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the Total Combined Assets).
81
<PAGE> 83
BALANCE SHEETS:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
---------------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Real estate, net $ 623,106 $1,308,059 $ 475,322
Cash 25,849 14,219 31,047
Other assets 156,782 420,934 16,485
---------- ---------- ----------
Total assets $ 805,737 $1,743,212 $ 522,854
========== ========== ==========
Notes payable $ 295,998 $ 617,166 $ 258,000
Notes payable to the Company 164,578 -- --
Other liabilities 131,874 396,836 42,193
Equity 213,287 729,210 222,662
---------- ---------- ----------
Total liabilities and equity $ 805,737 $1,743,212 $ 522,855
========== ========== ==========
Company's share of unconsolidated debt $ 137,098 $ 234,523 $ 121,275
========== ========== ==========
Company's investments in real estate
mortgages and equity of
unconsolidated companies $ 289,615 $ 277,856 $ 113,625 $ 62,421
========== ========== ========== ==========
</TABLE>
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------------
TEMPERATURE-
RESIDENTIAL CONTROLLED
DEVELOPMENT LOGISTICS OFFICE AND
CORPORATIONS CORPORATIONS RETAIL OTHER
---------------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Total revenues $ 372,378 $ 567,845 $ 69,326
Expenses:
Operating expense 283,138 448,972(1) 28,259
Interest expense 4,231 45,701 17,962
Depreciation and amortization 8,572 59,363 13,959
Taxes 21,227 4,548 --
---------- ---------- ----------
Total expenses 317,168 558,584 60,180
---------- ---------- ----------
Net income $ 55,210 $ 9,261(1) $ 9,146
========== ========== ==========
Company's equity in net income
of unconsolidated companies $ 33,517 $ 512 $ 4,159 $ 1,129
========== ========== ========== ==========
</TABLE>
- -----------------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the Total Combined Assets).
SUMMARY STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------------------
TEMPERATURE-
CONTROLLED
LOGISTICS
RESIDENTIAL CORPORATIONS,
DEVELOPMENT OFFICE AND RETAIL,
CORPORATIONS AND OTHER
------------ -----------------
<S> <C> <C>
Total revenues $ 173,764 $ 103,796
Total expenses 151,090 90,995(1)
---------- ----------
Net income $ 22,674 $ 12,801(1)
========== ==========
Company's equity in net income
of unconsolidated companies $ 18,770 $ 4,973
========== ==========
</TABLE>
- -----------------
(1) Inclusive of the management fee paid to Vornado Realty Trust (1% per annum
of the Total Combined Assets).
82
<PAGE> 84
6. OTHER ASSETS, NET:
Other assets, net consist of the following:
<TABLE>
<CAPTION>
BALANCE AT DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Leasing costs $ 99,232 $ 76,385
Deferred financing costs 41,564 35,655
Escrow deposits 550 50
Prepaid expenses 2,759 2,829
Marketable securities 40,944 17,688
Other 21,548 26,456
--------- ---------
206,597 159,063
Less - Accumulated amortization (60,466) (48,519)
--------- ---------
$ 146,131 $ 110,544
========= =========
</TABLE>
7. NOTES PAYABLE AND BORROWINGS UNDER CREDIT FACILITY:
The following is a summary of the Company's debt financing at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
BALANCE AT DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
SECURED DEBT
BankBoston, N.A. ("BankBoston") Term Note I(1) due October 30, 2001, bears
interest at the Eurodollar rate plus 325 basis points or the Base Rate (as
defined in the Term Note Agreement) plus 100 basis points (at December 31,
1999, the rate was 9.38% based on the Eurodollar rate) with a three-year
interest-only term, secured by Greenway I and IA, Four Westlake Park,
Washington Harbour, Bank One Tower, Frost Bank Plaza, Central Park Plaza, 3333
Lee Parkway, The Addison, and Reverchon Plaza Office Properties with
a combined book value of $416,852 ............................................. $320,000 $260,000
AEGON Note(2) due July 1, 2009, bears interest at 7.53% with monthly principal
and interest payments based on a 25-year amortization schedule, secured by the
Funding III, IV and V Properties with a combined book value of $234,700 ........ 278,392 --
LaSalle Note I(3) 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,
secured by the Funding I Properties with a combined book value of
$292,385 ....................................................................... 239,000 239,000
BankBoston Term Note II(4) due August 13, 2003, bears interest at the 30-day
LIBOR rate plus 325 basis points (at December 31, 1999, the interest rate was
9.38%) with a four-year interest only term, secured by equity interests in
Funding I and II valued at approximately $200,000 .............................. 200,000 --
JP Morgan Mortgage Note(5) due October 1, 2016, bears interest at a fixed rate
of 8.31% with a two- year interest-only term, secured by the Houston Center
mixed-use Office Property complex with a combined book value of $245,865 ....... 200,000 --
</TABLE>
83
<PAGE> 85
<TABLE>
<CAPTION>
BALANCE AT DECEMBER 31,
1999 1998
--------- ----------
<S> <C> <C>
Merrill Lynch Promissory Note (subsequently sold in 1999 to Salomon Brothers
Realty Corp.) due September 14, 1999, 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 at December 31, 1998 .............................................. -- 184,299
LaSalle Note II(6) 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, secured
by the Funding II Properties with a combined book value of $302,881.................. 161,000 161,000
LaSalle Note III(7) due July 1999, bears interest at 30-day LIBOR plus a
weighted average interest 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 at
December, 31, 1998 .................................................................. -- 115,000
SFT Whole Loans, Inc. ("SFT") Note due September 30, 2001, bears interest at 30-day
LIBOR plus an average rate of 1.75% (at December 31, 1999, the rate was 7.36%)
with an interest-only term, secured by the Fountain Place Office Property with
a combined book value of $112,794 ................................................... 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 $97,116 ................................ 63,500 63,500
Metropolitan Life Note II(8) 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 combined book
value of $56,731 .................................................................... 43,623 44,364
Metropolitan Life Note III(9) due December 1999, bears interest at 7.74% with an
interest-only term, secured by the Datran Center Office Property with a combined
book value of $70,076 at December 31, 1998 .......................................... -- 40,000
Metropolitan Life Note V(9) due December 2005, bears interest at 8.49% with
monthly principal and interest payments based on a 25-year amortization
schedule, secured by the Datran Center Office Property with a combined book
value of $70,374 .................................................................... 39,700 --
Northwestern Life Note due January 2003, bears interest at 7.65% with an
interest-only term, by the 301 Congress Avenue Office Property with a combined
book value of $45,275 ............................................................... 26,000 26,000
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 $14,677 ............................................................... 11,388 11,777
Nomura Funding VI Note(10) bears interest at 10.07% with monthly principal and
interest payments based on a 25-year amortization schedule through maturity in
July 2020, secured by the Funding VI Property with a combined book value of
$33,418 ............................................................................. 8,480 8,586
</TABLE>
84
<PAGE> 86
<TABLE>
<CAPTION>
BALANCE AT DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
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 at December 31, 1998 ................................................... -- 6,752
Rigney Promissory Note due November 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 value of $16,886 .................. 723 755
UNSECURED DEBT
Line of Credit with BankBoston ("Credit Facility")(1) (see description of
Credit Facility below) ......................................................... 510,000 660,000
2007 Notes(11) bear interest at a fixed rate of 7.50% with a ten-year
interest-only term, due September 2007 ......................................... 250,000 250,000
2002 Notes(11) bear interest at a fixed rate of 7.00% with a five-year
interest-only term, due September 2002 ......................................... 150,000 150,000
---------- ----------
Total Notes Payable $2,598,929 $2,318,156
========== ==========
</TABLE>
- --------------------
(1) On February 4, 2000, the BankBoston Term Note I and the Credit Facility
were repaid and retired primarily with the proceeds of a new facility
("New Facility"), an $850,000 secured, variable-rate facility from UBS
described in greater detail below.
(2) The outstanding principal balance at maturity of this note will be
approximately $223,000.
(3) 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.
(4) The Company entered into the BankBoston Term Note II Loan on September 14,
1999. This loan is secured by partnership interests in two pools of
underleveraged assets. The proceeds were used to repay the $150,000
BankBoston Bridge Loan and to repay $50,000 of outstanding indebtedness
under the BankBoston Credit Facility. On February 1, 2000, the Company
renegotiated certain terms and covenants under this Note. As a result, the
interest rate on the facility increased to 30-day LIBOR plus 400 basis
points. The Company entered into a four-year $200,000 cash flow hedge
agreement effective September 1, 1999 with Salomon Brothers Holding
Company, Inc. in a separate transaction related to the BankBoston Term
Note II. See Note 8. Cash Flow Hedges.
(5) On September 14, 1999, the Company refinanced the $184,299 Salomon Brothers
Realty Corp. Note with this note. The additional proceeds of $15,701 were
used to pay indebtedness outstanding under the BankBoston Credit Facility.
The refinancing did not include the Four Seasons Hotel that had served as
partial collateral for the Salomon Brothers Realty Corp. Note. At the end
of seven years (October 2006), the loan reprices based on current interest
rates at this time. It is the Company's intention to repay the note in full
at such time (October 2006) by making a final payment of approximately
$1,790.
(6) 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.
(7) In June, 1999, the Company refinanced the Greenway Plaza Office Property
complex with a $280,000 AEGON Note, which was used to repay this note.
(8) In the first quarter of 2000, this note was paid off with proceeds from the
disposition of the Energy Centre Office Property.
(9) On December 1, 1999, the Company refinanced the Metropolitan Life Note III
with the Metropolitan Life Note V.
(10) 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 at that date.
(11) The notes were issued in an offering registered with the SEC.
85
<PAGE> 87
Below are the aggregate principal amounts due as of December 31, 1999
under the Credit Facility and other indebtedness of the Company by year.
Scheduled principal installments and amounts due at maturity are included.
<TABLE>
<CAPTION>
SECURED UNSECURED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)
2000 $ 5,913 $ 510,000 $ 515,913
2001 444,975 -- 444,975
2002 105,560 150,000 255,560
2003 315,515 -- 315,515
2004 53,129 -- 53,129
Thereafter 763,837 250,000 1,013,837
------------ ------------ ------------
$ 1,688,929 $ 910,000 $ 2,598,929
============ ============ ============
</TABLE>
The Company had approximately $515,913 of secured and unsecured debt
that was scheduled to expire during 2000, consisting primarily of $510,000 due
under the Credit Facility with BankBoston, which was scheduled to expire in June
2000. In addition, the Company had approximately $444,975 of secured debt
scheduled to expire in 2001, consisting primarily of $320,000 due under the
BankBoston Term Note I. Effective January 31, the Company entered into the New
Facility, a $850,000 secured, variable-rate facility from UBS which refinanced
and extended these debt maturities described in greater detail below.
CREDIT FACILITY
At December 31, 1999, the Company's borrowing capacity under the Credit
Facility was limited to $560,000, of which $510,000 was outstanding. The
interest rate on advances under the Credit Facility was the Eurodollar rate plus
137 basis points. As of December 31, 1999, the weighted average interest rate
was 7.65%. The Credit Facility was unsecured and was scheduled to expire in June
2000. The Credit Facility required 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. The Company was in compliance with the financial covenants related
to the Credit Facility for the December 31, 1999 reporting period. During the
first quarter of 2000, the Credit Facility was repaid and retired primarily
with the proceeds of the New Facility described below.
NEW FACILITY
On February 4, 2000, the Company repaid and retired the Credit Facility
and the BankBoston Term Note I primarily with the proceeds of the New Facility,
a new $850,000 secured, variable-rate facility fully underwritten and funded by
UBS. The New Facility is comprised of three tranches: a three-year $300,000
revolving line of credit (the "UBS Line of Credit"), a $275,000 three-year term
loan ("UBS Term Loan I") and a $275,000 four-year term loan ("UBS Term Loan
II"). Borrowings under the UBS Line of Credit, the UBS Term Loan I and the UBS
Term Loan II at March 24, 2000 were approximately $258,527, $257,213 and
$257,213, respectively. The UBS Line of Credit and the UBS Term Loan I bear
interest at LIBOR plus 250 basis points. The UBS Term Loan II bears interest at
LIBOR plus 275 basis points. The New Facility is secured by 41 Office Properties
and four Hotel Properties. The Company has also entered into a cash flow hedge
agreement related to a portion of the New Facility in a separate transaction
subsequent to December 31, 1999, which is intended to mitigate its exposure to
variable-rate debt. See Note 8. Cash Flow Hedges for a description of this
agreement.
8. CASH FLOW HEDGES
The Company does not use derivative financial instruments for trading
purposes, but occasionally utilizes them to manage exposure to variable rate
debt. The Company accounts for its derivative instruments under SFAS No. 133,
which was adopted in the third quarter of 1999.
86
<PAGE> 88
In September 1999, the Company entered into a four-year cash flow hedge
agreement with Salomon Brothers Holding Company, Inc.("Saloman") The cash flow
hedge agreement is designated as such because it is intended to mitigate the
variability of cash flows. On a monthly basis, the cash flow hedge is marked to
fair value and the cash flow hedge's gain or loss is reported in earnings when
the interest on the underlying debt affects earnings. The cash flow hedge
agreement has a notional amount of $200,000, relating to the BankBoston Term
Note II. Pursuant to this agreement, the Company will pay Salomon on a quarterly
basis at 6.183% fixed interest rate and Salomon will pay the Company a floating
90-day LIBOR rate based on the same quarterly reset dates. The underlying note,
which was originally issued at a floating interest rate of 30-day LIBOR plus 325
basis points, was effectively converted to a fixed weighted average interest
rate of 9.43% through maturity. Effective February 1, 2000, the Company
renegotiated certain terms and covenants under the BankBoston Term Note II. At
such time, the interest rate on the facility increased to 30-day LIBOR plus 400
basis points, and consequently increased the effective fixed weighted average
interest rate to 10.18% through maturity. As of December 31, 1999, the cash flow
hedge agreement resulted in $344 of additional interest expense.
Effective February 4, 2000, the Company entered into a three-year cash
flow hedge agreement with Fleet Boston Financial, for a notional amount of
$200,000, relating to a portion of the New Facility. As a result, $200,000 of
the amount under the note, which was originally issued at a floating interest
rate of LIBOR plus 250 basis points, was effectively converted to a fixed
weighted average interest rate of 9.61% through maturity.
9. 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, 1999 for Properties owned as of March 24, 2000, 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>
2000 $ 424,937 $ 44,036 $ -- $ 468,973
2001 387,864 46,961 -- 434,825
2002 323,476 48,161 -- 371,637
2003 267,603 48,561 -- 316,164
2004 199,964 49,618 -- 249,582
Thereafter 580,040 107,552 -- 687,592
---------- ---------- ---------- ----------
$2,183,884 $ 344,889 $ -- $2,528,773
========== ========== ========== ==========
</TABLE>
For purposes of this Note, the Company has assumed that it will not
receive any future minimum rental revenues from the Behavioral Healthcare
Properties, due to the status of the bankruptcy proceedings of CBHS. See Note
18. CBHS.
Generally, the Office and Retail Property 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 $92,865, $78,708, and $42,385 for the years ended December 31, 1999,
1998 and 1997, 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 rental income from the Hotel
Properties of approximately $19,648, $13,848, and $9,678 for the years ended
December 31, 1999, 1998 and 1997, respectively.
See Note 2. Summary of Significant Accounting Policies, for further
discussion of revenue recognition, and Note 4. Segment Reporting, for further
discussion of significant tenants.
87
<PAGE> 89
10. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company has 14 Properties located on land that is subject to
long-term ground leases which expire between 2015 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, 1999, 1998, and 1997 was
$2,642, $2,482, and $1,247, respectively. Future minimum lease payments due
under such leases as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
LEASES
COMMITMENTS
-----------
<S> <C>
2000 $ 2,275
2001 2,258
2002 2,185
2003 2,191
2004 2,195
Thereafter 99,008
---------
$ 110,112
=========
</TABLE>
CONTINGENCIES
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.
11. 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, 2000, the number of shares the Company may grant
under the 1995 Plan is 9,650,505. Under the 1995 Plan, the Company had granted,
net of forfeitures, options and restricted shares of 7,275,494 and 23,718
respectively, through December 31, 1999. 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,
2,509,800 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, 250,000 options that vest over three and a
half years and 60,000 options that vest six months from the initial date of
grant. The options that have been granted under the 1994 Plan vest over periods
ranging from one to five years.
88
<PAGE> 90
A summary of the status of the Company's 1994 and 1995 Plans as of
December 31, 1999, 1998 and 1997 and changes during the years then ended is
presented in the table below:
STOCK OPTIONS PLANS
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- -----------------------
OPTIONS TO OPTIONS TO OPTIONS 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, 6,967 $ 21 4,943 $ 16 4,681 $ 15
Granted 3,489 16 2,728 32 485 28
Exercised (2,900) 13 (52) 18 (134) 14
Forfeited (895) 30 (652) 29 (89) 21
Expired -- -- -- -- -- --
------ ------ ----- ------ ----- ------
Outstanding/Wtd. Avg. as of December 31, 6,661 $ 21 6,967 $ 21 4,943 $ 16
------ ------ ----- ------ ----- ------
Exercisable/Wtd. Avg. as of December 31, 1,721 $ 24 3,727 $ 15 3,285 $ 14
</TABLE>
The following table summarizes information about the options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER WTD. AVG. YEARS NUMBER
OUTSTANDING REMAINING EXERCISABLE
RANGE OF AT 12/31/99 BEFORE WTD. AVG. AT 12/31/99 WTD. AVG.
EXERCISE PRICES (000) EXPIRATION EXERCISE PRICE (000) EXERCISE PRICE
- --------------- ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$11 to 18 4,210 8.9 years $ 16 674 $ 16
$19 to 27 974 7.9 23 391 23
$28 to 39 1,477 8.2 33 656 32
----- --------- -------- ----- --------
$11 to 39 6,661 8.6 years $ 21 1,721 $ 24
===== ========= ======== ===== ========
</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, 1999, 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. There was no activity in the 1995 Unit Plan in 1999. The 1996 Unit Plan
provides for the grant of options to acquire up to 2,000,000 units, all of which
were granted. 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. In June 1999, Gerald Haddock forfeited approximately 322,000
units as part of his resignation as an officer and director of the Company.
These options are available for grant to participants. In addition, the 1996
Unit Plan was amended in November 1999, to provide for an additional grant of
100,000 unit options, available from such forfeitures, and to allow such unit
options to vest over five years.
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<PAGE> 91
A summary of the status of the Company's 1996 Unit Plan as of December
31, 1999, 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):
1996 UNIT INCENTIVE OPTION PLAN
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
SHARES SHARES SHARES
UNDERLYING WTD. AVG. UNDERLYING WTD. AVG. UNDERLYING WTD. AVG.
UNIT OPTIONS EXERCISE UNIT OPTIONS EXERCISE UNIT OPTIONS EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------------ --------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of January 1, 4,000 $ 18 4,000 $ 18 4,000 $ 18
Granted 200 16 -- -- -- --
Exercised (1,143) 18 -- -- -- --
Forfeited (643) 18 -- -- -- --
Expired -- -- -- -- -- --
------ ------ ----- ------ ----- ------
Outstanding/Wtd. Avg. as of December 31, 2,414 $ 17 4,000 $ 18 4,000 $ 18
------ ------ ----- ------ ----- ------
Exercisable/Wtd. Avg. as of December 31, 1,143 $ 18 1,857 $ 18 1,429 $ 18
</TABLE>
STOCK OPTION AND UNIT PLANS
The Company applies APB No. 25 in accounting for options granted
pursuant to the 1995 Plan, the 1994 Plan and the 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,
---------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss) available to
common shareholders $ (7,441) $ (12,998) $ 150,584 $ 145,155 $ 117,341 $ 114,442
Diluted EPS:
Net Income (Loss) available to
common shareholders $ (7,441) $ (12,998) $ 153,900 $ 143,431 $ 117,341 $ 114,442
Basic Earnings (Loss) per Share $ (0.06) $ (0.11) $ 1.26 $ 1.21 $ 1.25 $ 1.22
Diluted Earnings per Share $ (0.06) $ (0.11) $ 1.21 $ 1.17 $ 1.20 $ 1.17
</TABLE>
Because SFAS No. 123 was not required to be applied to options granted
prior to January 1, 1995, the resulting compensation cost may not be
representative of what is to be expected in future years.
At December 31, 1999, 1998 and 1997, the weighted average fair value of
options granted was $2.80, $5.01, and $6.52, respectively. The fair value of
each option is estimated at the date of grant using the Black-Scholes
option-pricing model using the following expected weighted average assumptions
in the calculation.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Life of options 10 years 10 years 10 years
Risk-free interest rates 8.0% 7.0% 6.7%
Dividend yields 12.0% 7.0% 4.0%
Stock price volatility 27.0% 26.1% 19.3%
</TABLE>
90
<PAGE> 92
12. 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 BankBoston 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 Temperature-Controlled
Logistics Properties. 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 NAREIT.
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 BankBoston Credit
Facility.
On March 25, 1999, the Company issued 12,356 additional common shares
to the former holder of the Series B Preferred Shares, settling a dispute
regarding the calculation of the conversion rate used in the conversion of the
Series B Preferred Shares into the Company's common shares on November 30, 1998.
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 $148,000 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.
On June 30, 1999, the Company settled the forward share purchase
agreement (the "Forward Share Purchase Agreement") with affiliates of the
predecessor of UBS. As settlement of the Forward Share Purchase Agreement, the
Company made a cash payment of approximately $149,000 to UBS in exchange for the
return by UBS to the Company of 7,299,760 common shares.
The number of common shares returned to the Company is equal to the
4,700,000 common shares originally issued to UBS plus 2,599,760 common shares
subsequently issued by the Company, because of a decline in its stock price. The
additional shares were issued as collateral for the Company's obligation to
purchase 4,700,000 common shares from UBS by August 12, 1999. The settlement
price was calculated based on the gross proceeds the Company received from the
original issuance of 4,700,000 common shares to UBS, plus a forward
91
<PAGE> 93
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 represented a guaranteed rate of return to UBS.
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 BankBoston 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 $209,299
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. On
September 14, 1999, this note was refinanced with the JP Morgan Mortgage Note.
SHARE REPURCHASE PROGRAM
On November 5, 1999, the Company's Board of Trust Managers authorized
the repurchase of a portion of its outstanding common shares from time to time
in the open market or through privately negotiated transactions, in an amount
not to exceed $500,000. The proposed repurchases will be subject to prevailing
market conditions and other considerations.
The Company expects the share repurchase program to be funded through a
combination of asset sales and financing arrangements, which, in some cases, may
be secured by the repurchased shares. The amount of shares that the Company
actually will purchase will be determined from time to time, in its reasonable
judgment, based on market conditions and the availability of funds, among other
factors. There can be no assurance that any number of shares actually will be
purchased within any particular time period.
SHARE REPURCHASE AGREEMENT
On November 19, 1999, the Company entered into an agreement with UBS to
repurchase a portion of its common shares from UBS. As of December 31, 1999, the
Company was obligated to repurchase 4,789,580 common shares, or approximately
$84,100 of the Company's common shares. The agreement was amended on January 4,
2000, increasing the number of common shares the Company was obligated to
repurchase from UBS by January 4, 2001 to approximately 5,800,000 common shares,
or approximately $102,000 of the Company's common shares (as amended, the "Share
Repurchase Agreement"). The price the Company will pay for the common shares
(the "Settlement Price") will be calculated based on the average cost of the
common shares purchased by UBS in connection with the Share Repurchase Agreement
plus 30-day LIBOR plus 250 basis points, minus an adjustment for the Company's
distributions during the term of the Share Repurchase Agreement. The guaranteed
rate of return under the agreement is equal to 30-day LIBOR plus 250 basis
points.
The Company may settle the Share Repurchase Agreement in cash or common
shares. In the event that the Company elects to fulfill the Share Repurchase
Agreement in common shares, UBS will sell the common shares on behalf of the
Company on the open market. If, as a result of a decrease in the market price of
the common shares, the number of common shares required to be sold to achieve
the Settlement Price exceeds the number of common shares purchased by UBS in
connection with the agreement, the Company will deliver additional cash or
common shares to UBS. If the Company elects to fulfill the Share Repurchase
Agreement in common shares, and the market price of the common shares is greater
than the Settlement Price, UBS will return a portion of the common shares that
it purchased in the open market to the Company.
If the common share price on the NYSE falls below the Settlement Price
calculated approximately every two weeks, the Company is required to remit cash
collateral to UBS equal to the product of the number of common shares purchased
by UBS and 115% of the difference between the Settlement Price and the closing
price of the common shares as reported on the NYSE. If the Company elects to
settle the Share Repurchase Agreement in cash, any cash collateral held by UBS
will be used to "pay-down" the Settlement Price. If the Company elects to settle
the Share Repurchase Agreement in common shares, UBS will release all claims to
any cash collateral they hold at that time. As of December 31, 1999, no cash
collateral was due to UBS. On February 18, 2000, the Company posted cash
collateral of $8,700 to UBS, as a result of a decline in the common share price.
DISTRIBUTIONS
Common Shares
The distributions to common shareholders and unitholders paid during
the year ended December 31, 1999, were $298,125 or $2.20 per common share and
equivalent unit.
The distributions to common shareholders and unitholders paid during
the year ended December 31, 1998, were $220,618 or $1.69 per common share and
equivalent unit.
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<PAGE> 94
Following is the income tax status of distributions paid on common
shares and equivalent units during the years ended December 31, 1999 and 1998 to
common shareholders:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ordinary income 50.1% 58.8%
Capital gain 2.0% 5.6%
Return of capital 47.9% 35.6%
</TABLE>
Preferred Shares
The distribution to preferred shareholders during the year ended
December 31, 1999, were $13,500 or $1.69 per preferred share.
