-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H5njSM93pwDYL5AoVXRNgJccgXPLEHdozGOIIHSUufQ4LLPRlnRZS1v/WPliblET tY9BfxU4xL3Fbp9lSapBBA== 0000950134-02-002079.txt : 20020415 0000950134-02-002079.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950134-02-002079 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESCENT REAL ESTATE EQUITIES CO CENTRAL INDEX KEY: 0000918958 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521862813 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13038 FILM NUMBER: 02574660 BUSINESS ADDRESS: STREET 1: 777 MAIN ST STREET 2: STE 2100 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173212100 MAIL ADDRESS: STREET 1: 777 MAIN STREET STREET 2: SUITE 2100 CITY: FT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: CRESCENT REAL ESTATE EQUITIES INC DATE OF NAME CHANGE: 19940214 10-K 1 d94913e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001 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, 2001. 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 - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 52-1862813 - --------------------------------------------- --------------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization)
777 Main Street, Suite 2100, Fort Worth, Texas 76102 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (817) 321-2100 -------------- Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of each class: on Which Registered: -------------------- --------------------- Common Shares of Beneficial Interest New York Stock Exchange par value $.01 per share 6 3/4% Series A Convertible Cumulative Preferred Shares of Beneficial Interest par value $.01 per share New York Stock Exchange
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 11, 2002, the aggregate market value of the 96,368,621 common shares and 8,000,000 preferred shares held by non-affiliates of the registrant was approximately $1.8 billion and $156.0 million, respectively, based upon the closing price of $18.51 for common shares and $19.50 for preferred shares on the New York Stock Exchange. Number of Common Shares outstanding as of March 11, 2002: 119,365,362 Number of Preferred Shares outstanding as of March 11, 2002: 8,000,000 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be filed with the Securities and Exchange Commission for Registrant's 2002 Annual Meeting of Shareholders to be held in June 2002 are incorporated by reference into Part III. TABLE OF CONTENTS
PAGE PART I. Item 1. Business..................................................... 2 Item 2. Properties................................................... 14 Item 3. Legal Proceedings............................................ 25 Item 4. Submission of Matters to a Vote of Security Holders.......... 25 PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.......................................... 26 Item 6. Selected Financial Data...................................... 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 59 Item 8. Financial Statements and Supplementary Data.................. 60 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 104 PART III. Item 10. Trust Managers and Executive Officers of the Registrant...... 104 Item 11. Executive Compensation....................................... 105 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 105 Item 13. Certain Relationships and Related Transactions............... 105 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................................... 105
1 PART I ITEM 1. BUSINESS THE COMPANY Crescent Real Estate Equities Company ("Crescent Equities") operates as a real estate investment trust for federal income tax purposes, (a "REIT"), and, together with its subsidiaries, provides management, leasing and development services for some of its properties. The term "Company" includes, unless the context otherwise indicates, Crescent Equities, a Texas REIT, and all of its direct and indirect subsidiaries. The direct and indirect subsidiaries of Crescent Equities at December 31, 2001 included: o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP The "Operating Partnership." o CRESCENT REAL ESTATE EQUITIES, LTD. The "General Partner" of the Operating Partnership. o SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE GENERAL PARTNER Crescent Equities conducts all of its business through the Operating Partnership and its other subsidiaries. The Company is structured to facilitate and maintain the qualification of Crescent Equities as a REIT. As of December 31, 2001, the Company's assets and operations were composed of four investment segments: o Office Segment; o Resort/Hotel Segment; o Residential Development Segment; and o Temperature-Controlled Logistics Segment. 2 Within these segments, the Company owned or had an interest in the following real estate assets (the "Properties") as of December 31, 2001: o OFFICE SEGMENT consisted of 74 office properties (collectively referred to as the "Office Properties"), located in 26 metropolitan submarkets in six states, with an aggregate of approximately 28.0 million net rentable square feet. o RESORT/HOTEL SEGMENT consisted of five luxury and destination fitness resorts and spas with a total of 1,028 rooms/guest nights and four upscale business-class hotel properties with a total of 1,769 rooms (collectively referred to as the "Resort/Hotel Properties"). o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's ownership of real estate mortgages and non-voting common stock representing interests ranging from 90% 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, owned 21 upscale residential development properties (collectively referred to as the "Residential Development Properties"). o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the Company's 40% interest in a general partnership (the "Temperature-Controlled Logistics Partnership"), which owns all of the common stock, representing substantially all of the economic interest, of AmeriCold Corporation (the "Temperature-Controlled Logistics Corporation"), a REIT, which, as of December 31, 2001, directly or indirectly owned 89 temperature-controlled logistics properties (collectively referred to as the "Temperature-Controlled Logistics Properties") with an aggregate of approximately 445.2 million cubic feet (17.7 million square feet) of warehouse space. See "Note 1. Organization and Basis of Presentation" included in "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. See "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies" included in "Item 8. Financial Statements and Supplementary Data" for a table that lists the Company's ownership in significant unconsolidated companies and equity investments as of December 31, 2001, including the four Office Properties in which the Company owned an interest through unconsolidated companies and equity investments and the Company's ownership interests in the Residential Development Segment and the Temperature-Controlled Logistics Segment. On February 14, 2002, the Company executed an agreement with Crescent Operating, Inc. ("COPI"), pursuant to which COPI transferred to the Company, in lieu of foreclosure, the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI and the voting common stock in three of the Company's Residential Development Corporations. The Company will fully consolidate the operations of the eight Resort/Hotel Properties and the three Residential Development Corporations, beginning on the date of the transfers of these assets. See "Note 20. Subsequent Events" included in "Item 8. Financial Statements and Supplementary Data" for additional information regarding the Company's agreement with COPI. For purposes of investor communications, the Company classifies its luxury and destination fitness resorts and spas and upscale Residential Development Properties as a single group referred to as the "Resort and Residential Development Sector" due to their similar targeted customer characteristics. This group does not contain the four upscale business-class hotel properties. Additionally, for investor communications, the Company classifies its Temperature-Controlled Logistics Properties and its upscale business-class hotel properties as the "Investment Sector." However, for purposes of segment reporting as defined in Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information" and this Annual Report on Form 10-K, the Resort/Hotel Properties, including the upscale business-class hotel properties, the Residential Development Properties and the Temperature-Controlled Logistics Properties are considered three separate reportable segments. See "Note 3. Segment Reporting" included in "Item 8. Financial Statements and Supplementary Data" for a table showing total revenues, funds from operations, and equity in net income of unconsolidated companies for each of these investment segments for the years ended December 31, 2001, 2000 and 1999 and identifiable assets for each of these investment segments at December 31, 2001 and 2000. 3 BUSINESS OBJECTIVES AND STRATEGIES BUSINESS OBJECTIVES The Company's primary business objective is to provide its shareholders with an attractive yet predictable growth in cash flow and underlying asset value. Additionally, the Company is focused on increasing funds from operations and cash available for distribution, while optimizing the corresponding growth rates. The Company also strives to attract and retain the best talent available and to empower management through the development and implementation of a cohesive set of operating, investing and financing strategies that will align their interests with the interests of the Company's shareholders. OPERATING STRATEGIES The Company seeks to enhance its operating performance by distinguishing itself as the leader in its core investment segments through customer service and asset quality. The Company's operating strategies include: o operating the Office Properties as long-term investments; o providing exceptional customer service; o increasing occupancies, rental rates and same-store net operating income; and o emphasizing brand recognition of the Company's premier Class A Office Properties and luxury and destination fitness resorts and spas. INVESTING STRATEGIES The Company focuses on assessing investment opportunities and markets considered "demand-driven," or to have high levels of in-migration by corporations, affordable housing costs, moderate costs of living, and the presence of centrally located travel hubs, primarily within the Office Segment. These investment opportunities are evaluated in light of the Company's long-term investment strategy of acquiring properties at a significant discount to replacement cost in an environment in which the Company believes values will appreciate and equal or exceed replacement costs. Investment opportunities are expected to provide growth in cash flow after applying management skills, renovation and expansion capital and strategic vision. The Company's investment strategies include: o capitalizing on strategic acquisition opportunities, primarily within the Company's Office Segment; o evaluating the expected returns on acquisition opportunities in relation to the Company's cost of capital; o selectively developing the Company's commercial land inventory, primarily in its Office and Resort/Hotel Segments in order to meet the needs of customers; o selectively developing luxury and destination fitness resorts and spas; o monetizing the current investments of the Company in the five Residential Development Corporations and reinvesting returned capital from the Residential Development Segment primarily into the Office Segment where the Company expects to achieve favorable rates of return; and o evaluating future repurchases of the Company's common shares, considering stock price, cost of capital, alternative investment options and growth implications. 