The distributions to preferred shareholders during the year ended
December 31, 1998, were $11,700 or $1.46 per preferred share.
Following is the income tax status of distributions paid during the
years ended December 31, 1999 and 1998 to preferred shareholders:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Ordinary income 96.4% 94.4%
Capital gain 3.6% 5.6%
</TABLE>
13. SETTLEMENT OF MERGER DISPUTE:
STATION CASINOS, INC. ("STATION")
As of April 14, 1999, the Company and Station entered into a settlement
agreement for the mutual settlement and release of all claims between the
Company and Station arising out of the agreement and plan of merger between the
Company and Station, which the Company terminated in August 1998. As part of the
settlement agreement, the Company paid $15,000 to Station on April 22, 1999.
14. MINORITY INTEREST:
Minority interest represents (i) the limited partnership interests
owned by limited partners in the Operating Partnership ("units"), and (ii) joint
venture interests held by third parties. 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, Crescent Equities' percentage interest in the Operating
Partnership increases. During the year ended December 31, 1999, there were
226,914 units exchanged for 453,828 common shares of Crescent Equities.
15. RELATED PARTY INVESTMENT:
As of December 31, 1999, the Company, upon the approval of the
independent members of its Board of Trust Managers, contributed approximately
$22,500 of a $25,000 commitment to DBL Holdings, Inc. ("DBL"). The Operating
Partnership has a 95% non-voting interest in DBL.
The contribution was used by DBL to invest in DBL-ABC, Inc., which, in
turn, acquired a limited partnership interest of 12.5% in the G2 Opportunity
Fund, LP ("G2"). G2 was formed for the purpose of investing in commercial
mortgage backed securities and is managed by an entity that is owned equally by
Goff Moore Strategic Partners, LP ("GMSP") and GMAC Commercial Mortgage
Corporation. John Goff, Vice-Chairman of the Board of Trust Managers and
President and Chief Executive Officer of the Company, and Darla Moore, who is
married to Richard Rainwater, Chairman of the Board of Trust Managers of the
Company, each own 50% of the
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<PAGE> 95
entity that ultimately controls GMSP. Mr. Rainwater is a limited partner of
GMSP. At December 31, 1999, DBL's primary holdings consisted of the 12.5%
investment in G2.
16. 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 $0.99 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, 1999, COI had
$36,700 and $22,824 outstanding under the line of credit and term loans,
respectively, with the Company.
17. DISPOSITIONS:
Office & Retail Segment
For the year ended December 31, 1999, the Company recognized an
impairment loss of approximately $16,800 on one of the Office Properties held
for disposition, which was sold during the first quarter of 2000. The impairment
loss represented the difference between the carrying value of the Office
Property and the sales price less costs of the sale. As of March 24, 2000, the
Company completed the sale of six wholly-owned Office Properties, which were
included in the group of ten Office Properties held for disposition at December
31, 1999 and were being actively marketed for sale. The sales generated
approximately $146,600 of net proceeds. The proceeds were primarily used to pay
down variable-rate debt. Excluding the impairment loss on one of the six Office
Properties held for disposition at December 31, 1999, the Company recognized a
net gain of approximately $13,300 in the first quarter of 2000, related to the
sales of the other five Office Properties that were classified as held for
disposition at December 31, 1999. In addition, the Company has entered into
contracts relating to the sale of two additional Office Properties.
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<PAGE> 96
Behavioral Healthcare Segment
The Company is actively marketing the Non-Core Properties for sale. The
Non-Core Properties were classified as held for disposition at December 31,
1999, and depreciation expense has not been recognized since November 10, 1999.
From January 1 through March 24, 2000, the Company completed the sale of 11
Non-Core Properties. The sales generated approximately $34,900 in net proceeds.
The proceeds were primarily used to pay down variable-rate debt. The Company has
also entered into contracts or letters of intent to sell an additional six
Non-Core Properties. See Note 18. CBHS.
Other
On October 27, 1999, the Company completed the sale of its non-core
equity and debt interests in the Dallas Mavericks, interest in the new Dallas
sports arena development and surrounding mixed-use development projects, and
certain promissory notes related to the Dallas Mavericks for approximately
$89,000 in cash. In connection with the sale, the Company recognized a net loss
of approximately $700. The proceeds were primarily used to pay down
variable-rate debt.
The Woodlands Commercial Properties Company, L.P., owned by the Company
and Morgan Stanley Real Estate Fund II, L.P., has been actively marketing for
sale certain property assets (multi-family, retail and office/venture tech
portfolios) located in The Woodlands. As of December 31, 1999, the multi-family
portfolio had been sold, generating net proceeds of approximately $28,800, of
which the Company's portion was approximately $12,200. The sale generated a net
gain of approximately $11,600, of which the Company's portion was approximately
4,900. The sale of the retail portfolio, including the Company's four Retail
Properties located in The Woodlands, closed on January 5, 2000, and generated
approximately $49,800 of net proceeds, of which the Company's portion was
approximately $37,300. The Woodlands Retail Properties were sold at a net gain
of approximately $9,000, of which the Company's portion was approximately
$7,700. All of the proceeds were primarily used to pay down variable-rate debt.
18. CBHS:
BEHAVIORAL HEALTHCARE SEGMENT
During the year ended December 31,1999, the Company received cash
rental payments of approximately $35,300 from CBHS. CBHS's business has been
negatively affected by many factors, including adverse industry conditions.
During 1999, CBHS failed to perform in accordance with its operating budget.
In the fourth quarter of 1999, the Company, COI, Magellan and CBHS
completed a recapitalization of CBHS. Pursuant to the recapitalization,
Magellan transferred its remaining hospital-based assets to CBHS, canceled its
accrued franchise fees and terminated the franchise agreements, pursuant to
which Magellan had provided certain services to CBHS in exchange for certain
franchise fees. The Company also deferred the monthly rental payments due from
CBHS for November and December 1999 and amended its master lease with CBHS to
provide a mechanism to terminate the master lease as to the Non-Core
Properties, and agreed that, upon each sale by the Company of a Non-Core
Property, the monthly minimum rent due from CBHS under the master lease would
be reduced by a specified percentage of the net proceeds of such sale. In
addition, the Company obtained appraisals of the underlying behavioral
healthcare real estate assets completed in November 1999.
In connection with the above events, the following financial statement
charges were made with respect to the Company's investment in the Behavioral
Healthcare Properties for the year ended December 31, 1999:
o CBHS rent is reflected on a cash basis beginning in the third quarter of
1999 and CBHS rent will continue to be reflected on a cash basis going
forward;
o The Company wrote-off the rent that was deferred according to the CBHS
lease agreement from the commencement of the lease in June of 1997 through
June 30, 1999. The balance written-off totaled $25,600;
o The Company wrote-down its behavioral healthcare real estate assets by
approximately $103,800, to a book value of $245,000;
o The Company recorded approximately $15,000 of additional expense to
be used by CBHS as working capital; and
o The Company has not recorded depreciation expense on the Non-Core
Properties (as described below) since November 1999, when such Properties
were classified as held for disposition.
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<PAGE> 97
As of December 31, 1999, the Behavioral Healthcare Segment consisted of 88
Behavioral Healthcare Properties in 24 states, all of which were leased to CBHS
and its subsidiaries under a triple-net master lease. Of these 88 Behavioral
Healthcare Properties, 51 are designated as Non-Core Properties and the
remaining 37 are designated as Core Properties. The 51 Non-Core Properties,
which are the Properties at which CBHS has ceased operations or is planning to
cease operations, were being actively marketed for sale at December 31, 1999.
On February 16, 2000, CBHS and all of its subsidiaries that are subject to
the master lease with the Company filed voluntary Chapter 11 bankruptcy
petitions in the United States Bankruptcy Court for the District of Delaware.
CBHS has announced that it intends to sell all of the ongoing businesses of CBHS
and its subsidiaries by mid-May of 2000 or develop an appropriate liquidation
procedure if the sales have not taken place by that time.
Effective February 29, 2000, the Non-Core Properties were terminated from
the master lease. See Note 17. Dispositions for a description of recent
dispositions of Non-Core Properties. The Core Properties remain subject to the
master lease. Payment and treatment of rent for the Behavioral Healthcare
Properties is subject to a rent stipulation agreed to by certain of the parties
involved in the CBHS bankruptcy proceeding.
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<PAGE> 98
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1999
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 185,747 $ 192,397 $ 185,525 $ 182,610
Income before minority interests 39,660 61,313 (113,316) 25,686
Minority interests (3,649) (6,149) 11,034 (3,620)
Net income (loss) applicable to common shareholders
- basic 30,484 49,624 (105,657) 18,108
- diluted 30,484 49,624 (105,657) 18,108
Per share data:
Basic Earnings (loss) Per Common Share 0.24 0.39 (0.88) 0.19
Diluted Earnings (loss) Per Common Share 0.24 0.39 (0.88) 0.19
</TABLE>
<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 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
- diluted 40,833 40,069 26,203 46,795
Per share data:
Basic Earnings Per Common Share 0.35 0.33 0.22 0.37
Diluted Earnings Per Common Share 0.33 0.32 0.21 0.37
</TABLE>
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<PAGE> 99
SCHEDULE III
CRESCENT REAL ESTATE EQUITIES COMPANY
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Impairment
Subsequent to to Carrying
Initial Costs Acquisition Value
------------------------ ----------------- -------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Equipment
- ------------------------------------------------ ---------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
The Crescent Office Towers, Dallas, TX $ 6,723 $ 153,383 $ 77,016 $ --
UPR Plaza, Fort Worth, TX 1,375 66,649 35,444 --
The Citadel, Denver, CO 1,803 17,259 3,928 --
MacArthur Center I & II, Irving, TX 704 17,247 2,984 --
Las Colinas Plaza, Irving, TX 2,576 7,125 1,744 --
Caltex House, Irving, TX 2,200 48,744 1,870 --
Liberty Plaza I & II, Dallas, TX 1,650 15,956 495 --
Regency Plaza One, Denver, CO 950 31,797 1,704 --
Waterside Commons, Irving, TX 3,650 20,135 1,985 --
The Avallon, Austin, TX 475 11,207 52 --
Two Renaissance Square, Phoenix, AZ -- 54,412 6,308 --
Stanford Corporate Centre, Dallas, TX -- 16,493 1,426 --
Hyatt Regency Beaver Creek, Avon, CO 10,882 40,789 9,562 --
The Aberdeen, Dallas, TX 850 25,895 322 --
Barton Oaks Plaza One, Austin, TX 900 8,207 1,435 --
12404 Park Central, Dallas, TX 1,604 14,504 4,846 --
MCI Tower, Denver, CO -- 56,593 708 --
Denver Marriott City Center, Denver, CO -- 50,364 3,966 --
The Woodlands Office Properties, Houston, TX 12,007 35,865 4,911 --
Spectrum Center, Dallas, TX 2,000 41,096 10,460 --
Ptarmigan Place, Denver, CO 3,145 28,815 5,039 --
6225 North 24th Street, Phoenix, AZ 719 6,566 3,182 --
Briargate Office and Research --
Center, Colorado Springs, CO 2,000 18,044 940 --
Albuquerque Plaza, Albuquerque, NM -- 36,667 1,996 --
Hyatt Regency Albuquerque, Albuquerque, NM -- 32,241 2,449 --
3333 Lee Parkway, Dallas, TX 1,450 13,177 3,699 --
301 Congress Avenue, Austin, TX 2,000 41,735 6,314 --
Central Park Plaza, Omaha, NE(2) 2,514 23,236 113 --
Canyon Ranch, Tucson, AZ 14,500 43,038 5,079 --
The Woodlands Office Properties, Houston, TX 2,393 8,523 -- --
Three Westlake Park, Houston, TX 2,920 26,512 735 --
1615 Poydras, New Orleans, LA(2) -- 37,087 2,279 --
Greenway Plaza Office Portfolio, Houston, TX 27,204 184,765 59,226 --
Chancellor Park, San Diego, CA 8,028 23,430 (5,688) --
<CAPTION>
Gross Amount at Which
Carried at Close of Period
--------------------------------------
Buildings,
Improvements,
Furniture,
Fixtures and Accumulated Date of
Description Land Equipment Total Depreciation Construction
- ------------------------------------------------ ---------------- -------------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
The Crescent Office Towers, Dallas, TX $ 6,723 $ 230,399 $ 237,122 $ (147,037) 1985
UPR Plaza, Fort Worth, TX 1,375 102,093 103,468 (40,171) 1982
The Citadel, Denver, CO 1,803 21,187 22,990 (13,902) 1987
MacArthur Center I & II, Irving, TX 880 20,055 20,935 (6,470) 1982/1986
Las Colinas Plaza, Irving, TX 2,581 8,864 11,445 (3,823) 1989
Caltex House, Irving, TX 2,200 50,614 52,814 (7,557) 1982
Liberty Plaza I & II, Dallas, TX 1,650 16,451 18,101 (2,279) 1981/1986
Regency Plaza One, Denver, CO 950 33,501 34,451 (4,884) 1985
Waterside Commons, Irving, TX 3,650 22,120 25,770 (3,772) 1986
The Avallon, Austin, TX 475 11,259 11,734 (1,461) 1986
Two Renaissance Square, Phoenix, AZ -- 60,720 60,720 (9,694) 1990
Stanford Corporate Centre, Dallas, TX -- 17,919 17,919 (3,004) 1985
Hyatt Regency Beaver Creek, Avon, CO 10,882 50,351 61,233 (5,812) 1989
The Aberdeen, Dallas, TX 850 26,217 27,067 (4,247) 1986
Barton Oaks Plaza One, Austin, TX 900 9,642 10,542 (1,519) 1986
12404 Park Central, Dallas, TX 1,604 19,350 20,954 (2,332) 1987
MCI Tower, Denver, CO -- 57,301 57,301 (6,438) 1982
Denver Marriott City Center, Denver, CO -- 54,330 54,330 (8,077) 1982
The Woodlands Office Properties, Houston, TX 12,204 40,579 52,783 (9,560) 1980-1993
Spectrum Center, Dallas, TX 5,125 48,431 53,556 (6,721) 1983
Ptarmigan Place, Denver, CO 3,145 33,854 36,999 (4,453) 1984
6225 North 24th Street, Phoenix, AZ 719 9,748 10,467 (1,450) 1981
Briargate Office and Research
Center, Colorado Springs, CO 2,000 18,984 20,984 (2,234) 1988
Albuquerque Plaza, Albuquerque, NM -- 38,663 38,663 (4,044) 1990
Hyatt Regency Albuquerque, Albuquerque, NM -- 34,690 34,690 (4,713) 1990
3333 Lee Parkway, Dallas, TX 1,468 16,858 18,326 (1,843) 1983
301 Congress Avenue, Austin, TX 2,000 48,049 50,049 (4,775) 1986
Central Park Plaza, Omaha, NE(2) 2,514 23,349 25,863 (2,234) 1982
Canyon Ranch, Tucson, AZ 17,846 44,771 62,617 (3,662) 1980
The Woodlands Office Properties, Houston, TX 2,393 8,523 10,916 (1,026) 1995-1996
Three Westlake Park, Houston, TX 2,920 27,247 30,167 (2,267) 1983
1615 Poydras, New Orleans, LA(2) 1,104 38,262 39,366 (2,825) 1984
Greenway Plaza Office Portfolio, Houston, TX 27,204 243,991 271,195 (26,946) 1969-1982
Chancellor Park, San Diego, CA 2,328 23,442 25,770 (1,972) 1988
<CAPTION>
Life on Which
Depreciation in
Latest Income
Acquisition Statement Is
Description Date Computed
- ------------------------------------------------ ------------ ---------------
<S> <C> <C>
The Crescent Office Towers, Dallas, TX -- (1)
UPR Plaza, Fort Worth, TX 1990 (1)
The Citadel, Denver, CO 1987 (1)
MacArthur Center I & II, Irving, TX 1993 (1)
Las Colinas Plaza, Irving, TX 1989 (1)
Caltex House, Irving, TX 1994 (1)
Liberty Plaza I & II, Dallas, TX 1994 (1)
Regency Plaza One, Denver, CO 1994 (1)
Waterside Commons, Irving, TX 1994 (1)
The Avallon, Austin, TX 1994 (1)
Two Renaissance Square, Phoenix, AZ 1994 (1)
Stanford Corporate Centre, Dallas, TX 1995 (1)
Hyatt Regency Beaver Creek, Avon, CO 1995 (1)
The Aberdeen, Dallas, TX 1995 (1)
Barton Oaks Plaza One, Austin, TX 1995 (1)
12404 Park Central, Dallas, TX 1995 (1)
MCI Tower, Denver, CO 1995 (1)
Denver Marriott City Center, Denver, CO 1995 (1)
The Woodlands Office Properties, Houston, TX 1995 (1)
Spectrum Center, Dallas, TX 1995 (1)
Ptarmigan Place, Denver, CO 1995 (1)
6225 North 24th Street, Phoenix, AZ 1995 (1)
Briargate Office and Research
Center, Colorado Springs, CO 1995 (1)
Albuquerque Plaza, Albuquerque, NM 1995 (1)
Hyatt Regency Albuquerque, Albuquerque, NM 1995 (1)
3333 Lee Parkway, Dallas, TX 1996 (1)
301 Congress Avenue, Austin, TX 1996 (1)
Central Park Plaza, Omaha, NE(2) 1996 (1)
Canyon Ranch, Tucson, AZ 1996 (1)
The Woodlands Office Properties, Houston, TX 1996 (1)
Three Westlake Park, Houston, TX 1996 (1)
1615 Poydras, New Orleans, LA(2) 1996 (1)
Greenway Plaza Office Portfolio, Houston, TX 1996 (1)
Chancellor Park, San Diego, CA 1996 (1)
</TABLE>
98
<PAGE> 100
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized Impairment
Subsequent to to Carrying
Initial Costs Acquisition Value
------------------------ ----------------- -------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Equipment
- ------------------------------------------------ ---------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
The Woodlands Retail Properties, Houston, TX 11,340 18,948 1,613 --
Sonoma Mission Inn & Spa, Sonoma, CA 10,000 44,922 25,803 --
Canyon Ranch, Lenox, MA 4,200 25,218 7,639 --
160 Spear Street, San Francisco, CA -- 35,656 2,624 --
Greenway I & IA, Richardson, TX 1,701 15,312 458 --
Bank One Tower, Austin, TX 3,879 35,431 1,622 --
Frost Bank Plaza, Austin, TX -- 36,019 4,617 --
Greenway II, Richardson, TX 1,823 16,421 144 --
55 Madison, Denver, CO 1,451 13,253 548 --
44 Cook, Denver, CO 1,451 13,253 1,105 --
AT&T Building, Denver, CO(2) 1,366 12,471 1,667 --
Trammell Crow Center, Dallas, TX 25,029 137,320 8,589 --
The Addison, Dallas, TX 1,990 17,998 606 --
Addison Tower, Dallas, TX 830 7,701 373 --
The Amberton, Dallas, TX(2) 1,050 9,634 1,038 --
Cedar Springs Plaza, Dallas, TX 700 6,549 776 --
Concourse Office Park, Dallas, TX(2) 800 7,449 620 --
The Meridian, Dallas, TX(2) 1,500 13,613 933 --
One Preston Park, Dallas, TX(2) 180 1,694 290 --
Palidades Central I, Dallas, TX 1,300 11,797 643 --
Palidades Central II, Dallas, TX 2,100 19,176 650 --
5050 Quorum, Dallas, TX 898 8,243 317 --
Reverchon Plaza, Dallas, TX 2,850 26,302 1,126 --
Stemmons Place, Dallas, TX -- 37,537 950 --
Valley Centre, Dallas, TX(2) 421 3,873 454 --
Walnut Green, Dallas, TX(2) 980 8,923 833 --
Carter-Crowley Land/Multi-Family, Dallas, TX 46,900 3,600 (29,439) --
Behavioral Healthcare Facilities(3)(4) 89,000 301,269 (2,751) (103,773)
Houston Center, Houston, TX 52,504 224,041 5,620 --
Four Seasons Hotel, Houston, TX 5,569 45,138 6,273 --
Miami Center, Miami, FL 13,145 118,763 3,720 --
1800 West Loop South, Houston, TX 4,165 40,857 976 --
Fountain Place, Dallas, TX 10,364 103,212 5,242 --
Energy Centre, New Orleans, LA(2)(5) 7,500 67,704 1,820 (16,800)
Ventana Country Inn, Big Sur, CA 2,782 26,744 3,112 --
Avallon Phase II, Austin, TX 1,102 -- 11,377 --
Austin Centre, Austin, TX 2,007 48,566 1,931 --
Omni Hotel, Austin, TX 1,896 44,579 1,716 --
Post Oak Central, Houston, TX 15,525 139,777 3,471 --
Washington Harbor, Washington, D.C 16,100 146,438 1,663 --
Datran Center, Miami, FL -- 71,091 2,276 --
<CAPTION>
Gross Amount at Which
Carried at Close of Period
---------------------------------------
Buildings,
Improvements,
Furniture,
Fixtures and Accumulated Date of
Description Land Equipment Total Depreciation Construction
- ------------------------------------------------ ------------------ -------------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
The Woodlands Retail Properties, Houston, TX 11,360 20,541 31,901 (3,537) 1984
Sonoma Mission Inn & Spa, Sonoma, CA 10,000 70,725 80,725 (5,945) 1927
Canyon Ranch, Lenox, MA 4,200 32,857 37,057 (3,639) 1989
160 Spear Street, San Francisco, CA -- 38,280 38,280 (3,420) 1984
Greenway I & IA, Richardson, TX 1,701 15,770 17,471 (1,186) 1983
Bank One Tower, Austin, TX 3,879 37,053 40,932 (2,970) 1974
Frost Bank Plaza, Austin, TX -- 40,636 40,636 (3,301) 1984
Greenway II, Richardson, TX 1,823 16,565 18,388 (1,231) 1985
55 Madison, Denver, CO 1,451 13,801 15,252 (1,121) 1982
44 Cook, Denver, CO 1,451 14,358 15,809 (1,207) 1984
AT&T Building, Denver, CO(2) 1,366 14,138 15,504 (1,462) 1982
Trammell Crow Center, Dallas, TX 25,029 145,909 170,938 (10,550) 1984
The Addison, Dallas, TX 1,990 18,604 20,594 (1,213) 1980/1986
Addison Tower, Dallas, TX 830 8,074 8,904 (665) 1980/1986
The Amberton, Dallas, TX(2) 1,050 10,672 11,722 (563) 1980/1986
Cedar Springs Plaza, Dallas, TX 700 7,325 8,025 (621) 1980/1986
Concourse Office Park, Dallas, TX(2) 800 8,069 8,869 (654) 1980/1986
The Meridian, Dallas, TX(2) 1,500 14,546 16,046 (760) 1980/1986
One Preston Park, Dallas, TX(2) 180 1,984 2,164 (121) 1980/1986
Palidades Central I, Dallas, TX 1,300 12,440 13,740 (880) 1980/1986
Palidades Central II, Dallas, TX 2,100 19,826 21,926 (1,311) 1980/1986
5050 Quorum, Dallas, TX 898 8,560 9,458 (620) 1980/1986
Reverchon Plaza, Dallas, TX 2,850 27,428 30,278 (1,931) 1980/1986
Stemmons Place, Dallas, TX -- 38,487 38,487 (2,713) 1980/1986
Valley Centre, Dallas, TX(2) 421 4,327 4,748 (232) 1980/1986
Walnut Green, Dallas, TX(2) 980 9,756 10,736 (487) 1980/1986
Carter-Crowley Land/Multi-Family, Dallas, TX 21,061 -- 21,061 --
Behavioral Healthcare Facilities(3)(4) 85,805 197,940 283,745 (34,696) 1850-1992
Houston Center, Houston, TX 47,388 234,777 282,165 (13,881) 1974-1983
Four Seasons Hotel, Houston, TX 5,569 51,411 56,980 (4,222) 1983
Miami Center, Miami, FL 13,145 122,483 135,628 (6,673) 1983
1800 West Loop South, Houston, TX 4,165 41,833 45,998 (2,368) 1982
Fountain Place, Dallas, TX 10,364 108,454 118,818 (6,023) 1986
Energy Centre, New Orleans, LA(2)(5) 7,500 52,724 60,224 (2,581) 1984
Ventana Country Inn, Big Sur, CA 2,782 29,856 32,638 (1,792) 1975-1988
Avallon Phase II, Austin, TX 1,188 11,291 12,479 (837) 1997
Austin Centre, Austin, TX 2,007 50,497 52,504 (1,819) 1986
Omni Hotel, Austin, TX 1,896 46,295 48,191 (3,445) 1986
Post Oak Central, Houston, TX 15,525 143,248 158,773 (6,444) 1974-1981
Washington Harbor, Washington, D.C 16,100 148,101 164,201 (6,750) 1986
Datran Center, Miami, FL -- 73,367 73,367 (2,993) 1986-1992
<CAPTION>
Life on Which
Depreciation in
Latest Income
Acquisition Statement Is
Description Date Computed
- ------------------------------------------------ ------------ ---------------
<S> <C> <C>
The Woodlands Retail Properties, Houston, TX 1996 (1)
Sonoma Mission Inn & Spa, Sonoma, CA 1996 (1)
Canyon Ranch, Lenox, MA 1996 (1)
160 Spear Street, San Francisco, CA 1996 (1)
Greenway I & IA, Richardson, TX 1996 (1)
Bank One Tower, Austin, TX 1996 (1)
Frost Bank Plaza, Austin, TX 1996 (1)
Greenway II, Richardson, TX 1997 (1)
55 Madison, Denver, CO 1997 (1)
44 Cook, Denver, CO 1997 (1)
AT&T Building, Denver, CO(2) 1997 (1)
Trammell Crow Center, Dallas, TX 1997 (1)
The Addison, Dallas, TX 1997 (1)
Addison Tower, Dallas, TX 1997 (1)
The Amberton, Dallas, TX(2) 1997 (1)
Cedar Springs Plaza, Dallas, TX 1997 (1)
Concourse Office Park, Dallas, TX(2) 1997 (1)
The Meridian, Dallas, TX(2) 1997 (1)
One Preston Park, Dallas, TX(2) 1997 (1)
Palidades Central I, Dallas, TX 1997 (1)
Palidades Central II, Dallas, TX 1997 (1)
5050 Quorum, Dallas, TX 1997 (1)
Reverchon Plaza, Dallas, TX 1997 (1)
Stemmons Place, Dallas, TX 1997 (1)
Valley Centre, Dallas, TX(2) 1997 (1)
Walnut Green, Dallas, TX(2) 1997 (1)
Carter-Crowley Land/Multi-Family, Dallas, TX -- --
Behavioral Healthcare Facilities(3)(4) 1997 (1)
Houston Center, Houston, TX 1997 (1)
Four Seasons Hotel, Houston, TX 1997 (1)
Miami Center, Miami, FL 1997 (1)
1800 West Loop South, Houston, TX 1997 (1)
Fountain Place, Dallas, TX 1997 (1)
Energy Centre, New Orleans, LA(2)(5) 1997 (1)
Ventana Country Inn, Big Sur, CA 1997 (1)
Avallon Phase II, Austin, TX -- (1)
Austin Centre, Austin, TX 1998 (1)
Omni Hotel, Austin, TX 1998 (1)
Post Oak Central, Houston, TX 1998 (1)
Washington Harbor, Washington, D.C 1998 (1)
Datran Center, Miami, FL 1998 (1)
</TABLE>
99
<PAGE> 101
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized Impairment
Subsequent to to Carrying
Initial Costs Acquisition Value
------------------------ ----------------- -------------
Land, Buildings, Buildings,
Improvements, Improvements,
Furniture, Furniture,
Buildings and Fixtures and Fixtures and
Description Land Improvements Equipment Equipment
- ------------------------------------------------ ---------- -------------- ----------------- -------------
<S> <C> <C> <C>
Four Westlake Plaza, Houston, TX 3,910 79,190 213 --
Sonoma Golf Course, Sonoma, CA 14,956 -- 1,016 --
Plaza Park Garage 2,032 14,125 472 --
Washington Harbor Phase II, Washington, D.C 15,279 411 347 --
Crescent Real Estate Equities L.P. -- -- 16,620 --
Other 23,270 2,874 14,190 --
---------- ---------- ---------- ----------
Total $ 523,067 $3,320,648 $ 372,432 $ (120,573)
========== ========== ========== ==========
<CAPTION>
Gross Amount at Which
Carried at Close of Period
----------------------------------------
Buildings,
Improvements,
Furniture,
Fixtures and Accumulated Date of
Description Land Equipment Total Depreciation Construction
- ------------------------------------------------ ------------------ -------------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Four Westlake Plaza, Houston, TX 3,910 79,403 83,313 (2,975) 1992
Sonoma Golf Course, Sonoma, CA 11,795 4,177 15,972 (353) 1929
Plaza Park Garage 2,032 14,597 16,629 (78) 1998
Washington Harbor Phase II, Washington, D.C 15,322 715 16,037 -- 1998
Crescent Real Estate Equities L.P. -- 16,620 16,620 (4,046) --
Other 29,608 10,726 40,334 -- --
---------- ---------- ---------- ---------
Total $ 494,514 $3,601,060 $4,095,574 $ (507,520)
========== ========== ========== =========
<CAPTION>
Life on Which
Depreciation in
Latest Income
Acquisition Statement Is
Description Date Computed
- ------------------------------------------------ ------------ ---------------
<S> <C> <C>
Four Westlake Plaza, Houston, TX 1998 (1)
Sonoma Golf Course, Sonoma, CA 1998 (1)
Plaza Park Garage -- (1)
Washington Harbor Phase II, Washington, D.C -- (1)
Crescent Real Estate Equities L.P. -- (1)
Other -- (1)
</TABLE>
100
<PAGE> 102
- --------------------------
(1) Depreciation of the real estate assets is calculated over the following
estimated useful lives using the straight-line method:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 5 to 40 years
Tenant improvements Terms of leases
Furniture, fixtures, and equipment 3 to 10 years
</TABLE>
(2) Depreciation on these Office Properties held for sale ceased from 7/1/99
through 12/31/99 (the period over which these properties were held for
sale).
(3) Depreciation on Behavioral Healthcare Properties held for sale ceased from
11/11/99 through 12/31/99 (the period over which these properties were held
for sale).
(4) Write-down on Behavioral Healthcare Properties represents adjustment to
estimated fair value.
(5) Write-down on Energy Centre represents the difference between the carrying
value of the asset and the expected selling price less costs to sell.
A summary of combined real estate investments and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Real estate investments:
Balance, beginning of year $ 4,129,372 $ 3,423,130 $ 1,732,626
Acquisitions -- 580,694 1,643,587
Improvements 95,210 145,409 58,634
Disposition (8,435) (19,861) (11,717)
Impairments (120,573) -- --
----------- ----------- -----------
Balance, end of year $ 4,095,574 $ 4,129,372 $ 3,423,130
=========== =========== ===========
Accumulated depreciation:
Balance, beginning of year $ 387,457 $ 278,194 $ 208,808
Depreciation 120,745 109,551 69,457
Disposition (682) (288) (71)
----------- ----------- -----------
Balance, end of year $ 507,520 $ 387,457 $ 278,194
=========== =========== ===========
</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 SEC 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 SEC for its annual shareholders'
meeting to be held in June 2000.
101
<PAGE> 103
ITEM 11. EXECUTIVE COMPENSATION
The information this Item requires is incorporated by reference to the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held in June 2000.
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 SEC for its annual shareholders'
meeting to be held in June 2000.
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 SEC for its annual shareholders'
meeting to be held in June 2000.
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, 1999 and 1998.
Crescent Real Estate Equities Company Consolidated Statements of
Operations for the years ended December 31, 1999, 1998 and 1997.
Crescent Real Estate Equities Company Consolidated Statements of
Shareholders' Equity for the years ended December 31, 1999, 1998 and
1997.
Crescent Real Estate Equities Company Consolidated Statements of Cash
Flows for the years ended December 31, 1999, 1998 and 1997.
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, 1999.
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.
102
<PAGE> 104
(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* Pursuant to Regulation S-K Item 601 (6) (4) (iii), the
Registrant by this filing agrees, upon request to
furnish to the SEC a copy of other instruments defining
the rights of holders of long-term debt of the
Registrant
103
<PAGE> 105
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 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on
May 5, 1994, and as further amended (filed herewith)
10.05 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)
10.06 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)
10.07 Amendment No. 5 to the Haddock Employment Agreement,
dated March 1, 1999 (filed as Exhibit 10.09 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 10-K") and
incorporated herein by reference )
10.08 Employment Agreement of Jerry R. Crenshaw, Jr. dated as
of December 14, 1998 (filed herewith)
10.09 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)
10.10 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)
10.11 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit
10.12 to the 1998 10-K and incorporated herein by
reference)
10.12 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)
104
<PAGE> 106
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.13 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)
10.14 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan, as amended (filed herewith)
10.15 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)
10.16 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)
10.17 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)
10.18 Agreement dated June 11, 1999 by and between Gerald
Haddock and Crescent Real Estate Equities Company,
Crescent Real Estate Equities Limited Partnership and
Crescent Real Estate Equities, Ltd. (filed as Exhibit
10.19 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 and incorporated
herein by reference)
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
None.
(c) Exhibits
See Item 14(a)(3) above.
105
<PAGE> 107
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, 2000.
CRESCENT REAL ESTATE EQUITIES COMPANY
(Registrant)
By /s/ John C. Goff
-----------------------------------------
John C. Goff
Vice Chairman of the Board, Chief Executive
Officer and President
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 4/4/00
- -------------------------------
Richard E. Rainwater
/s/ John C. Goff Vice Chairman of the Board, Chief Executive 4/4/00
- ------------------------------- Officer and President (Principal Executive Officer)
John C. Goff
/s/ Jerry R. Crenshaw Jr. Senior Vice President and Chief Financial 4/4/00
- ------------------------------- Officer (Principal Accounting and Financial Officer)
Jerry R. Crenshaw Jr.
/s/ Anthony M. Frank Trust Manager 4/4/00
- -------------------------------
Anthony M. Frank
/s/ Morton H. Meyerson Trust Manager 4/4/00
- -------------------------------
Morton H. Meyerson
/s/ William F. Quinn Trust Manager 4/4/00
- -------------------------------
William F. Quinn
/s/ Paul E. Rowsey, III Trust Manager 4/4/00
- -------------------------------
Paul E. Rowsey, III
</TABLE>
106
<PAGE> 108
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* Pursuant to Regulation S-K Item 601 (6) (4) (iii), the
Registrant by this filing agrees, upon request to
furnish to the SEC a copy of other instruments defining
the rights of holders of long-term debt of the
Registrant
</TABLE>
<PAGE> 109
<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 Employment Agreement with John C. Goff, as assigned to
Crescent Real Estate Equities Limited Partnership on
May 5, 1994, and as further amended (filed herewith)
10.05 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)
10.06 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)
10.07 Amendment No. 5 to the Haddock Employment Agreement,
dated March 1, 1999 (filed as Exhibit 10.09 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1998 (the "1998 10-K") and
incorporated herein by reference )
10.08 Employment Agreement of Jerry R. Crenshaw, Jr. dated as
of December 14, 1998 (filed herewith)
10.09 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)
10.10 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)
10.11 Crescent Real Estate Equities, Ltd. First Amended and
Restated 401(k) Plan, as amended (filed as Exhibit
10.12 to the 1998 10-K and incorporated herein by
reference)
10.12 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> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.13 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)
10.14 1996 Crescent Real Estate Equities Limited Partnership
Unit Incentive Plan, as amended (filed herewith)
10.15 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)
10.16 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)
10.17 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)
10.18 Agreement dated June 11, 1999 by and between Gerald
Haddock and Crescent Real Estate Equities Company,
Crescent Real Estate Equities Limited Partnership and
Crescent Real Estate Equities, Ltd. (filed as Exhibit
10.19 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 and incorporated
herein by reference)
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
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINED TERMS .................................................................. 2
ARTICLE II ORGANIZATIONAL MATTERS ........................................................ 17
Section 2.1 Continuation of Partnership ............................................. 17
Section 2.2 Name .................................................................... 17
Section 2.3 Principal Office and Registered Agent ................................... 17
Section 2.4 Power of Attorney ....................................................... 17
Section 2.5 Term .................................................................... 19
ARTICLE III PURPOSE ...................................................................... 19
Section 3.1 Purpose and Business .................................................... 19
Section 3.2 Powers .................................................................. 19
ARTICLE IV CAPITAL CONTRIBUTIONS ......................................................... 20
Section 4.1 Capital Contributions of the Partners ................................... 20
Section 4.2 Additional Funding ...................................................... 21
Section 4.3 Issuance of Additional Partnership Interests ............................ 23
Section 4.4 No Preemptive Rights .................................................... 25
Section 4.5 No Interest on Capital .................................................. 26
Section 4.6 Stock Incentive Plans ................................................... 26
Section 4.7 Other Equity Compensation Plans ......................................... 27
ARTICLE V DISTRIBUTIONS .................................................................. 28
Section 5.1 Initial Partnership Distributions ....................................... 28
Section 5.2 Requirement and Characterization of Distributions ....................... 28
Section 5.3 Amounts Withheld ........................................................ 28
Section 5.4 Distributions in Kind ................................................... 29
Section 5.5 Distributions Upon Liquidation .......................................... 29
ARTICLE VI ALLOCATIONS ................................................................... 29
Section 6.1 Allocations For Capital Account Purposes ................................ 29
Section 6.2 Allocation of Nonrecourse Debt .......................................... 30
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS ........................................ 30
Section 7.1 Management .............................................................. 30
Section 7.2 Certificate of Limited Partnership ...................................... 34
Section 7.3 Restrictions on General Partner's Authority ............................. 34
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
Section 7.4 Reimbursement of the Crescent Group ..................................... 35
Section 7.5 Outside Activities of the Crescent Group ................................ 35
Section 7.6 Contracts with Affiliates ............................................... 36
Section 7.7 Indemnification ......................................................... 36
Section 7.8 Liability of the General Partner ........................................ 39
Section 7.9 Other Matters Concerning the General Partner ............................ 39
Section 7.10 Title to Partnership Assets ............................................ 40
Section 7.11 Reliance by Third Parties .............................................. 40
Section 7.12 Limited Partner Representatives ........................................ 41
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS .................................. 41
Section 8.1 Limitation of Liability ................................................. 41
Section 8.2 Management of Business .................................................. 41
Section 8.3 Outside Activities of Limited Partners .................................. 42
Section 8.4 Return of Capital ....................................................... 42
Section 8.5 Rights of Limited Partners Relating to the Partnership .................. 42
Section 8.6 Exchange Rights ......................................................... 43
Section 8.7 Covenants Relating to the Exchange Rights ............................... 44
Section 8.8 Other Matters Relating to the Exchange Rights ........................... 45
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS ........................................ 45
Section 9.1 Records and Accounting .................................................. 45
Section 9.2 Fiscal Year ............................................................. 46
Section 9.3 Reports ................................................................. 46
ARTICLE X TAX MATTERS .................................................................... 46
Section 10.1 Preparation of Tax Returns ............................................. 46
Section 10.2 Tax Elections .......................................................... 46
Section 10.3 Tax Matters Partner .................................................... 47
Section 10.4 Organizational Expenses ................................................ 48
Section 10.5 Withholding ............................................................ 48
ARTICLE XI TRANSFERS AND WITHDRAWALS ..................................................... 49
Section 11.1 Transfer ............................................................... 49
Section 11.2 Transfer of Partnership Interests of the General Partner ............... 49
Section 11.3 Transfer of Partnership Interests of Limited Partners Other Than
Crescent Equities ................................................................. 50
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
Section 11.4 Substituted Limited Partners ........................................... 51
Section 11.5 Assignees .............................................................. 52
Section 11.6 General Provisions ..................................................... 52
Section 11.7 Acquisition of Partnership Interest by Partnership ..................... 53
ARTICLE XII ADMISSION OF PARTNERS ........................................................ 53
Section 12.1 Admission of Substituted General Partner ............................... 53
Section 12.2 Admission of Additional or Employee Limited Partners ................... 54
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership .......... 55
ARTICLE XIII DISSOLUTION AND LIQUIDATION ................................................. 55
Section 13.1 Dissolution ............................................................ 55
Section 13.2 Winding Up ............................................................. 56
Section 13.3 Compliance with Timing Requirements of Regulations ..................... 57
Section 13.4 Deemed Distribution and Recontribution ................................. 58
Section 13.5 Rights of Limited Partners ............................................. 58
Section 13.6 Documentation of Liquidation ........................................... 58
Section 13.7 Reasonable Time for Winding-Up ......................................... 58
Section 13.8 Liability of the Liquidator ............................................ 59
Section 13.9 Waiver of Partition .................................................... 59
ARTICLE XIV AMENDMENT OF AGREEMENT ....................................................... 59
Section 14.1 Amendments ............................................................. 59
ARTICLE XV PARTNER REPRESENTATIONS AND WARRANTIES ........................................ 60
Section 15.1 Representations and Warranties ......................................... 60
ARTICLE XVI ARBITRATION OF DISPUTES ...................................................... 62
Section 16.1 Arbitration ............................................................ 62
Section 16.2 Procedures ............................................................. 62
Section 16.3 Binding Character ...................................................... 63
Section 16.4 Exclusivity ............................................................ 63
Section 16.5 No Alteration of Agreement ............................................. 63
ARTICLE XVII GENERAL PROVISIONS .......................................................... 63
Section 17.1 Addresses and Notice ................................................... 63
Section 17.2 Titles and Captions .................................................... 64
Section 17.3 Pronouns and Plurals ................................................... 64
Section 17.4 Further Action ......................................................... 64
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
Section 17.5 Binding Effect ......................................................... 64
Section 17.6 Creditors .............................................................. 64
Section 17.7 Waiver ................................................................. 64
Section 17.8 No Agency .............................................................. 65
Section 17.9 Entire Understanding ................................................... 65
Section 17.10 Counterparts .......................................................... 65
Section 17.11 Applicable Law ........................................................ 65
Section 17.12 Invalidity of Provisions .............................................. 65
Section 17.13 Guaranty by Crescent Equities ......................................... 65
Section 17.14 Restriction on Sale of Sonoma Property ................................ 66
</TABLE>
Exhibit A -- Partners, Partnership Units and Partnership Interests
Exhibit B -- Capital Account Maintenance
Exhibit C -- Special Tax Allocation Rules
Exhibit D -- Notice of Exchange
Exhibit E -- Listing of Approved Substituted Limited Partners
(iv)
<PAGE> 6
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of November 1, 1997, is entered into by and among Crescent Real
Estate Equities, Ltd., a Delaware corporation, as general partner (the "General
Partner"), and those parties who are Limited Partners as listed on Exhibit A
hereto or who are admitted from time to time as Limited Partners as herein
provided.
W I T N E S S E T H:
WHEREAS, Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the "Partnership"), was formed pursuant to that certain
Certificate of Limited Partnership dated February 9, 1994 and filed on February
9, 1994 in the office of the Secretary of State of Delaware, and that certain
Agreement of Limited Partnership dated as of February 9, 1994 (the "Initial
Agreement");
WHEREAS, the Initial Agreement was amended and restated in its entirety
by that certain First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 5, 1994, as
amended by the First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated
as of May 16, 1994, the Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of April 11, 1995, the Third Amendment to the First
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 11, 1995, the Fourth Amendment
to the First Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of May 3, 1995, the Fifth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 31, 1995, the
Sixth Amendment to the First Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1995, the Seventh Amendment to the First Amended and Restated Agreement
of Limited Partnership of Crescent Real Estate Equities Limited Partnership,
dated as of August 23, 1995, the Eighth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of December 31, 1995, the Restatement of Ninth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of February 16,
1996, the Supplemental Amendment to the Restatement of Ninth Amendment to the
First Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of June 30, 1996, the Tenth
Amendment to the First Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of July 26, 1996,
the Eleventh Amendment to the First Amended and Restated
<PAGE> 7
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of November 4, 1996, the Twelfth Amendment to the First
Amended and Restated Agreement of Limited Partnership, dated as of December 31,
1996, the Thirteenth Amendment to the First Amended and Restated Agreement of
Limited Partnership, dated as of April 29, 1997 and the Fourteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 30, 1997 (hereinafter referred to collectively as the "First Amended
Agreement");
WHEREAS, the General Partner desires to amend and restate in its
entirety the First Amended Agreement pursuant to its authority under Sections
2.4 and 14.1.B of the First Amended Agreement and the powers of attorney granted
to the General Partner by the Limited Partners in order to (i) combine all of
the provisions of the First Amended Agreement into one document, and (ii) make
changes to provisions of the First Amended Agreement in accordance with Section
14.1.B(3) of the First Amended Agreement;
WHEREAS, the General Partner desires to correct the Capital
Contribution amounts set forth in Paragraph 1 of the Thirteenth Amendment to
the First Amended and Restated Agreement of Limited Partnership, dated as of
April 29, 1997, to the following amounts: (i) $134,100 as of February 11, 1997,
in connection with the exercise of David M. Dean's options to purchase 2,400
REIT Shares; (ii) $420,000 as of February 21, 1997, in connection with the
exercise of Dallas E. Lucas' option to purchase 7,500 REIT Shares;
(iii) $58,625 as of March 5, 1997, in connection with the exercise of James E.
Wassel's option to purchase 1,000 REIT Shares; (iv) $59,000 as of March 6,
1997, in connection with the exercise of Jeffrey L. Fitzgerald's option to
purchase 1,000 REIT Shares; (v) $15,375 as of March 11, 1997, in connection
with the exercise of Charlene J. McNeil's option to purchase 250 REIT Shares;
(vi) $24,250 as of March 14, 1997, in connection with the exercise of John P.
Pittman's option to purchase 400 REIT Shares; and (vii) $72,750 as of March 14,
1997, in connection with the exercise of Alan C. Powers' option to purchase
1,200 REIT Shares;
WHEREAS, the General Partner desires to correct the description of the
March 15, 1997 assignment by FW-Irving Partners, Ltd. set forth in the Recitals
to the Fourteenth Amendment to the First Amended Agreement, dated as of April
30, 1997, to read as follows: FW-Irving Partners, Ltd. assigned legal title to
its entire 1.176019% Limited Partnership Interest (including 635,668
Partnership Units) to its partners as follows: (i) a .001177% Limited
Partnership Interest, including 636 Partnership Units, to Rainwater, Inc.,
(ii) a .704906% Limited Partnership Interest, including 381,020 Partnership
Units, to John C. Goff, and (iii) a .469936% Limited Partnership Interest,
including 254,012 Partnership Units, to Gerald W. Haddock;
WHEREAS, on May 4, 1997, Joseph W. Autem exercised his Exchange Right
with respect to 1,805 Partnership Units;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name;
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Charlene J. McNeil 5/12/97 300 1994 Plan $7,837.50
Charlene J. McNeil 5/12/97 800 1995 Plan $20,900.00
Paul E. Rowsey, III 6/10/97 30,000 1994 Plan $795,000.00
6/10/97 2,800 First Amended and $74,200.00
Restated 1995 Plan
Jennifer L. Miller 6/16/97 400 1995 Plan $11,500.00
John M. Walker, Jr. 6/16/97 6,000 1995 Plan $172,500.00
Suzanne Stevens 7/11/97 800 1995 Plan $25,350.00
Carlton Jordan 7/17/97 200 1995 Plan $6,600.00
Kurtis D. Adams 7/17/97 200 1995 Plan $6,600.00
Michael A. Howell 7/17/97 200 1995 Plan $6,600.00
Henry L. Cosby 7/17/97 200 1995 Plan $6,600.00
John R. Leathers 7/17/97 200 1995 Plan $6,600.00
Ramon Cortez 7/17/97 200 1995 Plan $6,600.00
Becky Rainwater 7/17/97 200 1995 Plan $6,600.00
J. Mike Williams 7/17/97 200 1995 Plan $6,600.00
</TABLE>
-2-
<PAGE> 8
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Elizabeth M. Frankowski 7/17/97 200 1995 Plan $6,600.00
Daniel Thompson 7/18/97 200 1995 Plan $6,537.50
Mark Stanfield 7/22/97 1,200 1995 Plan $39,150.00
Angela Petrucci 7/22/97 200 1995 Plan $6,525.00
Michael Musack 7/22/97 200 1995 Plan $6,525.00
Sidney Schneider 7/22/97 200 1995 Plan $6,525.00
Rodney Leach 7/22/97 200 1995 Plan $6,525.00
Vicki Rowell 7/22/97 200 1995 Plan $6,525.00
Debbie Hall 7/24/97 200 1995 Plan $6,600.00
Christopher Crisman 7/24/97 200 1995 Plan $6,600.00
Debra Garrison 7/24/97 100 First Amended and $3,300.00
Restated 1995 Plan
Teresa Shiller 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
Nelda Casbon 7/31/97 200 First Amended and $6,250.00
Restated 1995 Plan
William Garcia 8/4/97 200 First Amended and $6,137.50
Restated 1995 Plan
Raymond Cuellar 8/6/97 200 First Amended and $6,575.00
Restated 1995 Plan
Jerry Crenshaw 8/14/97 1,600 1994 Plan $53,000.00
Jerry Crenshaw 8/14/97 1,800 1995 Plan $59,625.00
Priscilla Nunez 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
David Hagar 8/18/97 192 First Amended and $6,216.00
Restated 1995 Plan
Richard Flusche 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
Charles Lucabaugh 8/18/97 200 First Amended and $6,475.00
Restated 1995 Plan
James Dockal II 8/18/97 800 1995 Plan $25,900.00
James Dockal II 8/18/97 440 First Amended and $14,245.00
Restated 1995 Plan
</TABLE>
-3-
<PAGE> 9
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Plan Contribution
- ---------- ------------- ---------------- ---- ------------
<S> <C> <C> <C> <C>
Willie E. Hollie, Jr. 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Amelia K. Davis 9/4/97 200 First Amended and $6,225.00
Restated 1995 Plan
Anthony Tillman 9/5/97 200 First Amended and $6,250.00
Restated 1995 Plan
Cheryl Dillon 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
L. Blair Tillery 9/10/97 160 First Amended and $5,440.00
Restated 1995 Plan
Eric Painter 9/10/97 200 First Amended and $6,800.00
Restated 1995 Plan
Elizabeth Hays 9/11/97 200 First Amended and $7,200.00
Restated 1995 Plan
Jeff Fitzgerald 9/12/97 6,000 1995 Plan $216,750.00
David M. Dean 9/15/97 400 1994 Plan $14,500.00
Joseph D. Ambrose, III 9/16/97 2,000 1994 Plan $70,375.00
Joseph D. Ambrose, III 9/16/97 8,000 1995 Plan $281,500.00
Philip Webster 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Brad Russell 9/18/97 200 First Amended and $7,087.50
Restated 1995 Plan
Johnny Jarrin 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Alan Connelly 10/9/97 200 First Amended and $7,800.00
Restated 1995 Plan
Sharon Simmons 10/22/97 500 1995 Plan $18,781.25
Jim Petrie 10/22/97 200 First Amended and $7,512.50
Restated 1995 Plan
</TABLE>
WHEREAS, on May 14, 1997, Crescent Equities issued 500,000 REIT Shares
in a public stock offering at a cash price of $25.875 per share, which cash
proceeds were contributed to the Partnership by Crescent Equities pursuant to
Section 4.2 of the First Amended Agreement;
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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:
ARTICLE 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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<PAGE> 13
(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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<PAGE> 14
"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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<PAGE> 15
"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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<PAGE> 16
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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<PAGE> 17
"First Amended Agreement" has the meaning set forth in the recitals to
this Agreement.