4 FINANCING STRATEGIES The Company implements a disciplined set of financing strategies in order to fund its operating and investing activities. The Company's financing strategies include: o funding operating expenses, debt service payments and distributions to shareholders and unitholders primarily through cash flow from operations; o taking advantage of market opportunities to refinance existing debt and reduce interest cost, replace secured debt with unsecured debt, manage the Company's debt maturity schedule and expand the Company's lending group; o actively managing the Company's exposure to variable-rate debt; o utilizing a combination of the debt, equity, joint venture capital and selected asset disposition alternatives available to the Company to finance acquisition and development opportunities; and o recycling capital within the Company through strategic sales of non-core assets and through joint ventures of selected Office Properties within the Company's portfolio while maintaining a minority interest and continuing to lease and manage the Properties. EMPLOYEES As of February 25, 2002, the Company had 794 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 income that it distributes to its shareholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including the requirement to distribute at least 90% of 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 state and local income and franchise taxes and to federal income and excise taxes on its undistributed REIT taxable income. In addition, certain of its subsidiaries are subject to federal, state and local income taxes. ENVIRONMENTAL MATTERS The Company and its Properties are subject to a variety of federal, 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 5 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. The Company has no current plans for substantial capital expenditures with respect to compliance with environmental, health and safety laws. INDUSTRY SEGMENTS OFFICE SEGMENT OWNERSHIP STRUCTURE As of December 31, 2001, the Company owned or had an interest in 74 Office Properties located in 26 metropolitan submarkets in six states, with an aggregate of approximately 28.0 million net rentable square feet. The Company, as lessor, has retained substantially all of the risks and benefits of ownership of the Office Properties and accounts for its leases as operating leases. Additionally, the Company provides management and leasing services for some of its Office Properties. See "Item 2. Properties" for more information about the Company's Office Properties. In addition, see "Note 1. Organization and Basis of Presentation" included in "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 and "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies" included in "Item 8. Financial Statements and Supplementary Data" for a table that lists the Company's ownership in significant unconsolidated companies or equity investments and the four Office Properties in which the Company owned an interest through these unconsolidated companies or equity investments. JOINT VENTURE ARRANGEMENTS 5 Houston Center On June 4, 2001, the Company entered into a joint venture arrangement with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to construct the 5 Houston Center Office Property within the Company's Houston Center mixed-use Office Property complex in Houston, Texas. The Class A Office Property will consist of 577,000 net rentable square feet. The joint venture is structured such that the fund holds a 75% equity interest, and the Company holds a 25% equity interest. In addition, the Company is developing, and will manage and lease, the Property on a fee basis. 6 Four Westlake Park and Bank One Tower On July 30, 2001, the Company entered into joint venture arrangements with an affiliate of General Electric Pension Fund ("GE") for two Office Properties, Four Westlake Park in Houston, Texas, and Bank One Tower in Austin, Texas. The joint ventures are structured such that GE holds an 80% equity interest in each of the Office Properties, Four Westlake Park, a 560,000 square foot Class A Office Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a 390,000 square foot Class A Office Property located in downtown Austin. The Company continues to hold the remaining 20% equity interests in each Office Property. In addition, the Company manages and leases the Office Properties on a fee basis. MARKET INFORMATION The Office Properties reflect the Company's strategy of investing in premier assets within markets that have significant potential for rental growth. 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. 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 also 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. In selecting the Office Properties, the Company analyzed demographic and economic data to focus on markets expected to benefit from significant long-term employment growth as well as corporate relocations. The Company's Office Properties are located primarily in the Dallas/Fort Worth and Houston, Texas, metropolitan areas, both of which are projected to benefit from strong population and employment growth over the next 10 years. As indicated in the table below entitled "Projected Population Growth and Employment Growth for all Company Markets," these core Company markets are projected to outperform the 10-year averages for the United States. In addition, the Company considers these markets "demand-driven" markets due to high levels of in-migration by corporations, affordable housing costs, moderate cost of living, and the presence of centrally located travel hubs, making all areas of the country easily accessible. Texas As of December 2001, the Texas unemployment rate was 5.7%, slightly better than the national unemployment rate of 5.8%. According to the Texas Economic Update, Texas weathered the 2001 economic slowdown better than the nation as a whole. Dallas/Fort Worth ("DFW") According to the Bureau of Labor Statistics, 2001 job growth slowed considerably in the DFW area. As of December 2001, the DFW unemployment rate was 5.6%, compared with the Texas unemployment rate of 5.7% and the national unemployment rate of 5.8%. As for DFW's 2001 commercial office market, according to CoStar data, citywide net economic absorption, excluding space available for sublease, was approximately 1.0 million square feet, primarily represented by a positive 1.0 million square feet of absorption in Class A space. The city's total net absorption, including space available for sublease, was approximately (3.0) million square feet for 2001; however, Class A space represented only approximately (700,000) square feet of the (3.0) million total square feet. 7 Houston Houston's employment data held steady through much of 2001, despite the slowdown in the economy. Approximately 23,000 jobs were created in 2001, an increase of approximately 1.1% over 2000. As of December 2001, the Houston unemployment rate was 4.4%, compared with the Texas unemployment rate of 5.7% and the national unemployment rate of 5.8%. As for Houston's 2001 commercial office market, according to CoStar data, citywide net economic absorption, excluding space available for sublease, was 2.0 million square feet, with 2.75 million square feet in Class A space. The city's total net absorption, including space available for sublease, was a (200,000) square feet for 2001; however, Class A space had a positive total net absorption of 1.4 million square feet. 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 exceed the national averages, as illustrated in the following table. PROJECTED POPULATION GROWTH AND EMPLOYMENT GROWTH FOR ALL COMPANY MARKETS
Population Employment Growth Growth Metropolitan Statistical Area 2002-2011 2002-2011 - ----------------------------- ---------- ---------- Albuquerque, NM 22.05% 14.15% Austin, TX 26.02 36.61 Colorado Springs, CO 27.48 15.83 Dallas, TX 15.89 20.92 Denver, CO 11.34 19.76 Fort Worth, TX 19.03 22.31 Houston, TX 15.61 22.43 Miami, FL 9.03 15.90 Phoenix, AZ 27.24 33.41 San Diego, CA 17.35 17.29 UNITED STATES 8.49 12.01
- ---------- Source: Compiled from information published by Economy.com, Inc. The Company does not depend on a single customer or a few major customers within the Office 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 leases in effect as of December 31, 2001, no single tenant accounted for more than 5% of the Company's total Office Segment rental revenues for 2001. 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 within the markets and the submarkets in which the Company has invested. The Company's strategy is based, in part, on identifying and focusing on 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, 2001 was $22.42 per square foot, compared to an estimated weighted average full-service replacement cost rental rate of $30.23 per square foot. 8 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 classes 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 customers, together with its active preventive maintenance program and superior building locations within markets, enhance the Company's ability to attract and retain customers for its Office Properties. In addition, as of December 31, 2001, on a weighted average basis, the Company owned 16% of the Class A office space in the 26 submarkets in which the Company owned Class A office properties, and 24% of the Class B office space in the two 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 reduces property operating expenses, enhances the Company's ability to attract and retain customers and potentially results in increases in Company net operating income. DISPOSITIONS During the year ended December 31, 2001, five of the Company's fully consolidated Office Properties were disposed of. On September 18, 2001, the Company completed the sale of the two Washington Harbour Office Properties. The Washington Harbour Office Properties were the Company's only Office Properties in Washington, D.C. On September 28, 2001, the Woodlands Office Equities - '95 Limited ("WOE"), owned by the Company and the Woodlands Commercial Properties Company, L.P., sold two Office Properties located within The Woodlands, Texas. On December 20, 2001, WOE sold another Office Property located within The Woodlands, Texas. During the year ended December 31, 2001, two of the unconsolidated companies in which the Company has an equity interest, sold three office properties and one retail property. On September 27, 2001, the Woodlands Commercial Properties Company, L.P. ("Woodlands CPC"), owned by the Company and an affiliate of Morgan Stanley, sold one office/venture tech property and located within The Woodlands, Texas. On November 9, 2001, The Woodlands Land Development Company, L.P., owned by the Company and an affiliate of Morgan Stanley, sold two office properties and one retail property located within The Woodlands, Texas. DEVELOPMENT Avallon IV Office Property In May 2001, the Company completed the construction of the Avallon IV Office Property in Austin, Texas. The property is a Class A Office Property with 86,315 net rentable square feet. Construction of this property commenced in September 2000. 5 Houston Center Office Property The Company is currently developing the 5 Houston Center Office Property in Houston, Texas. Construction of the planned 27-story, Class A Office Property consisting of 577,000 net rentable square feet commenced in November 2000, and is expected to be completed in the fourth quarter of 2002. In June 2001, the Company entered into a joint venture arrangement with a pension fund advised by JPM to construct this Office Property. The joint venture is structured such that the fund holds a 75% equity interest, and the Company holds a 25% equity interest. RESORT/HOTEL SEGMENT OWNERSHIP STRUCTURE Prior to enactment of the REIT Modernization Act, the Company's status as a REIT for federal income tax purposes prohibited it from operating the Resort/Hotel Properties. As of December 31, 2001, the Company owned nine Resort/Hotel Properties, all of which, other than the Omni Austin Hotel, were leased to subsidiaries of COPI pursuant to eight separate leases. The Omni Austin Hotel was leased, under a separate lease, to HCD Austin Corporation. Under the leases, each having a term of 10 years, the Resort/Hotel Property lessees 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 leases provided for the payment by the Resort/Hotel Property lessees of all or a combination of the following: 9 o base rent, with periodic rent increases if applicable; o percentage rent based on a percentage of gross hotel receipts or gross room revenues, as applicable, above a specified amount; and o a percentage of gross food and beverage revenues above a specified amount. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI. As a result, these subsidiaries of the Company became the lessees of the eight Resort/Hotel Properties. See "Note 20. Subsequent Events" included in "Item 8. Financial Statements and Supplemental Data" for additional information regarding the Company's agreement with COPI. CR LICENSE, LLC AND CRL INVESTMENTS, INC. As of December 31, 2001, the Company had a 28.5% interest in CR License, LLC, the entity which owns the right to the future use of the "Canyon Ranch" name. The Company also had a 95% economic interest, representing all of the non-voting common stock, in CRL Investments, Inc., which has an approximately 65% economic interest in the Canyon Ranch Spa Club in the Venetian Hotel in Las Vegas, Nevada. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which the Company acquired, in lieu of foreclosure, COPI's 1.5% interest in CR License, LLC and 5.0% interest, representing all of the voting stock, in CRL Investments, Inc. MARKET INFORMATION Lodging demand is highly dependent upon the global economy and volume of business travel. The uncertainty surrounding the weak global economy and the costs and fear resulting from the events of September 11, 2001 are expected to result in weak performance for much of 2002. This is evidenced by declines in both business and leisure travel in the United States. Although the hospitality industry will be negatively impacted to the extent demand is less than expected for much of 2002, management expects a recovery in 2003. COMPETITION Most of the Company's upscale business class Resort/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 and destination fitness resorts and spas are unique properties that have no significant direct competitors due either to their high replacement cost or unique concept and location. However, the luxury and destination fitness resorts and spas do compete against business-class hotels or middle-market resorts in their geographic areas, as well as against luxury resorts nationwide and around the world. 10 RESIDENTIAL DEVELOPMENT SEGMENT OWNERSHIP STRUCTURE As of December 31, 2001, the Company owned economic interests in five Residential Development Corporations through the Residential Development Property mortgages and the non-voting common stock of these Residential Development Corporations. The Residential Development Corporations in turn, through joint ventures or partnership arrangements, own interests in 21 Residential Development Properties. The Residential Development Corporations are responsible for the continued development and the day-to-day operations of the Residential Development Properties. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's voting interests in three of the Residential Development Corporations. These three Residential Development Corporations, Desert Mountain Development Corporation ("Desert Mountain"), The Woodlands Land Company, Inc. ("The Woodlands") and Crescent Resort Development, Inc. ("CRD") own interests in 16 Residential Development Properties. See "Note 20. Subsequent Events" included in "Item 8. Financial Statements and Supplemental Data" for additional information regarding the Company's agreement with COPI. MARKET INFORMATION A slowing economy, combined with the events of September 11, 2001 contributed to the reduction in lot absorption, primarily at Desert Mountain. CRD (formerly "Crescent Development Management Corp.") was not significantly impacted because most of its products were pre-sold. However, CRD did change its strategy by delaying the commencement of certain projects, which will impact its performance in 2002. In addition, The Woodlands experienced a reduction in lot absorption of its higher priced lots, including Carlton Woods, The Woodlands' new upscale gated residential development. However, The Woodlands was not significantly impacted due to the higher prices of the lots sold offsetting lower lot sales. COMPETITION The Company's Residential Development Properties compete against a variety of other housing alternatives in each of their respective areas. These alternatives include other planned developments, pre-existing single-family homes, condominiums, townhouses and non-owner occupied housing, such as luxury apartments. Management believes that the Properties owned by The Woodlands, CRD and 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 most other local developments, include a shopping mall, retail centers, office buildings, a hospital, a community college, places of worship, a conference center, 85 parks, 117 holes of golf, including a Tournament Players Course and signature courses by Jack Nicklaus, Arnold Palmer, and Gary Player, two man-made lakes and a performing arts pavilion. The Woodlands competes with other master planned communities in the surrounding Houston market. Desert Mountain, a luxury residential and recreational community in Scottsdale, Arizona, which also offers five 18-hole Jack Nicklaus signature golf courses and tennis courts, has few direct competitors due in part to the superior environmental attributes and the types of amenities that it offers. CRD invests primarily in mountain resort residential real estate in Colorado and California, and residential real estate in downtown Denver, Colorado. Management believes CRD does not have any direct competitors because the projects and project locations are unique and the land is limited in most of these locations. 11 TEMPERATURE-CONTROLLED LOGISTICS SEGMENT OWNERSHIP STRUCTURE Effective March 12, 1999, the Company, Vornado Realty Trust, COPI, the Temperature-Controlled Logistics Partnership and the Temperature-Controlled Logistics Corporation (including all affiliated entities that owned any portion of the business operations of the Temperature-Controlled Logistics Properties at that time) sold all of the non-real estate assets, encompassing the business operations, for approximately $48.7 million to a subsidiary of a newly formed partnership ("AmeriCold Logistics"), owned 60% by Vornado Operating L.P. and 40% by a subsidiary of COPI. The Company has no interest in AmeriCold Logistics. As of December 31, 2001, the Company held a 40% interest in the Temperature-Controlled Logistics Partnership, which owns the Temperature-Controlled Logistics Corporation, which directly or indirectly owns the 89 Temperature-Controlled Logistics Properties, with an aggregate of approximately 445.2 million cubic feet (17.7 million square feet) of warehouse space. AmeriCold Logistics, as sole lessee of the Temperature-Controlled Logistics Properties, leases the Temperature-Controlled Logistics Properties from the Temperature-Controlled Logistics Corporation under three triple-net master leases, as amended on January 23, 2002. On February 22, 2001, the Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to restructure certain financial terms of the leases, including the adjustment of the rental obligation for 2001 to $146.0 million, the adjustment of the rental obligation for 2002 to $150.0 million (plus contingent rent in certain circumstances), the increase of the Temperature-Controlled Logistics Corporation's share of capital expenditures for the maintenance of the properties from $5.0 million to $9.5 million (effective January 1, 2000) and the extension of the date on which deferred rent was required to be paid to December 31, 2003. AmeriCold Logistics' same-store earnings before interest, taxes, depreciation and amortization, and rent declined 11% for the year ended December 31, 2001, compared to the same period in 2000. These declines are attributable to a reduction in total customer inventory stored at the warehouses and a reduction in the frequency of customer inventory turnover. AmeriCold Logistics deferred $25.5 million of rent for the year ended December 31, 2001, of which the Company's share was $10.2 million. AmeriCold Logistics also deferred $19.0 million and $5.4 million of rent for the years ended December 31, 2000 and 1999, respectively, of which the Company's share was $7.5 million and $2.1 million, respectively. In December 2001, the Temperature-Controlled Logistics Corporation waived its rights to collect deferred rent of $39.8 million of the total $49.9 million of deferred rent, of which the Company's share was $15.9 million. The Temperature-Controlled Logistics Corporation and the Company had recorded adequate valuation allowances related to their portions of the waived deferred rental revenue during the years ended December 31, 2000, and 2001; therefore, there was no financial statement impact to the Temperature-Controlled Logistics Corporation or to the Company related to the Temperature-Controlled Logistics Corporation's decision to waive collection of the deferred rent. 12 BUSINESS AND 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. AmeriCold Logistics' transportation management services 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. AmeriCold Logistics' customers consist primarily of national, regional and local frozen food manufacturers, distributors, retailers and food service organizations. A breakdown of AmeriCold Logistics' largest customers include:
PERCENTAGE OF 2001 REVENUE ------------- H.J. Heinz & Co. .......................... 16% Con-Agra, Inc. ............................ 8 Sara Lee Corp. ............................ 5 McCain Foods, Inc. ........................ 5 Tyson Foods, Inc. ......................... 4 General Mills ............................. 4 J.R. Simplot .............................. 3 Flowers Food, Inc. ........................ 3 Pro-Fac Cooperative, Inc. ................. 2 Farmland Industries, Inc. ................. 2 Other ..................................... 48 --- TOTAL ..................................... 100% ===
Consolidation among retail and food service channels has limited the ability of manufacturers to pass along cost increases by raising prices. Because of this, manufacturers have been forced in the recent past to focus more intensely on supply chain cost (such as inventory management, transportation and distribution) reduction initiatives in an effort to improve operating performance. As the economy continues to recover from the current recession and stabilize at a level significantly greater than the trailing six months' performance, AmeriCold Logistics will continue to examine key areas of its operations to maximize long-term growth potential. These initiatives include customer profitability, reductions of energy and labor costs and providing complete supply chain solutions complemented by information systems to its customers. In addition, as socioeconomic events create spikes in demand and upset the planning balance between manufacturers and retailers, AmeriCold will experience variability in short term revenues. However, as Ameriold Logistics focuses on its key initiatives, it will forge alliances with existing and new customers that will encourage movement of product into its facilities and strengthen long-term revenues. COMPETITION AmeriCold Logistics is the largest operator of public refrigerated warehouse space in North America and has more than twice the cubic feet of the second largest operator. AmeriCold Logistics operated an aggregate of approximately 18% of total cubic feet of public refrigerated warehouse space as of December 31, 2001. No other person or entity operated more than 8% of total public refrigerated warehouse space as of December 31, 2001. As a result, AmeriCold Logistics does not have any competitors of comparable size. AmeriCold Logistics operates in an environment in which competition is national, 13 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. DEVELOPMENT The Temperature-Controlled Logistics Corporation completed the acquisition of one facility in the first quarter of 2001 for $10.0 million and completed the construction of one facility in the third quarter of 2001 for $15.8 million, representing in aggregate approximately 8.5 million cubic feet (0.2 million square feet) of additional warehouse space. 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, 2001, the Company owned or had an interest in 74 Office Properties located in 26 metropolitan submarkets in six states with an aggregate of approximately 28.0 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, 2001, the Company's Office Properties in Dallas/Fort Worth and Houston represented an aggregate of approximately 77% of its office portfolio based on total net rentable square feet (41% for Dallas/Fort Worth and 36% for Houston). In pursuit of management's objective to dispose of non-strategic and non-core assets, five of the Company's fully consolidated Office Properties were disposed of during the year ended December 31, 2001. The Company completed the sale of the two Washington Harbour Office Properties located in Washington, D.C., and the Woodlands Office Equities - '95 Limited, owned by the Company and the Woodlands Commercial Properties Company, L. P., sold three Office Properties located within The Woodlands, Texas. 14 OFFICE PROPERTIES TABLES The following table shows, as of December 31, 2001, certain information about the Company's Office Properties. In the table below "CBD" means central business district. Based on rental revenues from office leases in effect as of December 31, 2001, no single tenant accounted for more than 5% of the Company's total Office Segment rental revenues for 2001.