"Funding Loan Proceeds" means the net cash proceeds received by the
Crescent Group in connection with any Funding Loan, after deduction of all costs
and expenses incurred by the Crescent Group in connection with such Funding
Loan.
"Funding Loan(s)" means any borrowing or refinancing of borrowings by
or on behalf of the Crescent Group from any lender for the purpose of causing
Crescent Equities to advance the proceeds thereof to the Partnership as a loan
pursuant to Section 4.2.A(1) hereof.
"General Partner" means Crescent Real Estate Equities, Ltd. (formerly
known as CRE General Partner, Inc.), a Delaware corporation which is a wholly
owned subsidiary of Crescent Equities, its duly admitted successors and assigns
and any other Person who is a General Partner at the time of reference thereto.
"General Partnership Interest" means the Partnership Interest held by
the General Partner.
"Greenbrier" means Texas Greenbrier Associates, Inc., a Texas
corporation.
"Greenbrier Agreement" means that certain Agreement of Acceptance of
the Partnership Agreement executed by Greenbrier and delivered to the General
Partner.
"Gross Asset Value" of any Contributed Property or Properties
contributed by a Partner to the Partnership in connection with the execution of
this Agreement means the Net Asset Value of such Contributed Property or
Properties as set forth in Exhibit A hereof, increased by any liabilities either
treated as assumed by the Partnership upon the contribution of such property or
properties or to which such property or properties are treated as subject when
contributed pursuant to the provisions of Section 752 of the Code. The Gross
Asset Value of any other Contributed Property or Properties means the fair
market value of such property or properties at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt. The General Partner shall, in its sole and absolute discretion,
use such method as it deems reasonable and appropriate to allocate the aggregate
of the Gross Asset Value of Contributed Properties contributed in a single or
integrated transaction among the separate properties on a basis proportional to
their respective fair market values.
"HA Development Corporation" means Houston Area Development Corp., a
Texas corporation that will own the Falcon Point Property and the Huntington
Woods Property.
"Huntington Woods Property" means the Huntington Woods single family
residential development located in Houston, Texas.
"Incapacity" or "Incapacitated" means, (i) as to any individual
Partner, death, total physical disability or entry of an order by a court of
competent jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii)
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<PAGE> 18
as to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the Bankruptcy of such Partner.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of his status as (A) a member of the Crescent Group, (B) a director or
officer of the Partnership or of a member of the Crescent Group, or (C) an
attorney-in-fact of the General Partner acting pursuant to Section 7.9.C, and
(ii) such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time, in its sole
and absolute discretion.
"Initial Agreement" has the meaning set forth in the recitals to this
Agreement.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Lien" means any liens, security interests, mortgages, deeds of trust,
charges, claims, encumbrances, pledges, options, rights of first offer or first
refusal and any other rights or interests of any kind or nature, actual or
contingent, or other similar encumbrances of any nature whatsoever.
"Limited Partner" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to time, or
any Substituted Limited Partner, Additional Limited Partner, or Employee Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership and includes any and all benefits to which
the holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement.
"Liquidating Event(s)" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"Management Company" means Crescent Development Management Corp., a
Texas corporation that will provide management services to the Mira Vista
Property, the Falcon Point Property, the Huntington Woods Property, and certain
other properties that may be acquired by the Partnership in the future. The
Partnership will own one (1) share of voting common stock and nine thousand
eight hundred and ninety-nine (9,899) shares of nonvoting common stock of the
Management Company.
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<PAGE> 19
"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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<PAGE> 20
"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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<PAGE> 21
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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<PAGE> 69
Section 16.5 No Alteration of Agreement
Nothing contained herein shall be deemed to give the arbitrators any
authority, power or right to alter, change, amend, modify, add to, or subtract
from any of the provisions of this Agreement.
ARTICLE XVII
GENERAL PROVISIONS
Section 17.1 Addresses and Notice
All notices, requests, demands and other communications hereunder to a
Partner shall be in writing and shall be deemed to have been duly given if
delivered by hand or if sent by certified mail, return receipt requested,
properly addressed and postage prepaid, or transmitted by commercial overnight
courier to the Partner at the address set forth in Exhibit A or at such other
address as the Partner shall notify the General Partner in writing. Such
communications shall be deemed sufficiently given, served, sent or received for
all purposes at such time as delivered to the addressee (with the return receipt
or delivery receipt being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
Section 17.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, (i) references to "Articles" and
"Sections" are to Articles and Sections of this Agreement, and (ii) references
to "Exhibits" are to the Exhibits attached to this Agreement. Each Exhibit
attached hereto and referred to herein is hereby incorporated by reference.
Section 17.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa. Any references in this Agreement to "including" shall be deemed to mean
"including without limitation."
Section 17.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purpose of this Agreement.
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<PAGE> 70
Section 17.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 17.6 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
Section 17.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 17.8 No Agency
Nothing contained herein shall be construed to constitute any partner
the agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.
Section 17.9 Entire Understanding
This Agreement constitutes the entire agreement and understanding among
the Partners and supersedes any prior understanding and/or written or oral
agreements among them respecting the subject matter herein.
Section 17.10 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 17.11 Applicable Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law. The laws of the State of Delaware shall be applied in construing the
Agreement in connection with all arbitration proceedings under Article XVI;
provided that, to the extent that the laws of another jurisdiction are otherwise
applicable as to procedural requirements relating to the arbitration, the
procedural requirements of such other jurisdiction shall be complied with.
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<PAGE> 71
Section 17.12 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respects, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 17.13 Guaranty by Crescent Equities
Crescent Equities unconditionally and irrevocably guarantees to the
Limited Partners the performance by the General Partner of the obligations of
the General Partner under this Agreement. This guaranty is exclusively for the
benefit of the Limited Partners and shall not extend to the benefit of any
creditor of the Partnership.
Section 17.14 Restriction on Sale of Sonoma Property
The General Partner hereby acknowledges that the Partnership's ability
to sell or otherwise transfer the Sonoma Property is subject to certain
restrictions under the Sonoma Contribution Agreement for a period of seven (7)
years after the date of the Sonoma Contribution Agreement, or as otherwise set
forth at the end of Article II of the Sonoma Contribution Agreement.
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<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
LIMITED PARTNERS:
as set forth in Exhibit A hereto:
By: CRESCENT REAL ESTATE EQUITIES,
LTD., as attorney-in-fact
pursuant to Sections 2.4 and
14.1.B of the Agreement
/s/ CRESCENT REAL ESTATE EQUITIES, LTD.
---------------------------------------
[EXHIBITS OMITTED]
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<PAGE> 73
FIRST AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of February 19, 1998, is entered into by and among Crescent Real Estate
Equities, Ltd., a Delaware corporation, on its own behalf as sole general
partner (the "General Partner") of Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership (the "Partnership"), and as
attorney-in-fact for each of the existing limited partners (the "Limited
Partners") of the Partnership pursuant to Sections 2.4 and 14.1.B of the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of November 1, 1997, hereinafter referred
to as the "Effective Agreement."
WITNESSETH:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware, and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, the individuals set forth in the following table exercised
options to purchase REIT Shares for the respective number of shares, on the
respective date, pursuant to the respective stock option plan and for which
Crescent Equities shall receive credit for the respective Capital Contribution
to the Partnership indicated opposite each such individual's name:
<TABLE>
<CAPTION>
Number of REIT Capital
Individual Exercise Date Shares Purchased Stock Option Plan Contribution
-------------- ------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Julie C. Carey 11/10/97 800 1995 Plan $ 28,350.00
Anna Dean 11/24/97 200 First Amended and $ 7,562.50
Restated 1995 Plan
Howard Lovett 12/4/97 3,000 1995 Plan $117,000.00
Howard Lovett 12/4/97 2,000 First Amended and $ 78,000.00
Restated 1995 Plan
Bobby Vann 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
Bret Angle 12/5/97 200 First Amended and $ 7,775.00
Restated 1995 Plan
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C> <C> <C>
Howard Lovett 12/19/97 200 1995 Plan $ 7,737.50
Lynn B. Sonsel 1/5/98 200 First Amended and $ 7,937.50
Restated 1995 Plan
Fred Hoeckstra 1/21/98 200 First Amended and $ 7,237.50
Restated 1995 Plan
Anthony M. Frank 2/2/98 2,800 First Amended and $ 97,125.00
Restated 1995 Plan
</TABLE>
WHEREAS, the individuals and entities set forth in the following table
exercised their Exchange Rights with respect to the respective number of
Partnership Units, on the respective date indicated opposite each such
individual's or entity's name:
<TABLE>
<CAPTION>
Number of
Partnership Units
Individual or Entity Exercise Date Exchanged
------------------------------ -------------------- --------------------
<S> <C> <C>
Gerald W. Haddock 12/12/97 5,000
Pridemore Asset Trust UA 1/1/98 8,064
Scott Asset Trust UA 1/1/98 8,064
Peter G. Henry 1/2/98 7,149
University of Arizona 1/5/98 61,250
Foundation
The Joost Family Living Trust 1/6/98 2,110
Scott Asset Trust UA 1/16/98 1,364
Pridemore Asset Trust UA 1/16/98 1,364
Robert J. Stirk 1/19/98 2,000
Peter G. Henry 1/28/98 10,000
The Lone Star Trust 1/29/98 4,220
</TABLE>
WHEREAS, on December 8, 1997, Richard E. Rainwater assigned 1,300
Partnership Units to Darla D. Moore;
WHEREAS, on December 19, 1997, Crescent Equities issued 5,375,000 REIT
Shares in a public stock offering at a cash price of $38.125 per share, which
cash proceeds aggregating $204,921,875 were contributed to the Partnership by
Crescent Equities pursuant to Section 4.2 of the Effective Agreement;
WHEREAS, effective as of December 31, 1997, Crescent Equities issued
30,933 REIT Shares to Senterra Real Estate Group, L.L.C. ("Senterra") in
satisfaction of certain obligations of the Partnership to Senterra, and, in
connection therewith, Crescent Equities shall receive credit for a Capital
Contribution to the Partnership of $1,200,000;
WHEREAS, on January 5, 1998, Canyon Ranch, Inc. assigned 61,250
Partnership Units to the University of Arizona Foundation;
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<PAGE> 75
WHEREAS, on January 8, 1998. Crescent Equities issued 196 REIT Shares to
each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in
payment of trust managers' fees and, in connection therewith, Crescent Equities
shall receive credit for a Capital Contribution to the Partnership of $20,064;
WHEREAS, on January 16, 1998, Darla D. Moore assigned 682 Partnership
Units to the Scott Asset Trust UA and 682 Partnership Units to the Pridemore
Asset Trust UA;
WHEREAS, on January 16, 1998, Richard E. Rainwater assigned 682
Partnership Units to the Scott Asset Trust UA and 682 Partnership Units to the
Pridemore Asset Trust UA;
WHEREAS, on February 19,1998, Crescent Equities issued 8,000,000 6-3/4%
Series A Convertible Cumulative Preferred Shares ("Series A Preferred Shares")
and, in connection therewith, the General Partner, pursuant to Section 8.7.C of
the Effective Agreement, is required to cause the Partnership to issue to
Crescent Equities preferred equity ownership interests in the Partnership
("Series A Preferred Partnership Units"), and, pursuant to its authority under
Sections 6.1.C and 8.7.C of the Effective Agreement, desires to make such
revisions to the Agreement as are necessary to reflect the issuance of the
Series A Preferred Partnership Units; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In order to reflect (i) the Capital Contributions of Crescent Equities
aggregating $366,500 in connection with the exercise of options to purchase
REIT Shares by Julie C. Carey, Anna Dean, Howard Lovett, Bobby Vann, Bret
Angle, Lynn B. Sonsel, Fred Hoeckstra and Anthony M. Frank, as more fully set
forth above, (ii) the exercise by Gerald W. Haddock, the Pridemore Asset Trust
UA, the Scott Asset Trust UA, Peter G. Henry, the University of Arizona
Foundation, The Joost Family Living Trust, Robert J. Stirk, and the Lone Star
Trust of their Exchange Rights with respect to Partnership Units, as more fully
set forth above, (iii) the assignment by Richard E. Rainwater of 1,300
Partnership Units to Darla D. Moore, (iv) the Capital Contribution by Crescent
Equities on December 19, 1997 of $204,921,875 in connection with the public
stock offering of 5,375,000 REIT Shares at $38,125 per share, (v) the
assignment by Canyon Ranch, Inc. of 61,250 Partnership Units to the University
of Arizona Foundation, (vi) the Capital Contribution by Crescent Equities on
December 31, 1997, of $1,200,000 in connection with the issuance OF 30,933 REIT
Shares to Senterra in satisfaction of certain obligations of the Partnership to
Senterra, (vii) the Capital Contribution by Crescent Equities on January 8,
1998, of $20,064 in connection with the issuance of 196 REIT shares to each of
Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment of
trust managers' fees, (viii) the assignment by Darla D. Moore of 682
Partnership Units to each of the Scott Irrevocable Asset Trust and the
Pridemore Irrevocable Asset Trust, and (ix) the assignment by Richard E.
Rainwater of 682 Partnership Units to each of the Scott Irrevocable Asset Trust
and the Pridemore Irrevocable Asset Trust, Exhibit A to the Effective Agreement
is hereby deleted in its entirety and replaced with the Exhibit A attached to
this First Amendment and made a part hereof.
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<PAGE> 76
2. Pursuant to Section 8.7.C of the Effective Agreement, effective as of
February 19, 1998, the issuance date of Series A Preferred Shares by Crescent
Equities, the Partnership hereby issues 8,000,000 Series A Preferred
Partnership Units to Crescent Equities.
(a) Crescent Equities shall have a zero percentage Partnership Interest
with respect to such Series A Preferred Partnership Units and shall have no
voting rights other than the right to vote on any amendment to the Effective
Agreement if such amendment would (i) convert the Series A Preferred Partnership
Units into a general partner's interest, (ii) modify the limited liability of
Crescent Equities with respect to the Series A Preferred Partnership Units, or
(iii) alter the distribution, redemption, conversion or liquidation rights of
the Series A Preferred Partnership Units as set forth in paragraphs 2(b) through
(e) below.
(b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to
any distributions of Available Cash under such provision, the General Partner
shall cause distributions of Available Cash to be made quarterly in cash on the
15th day, or if not a Business Day, the next succeeding Business Day, of
February, May, August and November in each year, beginning November 15, 1998,
(or on any other date on which Crescent Equities makes a distribution of
accrued, unpaid quarterly distributions to the holders of Series A Preferred
Shares) to Crescent Equities in an amount equal to the amount that is required
to be distributed by Crescent Equities on that date to the holders of Series A
Preferred Shares.
(c) Notwithstanding Sections 6.1.A and B of the Effective Agreement
(i) Each year, after giving effect to the special allocations set
forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the
Partnership shall be allocated first to Crescent Equities until the cumulative
amount allocated under this paragraph 2(c)(i) to Crescent Equities for the
current year and all prior years is equal to the cumulative amount for the
current year and all prior years of the distributions made to Crescent Equities
under paragraph 2(b) above and the portion of the distributions made to Crescent
Equities under paragraph 2(d) below (if any) that exceeds $25 per Series A
Preferred Partnership Unit. Any remaining Net Profits or Net Losses (other than
gain or loss from a sale or other disposition of all or substantially all of the
assets of the Partnership, which shall be allocated as set forth in paragraphs
2(c)(ii) and (iii) below) shall be allocated as set forth in Sections 6.1.A and
B of the Effective Agreement.
(ii) The gain of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to Crescent Equities in the amount
necessary to cause its Capital Account balance to be equal to the liquidation
preference payable by Crescent Equities on the outstanding Series A Preferred
Shares (the "Liquidation Preference") (i.e., a liquidation payment of $25 per
Series A Preferred Partnership Unit, necessary, plus and accrued, unpaid
quarterly distribution thereon), (B) second, to the Partners in the amounts
necessary, and in the ratio of such amounts, to cause the Capital Account
balance of Crescent Equities in excess of the liquidation Preference and the
Capital Account of each other Partner to be in the same ratio as their
respective Partnership Interests, and (iii) thereafter, to all of the Partners
in proportion to their respective Partnership Interests
(iii) The loss of the Partnership from a sale or other disposition of
all or substantially all of the assets of the Partnership shall be allocated
among the Partners as follows: (A) first, to the Partners, if any, having
positive Capital Account balances, in the amounts necessary, and in the ratio of
such amounts, so as to cause the positive Capital Account Balance of Crescent
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<PAGE> 77
Equities to equal the Liquidation Preference and the positive Capital Account
balance of each other Partner to equal zero (or, if there is insufficient loss
to accomplish this result, loss shall be allocated in a manner so as to cause
the positive Capital Account balance of Crescent Equities in excess of the
Liquidation Preference and the positive Capital Account balance of each other
Partner to be in the same ratio as their respective Partnership Interests), (B)
second, to Crescent Equities, until its positive Capital Account balance equals
zero, and (C) thereafter, to the Partners in proportion to their respective
Partnership Interests.
(d) In the event that Crescent Equities exercises its redemption right
with respect to the Series A Preferred Shares, the Partnership shall
concurrently redeem a corresponding amount of Series A Preferred Partnership
Units at the same redemption price paid by Crescent Equities for the Series A
Preferred Shares (i.e., a redemption payment of $25 per Series A Preferred
Partnership Unit, plus any accrued, unpaid quarterly distribution thereon).
(e) Upon exercise of any conversion right with respect to Series A
Preferred Shares, (i) Crescent Equities shall, as of the date on which the
conversion is consummated, be deemed to have contributed to the Partnership as
Contributed Funds pursuant to Section 4.2.A(2) of the Effective Agreement an
amount equal to the Value (computed as of the Business Day immediately
preceding the date on which such conversion is consummated) of the REIT Shares
delivered by Crescent Equities to such holder of Series A Preferred Shares, (ii)
the Partnership Interests of Crescent Equities and the other Limited Partners
shall be adjusted as set forth in Section 4.2 of the Effective Agreement, and
(iii) a corresponding portion of Series A Preferred Partnership Units shall be
retired.
3. Except as the context may otherwise require, any terms used in this
First Amendment which are defined in the Effective Agreement shall have the
same meaning for purposes of this First Amendment as in the Effective
Agreement.
4. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed, and reaffirmed for all purposes and in all respects.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment as
of the date first written above.
GENERAL PARTNER:
CRESCENT REAL ESTATE EQUITIES, LTD.,
a Delaware corporation, on its own
behalf and as attorney-in-fact for the
Limited Partners pursuant to Sections
2.4 and 14.1.B of the Effective
Agreement
By: /s/ DAVID M. DEAN
-----------------------------
Name: David M. Dean
-----------------------------
Title: Senior Vice President, Law
-----------------------------
[EXHIBITS OMITTED]
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<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
--------------------------------
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<PAGE> 80
NEW LIMITED PARTNERS:
/s/ MYRON G. BLALOCK, III
---------------------------------------
Myron G. Blalock, III
/s/ NEIL H. TOFSKY
---------------------------------------
Neil H. Tofsky
SENTERRA CORPORATION, a Texas
corporation
By: /s/ DOUGLAS W. SCHNITZER
-----------------------------------
Name: Douglas W. Schnitzer
Title: President
The undersigned is executing this Second Amendment for the sole purpose
of evidencing its contribution to the Partnership of the property and assets
specified in the Contract in exchange for a Limited Partnership Interest
including 123,155 Partnership Units, and its immediate withdrawal as a Partner
in connection with the distribution of 20,857 Partnership Units to each of
Blalock and Tofsky, and 83,441 Partnership Units to Senterra Corporation.
SENTERRA REAL ESTATE GROUP, L.L.C., a
Texas limited liability company
By: /s/ NEIL H. TOFSKY
-----------------------------------
Name: Neil H. Tofsky
Title: President
[EXHIBITS OMITTED]
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<PAGE> 81
THIRD AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP
THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP (this
"Third Amendment"), dated as of April 27, 1998, is entered into by and among
Crescent Real Estate Equities, Ltd., a Delaware corporation, on its own behalf
as sole general partner (the "General Partner") of Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership (the
"Partnership"), and as attorney-in-fact for each of the existing limited
partners (the "Limited Partners") of the Partnership pursuant to Sections 2.4
and 14.1.B of the Second Amended and Restated Agreement of Limited Partnership
of Crescent Real Estate Equities Limited Partnership, dated as of November 1,
1997, as amended by the First Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of February 19, 1998, and the Second Amendment to the
Second Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of March 2, 1998, hereinafter
referred to as the "Effective Agreement."
W I T N E S S E T H:
WHEREAS, the Partnership was formed pursuant to that certain Certificate
of Limited Partnership dated February 9, 1994 and filed on February 9, 1994 in
the office of the Secretary of State of Delaware and that certain Agreement of
Limited Partnership dated as of February 9, 1994 (the "Initial Agreement");
WHEREAS, the Initial Agreement, as previously amended and restated, was
amended and restated in its entirety by the Effective Agreement;
WHEREAS, Armada/Hoffler Holding Company, a Virginia corporation ("AHHC"),
and Lano International, Inc., a Delaware corporation ("Lano"), as assignor, and
the Partnership, as assignee, entered into that certain Assignment and
Assumption Agreement dated as of the 20th day of March, 1998, as amended by a
First Amendment dated March 23, 1998, and a Second Amendment dated April 27,
1998, (hereinafter referred to collectively as the "Assignment and Assumption
Agreement");
WHEREAS, under the Assignment and Assumption Agreement, (i) AHHC has
agreed to contribute to the Partnership its interest in that certain Agreement
of Sale dated May 30, 1997 by and between Rosewood Georgetown Joint Venture, a
Texas joint venture, as seller, and Lano and AHHC, as purchaser (the
"Contract") in exchange for a Limited Partnership Interest in the Partnership,
and (ii) Lano has agreed to transfer a portion of its interest in the Contract
to the Partnership in exchange for cash and to contribute the remainder of its
interest in the Contract to the
<PAGE> 82
Partnership in exchange for the issuance of a Limited Partnership Interest to
Alan R. Novak ("Novak"), the sole shareholder of Lano;
WHEREAS, the General Partner desires to reflect the admission of AHHC and
Novak as Additional Limited Partners, in exchange for the Capital Contributions
described above, pursuant to Section 4.3 of the Effective Agreement, upon the
terms and conditions set forth herein;
WHEREAS, the General Partner further desires to grant Partnership Units
(as defined in Article I of the Effective Agreement) to Novak and AHHC pursuant
to Section 4.3 of the Effective Agreement upon the terms and conditions set
forth herein; and
WHEREAS, the General Partner desires to amend the Effective Agreement
pursuant to its authority under Sections 2.4 and 14.1.B of the Effective
Agreement and the powers of attorney granted to the General Partner by the
Limited Partners in order to reflect the aforementioned.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. In exchange for the Capital Contribution of AHHC described above
(which Capital Contribution has a Net Asset Value of $4,940,095), the
Partnership hereby admits AHHC as an Additional Limited Partner effective as of
the date hereof, pursuant to Section 4.3 of the Effective Agreement, with AHHC
having the Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite its name.
2. In exchange for the Capital Contribution of Lano described above
(which Capital Contribution has a Net Asset Value of $2,509,905), the
Partnership hereby admits Novak as an Additional Limited Partner effective as
of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with
Novak having the Partnership Interest and number of Partnership Units set forth
on Exhibit A hereto opposite its name.
3. Each of Novak and AHHC hereby acknowledges its acceptance of all of
the terms and conditions of the Effective Agreement, including without
limitation the power of attorney granted in Section 2.4 of the Effective
Agreement, and all of the terms and conditions hereof.
4. Novak and AHHC, each for itself, hereby irrevocably constitutes and
appoints the General Partner, with full power of substitution, its true and
lawful attorney for each of Novak and AHHC and in the name, place, and stead of
each of them, and for each of their use and benefit, to execute a future
amendment to the Effective Agreement and such other documents and instruments,
and to take such actions, as the General Partner deems necessary, desirable or
appropriate to effect the issuance of additional Partnership Units or, as the
case may be, the retirement and cancellation of Partnership Units pursuant to
the provisions of the Assignment and Assumption Agreement. Each of Novak and
AHHC agrees that this power of attorney is a power coupled with an interest and
shall survive and not be effected by the termination of this Third
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<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.
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<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.]
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<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
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<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
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<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.]
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<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
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<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,
-4-
<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 $199,881,347.96
to 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> 114
NINTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS NINTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of April 15, 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, and the 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 (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, 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");
<PAGE> 115
WHEREAS, the First Amended Agreement, as previously amended, 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 Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Chris Crisman 2/24/99 200 First Amended and $ 4,487.50
Restated 1995 Plan
David Dean 3/5/99 272 1994 Plan $ 5,746.00
Alan Powers 3/15/99 600 1994 Plan $ 12,975.00
Alan Powers 3/15/99 1,200 1995 Plan $ 25,950.00
</TABLE>
WHEREAS, effective as of April 15, 1999, Crescent Equities issued
164,564 REIT Shares to certain former partners of Spectrum Dallas Associates,
L.P. ("SDA") in satisfaction of certain obligations of the Partnership to SDA,
and, in connection therewith, Crescent Equities shall receive credit for a
Capital Contribution to the Partnership of $3,681,132.12;
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 $49,158.50 in connection with the
exercise of options to purchase REIT Shares by Chris Crisman, David
Dean, and Alan Powers, as more fully set forth above, and (ii) the
Capital Contribution by Crescent Equities on April 15, 1999, of
$3,681,132.12 in connection with the issuance of 164,564 REIT Shares to
SDA in satisfaction of certain obligations of the Partnership to SDA,
Exhibit A to the Effective Agreement is hereby deleted in its entirety
and replaced with the Exhibit A attached to this Ninth Amendment and
made a part hereof.
2. Except as the context may otherwise require, any terms used
in this Ninth Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Ninth Amendment as in
the Effective Agreement.
-2-
<PAGE> 116
3. 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 Ninth 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
-3-
<PAGE> 117
TENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS TENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of May 3, 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, the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, 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, 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");
1
<PAGE> 118
WHEREAS, the First Amended Agreement, as previously amended, 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, 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, pursuant to the Assignment and Assumption Agreement and the
Third Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of April 27, 1998 (the "Third Amendment"), the General
Partner admitted AHHC and Alan R. Novak ("Novak") as Additional Limited
Partners, granting to AHHC and Novak Partnership Interests consisting of 71,222
Partnership Units and 36,185 Partnership Units, respectively;
WHEREAS, pursuant to the provisions of section 2(b) of the Assignment
and Assumption Agreement, the Partnership is required to issue 32,101 additional
Partnership Units to AHHC and 16,309 additional Partnership Units to Alan R.
Novak;
WHEREAS, the General Partner desires to grant an additional Limited
Partnership Interest, including 32,101 Partnership Units, to AHHC and an
additional Limited Partnership Interest, including 16,309 Partnership Units to
Alan R. Novak, pursuant to section 2(b) of the Assignment and Assumption
Agreement and Section 4.3 of the Effective Agreement; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transaction described above 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. Pursuant to Section 4.3 of the Effective Agreement, the
General Partner hereby grants to AHHC an additional Limited Partnership
Interest including 32,101 Partnership Units with a Value of
$756,180.79, resulting in AHHC having the Partnership Interest and
number of Partnership Units set forth on Exhibit A hereto opposite its
name.
2. Pursuant to Section 4.3 of the Effective Agreement, the
General Partner hereby grants to Alan R. Novak an additional Limited
Partnership Interest including 16,309 Partnership Units with a Value of
$384,179.70, resulting in Alan R. Novak having the Partnership Interest
and number of Partnership Units set forth on Exhibit A hereto opposite
his name.
2
<PAGE> 119
3. Except as the context may otherwise require, any terms used
in this Tenth Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Tenth 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.
3
<PAGE> 120
IN WITNESS WHEREOF, the undersigned have executed this Tenth 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
4
<PAGE> 121
ELEVENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS ELEVENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of June 1, 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, and the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, and the Tenth
Amendment to the Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 3, 1999,
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, was amended and
restated in its entirety by that certain First Amended and Restated Agreement of
Limited Partnership of
<PAGE> 122
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;
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>
Keira Moody 4/15/99 2,400 1995 Plan $ 59,700
Keira Moody 4/15/99 880 First Amended and $ 21,890
Restated 1995 Plan
Jason Anderson 4/15/99 2,400 1995 Plan $ 59,700
Jason Anderson 4/15/99 880 First Amended and $ 21,890
Restated 1995 Plan
Jenny Townsend 4/15/99 400 First Amended and $ 9,950
Restated 1995 Plan
Suzanne Stevens 4/15/99 800 1995 Plan $ 19,900
Bruce Picker 4/15/99 29,000 1994 Plan $ 721,375
Bruce Picker 4/15/99 25,000 1995 Plan $ 621,875
Gerald Haddock 4/15/99 75,000 1994 Plan $ 1,865,625
Suzanne Stevens 4/15/99 880 First Amended and $ 21,890
Restated 1995 Plan
David Dean 4/15/99 15,028 1994 Plan $ 373,821.50
Dory Bentley 4/16/99 320 First Amended and $ 7,980
Restated 1995 Plan
Jimmy Dockal 4/16/99 1,600 1995 Plan $ 39,900
John Walker 4/16/99 8,000 First Amended and $ 199,500
Restated 1995 Plan
Bruce Picker 4/16/99 5,000 1995 Plan $ 124,687.50
</TABLE>
-2-
<PAGE> 123
<TABLE>
<CAPTION>
Number of REIT Stock Capital
Individual Exercise Date Shares Purchased Option Plan Contribution
- ---------- ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Bruce Picker 4/16/99 28,000 First Amended and $ 698,250
Restated 1995 Plan
Gerald Haddock 4/16/99 225,000 1994 Plan $5,610,937.50
Eric Painter 4/16/99 200 First Amended and $ 4,987.50
Restated 1995 Plan
Jeff Fitzgerald 4/16/99 2,000 1994 Plan $ 49,875
Jeff Fitzgerald 4/16/99 12,000 1995 Plan $ 299,250
Jim Eidson 4/16/99 34,700 1995 Plan $ 865,331.25
Jim Eidson 4/16/99 81,400 First Amended and $2,029,912.50
Restated 1995 Plan
David Dean 4/16/99 2,800 1994 Plan $ 69,825
David Dean 4/16/99 2,200 1995 Plan $ 54,862.50
John Goff 4/16/99 170,500 1994 Plan $4,251,843.75
David Dean 4/19/99 2,000 1995 Plan $ 49,250
Gerald Haddock 4/19/99 52,472 1994 Plan $ 1,292,123
Gerald Haddock 4/19/99 100,000 1995 Plan $ 2,462,500
John Goff 4/19/99 61,100 1994 Plan $1,504,587.50
Elizabeth Hays 4/20/99 200 First Amended and $ 4,937.50
Restated 1995 Plan
Lynn Sonsel 4/20/99 200 First Amended and $ 4,937.50
Restated 1995 Plan
John Goff 4/20/99 29,900 1994 Plan $ 738,156.25
John Goff 4/21/99 101,000 1994 Plan $2,493,437.50
David Dean 4/22/99 13,800 1995 Plan $ 330,337.50
David Dean 4/22/99 24,000 First Amended and $ 574,500
Restated 1995 Plan
John Goff 4/22/99 84,200 1994 Plan $2,015,537.50
Elizabeth Corbell 4/22/99 1,600 1994 Plan $ 38,300
</TABLE>
-3-
<PAGE> 124
WHEREAS, on February 17, 1999, John Evan exercised his Exchange Rights
with respect to 1,500 Partnership Units;
WHEREAS, on March 25, 1999, pursuant to that certain Settlement
Agreement dated as of March 16, 1999, Crescent Equities issued to The Prudential
Insurance Company of America, Strategic Value Investors, L.L.C., Strategic Value
Investors International, L.L.C., and Strategic Value Investors II, L.L.C.
(collectively, the "Prudential Investors") 12,356 REIT Shares with a Value of
$21.30 per REIT Share and, in connection therewith, Crescent Equities shall
receive credit for an aggregate Capital Contribution to the Partnership of
$263,182.80;
WHEREAS, on April 8, 1999, Crescent Equities issued 298 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
$20,003.25;
WHEREAS, on April 30, 1999, Crescent Equities issued 747,598 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 $7,475.98 were contributed to the
Partnership by Crescent Equities pursuant to Section 4.2 of the Agreement;
WHEREAS, on May 26, 1999, Armada/Hoffler Holding Company exercised its
Exchange Rights with respect to 103,323 Partnership Units and Alan R. Novak
exercised his Exchange Rights with respect to 52,494 Partnership Units;
WHEREAS, the General Partner desires to correct Exhibit A to the
Effective Agreement, effective as of May 3, 1999, and the description of the
issuance of Partnership Units set forth in the Tenth Amendment to the Second
Amended Agreement to indicate that the value of the Partnership Units issued to
Armada/Hoffler Holding Company was $1,512,278.11 and the value of the
Partnership Units issued to Alan R. Novak was $768,316.99; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transaction described above 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 $29,613,363.25 in connection with the
exercise of options to purchase REIT Shares by Keira Moody, Jason
Anderson, Jenny Townsend, Suzanne Stevens, Bruce Picker, Gerald
Haddock, David Dean, Dory Bentley, Jimmy Dockal, John Walker, Eric
-4-
<PAGE> 125
Painter, Jeff Fitzgerald, Jim Eidson, John Goff, Elizabeth Hays, Lynn
Sonsel, and Elizabeth Corbell, as more fully set forth above, (ii) the
Capital Contribution by Crescent Equities on March 24, 1999 of
$263,182.80 in connection with the issuance of 12,356 REIT Shares to
the Prudential Investors, (iii) the Capital Contribution by Crescent
Equities on April 8, 1999 of $20,003.25 in connection with the issuance
of 298 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 April 30, 1999, of
$7,475.98 in connection with the issuance to UBS Securities, LLC of
747,598 REIT Shares at $0.01 per share, and (v) the exercise by John
Evan, Armada/Hoffler Holding Company, and Alan R. Novak of their
Exchange Rights with respect to Partnership Units, as more fully set
forth above, Exhibit A to the Effective Agreement is hereby deleted in
its entirety and replaced with the Exhibit A attached to this Eleventh
Amendment and made a part hereof.
2. Exhibit A of the Effective Agreement and the description of
the issuance of Partnership Units set forth in the Tenth Amendment to
the Second Amended Agreement are hereby revised to indicate that the
value of the Partnership Units issued to Armada/Hoffler Holding Company
was $1,512,278.11 and the value of the Partnership Units issued to Alan
R. Novak was $768,316.99
3. Except as the context may otherwise require, any terms used
in this Eleventh Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Eleventh 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.
-5-
<PAGE> 126
IN WITNESS WHEREOF, the undersigned have executed this Eleventh
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
-6-
<PAGE> 127
TWELFTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS TWELFTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated
as of June 3, 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, the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, the Tenth Amendment to
the Second Amended and Restated Agreement of Limited Partnership of Crescent
Real Estate Equities Limited Partnership, dated as of May 3, 1999, and the
Eleventh Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1999 (hereinafter referred to as the "Effective Agreement"), and John H.
Anderson.
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");
<PAGE> 128
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;
WHEREAS, pursuant to that certain Subrogation Agreement and Waiver by
and among John H. Anderson, the Partnership, the General Partner and Crescent
Equities, entered into as of the date hereof, the Partnership has agreed to
grant an additional Limited Partnership Interest, including 37,500 additional
Partnership Units, to John H. Anderson;
WHEREAS, the General Partner desires to grant an additional Limited
Partnership Interest, including 37,500 Partnership Units, to John H. Anderson
pursuant to Section 4.3 of the Effective Agreement; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transaction described above 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. John H. Anderson hereby acknowledges his prior acceptance
in the Thirteenth Amendment to the First Amended Agreement 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.
2. Pursuant to Section 4.3 of the Effective Agreement, the
General Partner hereby grants to John H. Anderson an additional Limited
Partnership Interest including 37,500 Partnership Units with an agreed
value of $1,731,562.50, resulting in John H. Anderson having the
Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite his name.
3. Except as the context may otherwise require, any terms used
in this Twelfth Amendment which are defined in the Effective Agreement
shall have the same meaning for purposes of this Twelfth 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.
-2-
<PAGE> 129
IN WITNESS WHEREOF, the undersigned have executed this Twelfth
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:
/s/ John Anderson
John H. Anderson
Exhibit omitted.
-3-
<PAGE> 130
THIRTEENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS THIRTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP,
dated as of December 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, and the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, and the Tenth
Amendment to the Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 3, 1999, and
the Eleventh Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1999, and the Twelfth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of June 3, 1999 (hereinafter referred to as the "Effective
Agreement") and Crescent Real Estate Equities Company, a Texas real estate
investment trust, in its capacity as the owner of a majority-in-interest of the
total Partnership Interests of the Limited Partners.
<PAGE> 131
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;
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 Shares Capital
Individual Exercise Date Purchased Stock Option Plan Contribution
- ---------- ------------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Jana Irwin 6/7/99 1,200 1994 Plan $28,950
Jana Irwin 6/7/99 2,400 1995 Plan $57,900
Melissa Graham 6/8/99 2,400 1995 Plan $57,900
Shirley Coleman 6/15/99 400 1995 Plan $9,475
Bobby Vann 7/16/99 200 1995 Plan $4,825
Fred Hoekstra 7/16/99 200 1995 Plan $4,825
James Petrie 7/16/99 200 1995 Plan $4,825
Carlson Jordan 7/16/99 200 1995 Plan $4,825
Henry Cosby 7/16/99 200 1995 Plan $4,825
Carlos Gonzalez 7/19/99 200 1995 Plan $4,800
Daniel Thompson 7/19/99 200 1995 Plan $4,800
John Zogg 10/20/99 4,800 1994 Plan $79,500
John Goff 11/4/99 195,204 1994 Plan $3,025,662
John Goff 11/4/99 250,000 1994 Plan $3,875,000
David Dean 11/5/99 2,500 1994 Plan $39,531.25
</TABLE>
2
<PAGE> 132
<TABLE>
<CAPTION>
Number of
REIT Shares Capital
Individual Exercise Date Purchased Stock Option Plan Contribution
- ---------- ------------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Terri Black 11/5/99 5,400 First Amended and $85,387.50
Restated 1995 Plan
Jerry Crenshaw 11/5/99 1,600 1994 Plan $25,300
Jerry Crenshaw 11/5/99 3,600 1994 Plan $56,925
Richard Rainwater 11/26/99 500,000 1994 Plan $8,468,750
Richard Rainwater 11/26/99 500,000 1994 Plan $8,468,750
Richard Rainwater 11/26/99 165,624 1994 Plan $2,805,256.50
Anthony Frank 11/26/99 2,800 First Amended and Restated $47,425
1995 Plan
Kim Dean 12/7/99 4,100 1994 Plan $71,237.50
Whit Kelly 12/30/99 2,400 1994 Plan $43,500
</TABLE>
WHEREAS, on June 29, 1999, Gerald Haddock exercised his Exchange Rights
with respect to 5,000 Partnership Units;
WHEREAS, as of June 30, 1999, Crescent Equities and UBS AG ("UBS")
entered into a settlement (the "Settlement") of that certain Forward Stock
Purchase dated August 12, 1997, by and between Crescent Equities and affiliates
of the predecessor of UBS;
WHEREAS, pursuant to the Settlement, Crescent Equities agreed to make a
cash payment of $149,384,131 to UBS in exchange for the delivery by UBS to
Crescent Equities of 7,299,760 REIT Shares;
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 agreed to purchase REIT Shares from UBS;
WHEREAS, on July 1, 1999, Gerald Haddock exercised his Exchange Rights
with respect to 5,000 Partnership Units;
WHEREAS, on July 8, 1999, Crescent Equities issued 285 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
$20,039.06;
WHEREAS, on July 12, 1999, Peter Henry exercised his Exchange Rights
with respect to 7,500 Partnership Units;
3
<PAGE> 133
WHEREAS, on July 19, 1999, Gerald Haddock exercised his Exchange Rights
with respect to 5,000 Partnership Units;
WHEREAS, on July 20, 1999, Gerald Haddock exercised his Exchange Rights
with respect to 5,000 Partnership Units;
WHEREAS, on July 26, 1999, Crescent Equities cancelled 216 restricted
REIT Shares valued at $22.94 per share belonging to Shannon Gilbert;
WHEREAS, on October 7, 1999, Crescent Equities issued 319 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
$16,687.69;
WHEREAS, on November 4, 1999, John Goff exercised options to purchase
571,428 Partnership Units pursuant to that certain 1996 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan;
WHEREAS, on December 14, 1999, Richard E. Rainwater assigned 1,425
Partnership Units to Darla D. Moore;
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transactions described above 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; and
WHEREAS, the General Partner and Crescent Equities, the owner of a
majority-in-interest of the total Partnership Interests of the Limited Partners,
desire, pursuant to Sections 14.1.A and 14.1.B of the Effective Agreement, to
supplement the provisions of Section 4.7 relating to the grant of Limited
Partnership Interests (including Partnership Units) and options to purchase
Limited Partnership Interests (including Partnership Units) to Employee 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 $27,280,174.75 in connection with the
exercise of options to purchase REIT Shares by Jana Irwin, Melissa
Graham, Shirley Coleman, Bobby Vann, Fred Hoekstra, James Petrie,
Carlson Jordan, Henry Cosby, Carlos Gonzalez, Daniel Thompson, John
Zogg, John Goff, David Dean, Terri Black, Jerry Crenshaw, Richard
Rainwater, Anthony Frank, Kim Dean, and Whit Kelly, as more fully set
forth above, (ii) the exercise by Gerald Haddock and Peter Henry of
their Exchange Rights with respect to Partnership Units, as more fully
set forth above, (iii) the Capital Contributions by Crescent Equities
on July
4
<PAGE> 134
8, 1999 and October 7, 1999, of $20,039.06 and $16,687.69,
respectively, in connection with the issuance of REIT Shares to each of
Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III, in
payment of trust managers' fees, (iv) the cancellation by Crescent
Equities of 216 restricted REIT Shares belonging to Shannon Gilbert;
(v) the purchase by the Partnership of a portion of the Partnership
Interest of Crescent Equities for $149,384,131 in connection with the
Settlement, (vi) the issuance of 571,428 Partnership Units to John
Goff, as more fully set forth above, and (vii) the assignment by
Richard E. Rainwater of 1,425 Partnership Units to Darla D. Moore,
Exhibit A to the Effective Agreement is hereby deleted in its entirety
and replaced with the Exhibit A attached to this Thirteenth Amendment
and made a part hereof.
2. The following new section 4.7.E is hereby added at the
end of Section 4.7 of the Agreement:
E. Notwithstanding anything to the contrary contained above
in this Section 4.7, upon any admission of an Employee
Limited Partner pursuant to Section 4.7.A or 4.7.B above:
(1) If the admission is made in connection with a grant of
Partnership Units to an Employee Limited Partner, (a)
the Employee Limited Partner shall, as of the date on
which the grant of the Partnership Units is made, be
deemed to have contributed to the Partnership pursuant
to Section 4.3 hereof an amount equal to the fair
market value of the Partnership Units delivered to
such Employee Limited Partner (computed by calculating
the product of the following three items: (i) the
number of Partnership Units delivered to such Employee
Limited Partner, multiplied by (ii) the Exchange
Factor, multiplied by (iii) the "closing price," as
such term is defined in the definition of the term
"Value" in Article I hereof, of a REIT Share on the
date on which the grant of Partnership Units is made)
and (b) 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 4.3, based
on the amount deemed to be contributed by the Employee
Limited Partner as determined pursuant to clause (a)
above; provided that, for purposes of calculating the
"Deemed Value of the Partnership" and the "Deemed
Partnership Interest Value" under Section 4.3, 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 Partnership Units is made.
(2) If the admission is made in connection with the
exercise of an option to purchase Partnership Units by
an Employee Limited Partner, (a) the Employee Limited
Partner shall, as
5
<PAGE> 135
of the date on which the option to purchase
Partnership Units is exercised, be deemed to have
contributed to the Partnership pursuant to Section
4.3 hereof an amount equal to the fair market value
of the Partnership Units delivered to such Employee
Limited Partner (computed by calculating the product
of the following three items: (i) the number of
Partnership Units delivered to such Employee Limited
Partner, multiplied by (ii) the Exchange Factor,
multiplied by (iii) the "closing price," as such term
is defined in the definition of the term "Value" in
Article I hereof, of a REIT Share on the date on
which the option to purchase Partnership Units is
exercised) and (b) 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
4.3, based on the amount deemed to be contributed by
the Employee Limited Partner as determined pursuant
to clause (a) above; provided that, for purposes of
calculating the "Deemed Value of the Partnership" and
the "Deemed Partnership Interest Value" under Section
4.3, 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 option to
purchase Partnership Units is exercised.
3. Except as the context may otherwise require, any terms
used in this Thirteenth Amendment which are defined in the Effective
Agreement shall have the same meaning for purposes of this Thirteenth
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.
6
<PAGE> 136
IN WITNESS WHEREOF, the undersigned have executed this Thirteenth
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/ Bruce A. Picker
Name: Bruce A. Picker
Title: Senior Vice President and
Chief Investment Officer
LIMITED PARTNER:
CRESCENT REAL ESTATE EQUITIES
COMPANY, a Texas real estate
investment trust, as the owner of a
majority-in-interest of the
Partnership Interests of the
Limited Partners
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law
and Administration
[EXHIBITS OMITTED]
7
<PAGE> 137
FOURTEENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FOURTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP,
dated as of January 31, 2000, 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, and the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, and the Tenth
Amendment to the Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 3, 1999, and
the Eleventh Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1999, the Twelfth Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Crescent Real Estate Equities Limited Partnership,
dated as of June 3, 1999, and the Thirteenth Amendment to the Second Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate Equities
Limited Partnership, dated as of December 31, 1999 (hereinafter referred to as
the "Effective Agreement") and Crescent Real Estate Equities Company, a Texas
real estate investment trust, in its capacity as the owner of a
majority-in-interest of the total Partnership Interests of the Limited Partners.
1
<PAGE> 138
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;
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 Shares Capital
Individual Exercise Date Purchased Stock Option Plan Contribution
- ---------- ------------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Michael Lewis 1/24/00 30,400 1995 Plan $570,000
Michael Lewis 1/24/00 2,400 1994 Plan $45,000
John Zogg 1/24/00 1,000 1994 Plan $18,750
John Zogg 1/24/00 40,000 1995 Plan $750,000
</TABLE>
WHEREAS, on January 25, 2000, Darla D. Moore assigned 1,331 Partnership
Units to the Pridemore Irrevocable Asset Trust;
WHEREAS, on January 25, 2000, Richard E. Rainwater assigned 400
Partnership Units to the Scott Irrevocable Asset Trust and 1,331 Partnership
Units to the Pridemore Irrevocable Asset Trust;
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
Individual Exercise Date Partnership Units Exchanged
- ---------- ------------- ---------------------------
<S> <C> <C>
Gerald Haddock 1/24/00 10,000
Scott Irrevocable Asset Trust 1/25/00 400
Pridemore Irrevocable Asset Trust 1/25/00 2,662
</TABLE>
2
<PAGE> 139
WHEREAS, on January 7, 2000, Crescent Equities issued 404 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
$23,331;
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transactions described above 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; and
WHEREAS, the General Partner and Crescent Equities, the owner of a
majority-in-interest of the total Partnership Interests of the Limited Partners,
desire, pursuant to Sections 14.1.A and 14.1.B of the Effective Agreement to
make a supplementary change to clarify the provisions of Sections 7.4.B and 7.5
of the Effective Agreement.
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 first two sentences of Sections 7.4.B of the Effective
Agreement are hereby deleted in their entirety and replaced with the
following:
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 income received by the Crescent Group with
respect to bank accounts or other assets 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, costs and expenses relating
3
<PAGE> 140
to the bank accounts or other assets held by the Crescent
Group as permitted in Section 7.5 and all other operating,
debt service or administrative costs of the Crescent Group)
are incurred for the benefit of the Partnership and shall be
reimbursed by the Partnership.
2. The last sentence of Section 7.5 of the Effective Agreement
is hereby deleted in its entirety and replaced with the following:
Notwithstanding anything to the contrary contained above in
this Section 7.5, (1) 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 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, and (2) the Crescent Group may
own such other assets as the General Partner determines are
necessary and appropriate to further the business interests
of the Partnership, upon such terms and conditions as the
General Partner determines are necessary and appropriate to
protect the interests of the Partnership.
3. In order to reflect (i) the Capital Contributions of
Crescent Equities aggregating $1,383,750 in connection with the
exercise of options to purchase REIT Shares by Michael Lewis and John
Zogg, as more fully set forth above, (ii) the assignment by Darla D.
Moore of 1,331 Partnership Units to the Pridemore Irrevocable Asset
Trust, (iii) the assignment by Richard E. Rainwater of 400 Partnership
Units and 1,331 Partnership Units, respectively, to the Scott
Irrevocable Asset Trust and the Pridemore Irrevocable Asset Trust, (iv)
the exercise by Gerald Haddock, 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, and (v)
the Capital Contribution by Crescent Equities on January 7, 2000, of
$23,331, in connection with the issuance of 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 Fourteenth Amendment and made part hereof.
4. Except as the context may otherwise require, any terms used
in this Fourteenth Amendment which are defined in the Effective
Agreement shall have the same meaning for purposes of this Fourteenth
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.
4
<PAGE> 141
IN WITNESS WHEREOF, the undersigned have executed this
Fourteenth 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/ Bruce A. Picker
Name: Bruce A. Picker
Title: Senior Vice President and
Chief Investment Officer
LIMITED PARTNER:
CRESCENT REAL ESTATE EQUITIES COMPANY, a
Texas real estate investment trust, as
the owner of a majority-in-interest of
the Partnership Interests of the Limited
Partners
By: /s/ David M. Dean
Name: David M. Dean
Title: Senior Vice President, Law and
Administration
[EXHIBITS OMITTED]
5
<PAGE> 142
FIFTEENTH AMENDMENT
TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
THIS FIFTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP,
dated as of March 1, 2000, 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, and the 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, and the Ninth Amendment to the Second
Amended and Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of April 15, 1999, and the Tenth
Amendment to the Second Amended and Restated Agreement of Limited Partnership of
Crescent Real Estate Equities Limited Partnership, dated as of May 3, 1999, and
the Eleventh Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
June 1, 1999, and the Twelfth Amendment to the Second Amended and Restated
Agreement of Limited Partnership of Crescent Real Estate Equities Limited
Partnership, dated as of June 3, 1999, and the Thirteenth Amendment to the
Second Amended and Restated Agreement of Limited Partnership of Crescent Real
Estate Equities Limited Partnership, dated as of December 31, 1999, and the
Fourteenth Amendment to the Second Amended and Restated Agreement of Limited
Partnership of Crescent Real Estate Equities Limited Partnership, dated as of
January 31, 2000 (hereinafter referred to as the "Effective Agreement") and
Peter H. Roberts.