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) - --------------------------------------- ---------- ------------------------ --------- ---------- ------- ------------- TEXAS DALLAS Bank One Center(2) 1 CBD 1987 1,530,957 88% $ 23.11 The Crescent Office Towers 1 Uptown/Turtle Creek 1985 1,204,670 100 32.81 Fountain Place 1 CBD 1986 1,200,266 97 20.28 Trammell Crow Center(3) 1 CBD 1984 1,128,331 85 25.09 Stemmons Place 1 Stemmons Freeway 1983 634,381 87 17.67 Spectrum Center(4) 1 Far North Dallas 1983 598,250 88 24.05 Waterside Commons 1 Las Colinas 1986 458,739 100 20.84 125 E. John Carpenter Freeway 1 Las Colinas 1982 445,993 80 28.92 Reverchon Plaza 1 Uptown/Turtle Creek 1985 374,165 52 21.62 The Aberdeen 1 Far North Dallas 1986 320,629 100 19.42 MacArthur Center I & II 1 Las Colinas 1982/1986 294,069 92 23.89 Stanford Corporate Centre 1 Far North Dallas 1985 265,507 72 23.85 12404 Park Central 1 LBJ Freeway 1987 239,103 100 22.75 Palisades Central II 1 Richardson/Plano 1985 237,731 99(10) 22.50 3333 Lee Parkway 1 Uptown/Turtle Creek 1983 233,769 92 22.71 Liberty Plaza I & II 1 Far North Dallas 1981/1986 218,813 100 16.16 The Addison 1 Far North Dallas 1981 215,016 100 19.85 Palisades Central I 1 Richardson/Plano 1980 180,503 95 21.39 Greenway II 1 Richardson/Plano 1985 154,329 100 23.86 Greenway I & IA 2 Richardson/Plano 1983 146,704 100 24.22 Addison Tower 1 Far North Dallas 1987 145,886 95 20.61 5050 Quorum 1 Far North Dallas 1981 133,594 87 20.63 Cedar Springs Plaza(5) 1 Uptown/Turtle Creek 1982 110,923 92 19.63 ----- ---------- ---- -------- Subtotal/Weighted Average 24 10,472,328 91% $ 23.54 ----- ---------- ---- -------- FORT WORTH Carter Burgess Plaza 1 CBD 1982 954,895 90%(10) $ 17.16 ----- ---------- ---- -------- HOUSTON Greenway Plaza Office Portfolio 10 Richmond-Buffalo 1969-1982 4,285,906 93% $ 20.30 Speedway Houston Center 3 CBD 1974-1983 2,764,418 95 21.83 Post Oak Central 3 West Loop/Galleria 1974-1981 1,277,516 89 19.68 The Woodlands Office Properties(6) 8 The Woodlands 1980-1996 561,989 89 17.62 Four Westlake Park(7) 1 Katy Freeway 1992 561,065 100 21.06 Three Westlake Park 1 Katy Freeway 1983 414,206 94 22.45 1800 West Loop South 1 West Loop/Galleria 1982 399,777 69 19.53 ----- ---------- ---- -------- Subtotal/Weighted Average 27 10,264,877 92% $ 20.62 ----- ---------- ---- --------
15
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) - --------------------------------------- ---------- ------------------------ --------- ---------- ------- ------------- AUSTIN Frost Bank Plaza 1 CBD 1984 433,024 97% $ 25.12 301 Congress Avenue(8) 1 CBD 1986 418,338 80 26.30 Bank One Tower(7) 1 CBD 1974 389,503 96 24.67 Austin Centre 1 CBD 1986 343,664 93 27.82 The Avallon I, II, III; IV; V 3 Northwest 1993/1997/2001 318,217 87(10) 23.74 Barton Oaks Plaza One 1 Southwest 1986 99,895 100 27.11 ----- ---------- ---- -------- Subtotal/Weighted Average 8 2,002,641 91% $ 25.57 ----- ---------- ---- -------- COLORADO DENVER MCI Tower 1 CBD 1982 550,807 99% $ 19.47 Ptarmigan Place 1 Cherry Creek 1984 418,630 100 19.36 Regency Plaza One 1 Denver Technology Center 1985 309,862 95 24.14 55 Madison 1 Cherry Creek 1982 137,176 97 20.79 The Citadel 1 Cherry Creek 1987 130,652 97 23.35 44 Cook 1 Cherry Creek 1984 124,174 91 20.71 ----- ---------- ---- -------- Subtotal/Weighted Average 6 1,671,301 98% $ 20.80 ----- ---------- ---- -------- COLORADO SPRINGS Briargate Office and Research Center 1 Colorado Springs 1988 252,857 64%(10) $ 19.72 ----- ---------- ---- -------- FLORIDA MIAMI Miami Center 1 CBD 1983 782,686 95% $ 26.60 Datran Center 2 South Dade/Kendall 1986/1988 472,236 94 23.23 ----- ---------- ---- -------- Weighted Average 3 1,254,922 95% $ 25.34 ----- ---------- ---- -------- ARIZONA PHOENIX Two Renaissance Square 1 Downtown/CBD 1990 476,373 97% $ 25.43 6225 North 24th Street 1 Camelback Corridor 1981 86,451 34 21.98 ----- ---------- ---- -------- Subtotal/Weighted Average 2 562,824 87% $ 25.23 ----- ---------- ---- -------- NEW MEXICO ALBUQUERQUE Albuquerque Plaza 1 CBD 1990 366,236 87% $ 19.35 ----- ---------- ---- -------- CALIFORNIA SAN DIEGO Chancellor Park(9) 1 University Town Center 1988 195,733 84% $ 26.94 ----- ---------- ---- -------- TOTAL/WEIGHTED AVERAGE 74 27,998,614 92%(10) $ 22.28(11) ===== ========== ===== ========
- ---------- (1) Calculated based on base rent payable as of December 31, 2001, 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 Crescent Spectrum Center, L.P. which owns both the mortgage notes secured by Spectrum Center and the ground lessor's interest in the land underlying the office building. (5) This Office Property was sold subsequent to December 31, 2001. (6) The Company has a 75% limited partner interest and an approximate 10% indirect general partner interest in the partnership that owns the eight Office Properties that comprise The Woodlands Office Properties. (7) The Company has a 0.1% general partner interest and a 19.9% limited partner interest in the partnerships that own Four Westlake Park and Bank One Tower. (8) The Company has a 1% general partner interest and a 49% limited partner interest in the partnership that owns 301 Congress Avenue. (9) The Company owns Chancellor Park through its ownership of a mortgage note secured by the building and through its direct and indirect interests in the partnership, which owns the building. (10) Leases have been executed at certain Office Properties but had not commenced as of December 31, 2001. If such leases had commenced as of December 31, 2001, the percent leased for all Office Properties would have been 93%. The total percent leased for these Properties would have been as follows: Palisades Central II - 100%; Carter Burgess Plaza - 95%; The Avallon - 100%; and Briargate Office and Research Center - 67%. (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, 2001, 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 $22.42. 16 The following table provides information, as of December 31, 2001, for the Company's Office Properties by state, city and submarket.
PERCENT OFFICE PERCENT OF LEASED AT SUBMARKET TOTAL TOTAL COMPANY PERCENT NUMBER OF COMPANY COMPANY OFFICE LEASED/ STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) ---------------------- ---------- ---------- ---------- ---------- ----------- CLASS A OFFICE PROPERTIES TEXAS DALLAS CBD 3 3,859,554 13% 90% 86% Uptown/Turtle Creek(6) 4 1,923,527 7 89 87 Far North Dallas 7 1,897,695 7 91 84 Las Colinas 3 1,198,801 4 91 86 Richardson/Plano 5 719,267 3 99(7) 93 Stemmons Freeway 1 634,381 2 87 90 LBJ Freeway 1 239,103 1 100 75 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 24 10,472,328 37% 91% 85% --- ---------- ---------- ---------- ---------- FORT WORTH CBD 1 954,895 3% 90%(7) 96% --- ---------- ---------- ---------- ---------- HOUSTON CBD 3 2,764,418 10% 95% 95% Richmond-Buffalo Speedway 7 3,613,903 13 95 94 West Loop/Galleria 4 1,677,293 6 85 86 Katy Freeway 2 975,271 4 98 92 The Woodlands 6 427,364 1 86 87 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 22 9,458,249 34% 93% 92% --- ---------- ---------- ---------- ---------- AUSTIN CBD 4 1,584,529 6% 91% 90% Northwest 3 318,217 1 87(7) 83 Southwest 1 99,895 0 100 90 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 8 2,002,641 7% 91% 87% --- ---------- ---------- ---------- ---------- COLORADO DENVER Cherry Creek 4 810,632 3% 98% 97% CBD 1 550,807 2 99 94 Denver Technology Center 1 309,862 1 95 81 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 6 1,671,301 6% 98% 90% --- ---------- ---------- ---------- ---------- COLORADO SPRINGS Colorado Springs 1 252,857 1% 64%(7) 86% --- ---------- ---------- ---------- ---------- FLORIDA MIAMI CBD 1 782,686 3% 95% 95% South Dade/Kendall 2 472,236 2 94 81 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 3 1,254,922 5% 95% 93% --- ---------- ---------- ---------- ---------- ARIZONA PHOENIX Downtown/CBD 1 476,373 2% 97% 87% Camelback Corridor 1 86,451 0 34 81 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 2 562,824 2% 87% 83% --- ---------- ---------- ---------- ---------- NEW MEXICO ALBUQUERQUE CBD 1 366,236 1% 87% 89% --- ---------- ---------- ---------- ---------- CALIFORNIA SAN DIEGO University Town Center 1 195,733 1% 84% 83% --- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE WEIGHTED COMPANY AVERAGE COMPANY FULL- COMPANY QUOTED QUOTED SERVICE SHARE OF MARKET RENTAL RENTAL OFFICE RENTAL RATE RATE PER RATE PER SUBMARKET PER SQUARE SQUARE SQUARE STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5) ---------------------- ---------- ----------- -------- -------- CLASS A OFFICE PROPERTIES TEXAS DALLAS CBD 21% $20.66 $25.32 $22.70 Uptown/Turtle Creek(6) 33 24.28 31.85 29.51 Far North Dallas 15 24.48 24.26 21.12 Las Colinas 9 22.85 23.90 24.25 Richardson/Plano 13 20.64 24.61 22.88 Stemmons Freeway 26 23.75 19.30 17.67 LBJ Freeway 3 22.77 23.00 22.75 ---------- ------ ------ ------ Subtotal/Weighted Average 16% $22.50 $25.70 $23.54 ---------- ------ ------ ------ FORT WORTH CBD 26% $22.59 $21.80 $17.16 ---------- ------ ------ ------ HOUSTON CBD 12% $24.05 $27.01 $21.83 Richmond-Buffalo Speedway 71 20.83 21.64 20.94 West Loop/Galleria 11 21.75 21.28 19.65 Katy Freeway 15 20.00 24.86 21.63 The Woodlands 88 18.34 18.28 17.87 ---------- ------ ------ ------ Subtotal/Weighted Average 19% $21.74 $23.33 $20.95 ---------- ------ ------ ------ AUSTIN CBD 33% $28.34 $32.04 $25.83 Northwest 5 24.86 30.12 23.74 Southwest 3 24.93 29.59 27.11 ---------- ------ ------ ------ Subtotal/Weighted Average 14% $27.62 $31.61 $25.57 ---------- ------ ------ ------ COLORADO DENVER Cherry Creek 45% $23.31 $23.48 $20.43 CBD 5 24.25 25.00 19.47 Denver Technology Center 6 20.00 26.00 24.14 ---------- ------ ------ ------ Subtotal/Weighted Average 9% $23.01 $24.45 $20.80 ---------- ------ ------ ------ COLORADO SPRINGS Colorado Springs 5% $20.60 $20.85 $19.72 ---------- ------ ------ ------ FLORIDA MIAMI CBD 25% $31.46 $30.70 $26.60 South Dade/Kendall 78 24.97 23.96 23.23 ---------- ------ ------ ------ Subtotal/Weighted Average 34% $29.02 $28.16 $25.34 ---------- ------ ------ ------ ARIZONA PHOENIX Downtown/CBD 18% $25.73 $24.50 $25.43 Camelback Corridor 2 25.88 21.50 21.98 ---------- ------ ------ ------ Subtotal/Weighted Average 8% $25.75 $24.04 $25.23 ---------- ------ ------ ------ NEW MEXICO ALBUQUERQUE CBD 64% $18.15 $18.00 $19.35 ---------- ------ ------ ------ CALIFORNIA SAN DIEGO University Town Center 6% $37.80 $35.50 $26.94 ---------- ------ ------ ------
17
PERCENT OFFICE PERCENT OF LEASED AT SUBMARKET TOTAL TOTAL COMPANY PERCENT NUMBER OF COMPANY COMPANY OFFICE LEASED/ STATE, CITY, SUBMARKET PROPERTIES NRA(1) NRA(1) PROPERTIES OCCUPIED(2) ---------------------- ---------- ---------- ---------- ---------- ----------- CLASS A OFFICE PROPERTIES SUBTOTAL/WEIGHTED AVERAGE 69 27,191,986 97% 92% 88% === ========== ========== ========== ========== CLASS B OFFICE PROPERTIES TEXAS HOUSTON Richmond-Buffalo Speedway 3 672,003 2% 81% 84% The Woodlands 2 134,625 1 98 47 --- ---------- ---------- ---------- ---------- Subtotal/Weighted Average 5 806,628 3% 84% 81% --- ---------- ---------- ---------- ---------- CLASS B OFFICE PROPERTIES SUBTOTAL/WEIGHTED AVERAGE 5 806,628 3% 84% 81% === ========== ========== ========== ========== CLASS A AND CLASS B OFFICE PROPERTIES TOTAL/WEIGHTED AVERAGE 74 27,998,614 100% 92%(7) 88% === ========== ========== ========== ========== WEIGHTED AVERAGE WEIGHTED COMPANY AVERAGE COMPANY FULL- COMPANY QUOTED QUOTED SERVICE SHARE OF MARKET RENTAL RENTAL OFFICE RENTAL RATE RATE PER RATE PER SUBMARKET PER SQUARE SQUARE SQUARE STATE, CITY, SUBMARKET NRA(1)(2) FOOT(2)(3) FOOT(4) FOOT(5) ---------------------- ---------- ----------- -------- -------- CLASS A OFFICE PROPERTIES SUBTOTAL/WEIGHTED AVERAGE 16% $23.05 $25.10 $22.44 ========== ====== ====== ====== CLASS B OFFICE PROPERTIES TEXAS HOUSTON Richmond-Buffalo Speedway 22% $17.69 $16.80 $16.15 The Woodlands 47 16.60 16.60 16.92 ---------- ------ ------ ------ Subtotal/Weighted Average 24% $17.51 $16.77 $16.30 ---------- ------ ------ ------ CLASS B OFFICE PROPERTIES SUBTOTAL/WEIGHTED AVERAGE 24% $17.51 $16.77 $16.30 ========== ====== ====== ====== CLASS A AND CLASS B OFFICE PROPERTIES TOTAL/WEIGHTED AVERAGE 16% $22.89 $24.86 $22.28(8) ========== ====== ====== ======
- ---------- (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 for Class B office space under the caption "Class B Office Properties." Sources are CoStar Group (for the Dallas CBD, Uptown/Turtle Creek, Far North Dallas, Las Colinas, Richardson/Plano, Stemmons Freeway, LBJ Freeway, Fort Worth CBD, Houston Richmond-Buffalo Speedway, Houston CBD, West Loop/Galleria, and Katy Freeway submarkets), The Woodlands Operating Company, L.P. (for The Woodlands submarket), Costar (for the Austin CBD, Northwest and Southwest submarkets), Cushman & Wakefield of Colorado, Inc. (for the Denver Cherry Creek, CBD and Denver Technology Center submarkets), Turner Commercial Research (for the Colorado Springs market), Grubb and Ellis Company (for the Phoenix Downtown/CBD and Cammelback Corridor submarkets), 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 & Co. (for the San Diego University Town Center 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, 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, 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) One Office Property in this submarket was sold subsequent to December 31, 2001. (7) Leases have been executed at certain Office Properties in these submarkets but had not commenced as of December 31, 2001. If such leases had commenced as of December 31, 2001, 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: Richardson/Plano - 99%; Fort Worth CBD - 95%; Austin-Northwest - 100%; and Colorado Springs - 67%. (8) The weighted average full-service rental rate per square foot calculated based on base rent payable for Company Office Properties, 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 $22.42. 18 The following table shows, as of December 31, 2001, the principal business conducted by the tenants at the Company's Office Properties, based on information supplied to the Company from the tenants.
Percent of Industry Sector Leased Sq. Ft. --------------- -------------- Professional Services(1) 27% Energy(2) 21 Financial Services(3) 19 Telecommunications 8 Technology 7 Manufacturing 3 Food Service 3 Government 3 Retail 2 Medical 2 Other(4) 5 --- TOTAL LEASED 100% ===
- ---------- (1) Includes legal, accounting, engineering, architectural and advertising services. (2) Includes oil and gas and utility companies. (3) Includes banking, title and insurance and investment services. (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, 2001, for the Company's total Office Properties and for Dallas, Houston and Austin, Texas, and Denver, Colorado, individually, for each of the 10 years beginning with 2002, assuming that none of the tenants exercises or has exercised renewal options. TOTAL OFFICE PROPERTIES
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) ------------- ------------ ------------- -------------- ------------ ------------ ------------- 2002 468 3,869,011(2) 15.3% $ 85,393,837 14.4% $ 22.07 2003 339 3,534,746(3) 14.0 76,445,243 12.9 21.63 2004 276 4,327,226 17.1 99,509,168 16.8 23.00 2005 237 3,385,760 13.4 79,321,957 13.4 23.43 2006 177 2,574,065 10.2 62,564,254 10.6 24.31 2007 71 2,066,023 8.2 48,576,388 8.2 23.51 2008 32 983,109 3.9 24,066,598 4.1 24.48 2009 19 676,981 2.7 17,305,474 2.9 25.56 2010 27 1,504,156 6.0 40,528,244 6.8 26.94 2011 26 723,362 2.9 19,573,471 3.3 27.06 2012 and thereafter 19 1,587,599 6.3 39,124,239 6.6 24.64 ------------ ------------ ------------ ------------ ------------ ------------ 1,691 25,232,038(4) 100.0% $592,408,873 100.0 % $ 23.48 ============ ============ ============ ============ ============ ============
- ---------- (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 expense levels. (2) As of December 31, 2001, leases have been signed for approximately 1,471,592 net rentable square feet (representing approximately 38% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2002. (3) As of December 31, 2001, leases have been signed for approximately 460,353 net rentable square feet (representing approximately 13% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2003. 19 (4) Reconciliation to the Company's total Office Property net rentable area is as follows:
SQUARE PERCENTAGE FEET OF TOTAL ---------- ---------- Square footage occupied by tenants 25,232,038 90.1% Square footage reflecting management offices, building use, and remeasurement adjustments 387,158 1.4 Square footage vacant 2,379,418 8.5 ---------- ----- Total net rentable square footage 27,998,614 100.0% ========== =====
DALLAS OFFICE PROPERTIES