<PAGE> 143
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;
WHEREAS, pursuant to that certain Subrogation Agreement and Waiver by
and among Peter H. Roberts, the Partnership, the General Partner and Crescent
Equities, entered into as of the date hereof, the Partnership has agreed to
grant an additional Limited Partnership Interest, including 63,433 additional
Partnership Units, to Peter H. Roberts;
WHEREAS, the General Partner desires to grant an additional Limited
Partnership Interest, including 63,433 Partnership Units, to Peter H. Roberts
pursuant to Section 4.3 of the Effective Agreement; and
WHEREAS, the General Partner desires to amend the Effective Agreement
to reflect the transaction described above 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. Peter H. Roberts hereby acknowledges his prior acceptance
in the Thirteenth Amendment to the First Amended Agreement 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.
2. Pursuant to Section 4.3 of the Effective Agreement, the
General Partner hereby grants to Peter H. Roberts an additional Limited
Partnership Interest including 63,433 Partnership Units with an agreed
value of $2,125,000, resulting in Peter H. Roberts having the
Partnership Interest and number of Partnership Units set forth on
Exhibit A hereto opposite his name.
-2-
<PAGE> 144
3. Except as the context may otherwise require, any terms used
in this Fifteenth Amendment which are defined in the Effective
Agreement shall have the same meaning for purposes of this Fifteenth
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 have executed this Fifteenth
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 and
Administration
LIMITED PARTNER:
/s/ Peter H. Roberts
--------------------------------------------
Peter H. Roberts
[EXHIBITS OMITTED]
-3-
<PAGE> 1
EXHIBIT 10.04
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 15th
day of April, 1994, by and between Rainwater, Inc., a Texas corporation
("Employer"), and John C. Goff ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as provided herein, and
Employee desires to accept such employment; and
WHEREAS, Employee will, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer (the
"Board") to elect and remove of officers, Employee will serve Employer as Chief
Executive Officer (or in such other executive office as Employer or the Board
may determine) and will perform, faithfully and diligently, the services and
functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board. Employee will devote
his full time, attention, skills, benefits and best efforts to the performance
of his duties hereunder and to the promotion of the business and interests of
Employer and its affiliates and will not, without the prior written consent of
the Board, become engaged in any other activity requiring significant time or
personal services by Employee that will conflict with the proper performance of
any such duties under this Agreement. Employer hereby acknowledges that Employee
has a broad and varied range of investment interests and that Employee must
devote such reasonable time and attention to the proper and judicious management
of such interests as may be reasonably required from time to time. Accordingly,
nothing contained in this Agreement shall limit or be deemed to limit Employee's
personal investment activities, and Employee's engaging in such activities shall
not be or be deemed to be a breach or violation of this Agreement.
3. TERM. Unless sooner terminated pursuant to the provisions hereof, the
term of this Agreement (together with any renewals pursuant to this Section, the
"Terms") shall be for a term of three years, commencing on the date of this
Agreement and terminating April 14, 1997; provided that this Agreement will be
automatically renewed for a term of one year unless
<PAGE> 2
either party notifies the other prior to January 1 of a given year that they do
not wish to renew this Agreement.
4. COMPENSATION. As compensation for his services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) Salary. During the Term, Employee will be paid an annual salary of
$160,000.00, payable monthly (the "Salary"). At any time and from time to
time the Salary may be increased if so determined by the Board or its
Compensation Committee after a review of Employee's performance of his
duties hereunder.
(b) Bonus. In addition to the Salary, Employee will be entitled to
receive such bonuses as may be determined by the Board or its Compensation
Committee.
(c) Benefits. During the Term, Employee will be entitled to
receive such group benefits as Employer may provide to its other employees
at comparable salaries and responsibilities to those of Employee.
(d) Expenses. Employer will reimburse Employee for all reasonable and
necessary out-of-pocket travel and other expenses incurred by Employee in
rendering services required under this Agreement, on a monthly basis upon
submission of a detailed monthly statement and reasonable documentation.
5. CONFIDENTIALITY; NON-COMPETITION.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and its affiliates in any Confidential
Information (as hereinafter defined) of Employer and its affiliates.
Employee acknowledges and agrees that any and all Confidential Information
learned by Employee during the course of his engagement by Employer or
otherwise, whether developed by Employee alone or in conjunction with
others or otherwise, will be and is the property of Employer and its
affiliates. Employee further acknowledges and understands that his
disclosure of any Confidential Information and/or proprietary information
will result in irreparable injury and damage to Employer and its
affiliates. As used herein, "Confidential Information" means all
confidential and proprietary information of Employer and its affiliates,
including without limitation information derived from reports,
investigations, experiments, research, drawing, designs, plans, proposals,
codes, marketing and sales programs, client lists, client mailing lists,
financial projections, cost summaries, pricing formula, and all other
concepts, ideas, materials, or information prepared or performed for or by
Employer or its affiliates. "Confidential Information" also includes
information related to the business, products or sales of Employer or its
affiliates, or any of their respective customers, other than information
that is otherwise publicly available.
-2-
<PAGE> 3
(b) Covenant Not-to-Divulge Confidential Information. Employee
acknowledges and agrees that Employer and its affiliates are entitled to
prevent the disclosure of Confidential Information. As a portion of the
consideration for the employment of Employee and for the compensation
being paid to Employee by Employer, Employee agrees at all times during
the Term and thereafter to hold in strict confidence and not to disclose
or allow to be disclosed to any person, firm or corporation, other than to
persons engaged by Employer and its affiliates to further the business of
Employer and its affiliates, and not to use except in the pursuit of the
business of Employer and its affiliates, the Confidential Information,
without the prior written consent of Employer, including Confidential
Information developed by Employee.
(c) Return of Materials at Termination. In the event of any termination
or cessation of his employment with Employer for any reason whatsoever,
Employee will promptly deliver to Employer all documents, data and other
information pertaining to Confidential Information. Employee will not take
any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Confidential Information.
(d) Competition. Employee will enter into a Non-Competition Agreement
with Employer in substantially the form of Exhibit A hereto.
6. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
(a) The expiration of the Term as set forth in Section 3 above;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee;
(d) Written notice to Employee from Employer of termination for
"just cause" (as hereinafter defined); or
(e) Written notice to Employee from Employer of termination for any
reason other than as set forth in Sections 6(a), 6(b), 6(c) or 6(d).
For purposes of Section 6(c), the "disability of Employee will mean his
inability, because of mental or physical illness or incapacity, to perform his
duties under this Agreement for a continuous period of 180 days or for 180 days
out of a 210-day period. For purposes of Section 6(d), "just cause" shall mean
Employee shall commit any act or omit to take any action in bad faith and to the
detriment of Employer.
Notwithstanding anything to the contrary in this Agreement, the provisions
of Section 5 will survive any termination, for whatever reason, of Employee's
employment under this Agreement. In the event of the termination of Employee's
employment prior to the completion
-3-
<PAGE> 4
of the Term, Employee or his estate, as the case may be will be entitled only to
the Salary payable pursuant to Section 4 hereof through the end of the calendar
month in which termination occurs, except that (a) if Employee's employment is
terminated pursuant to Section 6(d), Employee will be entitled to receive a
lump-sum payment equal to six month's Salary at the rate in effect immediately
prior to the termination on the date of termination, and (b) if Employee's
employment is terminated pursuant to Section 6(e), Employee will be entitled to
receive the greater of (i) a payment equal to the full Salary payable pursuant
to Section 4(a) as if no termination had occurred or (ii) a payment equal to one
year's Salary at the rate in effect immediately prior to the termination (except
that, in case of both (i) and (ii), such sum shall be payable in one lump-sum
payment on the date of termination).
7. REMEDIES. Employee recognizes and acknowledges that in the event of any
default in, or breach of any of, the terms, conditions or provisions of this
Agreement (either actual or threatened) by Employee, Employer's and its
affiliates remedies at law will be inadequate. Accordingly, Employee agrees that
in such event, Employer and its affiliates will have the right of specific
performance and/or injunctive relief in addition to any and all other remedies
and rights at law or in equity, and such rights and remedies will be cumulative.
8. ACKNOWLEDGMENTS. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 5 by Employer and its
affiliates will not interfere with Employee's ability to pursue a proper
livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
9. NOTICES. Any notices, consents, demands, requests, approvals and other
communications to be given under this Agreement by either party to the other
will be deemed to have been duly given if given in writing and personally
delivered or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows: if to Employer, to 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, Attention: President; or if to Employee, to John C.
Goff, 777 Main Street, Suite 2700, Fort Worth, Texas 76102.
Notices delivered personally will be deemed communicated as of actual receipt;
mailed notices will be deemed communicated as of three days after mailing.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto and supersedes all prior agreements and understandings, oral or
written between the parties hereto. No modification or amendment of any of the
terms, conditions or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
11. GOVERNING LAW; VENUE. This Agreement and the rights and obligations of
the parties hereto will be governed, construed and enforced in accordance with
the laws of the State of Texas, without regard to the principles of conflicts of
laws thereof. The parties agree that this Agreement shall be performable in
Tarrant County, Texas.
-4-
<PAGE> 5
12. PARTIES BOUND; ASSIGNMENT. This Agreement and the rights and
obligations hereunder will be binding upon and inure to the benefit of Employer
and Employee, and their respective heirs, personal representatives, successors
and assigns. Employer will have the right to assign this Agreement to Crescent
Real Estate Equities, Inc., a Maryland corporation, or any of its subsidiaries
of affiliated entities, including, without limitation, Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership, or to any
affiliate of Employer, or to Employer's successors or assigns. The terms
"successors" and "assigns" will include any person, corporation, partnership or
other entity that buys all or substantially all of Employer's assets or all of
its stock, or with which Employer merges or consolidates. The rights, duties or
benefits to Employee hereunder are personal to him, and no such right or benefit
may be assigned by him. The parties hereto acknowledge and agree that Employer's
affiliates are third-party beneficiaries of the covenants and agreements of
Employee set forth in Section 6 above.
13. CHOICE OF FORUM. The parties hereto agree that should any suit, action
or proceeding arising out of this Agreement be instituted by any party hereto
(other than a suit, action or proceeding to enforce or realize upon any final
court judgment arising out of this Agreement), such suit, action or proceeding
shall be instituted only in a state or federal court in Tarrant County, Texas.
Each of the parties hereto consents to the in personam jurisdiction of any state
or federal court in Tarrant County, Texas and waives any objection to the venue
of any such suit, action or proceeding. The parties hereto recognize that courts
outside Tarrant County, Texas may also have jurisdiction over suits, actions or
proceedings arising out of this Agreement, and in the event that any party
hereto shall institute a proceeding involving this Agreement in a jurisdiction
outside Tarrant County, Texas, the party instituting such proceeding shall
indemnify any other party hereto for any losses and expenses that may result
from the breach of the foregoing covenant to institute such proceeding only in a
state or federal court in Tarrant County, Texas, including without limitation
any additional expenses incurred as a result of litigating in another
jurisdiction, such as reasonable fees and expenses of local counsel and travel
and lodging expenses for parties, witnesses, experts and support personnel.
14. SERVICE OF PROCESS. Service of any and all process that may be served
on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 11
and service thus made shall be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
15. ENFORCEABILITY. If, for any reason, any provision contained in this
agreement should be held invalid in part by a court of competent jurisdiction,
then it is the intent of each of the parties hereto that the balance of this
Agreement be enforced to the fullest extent permitted by applicable law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any covenant is too broad to be enforced as written, it is the intent of each
of the parties that the court should reform such covenant to such narrower scope
as it determines enforceable.
-5-
<PAGE> 6
16. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
17. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
18. COSTS. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party will be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
19. OTHER OBLIGATIONS. Employee represents and warrants that he has not as
of the execution of this Agreement assumed any obligations inconsistent with
those contained herein.
20. AFFILIATE. An "Affiliate" of any party hereto will mean any person
controlling, controlled by or under common control with such party.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
RAINWATER, INC.
By: /s/ RICHARD E. RAINWATER
--------------------------------
Richard E. Rainwater
President
/s/ JOHN C. GOFF
-----------------------------------
John C. Goff
-6-
<PAGE> 7
FIRST AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"First Amendment"), dated July 1, 1995, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this First Amendment which are defined in the Agreement (as hereinafter
defined) shall have the same meaning for purposes of this First Amendment as in
the Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Golf ("Goff") dated April 15, 1994 (the
"Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Agreement to Crescent
Real Estate Equities Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), pursuant to that certain Management Functions
Conveyance Agreement between Rainwater, Inc. and the Operating Partnership dated
May 4, 1994; and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on June 12, 1995 that the Agreement should be amended to provide
for an annual salary of $240,000 be paid to Goff, commencing July 1, 1995, in
reward for services rendered to Crescent, Ltd. and the Operating Partnership and
for Goff's contributions to the success and prosperity of Crescent, Ltd. and the
Operating Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to the
Agreement, desire to amend the Agreement to reflect the increase in Goff's
annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
<PAGE> 8
1. Paragraph 4 (a) of the Agreement be amended to provide for an annual
salary in the amount of $240,000 be paid to Goff, commencing July 1, 1995, as
provided pursuant to the terms of the Agreement.
2. Except as herein amended, the Agreement is hereby ratified, confirmed
and affirmed for all purposes and in all respects.
3. This First Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this First Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this First
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
-----------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
---------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 9
SECOND AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Second Amendment"), dated March 15, 1996, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Second Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Second
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities, Inc., a Maryland corporation ("CREI"), and CREI owns a majority
of the limited partnership interests in the Operating Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Directors of
CREI determined on March 14, 1996 that the Effective Agreement should be amended
to provide for an annual salary of $300,000 be paid to Goff, commencing March
15, 1996, in reward for services rendered to Crescent, Ltd. and the Operating
Partnership and for Goff's contributions to the success and prosperity of
Crescent, Ltd. and the Operating Partnership; and
<PAGE> 10
WHEREAS, the undersigned parties, consisting of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $300,000 be paid to Goff, commencing March 15, 1996, as provided
pursuant to the terms of the Original Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Second Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Second Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Second
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its sole general partner
By: /s/ DAVID M. DEAN
------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 11
THIRD AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Third Amendment"), dated March 3, 1997, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Third Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Third
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "First Amendment");
and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partnership interests in the Operating
Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Trust
Managers of CREE determined on March 2, 1997 that the Effective Agreement should
be amended to provide for an annual salary of $400,000 be paid to Goff,
commencing March 3, 1997, in reward for services rendered to Crescent, Ltd. and
the Operating Partnership and for Goff's contributions to the success and
prosperity of Crescent, Ltd. and the Operating Partnership; and
<PAGE> 12
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $400,000 be paid to Goff, commencing March 3, 1997, as provided
pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Third Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Third Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Third
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
----------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
---------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 13
FOURTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This FOURTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Fourth Amendment"), dated August 30, 1997, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Fourth Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Fourth
Amendment as in the Effective Agreement.
W I T N E S S E T H:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "First Amendment");
and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Second
Amendment"); and
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of John C. Goff dated March 3, 1997 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, pursuant to an agreement between Goff and the Board of Directors
of Crescent, Ltd. (the "Board") that Goff would shift a significant amount of
his time and energy to Crescent Operating, Inc. ("COI") and to Charter
Behavioral Health Systems, LLC after the spin off of COI and thereby reduce the
amount of time he devotes to Crescent, Ltd. and the Operating Partnership, the
Board and Goff have determined that the Effective Agreement should be amended to
provide for a decreased annual salary of $ 100,000 be paid to Goff, commencing
as of August 30, 1997, for services rendered to Crescent, Ltd. and the Operating
Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
decrease in Goff's annual salary;
<PAGE> 14
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $100,000 be paid to Goff, commencing August 30, 1997, as provided
pursuant to the terms of the Effective Agreement.
2. Except as herein amended, the Effective Agreement is hereby ratified,
confirmed and affirmed for all purposes and in all respects.
3. This Fourth Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Fourth Amendment
immediately upon affixing its signature thereto.
IN WITNESS WHEREOF, the undersigned parties have executed this Fourth
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
----------------------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
--------------------------------------
David M. Dean
Senior Vice President, Law
2
<PAGE> 15
FIFTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This FIFTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Fifth Amendment"), dated March 10, 1998, 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 Amendment.
WITNESSETH:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that certain
Employment Agreement with John C. Goff ("Goff") dated April 15, 1994 (the
"Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement to
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to the
Employment Agreement of John C. Goff dated July 1, 1995 (the "First
Amendment"); and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Second
Amendment"); and
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of John C. Goff dated March 3, 1997 (the "Third
Amendment"); and
WHEREAS, the Third Amendment was amended by the Fourth Amendment to the
Employment Agreement of John C. Goff dated June 23, 1997 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and
CREE owns a majority of the limited partner interests in the Operating
Partnership; and
WHEREAS, the Executive Compensation Committee of the Board of Trust
Managers of CREE determined on March 9, 1998 that the Effective Agreement
should be amended to provide for an annual salary of $105,000 be paid to Goff,
commencing March 10, 1998, in reward for services rendered to Crescent, Ltd.
and the Operating Partnership and for Goff's contributions to the success and
prosperity of Crescent, Ltd. and the Operating Partnership; and
<PAGE> 16
WHEREAS, the undersigned parties, consisting of all of the parties to the
Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary in
the amount of $105,000 be paid to Goff, commencing March 10, 1998, 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.
JOHN C. GOFF
/s/ JOHN C. GOFF
--------------------------------
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
-------------------------------------
Name: David M. Dean
-----------------------------------
Title: Senior Vice President, Law
----------------------------------
2
<PAGE> 17
SIXTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This SIXTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Sixth Amendment"), dated June 11, 1999, is entered into by and between the
undersigned parties. Except as the context may otherwise require, any terms used
in this Sixth Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Sixth
Amendment as in the Effective Agreement.
WITNESSETH:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that
certain Employment Agreement with John C. Goff ("Goff") dated April 15, 1994
(the "Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement
to Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to
the Employment Agreement of John C. Goff dated July 1, 1995 (the "First
Amendment"); and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Second
Amendment"); and
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of John C. Goff dated March 3, 1997 (the "Third
Amendment"); and
WHEREAS, the Third Amendment was amended by the Fourth Amendment to the
Employment Agreement of John C. Goff dated June 23, 1997 (the "Fourth
Amendment"); and
WHEREAS, the Fourth Amendment was amended by the Fifth Amendment to the
Employment Agreement of John C. Goff dated March 9, 1998 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partner interests in the Operating Partnership;
and
WHEREAS, on the date of this Effective Agreement, John C. Goff was
appointed as President and Chief Executive Officer of CREE and Crescent, Ltd.;
and
WHEREAS, in contemplation of such appointment, the Operating
Partnership has agreed that it is in the best interest of CREE, Crescent, Ltd.
and the Operating Partnership that the Effective
<PAGE> 18
Agreement be amended to provide for an increase in annual salary and that an
annual salary of $500,000 be paid to Mr. Goff, commencing on June 11, 1999,
making it equivalent to the same salary as Gerald W. Haddock, who resigned as
President and Chief Executive Officer of CREE and Crescent, Ltd. on June 11,
2000; 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 Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary
in the amount of $500,000 be paid to Goff, commencing June 11, 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 Sixth 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 Sixth
Amendment as of the date first written above.
JOHN C. GOFF
--------------------------------------------
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole general
partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
2
<PAGE> 19
SEVENTH AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF
JOHN C. GOFF
This SEVENTH AMENDMENT TO THE EMPLOYMENT AGREEMENT OF JOHN C. GOFF (the
"Seventh Amendment"), dated September 28, 1999, is entered into by and between
the undersigned parties. Except as the context may otherwise require, any terms
used in this Seventh Amendment which are defined in the Effective Agreement (as
hereinafter defined) shall have the same meaning for purposes of this Seventh
Amendment as in the Effective Agreement.
WITNESSETH:
WHEREAS, Rainwater, Inc., a Texas corporation, entered into that
certain Employment Agreement with John C. Goff ("Goff") dated April 15, 1994
(the "Original Agreement"); and
WHEREAS, Rainwater, Inc. subsequently assigned the Original Agreement
to Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), pursuant to that certain Management
Functions Conveyance Agreement between Rainwater, Inc. and the Operating
Partnership dated May 4, 1994; and
WHEREAS, the Original Agreement was amended by the First Amendment to
the Employment Agreement of John C. Goff dated July 1, 1995 (the "First
Amendment"); and
WHEREAS, the First Amendment was amended by the Second Amendment to the
Employment Agreement of John C. Goff dated March 15, 1996 (the "Second
Amendment"); and
WHEREAS, the Second Amendment was amended by the Third Amendment to the
Employment Agreement of John C. Goff dated March 3, 1997 (the "Third
Amendment"); and
WHEREAS, the Third Amendment was amended by the Fourth Amendment to the
Employment Agreement of John C. Goff dated June 23, 1997 (the "Fourth
Amendment"); and
WHEREAS, the Fourth Amendment was amended by the Fifth Amendment to the
Employment Agreement of John C. Goff dated March 9, 1998 (the "Fifth
Amendment"); and
WHEREAS, the Fifth Amendment was amended by the Sixth Amendment to the
Employment Agreement of John C. Goff dated June 11, 1999 (the "Effective
Agreement"); and
WHEREAS, Crescent Real Estate Equities, Ltd. ("Crescent, Ltd.") is the
general partner of the Operating Partnership; and
WHEREAS, Crescent, Ltd. is the wholly owned subsidiary of Crescent Real
Estate Equities Company, a Texas real estate investment trust ("CREE"), and CREE
owns a majority of the limited partner interests in the Operating Partnership;
and
WHEREAS, effective September 28, 1999, the Executive Compensation
Committee of the Board of Trust Managers of CREE determined that the Effective
Agreement should be
<PAGE> 20
amended to provide for an annual salary of $650,000 be paid to Goff, commencing
September 28, 1999, in reward for services rendered to Crescent, Ltd. and the
Operating Partnership and for Goff's contributions to the success and prosperity
of Crescent, Ltd. and the Operating Partnership; and
WHEREAS, the undersigned parties, consisting of all of the parties to
the Effective Agreement, desire to amend the Effective Agreement to reflect the
increase in Goff's annual salary;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. The Effective Agreement be amended to provide for an annual salary
in the amount of $650,000 be paid to Goff, commencing September 28, 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 Seventh 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 Seventh
Amendment as of the date first written above.
JOHN C. GOFF
/s/ JOHN C. GOFF
-------------------------------------------
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By: /s/ DAVID M. DEAN
-------------------------------------
Name: David M. Dean
-----------------------------------
Title: Senior Vice President, Law
and Administration
----------------------------------
2
<PAGE> 1
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 14th
day of December, 1998, by and between Crescent Real Estate Equities, Ltd., a
Delaware corporation ("Employer"), and Jerry Ray Crenshaw, Jr. ("Employee").
RECITALS
A. Employer is a wholly-owned subsidiary of Crescent Real Estate
Equities Company, a Texas real estate investment trust ("CREE"), and the
general partner of Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"). CREE is the owner
of a majority of the limited partnership interests in the Operating
Partnership. CREE, the Operating Partnership and their affiliated companies are
referred to collectively herein as "Affiliates," and the term "affiliates," as
used herein, shall mean and include any entity or person directly or indirectly
controlling, controlled by or under common control with the person or entity in
question.
B. Employee is currently an employee of Employer. Effective on the date
of this Agreement and subject to the terms and conditions hereof, (1)
Employee's title will be "Vice President-Finance," (2) Employee's "Salary" (as
defined herein) has been raised, (3) Employee has been granted the "Options"
(as defined herein), and (4) Employee has been given access to additional
information regarding Employer and Affiliates including information regarding
the nature of their business, business plans, opportunities and other
"Confidential Information" (as defined herein) to which Employee has not
heretofore had access.
C. In light of the consideration to Employee set forth herein and
summarized in Recital B, and in order to induce Employer to enter into this
Agreement and grant said consideration, Employee has agreed that the
restrictions and other provisions contained in this Agreement regarding
Employee's (1) use of Confidential Information and (2) solicitation of
employees of Employer or Affiliates (or other "Employer Related Persons," as
defined herein) are all fair and reasonable to Employee, as more fully set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
2. DUTIES. Subject to the power of the Board of Directors of Employer
(the "Board") to elect and remove officers, and the power delegated by the
Board or otherwise to the
<PAGE> 2
Chief Executive Officer ("CEO") of Employer to appoint and remove officers,
Employee will serve Employer and CREE as Vice President-Finance, and will
perform, faithfully and diligently, the services and functions relating to such
office or otherwise reasonably incident to such office as may be designated from
time to time by the CEO. Employee will devote his full time, attention, skills,
benefits and best efforts to the performance of his duties hereunder and to the
promotion of the business and interests of Employer and Affiliates and will not,
without the prior written consent of the CEO, become engaged in any other
activity requiring significant time or personal services by Employee that will
conflict with the proper performance of any such duties under this Agreement.
The CEO may designate another senior officer of Employer to supervise Employee
pursuant hereto and take such actions as specified herein to be taken by the CEO
or the Employer (except that the CEO shall not designate any other person to
make the determination of whether "Cause" exists as provided in Section 10). The
duties to be performed by Employee hereunder shall be those typically performed
by a controller and senior officer in the finance department for real estate
companies of the size and status of CREE and the Operating Partnership. Without
limiting the generality of the foregoing, Employee shall perform such specific
duties as may be reasonably delegated from time to time by the CEO which are
generally consistent with Employee's then current skill and competencies.
3. TERM. Unless sooner terminated pursuant to the provisions hereof, the
term of this Agreement (together with any renewals pursuant to this Section,
the "Term") shall be for a term commencing on the date of this Agreement and
terminating April 30, 2002; provided, however, that the Term shall be
automatically extended for a period of one (1) year (thereby terminating on
April 30, 2003) unless either Employer or Employee gives the other written
notice that this Agreement will not be extended not less than ninety (90) days
prior to April 30, 2002.
4. COMPENSATION. As compensation for his services rendered under this
Agreement, Employee will be entitled to receive the following:
(a) Salary. During the Term, Employee will be paid an annual salary
of $180,000.00, payable on the same pay cycle as similarly situated employees
(the "Salary"). At any time and from time to time the Salary may be increased
if so determined by the CEO, in his sole and absolute discretion, after a
review of Employee's performance of his duties hereunder and whether or not
Employee has accomplished the goals, targets and/or objectives established for
Employee by Employee and Employer from time to time.
(b) Bonus. In addition to the Salary, Employee may be awarded and
receive such bonuses (up to the amounts indicated in the following sentence) as
determined by the CEO, in his sole and absolute discretion, after a review of
Employee's performance of his duties hereunder and whether or not Employee has
accomplished the goals, targets and/or objectives established for Employee by
Employee and Employer from time to time. The bonus attributable to any of the
following years will not exceed the following amounts unless otherwise
determined by the CEO in his sole discretion: 65% of annual Salary for 1999;
50% of annual Salary for 2000 and beyond.
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(c) Benefits. During the Term, Employee will be entitled to receive
such group benefits as Employer may provide to its corporate officers with the
title of senior vice president (or a successor title for the group of officers
having comparable responsibilities).
(d) Expenses. Employer will reimburse Employee for all reasonable
and necessary out-of-pocket travel and other expenses incurred by Employee in
rendering services required under this Agreement, on a monthly basis upon
submission of a detailed monthly statement and reasonable documentation. Said
reimbursement will be consistent with the then existing policies and procedures
of Employer which are applicable to corporate officers with the title of senior
vice president (or a successor title for the group of officers having
comparable responsibilities).
5. CONFIDENTIALITY.
(a) Acknowledgment of Proprietary Interest. Employee recognizes the
proprietary interest of Employer and Affiliates in any Confidential Information
(as hereinafter defined). Employee acknowledges and agrees that any and all
Confidential Information learned by Employee during the course of his
engagement by Employer or otherwise, whether developed by Employee alone or in
conjunction with others or otherwise, will be and is the property of Employer
and Affiliates. Employee further acknowledges and understands that his
disclosure of any Confidential Information and/or proprietary information will
result in irreparable injury and damage to Employer and Affiliates. As used
herein, "Confidential Information" means all confidential and proprietary
information of Employer and Affiliates, including without limitation
information derived from reports, investigations, experiments, research,
drawing, designs, plans, proposals, codes, marketing and sales programs, client
lists, client mailing lists, financial projections, cost summaries, pricing
formula, methods of conducting business, methods or strategies of negotiations,
target markets, target properties and information relating to same and all
other concepts, ideas, materials, or information prepared or performed for or
by Employer and/or Affiliates. "Confidential Information" also includes
information related to the business, products or sales of Employer and/or
Affiliates, or any of their respective customers; however, it does not include
information which is or becomes generally available to the public other than as
a result of a disclosure by Employee.
(b) Covenant Not-to-Divulge Confidential Information. Employee
acknowledges and agrees that Employer and Affiliates are entitled to prevent
the disclosure of Confidential Information. As a portion of the consideration
for the employment of Employee and for the compensation being paid to Employee
by Employer, Employee agrees at all times during the Term and thereafter to
hold in strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Employer and/or
Affiliates to further the business of Employer and/or Affiliates, and not to
use the Confidential Information except in the pursuit of the business of
Employer and/or Affiliates, without the prior written
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consent of Employer (which consent may be withheld in Employer's sole
discretion), including any Confidential Information developed by Employee.
(c) Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents, data and
other information pertaining to Confidential Information. Employee will not
take any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Confidential Information.
6. NON-SOLICITATION. During the period beginning on the date hereof and
ending eighteen (18) months after the termination of this Agreement for any
reason, Employee will not solicit or hire or participate in the solicitation or
hiring of any "Employer Related Person" (as defined herein) to perform any
services, directly or indirectly, which are the same or similar to the services
such Employer Related Person performed for the Employer or Affiliate, or which
would or could require the Employer Related Person to use any Confidential
Information, without the express written consent of the CEO or his designee,
which consent may be withheld in the sole discretion of the CEO or said
designee. As used herein, the term "Employer Related Person" means any person
or entity employed or otherwise engaged by Employer or any Affiliate on a full
or part time basis during the Term of this Agreement.
7. [INTENTIONALLY OMITTED.]
8. ENFORCEMENT. Employee agrees that (a) the obligations contained in
Sections 5 and 6 (regarding Confidential Information and Non Solicitation) are
unique, are necessary to protect the Employer and Affiliates (including,
without limitation, the continuity of the business of Employer and Affiliates
and their goodwill) and that any remedy at law for breach or threatened breach
of any of the obligations would be inadequate. Consequently, Employee agrees
that (a) Employer and each Affiliate (each Affiliate being an intended
beneficiary hereof) may enforce specific performance of the terms of said
Sections, (b) Employer and each Affiliate shall have the right to obtain a
temporary restraining order, temporary injunction and permanent injunction to
secure performance thereof and to prevent the breach or threatened breach of
such provisions and (c) Employee waives, foregoes and agrees to confirm that
Employee waives and foregoes any right to require that Employer or any
Affiliate post a bond or any other security in any proceeding to enforce its
rights hereunder, whether or not such action is seeking a temporary restraining
order, a temporary or permanent injunction or any other equitable relief.
9. OPTIONS TO PURCHASE STOCK. Employer shall cause CREE to grant to
Employee an option (the "Option") to purchase stock of CREE (the "Stock")
pursuant to the "Second Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan" (the "Plan") and the form of option agreement
presently in use by CREE for its corporate officers with the title of senior
vice president (or a successor title for the group of officers having
comparable responsibilities) (the "Option Agreement") as follows:
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(a) Number of Shares and Exercise Price. The total number of shares
of Stock subject to the Option shall be 125,000, exercisable as follows: 75,000
shares at $22.00 per share; 15,000 shares at $25.00 per share; 20,000 shares at
$27.00 per share; and 15,000 shares at $28.00 per share.
(b) Vesting. The Option shall vest and Employee may exercise the
same on the schedule of twenty percent (20%) per year, beginning on December
21, 1999; provided that (i) upon termination of this Agreement pursuant to
Section 10(a)(i) or 10(a)(iv), below, the right to purchase any portion of the
Stock which has not theretofore vested shall terminate, (ii) upon termination
of this Agreement pursuant to Sections 10(a)(ii) or 10(a)(iii), below, the
rights of Employee shall be subject to the terms of the Plan and Option
Agreement, and (iii) upon termination of this Agreement pursuant to Section 10
(a)(v) below, Employee's rights to purchase the Stock, or any other stock
underlying any previously granted option or options, shall be fully vested.
Nothing in this Agreement shall be construed as affecting the vesting of any of
Employee's options in the event that this Agreement is renewed or Employee
continues in the employment of Employer following the termination of this
Agreement.
(c) Type of Option. The Option granted hereby shall be a
Non-qualified Stock Option, pursuant to Article V of the Plan, to the maximum
extent possible and, to the extent applicable, the limitations and conditions
of the Plan shall govern the Options except as otherwise modified or affected
by the Option Agreement.
10. TERMINATION.
(a) Events Causing Termination. This Agreement and the employment
relationship created hereby will terminate upon the occurrence of any of the
following events:
(i) The expiration of the Term as set forth in Section 3
above;
(ii) The death of Employee;
(iii) The "Disability" (as hereinafter defined) of Employee;
(iv) Written notice to Employee from Employer of termination
for "Cause" (as hereinafter defined);
(v) Written notice to Employee from Employer of termination
for any reason other than as set forth in Sections 10(a)(i), 10(a)(ii),
10(a)(iii) or 10(a)(iv) or written notice to Employee from Employer of a change
in duties such that the duties to be performed by Employee are (A) not
consistent with those described in Section 2 or (B) to be performed at a
location which is sixty (60) miles or more from Employer's principal office at
the date of execution of this Agreement; or
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(vi) The election by Employee of the Severance Package
pursuant to (and as defined in) Section 11.
For purposes of Section 10(a)(iii), the "Disability" of Employee will have the
same meaning given such term in the Plan. For purposes of Section 10(a)(iv),
"Cause" shall mean Employee shall commit any act or omit to take any action in
bad faith and to the detriment of Employer or Employee shall fail to perform
the duties reasonably required of Employee in accordance with Section 2 of this
Agreement, in the reasonable determination of the CEO.
(b) Survival; Payments Upon Termination. Subject to the provisions
of Section 11 but otherwise notwithstanding anything to the contrary in this
Agreement, the provisions of Sections 5, 6 and 8 will survive any termination,
for whatever reason (except Employee's election of the Severance Package
pursuant to Section 11), of Employee's employment under this Agreement and the
Term of this Agreement. In the event of the termination of Employee's
employment prior to the completion of the Term, Employee or his estate, as the
case may be, will be entitled only to the Salary payable pursuant to Section 4
hereof through the end of the calendar month in which termination occurs and
the rights set forth in Section 9 (b), if any, except that if Employee's
employment is terminated pursuant to Section 10(a)(v), Employee or his estate,
as the case may be, will be entitled to receive within five (5) calendar days
from the date of notice of termination or a change in duties as specified in
Section 10(a)(v) a lump-sum payment equal to one year's Salary at the rate in
effect immediately prior to the termination on the date of termination together
with the other benefits the Employee is entitled to pursuant to Section 4(c)
for a period of one (1) year following termination.
11. MERGERS AND REORGANIZATIONS; CHANGE OF CONTROL. Upon merger or
reorganization or change of control within the meaning of Sections 1.9(a) and
(b) of the Plan or upon sale of all or substantially all of the Operating
Partnership's assets or other significant reorganization or corporate
combination, Employee shall have the right to elect either (a) the rights and
benefits to which Employee may be entitled pursuant to this Agreement upon
termination hereof pursuant to Section 10(a)(v) (the "Contract Rights") or (b)
substantially the same rights and substantially the same treatment afforded to
corporate officers with the title of senior vice president (or a successor
title for the group of officers having comparable responsibilities) (the
"Severance Package"). The election of either (a) or (b) shall be made in
writing by Employee at such time as may be required pursuant to the terms of
the Severance Package but, in any event, not more than ten (10) days after
Employee has been given written notice of the material terms of the Severance
Package. If Employee fails to notify Employer in writing of his election of
either the Contract Rights or the Severance Package within the time set forth
herein, the Employee will be conclusively deemed to elected the Contract
Rights. Upon election of the Severance Package and Employee's acceptance
thereof in accordance with its terms, this Agreement shall terminate in its
entirety with no further action required by Employer or Employee and,
notwithstanding anything to the contrary contained herein, Employee shall be
entitled to the benefits of and be bound to the obligations imposed by the
Severance Package and
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neither Employee nor Employer shall have any further rights or obligations
pursuant to this Agreement.
12. NOTICES. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and personally
delivered or sent by mail, registered or certified, postage prepaid with return
receipt requested, as follows: if to Employer, to 777 Main Street, Suite 2700,
Fort Worth, Texas 76102, Attention: CEO; or if to Employee, to Jerry Ray
Crenshaw, Jr. 5405 Janet Lane, Colleyville, Texas 76034. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices
will be deemed communicated as of three days after mailing.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto and supersedes all prior agreements and understandings, oral or
written between the parties hereto. No modification or amendment of any of the
terms, conditions or provisions herein may be made otherwise than by written
agreement signed by the parties hereto.
14. GOVERNING LAW; VENUE. This Agreement and the rights and obligations
of the parties hereto will be governed, construed and enforced in accordance
with the laws of the State of Texas, without regard to the principles of
conflicts of laws thereof. The parties agree that this Agreement shall be
performable in Tarrant County, Texas.
15. PARTIES BOUND; ASSIGNMENT. This Agreement and the rights and
obligations hereunder will be binding upon and inure to the benefit of Employer
and Employee, and their respective heirs, personal representatives, successors
and assigns. Employer will have the right to assign this Agreement to CREE, the
Operating Partnership or any other Affiliate functioning as a real estate
company of the size and status of CREE and the Operating Partnership, or to
Employer's successors or assigns. The terms "successors" and "assigns" will
include any person, corporation, partnership or other entity that buys all or
substantially all of Employer's assets or all of its stock, or with which
Employer merges or consolidates. The rights, duties or benefits to Employee
hereunder are personal to him, and no such right or benefit may be assigned by
him. Without limitation of the foregoing, Employee's agreements set forth in
Sections 5, 6 and 8 shall inure to the benefit of Employer, Affiliates and
their respective successors and assigns.
16. CHOICE OF FORUM. Subject to the provisions of Section 24 regarding
arbitration of disputes, the parties hereto agree that should any suit, action
or proceeding arising out of this Agreement be instituted by any party hereto
(other than a suit, action or proceeding to enforce or realize upon any final
court judgment arising out of this Agreement), such suit, action or proceeding
shall be instituted only in a state or federal court in Tarrant County, Texas.
Each of the parties hereto consents to the in persona jurisdiction of any state
or federal court in Tarrant County, Texas and waives any objection to the venue
of any such suit, action or proceeding. The parties hereto recognize that
courts outside Tarrant County, Texas may also have jurisdiction over suits,
actions or proceedings arising out of this Agreement, and in the event that any
party hereto
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shall institute a proceeding involving this Agreement in a jurisdiction outside
Tarrant County, Texas, the party instituting such proceeding shall indemnify
any other party hereto for any attorneys fees, losses and expenses that may
result from the breach of the foregoing covenant to institute such proceeding
only in a state or federal court in Tarrant County, Texas, including without
limitation any additional expenses incurred as a result of litigating in
another jurisdiction, such as reasonable fees and expenses of local counsel and
travel and lodging expenses for parties, witnesses, experts and support
personnel.
17. SERVICE OF PROCESS. Service of any and all process that may be served
on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 12
and service thus made shall be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
18. ENFORCEABILITY. In addition to the provisions of Section 8, above,
the parties agree that if, for any reason, any provision contained in this
agreement should be held invalid in part through arbitration or by a court of
competent jurisdiction, then it is the intent of each of the parties hereto
that the balance of this Agreement be enforced to the fullest extent permitted
by applicable law. Accordingly, should an arbitration panel or a court of
competent jurisdiction determine that the scope of any covenant is too broad to
be enforced as written, it is the intent of each of the parties that the
arbitration panel or court should reform such covenant to such narrower scope
as it determines enforceable.
19. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
20. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
21. COSTS. Subject to Section 24 regarding arbitration of disputes, if
any action at law or in equity is necessary to enforce or interpret the terms
of this Agreement, the prevailing party will be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which he or it may be entitled.
22. OTHER OBLIGATIONS. Employee represents and warrants that he has not
as of the execution of this Agreement assumed any obligations inconsistent with
those contained herein.
23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument, but only one of which need be produced.
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24. ARBITRATION. At the election of either party to this Agreement, any
Dispute arising pursuant hereto (the "Dispute") will be determined by
arbitration in accordance with the provisions hereof. If a Dispute arises,
Employer and Employee shall attempt to resolve the Dispute for a period of five
(5) business days following either party's delivery of a notice ("Preliminary
Notice") (said period called "Settlement Period") of its intent to submit the
Dispute to arbitration if not resolved prior to the expiration of the
Settlement Period. If the Dispute is not resolved at the end of the Settlement
Period after the prescribed mediation, either party may thereafter deliver a
written notice ("Arbitration Notice") to the other party and the American
Arbitration Association ("AAA") (Dallas Office) notifying both of its intent to
resolve the Dispute in accordance with the further provisions of this Section
and the Commercial Arbitration Rules of the AAA then in effect ("AAA Rules").
However, the provisions of this Section shall control over any contrary
provisions in the AAA Rules. Within five (5) days after the delivery of an
Arbitration Notice, each party shall deliver a written statement of a
resolution of the Dispute acceptable to it to the other party (each an
"Original Resolution") (and, if more than one issue is the subject of an
Arbitration Notice, each issue shall be the subject of a separate Resolution).
Employer's statement is hereafter called "Employer's Resolution" and Employee's
statement is hereafter called "Employee's Resolution." If either party fails to
timely deliver its Original Resolution, the Original Resolution of the other
party shall be binding on the parties and no further action shall be taken to
resolve the Dispute. The resolution of the Dispute shall be based upon the
determination of a panel of three arbitrators ("Arbitrators") selected in
accordance with the further provisions of this Section. All of the Arbitrators
shall be selected from the panel of arbitrators submitted by AAA. Within ten
(10) days after either party delivers an Arbitration Notice to the other party
and the AAA requesting arbitration in accordance with the provisions of this
subsection, AAA shall deliver a list ("Panel List") of qualified arbitrators to
Employer and Employee. Within ten (10) days after the delivery of the Panel
List, each party shall send written notice ("Party Selection Notice") to the
other party and the AAA indicating its choice of one arbitrator and indicating
up to two persons on the Panel List to which it objects ("Objectionable
Persons"). Within ten (10) days after its receipt of both Party Selection
Notices, the AAA shall select a third arbitrator from the Panel List by
delivering written notice ("AAA Selection Notice") of its selection to both
parties. The third arbitrator shall not be an Objectionable Person. The
Arbitrators shall be one person selected by each party and one person selected
by the AAA. Within five (5) days after the date of the delivery of the AAA
Selection Notice, Employer and Employee shall submit their respective
Resolution in writing (which may not be different from their respective
original Resolutions), together with the supporting data and facts used to
determine their Resolution, to the Arbitrators. Within twenty (20) days after
the Resolutions are submitted, the Arbitrators shall hold a hearing during
which Employer and Employee may present evidence in support of their respective
resolutions. Within fifteen (15) days after the date on which the hearing is
completed, the Arbitrators will determine a resolution ("Final Resolution")
based upon the parties' submissions and evidence presented. The Final
Resolution may but need not be either the Employer's Resolution or the
Employee's Resolution. The Arbitrator's determination shall be binding on each
party and may be enforced by a court of competent jurisdiction. The cost of
such arbitration shall be paid in accordance with the direction of the
Arbitrators.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
EMPLOYER:
CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation
By: /s/ DAVID M. DEAN
------------------------------------
Name: David M. Dean
----------------------------------
Title: Senior Vice President, Law
---------------------------------
EMPLOYEE:
/s/ TERRY RAY CRENSHAW, JR.
---------------------------------------
Jerry Ray Crenshaw, Jr.
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EXHIBIT 10.14
1996 CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
UNIT INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1996 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan." Capitalized terms used herein
are defined in Article VI hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and
general prosperity of the Partnership by permitting the General Partner to grant
Options to its Employees. The Plan is designed to help the Partnership and its
General Partner attract and retain superior personnel for positions of
substantial responsibility and to provide Employees (including officers) with an
additional incentive to contribute to the success of the Partnership and its
General Partner. The General Partner intends that the Options granted pursuant
to Article III will be non-statutory options. With respect to Reporting
Participants, transactions under the Plan are intended to comply with all
applicable conditions of Section 162(m) of the Code and, to the extent
applicable, Rule 16b-3 or its successors under the Exchange Act. To the extent
that any provision of the Plan or action by the Committee fails to so comply, it
will be deemed null and void to the extent permitted by law and deemed advisable
by the Committee.
1.3 EFFECTIVE DATE. The Plan will become effective upon the Effective
Date.
1.4 ELIGIBILITY TO PARTICIPATE. The Employees eligible to participate
in the Plan shall be John C. Goff and Gerald W. Haddock, who shall each be
awarded an Option for one million (1,000,000) Units.
1.5 DETERMINATION OF PARTNERSHIP UNITS AND INTEREST. Units granted
hereunder are expressed on a Common Stock equivalent basis on the date of grant.
Accordingly, at the Exchange Date, the number of Units to be associated with the
Limited Partnership Interest of an Employee who is admitted to the Partnership
as a Limited Partner as a result of having exercised an Option awarded under
this Plan shall be equal to the number of Units granted as an Award under this
Plan. The Limited Partnership Interest of an Employee who is admitted to the
Partnership as a Limited Partner as a result of having exercised an Option shall
be calculated in accordance with the provisions of the Partnership Agreement
based upon the number of Units, determined as set forth in the preceding
sentence, to be associated with such Limited Partnership Interest.
<PAGE> 2
1.6 MAXIMUM NUMBER OF UNITS SUBJECT TO AWARDS. The Units subject to
Awards pursuant to the Plan may be either authorized and unissued Units or Units
issued and thereafter acquired by the Partnership. Subject to adjustment
pursuant to the provisions of Section 4.2, and subject to any additional
restrictions elsewhere in the Plan, the maximum aggregate number of Units that
may be issued from time to time pursuant to the Plan shall be 2,000,000. The
maximum number of Units with respect to which Awards may be granted to any
Reporting Participant during any calendar year shall be one million (1,000,000)
Units. If an Option expires or terminates for any reason without having been
exercised in full, the required Units and/or the Units not purchased or
distributed will again be available for issuance under the Plan.
1.7 CONDITIONS PRECEDENT TO ADMISSION OF EMPLOYEE LIMITED PARTNERS. The
Partnership will not admit the Employee as a Limited Partner prior to the
fulfillment of all of the following conditions:
(a) The receipt of the purchase price for the Units as to
which the Option is being exercised;
(b) The receipt of such instruments executed by the Employee
as the Partnership or its counsel deem necessary to comply with all
relevant provisions of federal and state law, including, without
limitation, the Securities Act, the rules and regulations promulgated
thereunder and the terms and conditions of the Partnership Agreement.
1.8 CONDITIONS PRECEDENT TO ISSUANCE OF COMMON STOCK. The Company will
not issue or deliver any certificate for Common Stock pursuant to the Plan prior
to fulfillment of all of the following conditions:
(a) The obtaining of approval from the shareholders of the
Company of the Exchange Rights applicable to the Units that may be
acquired upon exercise of the Option awarded hereunder;
(b) The admission of the Common Stock to listing on all stock
exchanges on which the Common Stock is then listed, unless the
Committee determines in its sole discretion that such listing is
neither necessary nor advisable;
(c) The completion of any registration or other qualification
of the sale of the Common Stock under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or
any other governmental regulatory body that the Committee in its sole
discretion deems necessary or advisable; and
(d) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee in its sole
discretion determines to be necessary or advisable.
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1.9 RESERVATION OF SHARES OF COMMON STOCK. Following the approval by
shareholders of the Company of Exchange Rights with respect to the Units subject
to Options under this Plan and during the remaining term of the Plan, the
Company will at all times reserve and keep available such number of shares of
Common Stock as may be necessary to satisfy the requirements of the Plan and the
number of Units as to which Options are granted hereunder. In addition, the
Company will from time to time, as is necessary to accomplish the purposes of
the Plan, use its best efforts to obtain from any regulatory agency having
jurisdiction any requisite authority necessary to issue Common Stock upon the
exercise of Exchange Rights related to the Units as to which Options are granted
hereunder. The inability of the Company to obtain from any regulatory agency
having jurisdiction the authority deemed by the Company's counsel to be
necessary for the lawful issuance of any Common Stock will relieve the Company
of any liability in respect of the nonissuance of Common Stock as to which the
requisite authority has not been obtained.
1.10 TAX WITHHOLDING.
(a) Condition Precedent. The issuance of Units upon the
exercise of an Option awarded under the Plan is subject to the
condition that if at any time the General Partner determines, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any federal, state or local law is
necessary or desirable as a condition of, or in connection with such
issuances, then the issuances will not be effective unless the
withholding has been effected or obtained in a manner acceptable to the
General Partner. Each Option granted to a Reporting Participant shall
contain a provision in the related Option Agreement making any required
withholding tax or other withholding liability mandatory, and
specifying that the General Partner may withhold a portion of the Units
as specified in clause (iv) of paragraph (b) below.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required to pay to the Partnership or the General Partner
an amount required to be withheld under applicable income tax laws in
connection with the exercise of an Option, such payment may be made (i)
in cash, (ii) by check, (iii) by delivery to the Partnership or the
General Partner of Units already owned by the Participant having a Fair
Market Value on the date the amount of tax to be withheld is to be
determined (the "Tax Date") equal to the amount required to be
withheld, (iv) through the withholding by the Partnership ("Partnership
Withholding") of a portion of the Units acquired upon the exercise of
the Options or (v) in any other form of valid consideration, as
permitted by the Committee in its discretion.