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) ------------- ------------ ------------- ------------- ------------ ------------ ------------- 2002 130 1,202,785(2) 12.8% $ 30,170,470 13.1% $ 25.08 2003 94 1,342,618(3) 14.3 29,997,695 13.0 22.34 2004 84 1,150,737 12.2 30,276,805 13.1 26.31 2005 91 1,795,101 19.1 41,139,066 17.8 22.92 2006 43 702,018 7.5 17,875,245 7.8 25.46 2007 26 1,048,063 11.2 25,470,093 11.1 24.30 2008 11 590,319 6.3 15,449,754 6.7 26.17 2009 6 376,473 4.0 9,744,552 4.2 25.88 2010 13 733,171 7.8 21,211,321 9.2 28.93 2011 7 198,876 2.1 5,684,743 2.5 28.58 2012 and thereafter 2 254,018 2.7 3,455,038 1.5 13.60 ------------ ------------- ------------- ------------ ----------- ------------- 507 9,394,179 100.0% $230,474,782 100.0% $ 24.53 ============ ============= ============= ============ =========== =============
(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 expense levels. (2) As of December 31, 2001, leases have been signed for approximately 277,925 net rentable square feet (representing approximately 23% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2002. (3) As of December 31, 2001, leases have been signed for approximately 84,062 net rentable square feet (representing approximately 6% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2003. 20 HOUSTON OFFICE PROPERTIES
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) ------------- ------------ ------------- ------------- ------------ ------------ ------------- 2002 182 1,499,472(2) 15.9% $ 30,138,158 14.5% $ 20.10 2003 128 1,243,846(3) 13.2 25,424,330 12.2 20.44 2004 107 2,121,173 22.5 43,386,335 20.9 20.45 2005 71 576,838 6.1 12,801,669 6.2 22.19 2006 60 1,152,161 12.2 25,946,294 12.5 22.52 2007 22 754,456 8.0 16,571,175 8.0 21.96 2008 10 293,235 3.1 5,996,878 2.9 20.45 2009 3 74,984 0.8 1,729,655 0.8 23.07 2010 7 582,997 6.2 13,872,390 6.7 23.79 2011 10 416,487 4.4 10,130,045 4.9 24.32 2012 and thereafter 4 693,726 7.6 21,924,512 10.4 31.60 ------------ ------------ ------- ------------ ------- ------- 604 9,409,375 100.0% $207,921,441 100.0% $ 22.10 ============ ============ ======= ============ ======= =======
- ---------- (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 expense levels. (2) As of December 31, 2001, leases have been signed for approximately 650,146 net rentable square feet (representing approximately 43% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2002. (3) As of December 31, 2001, leases have been signed for approximately 269,229 net rentable square feet (representing approximately 22% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2003. AUSTIN OFFICE PROPERTIES
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) ------------- ----------- ------------- -------------- ------------ ------------ ------------- 2002 35 197,617(2) 11.3% $ 5,332,326 11.6% $26.98 2003 31 207,735(3) 11.9 5,223,132 11.4 25.14 2004 17 347,369 19.8 8,460,804 18.5 24.36 2005 25 531,494 30.3 13,832,510 30.2 26.03 2006 16 318,543 18.2 9,102,744 19.8 28.58 2007 5 42,266 2.4 1,142,580 2.5 27.03 2008 3 49,094 2.8 1,253,991 2.7 25.54 2009 1 21,447 1.2 541,751 1.2 25.26 2010 -- -- -- -- -- -- 2011 2 3,773 0.2 145,987 0.3 38.69 2012 and thereafter 1 33,315 1.9 828,777 1.8 24.88 ----------- ----------- ------ ----------- ------ ------ 136 1,752,653 100.0% $45,864,602 100.0% $26.17 =========== =========== ====== =========== ====== ======
- ---------- (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 expense levels. (2) As of December 31, 2001, leases have been signed for approximately 103,637 net rentable square feet (representing approximately 52% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2002. (3) As of December 31, 2001, leases have been signed for approximately 31,762 net rentable square feet (representing approximately 15% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2003. 21 DENVER OFFICE PROPERTIES
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) ------------- ------------ ------------- ------------- ------------ ------------ ------------- 2002 41 604,619(2) 38.2% $12,076,836 35.9% $ 19.97 2003 36 469,416(3) 29.7 9,788,225 29.1 20.85 2004 17 198,332 12.5 4,308,220 12.8 21.72 2005 15 171,349 10.8 4,002,821 11.9 23.36 2006 10 71,586 4.5 1,781,483 5.3 24.89 2007 2 15,988 1.0 378,437 1.1 23.67 2008 1 21,351 1.4 603,806 1.8 28.28 2009 4 19,602 1.2 445,447 1.3 22.72 2010 2 7,611 0.5 183,357 0.6 24.09 2011 1 2,478 0.2 52,038 0.2 21.00 2012 and thereafter -- -- 0.0 -- 0.0 -- ----------- ----------- ----------- ----------- ----------- ----------- 129 1,582,332 100.0% $33,620,670 100.0% $ 21.25 =========== =========== =========== =========== =========== ===========
- ---------- (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 expense levels. (2) As of December 31, 2001, leases have been signed for approximately 343,913 net rentable square feet (representing approximately 57% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2002. (3) As of December 31, 2001, leases have been signed for approximately 22,397 net rentable square feet (representing approximately 5% of expiring square footage and including renewed leases and leases of previously unleased space) commencing in 2003. 22 RESORT/HOTEL PROPERTIES The following table shows certain information for the years ended December 31, 2001, and 2000, with respect to the Company's Resort/Hotel Properties. The information for the Resort/Hotel Properties is based on available rooms, except for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which measure their performance based on available guest nights.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- AVERAGE OCCUPANCY YEAR RATE COMPLETED/ ---------------- RESORT/HOTEL PROPERTY(1) LOCATION RENOVATED ROOMS 2001 2000 - ------------------------ -------- ---------- -------- ------ ----- UPSCALE BUSINESS CLASS HOTELS: Denver Marriott City Center Denver, CO 1982/1994 613 77% 84% Hyatt Regency Albuquerque Albuquerque, NM 1990 395 69 69 Omni Austin Hotel Austin, TX 1986 372 68 81 Renaissance Houston Hotel Houston, TX 1975/2000 389 64 59 -------- ------ ----- TOTAL/WEIGHTED AVERAGE 1,769 71% 75% ======== ====== ===== LUXURY RESORTS AND SPAS: Park Hyatt Beaver Creek Resort and Spa(2) Avon, CO 1989 276 57% 69% Sonoma Mission Inn & Spa Sonoma, CA 1927/1987/1997 228 59 75 Ventana Inn & Spa Big Sur, CA 1975/1982/1988 62 73 78 -------- ------ ----- TOTAL/WEIGHTED AVERAGE 566 60% 72% ======== ====== ===== GUEST DESTINATION FITNESS RESORTS AND SPAS: NIGHTS ------ Canyon Ranch-Tucson Tucson, AZ 1980 250(3) Canyon Ranch-Lenox Lenox, MA 1989 212(3) -------- ------ ----- TOTAL/WEIGHTED AVERAGE 462 81% 86% ======== ====== ===== GRAND TOTAL/WEIGHTED AVERAGE FOR RESORT/HOTEL PROPERTIES 70% 76% ====== ===== FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- REVENUE AVERAGE PER DAILY AVAILABLE RATE ROOM/GUEST RESORT/HOTEL PROPERTY(1) ------------------ ----------------- - ------------------------ 2001 2000 2001 2000 ------ ------ ------ ------ UPSCALE BUSINESS CLASS HOTELS: Denver Marriott City Center Hyatt Regency Albuquerque $ 123 $ 120 $ 95 $ 101 Omni Austin Hotel 108 106 74 73 Renaissance Houston Hotel 124 133 84 108 113 95 73 56 TOTAL/WEIGHTED AVERAGE ------ ------ ------ ------ $ 118 $ 116 $ 83 $ 86 ====== ====== ====== ====== LUXURY RESORTS AND SPAS: Park Hyatt Beaver Creek Resort and Spa(2) Sonoma Mission Inn & Spa $ 278 $ 254 $ 159 $ 176 Ventana Inn & Spa 299 302 176 226 420 458 304 358 TOTAL/WEIGHTED AVERAGE ------ ------ ------ ------ $ 305 $ 298 $ 182 $ 216 ====== ====== ====== ====== DESTINATION FITNESS RESORTS AND SPAS: Canyon Ranch-Tucson Canyon Ranch-Lenox TOTAL/WEIGHTED AVERAGE ------ ------ ------ ------ $ 622 $ 593 $ 482 $ 487 ====== ====== ====== ====== GRAND TOTAL/WEIGHTED AVERAGE FOR RESORT/HOTEL PROPERTIES $ 245 $ 238 $ 170 $ 180 ====== ====== ====== ======
- ---------- (1) As of December 31, 2001, the Company had leased all of the Resort/Hotel Properties, except the Omni Austin Hotel, to subsidiaries of COPI. As of December 31, 2001, the Omni Austin Hotel was leased pursuant to a separate lease to HCD Austin Corporation. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties. (2) The hotel is undergoing a $6.9 million renovation of all guestrooms. The project is scheduled to be completed by the second quarter of 2002. (3) Represents available guest nights, which is the maximum number of guests that the resort can accommodate per night. 23 RESIDENTIAL DEVELOPMENT PROPERTIES The following table shows certain information as of December 31, 2001, relating to the Residential Development Properties.
TOTAL RESIDENTIAL RESIDENTIAL TOTAL LOTS/UNITS RESIDENTIAL DEVELOPMENT DEVELOPMENT LOTS/ DEVELOPED DEVELOPMENT PROPERTIES TYPE OF CORPORATION'S UNITS SINCE CORPORATION(1) (RDP) RDP(2) LOCATION OWNERSHIP % PLANNED INCEPTION --------------- ----------- ------- -------- ------------- ------- ---------- Desert Mountain Desert Mountain SF Scottsdale, AZ 93.0% 2,665 2,338 ------- -------- Development Corporation The Woodlands The Woodlands SF The Woodlands, TX 42.5% 37,554 26,027 ------- -------- Land Company, Inc. Crescent Bear Paw Lodge CO Avon, CO 60.0% 53(6) 53 Resort Eagle Ranch SF Eagle, CO 60.0% 1,100(6) 405 Development, Main Street Inc. Junction CO Breckenridge, CO 30.0% 36(6) 36 Main Street Station CO Breckenridge, CO 30.0% 82(6) 82 Main Street Station Vacation Club TS Breckenridge, CO 30.0% 42 42 Riverbend SF Charlotte, NC 60.0% 650 161 Three Peaks (Eagle's Nest) SF Silverthorne, CO 30.0% 391(6) 253 Park Place at Riverfront CO Denver, CO 64.0% 70(6) 70 Park Tower at Riverfront CO Denver, CO 64.0% 61(6) 61 Promenade Lofts at Riverfront CO Denver, CO 64.0% 66(6) 66 Cresta TH/SFH Edwards, CO 60.0% 25 19 Snow Cloud CO Avon, CO 64.0% 54(6) 26 One Vendue Range CO Charleston, SC 62.0% 49(6) -- Tahoe Mountain Resorts TH/SF/CO/TS Tahoe, CA --(7) --(7) ------- -------- TOTAL CRESCENT RESORT DEVELOPMENT , INC. 2,679 1,274 ------- -------- Mira Vista Mira Vista SF Fort Worth, TX 100.0% 740 740 Development The Highlands SF Breckenridge, CO 12.3% 750 480 ------- -------- Corp. TOTAL MIRA VISTA DEVELOPMENT CORP. 1,490 1,220 ------- -------- Houston Area Falcon Point SF Houston, TX 100.0% 510 364 Development Falcon Landing SF Houston, TX 100.0% 623 566 Corp. Spring Lakes SF Houston, TX 100.0% 520 266 ------- -------- TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,653 1,196 ------- -------- TOTAL 46,041 32,055 ======= ======== TOTAL AVERAGE RESIDENTIAL LOTS/UNITS CLOSED RANGE OF RESIDENTIAL DEVELOPMENT CLOSED SALE PRICE PROPOSED DEVELOPMENT PROPERTIES SINCE PER LOT/ SALE PRICES CORPORATION(1) (RDP) INCEPTION UNIT($)(3) PER LOT/UNIT($)(4) -------------- ----------- ---------- ---------- ------------------------ Desert Mountain Desert Mountain 2,195 515,000 400,000 - 3,050,000(5) -------- Development Corporation The Woodlands The Woodlands 24,472 57,000 16,000 - 1,035,000 ------- Land Company, Inc. Crescent Bear Paw Lodge 51 1,455,000 665,000 - 2,025,000 Resort Eagle Ranch 347 106,000 80,000 - 150,000 Development, Main Street Inc. Junction 26 473,000 300,000 - 580,000 Main Street Station 8 801,000 215,000 - 1,065,000 Main Street Station Vacation Club 11 1,028,000 380,000 - 4,600,000 Riverbend 161 30,000 25,000 - 38,000 Three Peaks (Eagle's Nest) 176 253,000 135,000 - 425,000 Park Place at Riverfront 53 372,000 195,000 - 1,445,000 Park Tower at Riverfront -- N/A 180,000 - 2,100,000 Promenade Lofts at Riverfront -- N/A 180,000 - 2,100,000 Cresta 15 1,847,000 1,900,000 - 2,600,000 Snow Cloud 21 1,760,000 840,000 - 4,545,000 One Vendue Range -- N/A 450,000 - 3,100,000 Tahoe Mountain Resorts --(7) N/A N/A N/A -------- TOTAL CRESCENT RESORT DEVELOPMENT , INC. 869 -------- Mira Vista Mira Vista 693 100,000 50,000 - 265,000 Development The Highlands 433 192,000 55,000 - 625,000 -------- Corp. TOTAL MIRA VISTA DEVELOPMENT CORP. 1,126 -------- Houston Area Falcon Point 304 42,000 28,000 - 56,000 Development Falcon Landing 488 20,000 19,000 - 26,000 Corp. Spring Lakes 261 30,000 24,000 - 44,000 -------- TOTAL HOUSTON AREA DEVELOPMENT CORP. 1,053 -------- TOTAL 29,715 ========
- ---------- (1) As of December 31, 2001, the Company had an approximately 95%, 95%, 90%, 94% and 94%, ownership interest in Desert Mountain Development Corporation, The Woodlands Land Company, Inc., Crescent Resort Development, Inc., Mira Vista Development Corp., and Houston Area Development Corp., respectively, through ownership of non-voting common stock in each of these Residential Development Corporations. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's ownership interests, representing substantially all of the voting stock, in Desert Mountain Development Corporation, The Woodlands Land Company, Inc. and Crescent Resort Development, Inc. (2) SF (Single-Family Lots); CO (Condominium); TH (Townhome); SFH (Single Family Homes) and TS (Timeshare Equivalent Units). (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 as of December 31, 2001, is $225,000. (6) As of December 31, 2001, one unit was under contract at Bear Paw Lodge representing $1.6 million in sales; two lots were under contract at Eagle Ranch representing $0.3 million in sales; one unit was under contract at Main Street Junction representing $0.4 million in sales; 73 units were under contract at Main Street Station representing $34.2 million in sales; two lots were under contract at Three Peaks representing $0.6 million in sales; 10 units were under contract at Park Place at Riverfront representing $6.8 million in sales; 43 units were under contract at Park Tower at Riverfront representing $27.6 million in sales; 52 units were under contract at the Promenade Lofts at Riverfront representing $20.9 million in sales; 20 units were under contract at Snow Cloud representing $33.7 million in sales and 41 units were under contract at One Vendue Range representing $47.9 million in sales. (7) This project is in the early stages of development, and this information is not available as of December 31, 2001. 24 TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES The following table shows the number and aggregate size of Temperature-Controlled Logistics Properties by state as of December 31, 2001:
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) ----- ------------- ------------- ------------- ----- ------------- ------------- ------------- Alabama 4 10.7 0.3 Missouri(2) 2 46.8 2.8 Arizona 1 2.9 0.1 Nebraska 2 4.4 0.2 Arkansas 6 33.1 1.0 New York 1 11.8 0.4 California 9 28.6 1.1 North Carolina 3 10.0 0.4 Colorado 1 2.8 0.1 Ohio 1 5.5 0.2 Florida 5 7.5 0.3 Oklahoma 2 2.1 0.1 Georgia 8 49.5 1.7 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 5 10.5 0.5 Washington 6 28.7 1.1 Mississippi 1 4.7 0.2 Wisconsin 3 17.4 0.6 ----------- ------------ -------- TOTAL 89(3) 445.2(3) 17.7(3) ========== ============ ========
- ---------- (1) As of December 31, 2001, the Company held a 40% interest in the Temperature-Controlled Logistics Partnership, which owns the Temperature-Controlled Logistics Corporation, which directly or indirectly owns the 89 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 Corporation is entitled to receive lease payments from AmeriCold Logistics. (2) Includes an underground storage facility, with approximately 33.1 million cubic feet. (3) As of December 31, 2001, AmeriCold Logistics operated 100 temperature-controlled logistics properties with an aggregate of approximately 524.6 million cubic feet (20.2 million square feet) of warehouse space. 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, 2001. 25 ] 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 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.