1.11 ACCELERATION IN CERTAIN EVENTS. The Committee may accelerate the
exercisability of any Option in whole or in part at any time. Notwithstanding
the provisions of any Option Agreement, the following provisions will apply:
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(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, any Option will become
immediately exercisable with respect to the full number of Units
subject to that Option during the period commencing as of the date of
the agreement to dispose of all or substantially all of the assets of
the Company and ending when the disposition of assets contemplated by
that agreement is consummated or the Award is otherwise terminated in
accordance with its provisions or the provisions of the Plan, whichever
occurs first; provided that no Reporting Participant may exercise an
Option unless at least six months have elapsed since the grant of such
Option or Award; provided, further, that no Option will be immediately
exercisable under this Section on account of any agreement of merger or
other reorganization when the shareholders of the Company immediately
before the consummation of the transaction will own at least fifty
percent of the total combined voting power of all classes of stock
entitled to vote of the surviving entity immediately after the
consummation of the transaction. An Option will not become immediately
exercisable if the transaction contemplated in the agreement is a
merger or reorganization in which the Company will survive.
(b) Change in Control. In the event of either (i) the
involuntary termination of employment of the Employee (other than for
Cause) or (ii) the voluntary termination of the Employee for Good
Reason, within twenty-four (24) months following a change in control of
the Company, all Options granted prior to the change in control or
threatened change in control will become immediately exercisable,
provided that no Reporting Participant may exercise an Option unless at
least six months have elapsed since the grant of such Option or Award.
The term "change in control" for purposes of this Section refers to the
acquisition of 15% or more of the voting securities of the Company by
any person or by persons acting as a group within the meaning of
Section 13(d)(3) of the Exchange Act (other than an acquisition by (i)
a person or group meeting the requirements of clauses (i) and (ii) of
Rule 13d-1(b)(1) promulgated under the Exchange Act, (ii) or any
employee pension benefit plan (within the meaning of Section 3(2) of
ERISA) of the Company or of its Subsidiaries, including a trust
established pursuant to such plan); provided that no change in control
or threatened change in control will be deemed to have occurred (i) if
prior to the acquisition of, or offer to acquire, 15% or more of the
voting securities of the Company, the full Board has adopted by not
less than two-thirds vote a resolution specifically approving such
acquisition or offer or (ii) from (A) a transfer of the Company's
voting securities by Richard E. Rainwater ("Rainwater") to (i) a member
of Rainwater's immediate family (within the meaning of Rule 16a-1(e) of
the Exchange Act) either during Rainwater's lifetime or by will or the
laws of descent and distribution; (ii) any trust as to which Rainwater
or a member (or members) of his immediate family (within the meaning of
Rule 16a-1(e) of the Exchange Act) is the beneficiary; (iii) any trust
as to which Rainwater is the settlor with sole power
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<PAGE> 5
to revoke; (iv) any entity over which Rainwater has the power, directly
or indirectly, to direct or cause the direction of the management and
policies of the entity, whether through the ownership of voting
securities, by contract or otherwise; or (v) any charitable trust,
foundation or corporation under Section 501(c)(3) of the Code that is
funded by Rainwater; or (B) the acquisition of voting securities of the
Company by either (i) Rainwater or (ii) a person, trust or other entity
described in the foregoing clauses (A)(i)-(v) of this subsection. The
term "person" for purposes of this Section refers to an individual or a
corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or any
other form of entity not specifically listed herein.
1.12 COMPLIANCE WITH SECURITIES LAWS. Units will not be issued
with respect to any Award unless the issuance and delivery of the Units
(and the exercise of the Option) complies with all relevant provisions
of federal and state law, including without limitation the Securities
Act, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the Common Stock may then
be listed, and will be further subject to the approval of counsel for
the Company with respect to such compliance. The General Partner may
also require a Participant to furnish evidence satisfactory to the
Partnership and the Company, including, without limitation, a written
and signed representation letter and consent to be bound by any
transfer restrictions imposed by law, legend, condition or otherwise,
and a representation that the Units are being acquired only for
investment and without any present intention to sell or distribute the
Units in violation of any federal or state law, rule or regulation.
Further, each Participant will consent to the imposition of a legend on
the certificate representing the Units issued pursuant to an Award and
shares of Common Stock issued upon the exchange therefore restricting
their transferability as required by law or by this Section.
1.13 COMPLIANCE WITH PARTNERSHIP AGREEMENT. All Units and
Exchange Rights issued upon the exercise of an Option awarded hereunder
are governed by, and subject to each of the terms and conditions of,
the Partnership Agreement. Upon exercising an Option hereunder, each
Participant shall be deemed to have accepted and agreed to be bound by
each of the terms and conditions of the Partnership Agreement for all
purposes. The General Partner, in its sole and absolute discretion, may
as part of an Award hereunder, make any such Award subject to such
further terms and conditions, including, without limitation, such
additional terms and conditions for admission to the Partnership or the
exercise of Exchange Rights, as the General Partner may deem necessary,
advisable or appropriate at the time of the Award. Such additional
terms and conditions may be set forth in the Option Agreement related
to any such award, the resolutions adopted by the Board of Directors of
the General Partner and/or the Company, or in such other manner or
document as the General Partner, in its sole and absolute discretion,
deems necessary, advisable or appropriate.
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<PAGE> 6
1.14 EMPLOYMENT OF PARTICIPANT. Nothing in the Plan or in any
Award granted hereunder will confer upon any Participant any right to
continued employment by the Partnership or the General Partner or limit
in any way the right of the Partnership or the General Partner at any
time to terminate or alter the terms of that employment.
1.15 INFORMATION TO PARTICIPANTS. The General Partner will
furnish to each Participant copies of annual reports, proxy statements
and all other reports sent to the Company's shareholders. Upon written
request, the General Partner will furnish to each Participant a copy of
its most recent Annual Report on Form 10-K and each quarterly report to
shareholders issued since the end of the Company's most recent fiscal
year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by the General
Partner or by a Compensation Committee to be appointed by the General
Partner. As used herein, "Committee" shall mean a committee consisting
of two or more Directors, each of whom shall be an "outside director"
as defined in Section 162(m) of the Code. Subject to the provisions of
the Plan, the Committee will have the sole discretion and authority to
determine from time to time the Employees whom Awards will be granted
and the number of Units subject to each Award, to interpret the Plan,
to prescribe, amend and rescind any rules and regulations necessary or
appropriate for the administration of the Plan, to determine and
interpret the details and provisions of each Option Agreement, to
modify or amend any Option Agreement or waive any conditions or
restrictions applicable to any Option (or the exercise thereof), and to
make all other determinations or advisable for the administration of
the Plan.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of
the members of the Committee will constitute a quorum, and any action
taken by a majority present at a meeting at which a quorum is present
or any action taken without a meeting evidenced by a writing executed
by all members of the Committee will constitute the action of the
Committee. Meetings of the Committee may take place by telephone
conference call.
2.3 ASSISTANCE. The Partnership will supply full and timely
information to the General Partner and the Committee on all matters
relating to Employees, their employment, death, Retirement, Disability
or other termination of employment, and such other pertinent facts as
the General Partner or the Committee may require. The Partnership will
furnish the General Partner and the Committee with such clerical and
other assistance as is necessary to the performance of its duties.
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ARTICLE III
OPTIONS
3.1 METHOD OF EXERCISE. Each Option will be exercisable at any
time and from time in whole or in part in accordance with the terms of
the Option Agreement pursuant to which the Option was granted to the
extent vested. No Option may be exercised for a fraction of a Unit.
3.2 VESTING OF OPTION. Except as provided in Section 1.11 and
this Section 3.2, one-seventh of each Option shall vest on the first,
second, third, fourth, fifth, sixth and seventh anniversaries of the
date of grant, provided that the Employee is employed by the
Partnership or the General Partner on such date or is an Executive
Officer on such date. If the fair market value of the Common Stock
equals or exceeds $50.00 for each of ten (10) consecutive trading days
(determined based on the closing price on each (such day), an
additional 250,000 Units (or such lesser number as may then be
unvested) of each Option shall become fully vested and exercisable,
that provided the Employee is employed by the Partnership or the
General Partner on such date or is an Executive Officer on such date.
In the event that vesting of the Option is accelerated pursuant to the
preceding sentence, the remaining unvested portion of the Option shall
vest ratably on each subsequent anniversary of the date of grant
following such acceleration through the seventh anniversary of the
original date of grant of the Option.
3.3 PAYMENT OF PURCHASE PRICE. The purchase price of any Units
purchased will be paid at the time of exercise of the Option either (i)
in cash, (ii) by certified or cashier's check, (iii) by Units held by
the Participant at the time of exercise, (iv) by a recourse promissory
note, such note to provide for the right to repay the note partially or
wholly with Units, or (v) by delivery of a copy of irrevocable
instructions from the Optionee to a broker or dealer, reasonably
acceptable to the General Partner, to sell certain of the Common Stock
acquired upon exercise of the Option and the exercise of Exchange
Rights or to pledge them as collateral for a loan and promptly deliver
to the Company the amount of sale or loan proceeds necessary to pay
such purchase price. If any portion of the purchase price or a note
given at the time of exercise is paid in Units, those Units will be
valued at the then Fair Market Value.
3.4 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be
exercised for purposes of the Plan when written notice of exercise has
been received by the Partnership at its principal office from the
person entitled to exercise the Option and payment for the Units with
respect to which the Option is exercised has been received by the
Partnership in accordance with Section 3.2.
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<PAGE> 8
3.5 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR
SERVICE
(a) In the event an Optionee ceases to be an
Employee, and does not continue to be an Executive Officer, for any
reason other than death, Retirement, Disability or for Cause, (i) the
Committee shall have the ability to accelerate the vesting of the
Optionee's Option in its sole discretion, and (ii) such Optionee's
Option shall be exercisable (to the extent exercisable on the date of
termination of employment or service as an Employee, or, if the
Committee, in its discretion, has accelerated the vesting of such
Option, to the extent exercisable following such acceleration) at any
time during the remaining initial term of the Option. Notwithstanding
any provision in this Plan to the contrary, no Option granted to a
Reporting Participant may be exercised unless at least six months have
elapsed since the grant of such Option.
(b) In addition, unless the Committee agrees, in its
sole discretion, to extend the term of a Nonqualified Stock Option
granted to an Employee (provided that the term of any such Option shall
not be extended beyond its initial term), an Optionee's Option may be
exercised as follows in the event such Optionee ceases to serve as an
Employer, due to death, Disability, Retirement or for Cause:
(i) Death. If an Optionee dies while serving as an
Employee, or within three months after ceasing to be an
Employee, his option shall become fully exercisable on the
date of his death and shall expire at the end of the initial
term of the Option. During such period, the Option may be
fully exercised, to the extent that it remains unexercised on
the date of death, by the Optionee's personal representative
or by the distributees to whom the Optionee's rights under the
Option shall pass by will or by the laws of descent and
distribution.
(ii) Retirement. If an Optionee ceases to serve as an
Employee, as a result of Retirement, (i) his Option shall
become fully exercised on the date of his Retirement and such
Option will be exercisable at any time during the remaining
initial term of the Option.
(iii) Disability. If an Optionee ceases to serve as
an Employee as a result of Disability, the Optionee's Option
shall become fully exercisable and shall expire at any time
during the remaining initial term of the Option.
(iv) Cause. If an Optionee ceases to serve as an
Employee because the Optionee is terminated for Cause, further
vesting under the Option shall cease and the Option shall
expire at the end of its initial term. Notwithstanding the
foregoing, if an Optionee is an Employee employed
8
<PAGE> 9
pursuant to a written employment agreement, the Optionee's
relationship with the Partnership or the General Partner will
be deemed terminated for Cause for purposes of the Plan only
if the Optionee is considered under the circumstances to have
been terminated for cause for purposes of such written
agreement.
3.6 TRANSFERABILITY OF OPTIONS. Options shall not be
transferable other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of an Optionee
only by that Optionee or by his legally authorized.
3.7 OPTION TERMS AND CONDITIONS. The terms and conditions of
Options granted under this Plan may differ from one another as the
Committee may, in its discretion, determine, as long as all Options
granted under this Article satisfy the requirements of this Article.
3.8 DURATION OF OPTIONS. Each Option granted under this
Article and all rights thereunder will expire ten years after the date
on which the Option is granted. In addition, each Option will be
subject to early termination as provided elsewhere in the Plan.
3.9 PURCHASE PRICE. The purchase price for Units acquired
pursuant to the exercise, in whole or in part, of any Option granted
under this Article shall be the Fair Market Value of the Plan Shares at
the time of the grant of the Option.
3.10 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving
Options under this Article will be required to enter into a written
Option Agreement with the Company. In such Option Agreement, the
Employee will agree to be bound by the terms and conditions of the Plan
and such other matters as the Committee deem appropriate.
ARTICLE IV
TERMINATION, AMENDMENT AND ADJUSTMENT
4.1 TERMINATION AND AMENDMENT. The Plan will terminate on July
16, 2006. No Awards will be granted under the Plan after that date of
termination, although Awards granted prior to such date shall remain
outstanding in accordance with their terms. Subject to the limitations
contained in this Section 4.1, the Committee may at any time amend or
revise the terms of the Plan, including the form and substance of the
Option Agreements to be used in connection herewith; provided that,
without approval by the shareholders of the Company, no amendment or
revision may (i) increase the maximum aggregate number of Units or the
number of shares of Common Stock as to which Exchange Rights may be
exercised, except as permitted under Section 1.5 and Section 4.2, (ii)
change the minimum purchase price for Units under Article III or (iii)
permit
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<PAGE> 10
the granting of an Award to anyone other than as provided in the Plan;
and provided further that, without approval by the shareholders of the
Company, no amendment to the Plan will be effective that materially
increases the benefits accruing to Participants, materially increases
the number of securities that may be issued under the Plan or otherwise
materially modifies the requirements as to eligibility for
participation in the Plan, all within the meaning of Rule 16b-3 of the
Exchange Act. In addition, if and to the extent required by Rule 16b-3
of the Exchange Act, the provisions of the Plan may not be amended more
frequently than once every six months unless otherwise required by law
and permitted by Rule 16b-3 of the Exchange Act. No amendment,
suspension or termination of the Plan may, without the consent of the
Optionee who has received an Award hereunder, alter or impair any of
that Participant's rights or obligations under any Award granted under
the Plan prior to that amendment, suspension or termination.
4.2 ADJUSTMENT. If the outstanding Common Stock is increased,
decreased, changed into or exchanged for a different number or kind of
shares or securities through merger, consolidation, combination,
exchange or shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split,
an appropriate and proportionate adjustment will be made in the maximum
number of Units and in the shares of Common Stock as to which Exchange
Rights may be granted under the Plan. A corresponding adjustment will
be made in the number or kind of shares allocated to and purchasable
under unexercised Options. Any such adjustment in outstanding Options
will be made without change in the aggregate purchase price applicable
to the unexercised portion of the Option, but with a corresponding
adjustment in the price for each Unit purchasable under the Option. The
foregoing adjustments and the manner of application of the foregoing
provisions will be determined solely by the Committee, and any such
adjustment may provide for the elimination of fractional share
interests.
ARTICLE V
MISCELLANEOUS
5.1 OTHER COMPENSATION PLANS. The adoption of the Plan will
not affect any other stock option or incentive or other compensation
plans in effect for the Company, the Partnership, or the General
Partner, nor will the Plan preclude the Company, the Partnership or the
General Partner from establishing any other forms of incentive or other
compensation for Employees.
5.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon
the successors and assigns of the Partnership and the General Partner
that adopt the Plan.
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5.3 NUMBER AND GENDER. Whenever used herein, nouns in the
singular will include the plan where appropriate, and the masculine
pronoun will include the feminine gender.
5.4 HEADINGS. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the
Plan.
ARTICLE VI
DEFINITIONS
As used herein with initial capital letters, the following
terms have the meanings set forth unless the context clearly indicates
to the contrary:
6.1 "AWARD" means a grant of Options under Article III of the
Plan.
6.2 "BOARD" means the Board of Directors of the Company.
6.3 "CAUSE" will mean an act or acts involving a felony,
fraud, willful misconduct, commission of any act that causes or
reasonably may be expected to cause substantial injury to the
Partnership or the General Partner or other good cause. The term "OTHER
GOOD CAUSE" as used in this Section will include, but shall not be
limited to, habitual impertinence, a pattern of conduct that tends to
hold the Partnership or the General Partner up to ridicule in the
community, conduct disloyal to the Partnership or the General Partner,
conviction of any crime of moral turpitude and substantial dependence,
as judged by the Committee, on alcohol or any controlled substance.
"CONTROLLED SUBSTANCE" means a drug, immediate precursor or other
substance listed in Schedule I-V of the Federal Comprehensive Drug
Abuse Prevention Control Act of 1970, as amended.
6.4 "CODE" means the Internal Revenue Code of 1986, as
amended.
6.5 "COMMITTEE" shall have the meaning set forth in Section
2.1.
6.6 "COMMON STOCK" means the common stock, par value $.01 per
share, of the Company or, in the event that the outstanding shares of
such common stock are hereafter changed into or exchanged for shares of
a different stock or security of the Company or some other corporation,
such other stock or security.
6.7 "COMPANY" means Crescent Real Estate Equities, Inc., a
Maryland corporation, and any successor thereto.
6.8 "DIRECTOR" means a member of the Board of Directors of the
Company.
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6.9 "DISABILITY" of a Participant shall be deemed to occur
whenever a Participant is rendered unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuing period of not less
than 12 months.
6.10 "EFFECTIVE DATE" means July 16, 1996.
6.11 "EMPLOYEE" means an officer or other employee of the
General Partner, the Partnership or of any of its subsidiaries that
adopt the Plan.
6.12 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
6.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
6.14 "EXCHANGE DATE" means the date or dates on which Units
granted hereunder shall have Exchange Rights, which date or dates shall
be no earlier than one year from the date of grant hereunder and shall
be subject to, and conditioned upon, the approval of the shareholders
of the Company.
6.15 "EXCHANGE RIGHT" shall have the meaning set forth in the
Partnership Agreement.
6.16 "EXECUTIVE OFFICER" means an "officer" as defined in
accordance with Rule 16a-1(F) of the Exchange Act.
6.17 "FAIR MARKET VALUE" means the value of the Units as
determined by the Committee on the basis of such factors as it deems
appropriate; provided that it the Common Stock is traded on a national
securities exchange, such value will be determined by the Committee on
the basis of the last sale price for the Common Stock on the date for
which such determination is relevant, as reported on the New York Stock
Exchange. If the Common Stock is traded on more than one exchange, such
value will be determined on the basis of the exchange trading the
greatest volume of shares on such date. In no event shall "Fair Market
Value" be less than the par value of the Common Stock.
6.18 "GENERAL PARTNER" means Crescent Real Estate Equities,
Ltd., a Delaware corporation.
6.19 "GOOD REASON" means a change in control of the Company,
as well as, and following such change in control of the Company: (a) a
reduction in the amount of the Employee's aggregate cash compensation
(including base salary and any bonus) payable within any twelve-month
period following such change in
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control below the amount of such aggregate cash compensation paid to,
or accrued by the General Partner with respect to, the Employee in the
twelve-month period immediately preceding the change in control; (b)
the assignment of such Employee to any employment status other than a
position as an Executive Officer and having duties comparable to those
exercised by the Employee immediately prior to the change in duties
comparable to those exercised by the Employee immediately prior to the
change in control, or (c) a geographical relocation or attempted
relocation of the Employee to an officer more than fifty (50) miles
distance from Fort Worth, Texas, without the Employee's consent.
6.20 "LIMITED PARTNER" shall have the meaning set forth in the
Partnership Agreement.
6.21 "LIMITED PARTNERSHIP INTEREST" shall have the meaning set
forth in the Partnership Agreement.
6.22 "OPTION" means a nonqualifed option to acquire Units
granted under the Plan.
6.23 "OPTION AGREEMENT" means the written agreement by and
among the Partnership, the General Partner, and a Participant with
respect to an Option awarded under this Plan.
6.24 "PARTICIPANT" means an Employee to whom an Award has been
granted hereunder.
6.25 "PARTNERSHIP" means Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership.
6.26 "PARTNERSHIP AGREEMENT" means the First Amended and
Restated Agreement of Limited Partnership of Crescent Real Estate
Equities Limited Partnership, dated as of May 5, 1994, as amended from
time to time.
6.27 "PLAN" means the 1996 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan, as amended from time to time.
6.28 "REPORTING PARTICIPANT" means a Participant who is
subject to the reporting requirements of Section 16 of the Exchange Act
as to the Company's Common Stock.
6.29 "RETIREMENT" means termination of employment as an
Employee or as a Director on or after the date on which a Participant
attains age 70.
6.30 "SECURITIES ACT" means the Securities Act of 1933, as
amended.
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6.31 "SUBSIDIARY" means a subsidiary corporation of the
Partnership or the General Partner, as defined in Section 424(F) of the
Code.
6.32 "UNIT" means a unit of ownership interest in the
Company's operating partnership, which is or may be exchangeable on a
one-for-one basis for shares of Common Stock, or, at the option of the
Company, the cash equivalent thereof.
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AMENDMENT TO THE 1996 CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP UNIT INCENTIVE PLAN
(ADOPTED BY UNANIMOUS WRITTEN CONSENT DATED AS OF NOVEMBER 5, 1999)
Section 3.2 of the Plan is amended to make the noted changes,
thereafter reading as follows:
3.2 Vesting of Option. Except as provided in Section 1.11 and
this Section 3.2, AND EXCEPT TO THE EXTENT OTHERWISE SPECIFIED
BY THE COMMITTEE AND SET FORTH IN THE OPTION AGREEMENT,
one-seventh of each Option shall vest on the first, second,
third, fourth, fifth, sixth and seventh anniversaries of the
date of grant, provided that the Employee is employed by the
Partnership or the General Partner on such date or is an
Executive Officer on such date. If the fair market value of
the Common Stock equals or exceeds $50.00 for each of ten (10)
consecutive trading days (determined based on the closing
price on each such day), an additional 250,000 Units (or such
lesser number as may then be unvested) of each Option shall
become fully vested and exercisable, provided that the
Employee is employed by the Partnership or the General Partner
on such date or is an Executive Officer on such date. IN THE
EVENT THAT VESTING OF THE OPTION IS ACCELERATED PURSUANT TO
THE PRECEDING SENTENCE, THE REMAINING UNVESTED PORTION OF THE
OPTION SHALL CONTINUE TO VEST ACCORDING TO THE OTHERWISE
APPLICABLE VESTING SCHEDULE.
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
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. CRE Management VIII, L.L.C., a Delaware limited liability company
11. CRE Management IX, L.L.C., a Delaware limited liability company
12. Crescent Real Estate Funding I, L.P., a Delaware limited partnership
13. Crescent Real Estate Funding II, L.P., a Delaware limited partnership
14. Crescent Real Estate Funding III, L.P., a Delaware limited partnership
15. Crescent Real Estate Funding IV, L.P., a Delaware limited partnership
16. Crescent Real Estate Funding V, L.P., a Delaware limited partnership
17. Crescent Real Estate Funding VI, L.P., a Delaware limited partnership
18. Crescent Real Estate Funding VII, L.P., a Delaware limited partnership
19. Crescent Real Estate Funding VIII, L.P., a Delaware limited partnership
20. Crescent Real Estate Funding IX, L.P., a Delaware limited partnership
21. CREM Holdings, L.L.C., a Delaware limited liability company
22. Crescent Capital Funding, L.L.C., a Delaware limited liability company
23. Crescent Funding Interest, L.L.C., a Delaware limited liability company
24. Crescent Entertainment Company, L.P., a Texas limited partnership
25. Crescent Entertainment Management L.L.C., a Texas limited liability company
26. CEC Management, L.L.C., a Texas limited liability company
27. Crescent Duddleston Hotel Partnership, L.P., a Texas limited partnership
28. CresCal Properties, L.P., a Delaware limited partnership
29. CresCal Properties, Inc., a Delaware corporation
30. Woodlands Office Equities - '95 Limited, a Texas limited partnership
31. Woodlands Retail Equities - '96 Limited, a Texas limited partnership
32. CresWood Development, L.L.C. - a Texas limited liability company
33. 301 Congress Avenue, L.P., a Delaware limited partnership
34. Crescent/301, L.L.C., a Delaware limited liability company
35. Crescent Commercial Realty Corp., a Delaware corporation
36. Crescent Commercial Realty Holdings, L.P., a Delaware limited partnership
37. CresTex Development L.L.C., a Delaware limited liability company
38. G/C Waterside Associates L.L.C., a Texas limited liability company
39. Crescent 1717 Main, L.L.C., a Texas limited liability company
40. Crescent E&M, L.L.C., a Texas limited liability company
41. Crescent Ervay & Main, L.P., a Texas limited partnership
42. Main Street Partners, L.P., a Texas limited partnership
43. Main Street Partners Management Company, L.P., a Texas limited partnership
44. Spectrum Mortgage Associates, L.P., a Delaware limited partnership
45. Crescent Washington Harbour, L.L.C., a Delaware limited partnership
46. Crescent Potomac Harbour, L.L.C., a Delaware limited partnership
47. Crescent Costa Mesa, L.L.C., a Delaware limited partnership
48. Crescent Woodfield, L.L.C., a Delaware limited partnership
49. Crescent SH IX, Inc., a Delaware corporation
50. CRE Aviation Interests, L.L.C., a Delaware limited liability company
51. Hudson Bay Partners II, L.P., a Delaware limited partnership
52. Hudson Bay Partners IV, L.P., a Delaware limited partnership
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 24, 2000, 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. 333-03454,
No. 333-13521, No. 333-21905, No. 333-23005, No. 333-33893, No. 333-37273, No.
333-37553, No. 333-37565, No. 333-38071, No. 33-41049, No. 333-42417, No.
333-47563, No. 333-57863, No. 333-64377, No. 333-64379, and No. 333-77941.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
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<DEPRECIATION> (507,520)
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0
200,000
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<EPS-BASIC> (0.06)
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</TABLE>