PRICE ----------------------- HIGH LOW DISTRIBUTIONS --------- --------- ------------- 2000 First Quarter $ 19.75 $ 15.75 $ 0.550 Second Quarter 22.19 16.94 0.550 Third Quarter 23.19 20.69 0.550 Fourth Quarter 23.44 19.50 0.550 2001 First Quarter $ 23.56 $ 20.90 $ 0.550 Second Quarter 25.24 22.26 0.550 Third Quarter 25.09 18.75 0.375(1) Fourth Quarter 21.58 16.30 0.375(1)
- ---------- (1) On October 17, 2001, the Company announced that the quarterly distribution was being reduced from $0.55 per common share, or an annualized distribution of $2.20 per common share, to $0.375 per common share, or an annualized distribution of $1.50 per common share. As of March 11, 2002, there were approximately 1,040 holders of record of the Company's 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 general condition of the United States economy; 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 are located; o consumer preferences relating to the Resort/Hotel Properties; o cash flows from unconsolidated entities; o federal, state and local taxes payable by the Company; o capital expenditure requirements; and o the adequacy of cash reserves. On October 17, 2001, the Company announced that due to its revised cash flow expectations in the uncertain economic environment and measuring its payout ratios to those of the Company's peer group, the Company was reducing its quarterly distribution from $0.55 per common share, or an annualized distribution of $2.20 per common share, to $0.375 per common share, or an annualized distribution of $1.50 per common share. Future distributions by the Company will be at the discretion of the Board of Trust Managers. The Board of Trust Managers has indicated that it will review the adequacy of the Company's distribution rate on a quarterly basis. Under the Code, REITs are subject to numerous organizational and operational requirements, including the requirement to distribute at least 90% of REIT taxable income each year. Pursuant to this requirement, the Company was required to distribute $111.7 million and $166.1 million for 2001 and 2000, respectively. Actual distributions by the Company were $245.1 million and $281.2 million for 2001 and 2000, respectively. The Company reported FFO of $177.1 million and $326.9 million for the years ended December 31, 2001 and 2000, respectively. Excluding the impairment and other charges 26 related to COPI of $92.8 million, the Company would have reported FFO of $269.9 million for the year ended December 31, 2001. Distributions by the Company to the extent of its current and accumulated earnings and profits for federal income tax purposes generally will be taxable to a shareholder as ordinary dividend income. Distributions in excess of current and accumulated earnings and profits will be treated as a nontaxable reduction of the shareholder's basis in such shareholder's shares, to the extent thereof, and thereafter as taxable gain. Distributions that are treated as a reduction of the shareholder's basis in its shares will have the effect of deferring taxation until the sale of the shareholder's shares. No assurances can be given regarding what portion, if any, of distributions in 2002 or subsequent years will constitute a return of capital for federal income tax purposes. Distributions on the Company's common shares are payable at the rate of $1.50 per annum per common share. Following is the income tax status of distributions paid during the years ended December 31, 2001 and 2000 to common shareholders:
2001 2000 ------ ------ Ordinary dividend 50.3% 51.5% Capital gain -- 6.4 Return of capital 49.7 35.9 Unrecaptured Section 1250 Gain -- 6.2
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 $1.6875 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, 2001 and 2000 to preferred shareholders:
2001 2000 ------ ------ Ordinary dividend 100.0% 83.7% Capital gain -- 8.2 Unrecaptured Section 1250 Gain -- 8.1
ISSUANCES OF UNREGISTERED SECURITIES During the quarter ended December 31, 2001, Crescent Equities issued an aggregate of 15,556 common shares to holders of Operating Partnership units in exchange for 7,778 units. The issuances of the common shares were exempt from registration as private placements under Section 4(2) of the Securities Act. Crescent Equities has registered the resale of such common shares under the Securities Act. 27 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)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 ------------- ------------- ------------- ------------- ------------- OPERATING DATA: Total revenue .......................... $ 696,054 $ 718,405 $ 746,279 $ 698,343 $ 447,373 Operating (loss) income ................ (28,084) 98,409 (54,954) 143,893 111,281 Income before minority interests and extraordinary item ................................ 27,572 303,052 13,343 183,210 135,024 Basic earnings per common share: (Loss) income before extraordinary item ................................ $ (0.07) $ 2.08 $ (0.06) $ 1.26 $ 1.25 Net (loss) income ..................... (0.17) 2.05 (0.06) 1.26 1.25 Diluted earnings per common share: (Loss) income before extraordinary item ................................ $ (0.07) $ 2.05 $ (0.06) $ 1.21 $ 1.20 Net (loss) income ..................... (0.17) 2.02 (0.06) 1.21 1.20 BALANCE SHEET DATA (AT PERIOD END): Total assets ........................... $ 4,142,149 $ 4,543,318 $ 4,950,561 $ 5,043,447 $ 4,179,980 Total debt ............................. 2,214,094 2,271,895 2,598,929 2,318,156 1,710,125 Total shareholders' equity ............. 1,405,940 1,731,327 2,056,774 2,422,545 2,197,317 OTHER DATA: Funds from Operations(1) ............... $ 177,117 $ 326,897 $ 340,777 $ 341,713 $ 214,396 Earnings before interest, taxes, depreciation and amortization(2) .... $ 459,155 $ 520,002 $ 526,154 $ 459,992 $ 299,390 Cash distribution declared per common share .......................... $ 1.85 $ 2.20 $ 2.20 $ 1.86 $ 1.37 Weighted average common shares and units outstanding -- basic .................. 121,017,605 127,535,069 135,954,043 132,429,405 106,835,579 Weighted average common shares and units outstanding -- diluted ................ 122,544,421 128,731,883 137,891,561 140,388,063 110,973,459 Cash flow provided by (used in): Operating activities .................. $ 320,753 $ 275,715 $ 336,060 $ 299,497 $ 211,714 Investing activities .................. 102,054 428,306 (205,811) (820,507) (2,294,428) Financing activities .................. (425,488) (737,981) (167,615) 564,680 2,123,744
- --------- (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"), effective January 1, 2000, and as used herein, means net income (loss) (determined in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, excluding extraordinary items (as defined by GAAP), 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." (2) Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA"), is computed as the sum of (i) net income before minority interests and extraordinary item, interest expense, depreciation and amortization, amortization of deferred financing costs, impairment and other charges related to COPI (ii) less gain on property sales, net. EBITDA is presented because it provides useful information regarding the Company's ability to service debt. EBITDA should not be considered as an alternative measure of operating results or cash flow from operations as determined in accordance with GAAP. EBITDA as presented may not be comparable to other similarly titled measures used by other companies. 28 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 described in the forward-looking statements. The following factors might cause such a difference: o The Company's inability to obtain the confirmation of a prepackaged bankruptcy plan of COPI binding all creditors and COPI stockholders; o The inability of the Company to successfully integrate the lessee interests in the Resort/Hotel Properties and the voting interests in the Residential Development Corporations and related entities into its current business and operations; o The inability of the Company to complete the distribution to its shareholders of the shares of a new entity to purchase COPI's interest in AmeriCold Logistics; o Further deterioration in the resort/business-class hotel markets or in the market for residential land or luxury residences, including single-family homes, townhomes and condominiums, or in the economy generally; o The Company's ability, at its Office Properties, to timely lease unoccupied square footage and timely re-lease occupied square footage upon expiration on favorable terms, which may be adversely affected by changes in real estate conditions (including rental rates and competition from other properties and new development of competing properties or a general downturn in the economy); o Financing risks, such as the ability to generate revenue sufficient to service and repay existing or additional debt, the ability to meet applicable debt covenants, the Company's ability to fund the share repurchase program, increases in debt service associated with increased debt and with variable-rate debt, and the ability to consummate financings and refinancings on favorable terms and within any applicable time frames; o Further adverse conditions in the temperature-controlled logistics business (including both industry-specific conditions and a general downturn in the economy) which may further jeopardize the ability of AmeriCold Logistics to pay rent; o Adverse changes in the financial condition of existing tenants; o The concentration of a significant percentage of the Company's assets in Texas; o The Company's ability to find acquisition and development opportunities which meet the Company's investment strategy; 29 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; 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. The following sections include information for each of the Company's investment segments for the year ended December 31, 2001. The economic slowdown in the third quarter of 2001, combined with the events of the September 11, 2001 have had an adverse impact on Resort/Hotel operations and lot sales primarily at the Desert Mountain Residential Development Property. However, the Office Property portfolio, which represents approximately 66% of total assets, continues to be stable with same-store weighted average occupancy in excess of 92% and average remaining lease term of approximately five years at December 31, 2001. Although management does not expect full recovery of these investment segments in the near-term, the Company remains committed to its fundamental investment segments. OFFICE SEGMENT As of December 31, 2001, the Company owned or had an interest in 74 Office Properties. The following table shows the same-store net operating income growth for the approximately 25.4 million square feet of Office Property space owned as of December 31, 2001, which excludes approximately 1.5 million square feet of Office Property space at Bank One Center, in which the Company owns a 50% equity interest, approximately 1.0 million square feet of Office Property space at Four Westlake Park and Bank One Tower, in each of which the Company has a 20% equity interest, and 0.1 million square feet of Office Property space at Avallon IV, which was completed during the year ended December 31, 2001.
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------- PERCENTAGE/ 2001 2000 POINT INCREASE -------- -------- -------------- (IN MILLIONS) Same-store Revenues $ 552.5 $ 519.9 6.3% Same-store Expenses (250.1) (229.3) 9.1% ------- ------- Net Operating Income $ 302.4 $ 290.6 4.1% ======= ======= Weighted Average Occupancy 92.3% 91.8% 0.5 pt
The following table shows renewed or re-leased leasing activity and the percentage increase of leasing rates for signed leases compared to expiring leases at the Company's Office Properties owned as of December 31, 2001.
FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------ SIGNED EXPIRING PERCENTAGE LEASES LEASES INCREASE ------------------ ------------------ ---------- Renewed or re-leased (1) 1,890,000 sq. ft. N/A N/A Weighted average full- service rental rate (2) $23.67 per sq. ft. $20.21 per sq. ft. 17% FFO annual net effective rental rate (3) $14.70 per sq. ft. $11.21 per sq. ft. 31%
- ---------- (1) All of which have commenced or will commence during the next 12 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. 30 o For 2002, the Company projects same-store net operating income for its Office Properties to increase between 0% and 4% over 2001, based on an average occupancy range of 90% to 93%. RESORT/HOTEL SEGMENT As of December 31, 2001, the Company owned nine Resort/Hotel Properties. The following table shows weighted average occupancy, average daily rate and revenue per available room/guest for the Resort/Hotel Properties for the years ended December 31, 2001 and 2000.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------- PERCENTAGE/ POINT INCREASE 2001 2000 (DECREASE) ------ ------ -------------- Weighted average occupancy(1) 70% 76% (6)pts Average daily rate(1) $245 $238 3% Revenue per available room/guest(1) $170 $180 (6)%
- --------- (1) Excludes the Four Seasons Hotel -- Houston, which was sold on November 3, 2000. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI. As a result, the subsidiaries of the Company became the lessees of these Resort/Hotel Properties. The Company will fully consolidate the operations of the eight Resort/Hotel Properties beginning on the date of the asset transfers. See "Note 20. Subsequent Events" included in "Item 8. Financial Statements and Supplemental Data" for additional information regarding the Company's agreement with COPI. The following table shows the Resort/Hotel Property same-store net operating income for the years ended December 31, 2001 and 2000, for the nine Resort/Hotel Properties owned during both of these periods.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- PERCENTAGE 2001 2000 DECREASE ------- ------- ---------- (IN THOUSANDS) Upscale Business-Class Hotels(1) $20,165 $22,157 (9)% Luxury and Destination Fitness Resorts and Spas 29,451 36,837 (20) ------- ------- --------- All Resort/Hotel Properties(1) $49,616 $58,994 (16)% ======= ======= =========
- --------- (1) Excludes the Four Seasons Hotel -- Houston, which was sold on November 3, 2000. o For 2002, the Company projects same-store net operating income will increase between 0% and 3% over 2001. Also, the average daily rate is expected to increase between 0% and 2% over 2001, and revenue per available room is expected to increase between 0% and 3% over 2001. CR License, LLC and CRL Investments, Inc. As of December 31, 2001, the Company had a 28.5% interest in CR License, LLC, the entity which owns the right to the future use of the "Canyon Ranch" name. The Company also had a 95% economic interest, representing all of the 31 non-voting common stock, in CRL Investments, Inc., which has an approximately 65% economic interest in the Canyon Ranch Spa Club in the Venetian Hotel in Las Vegas, Nevada. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's 1.5% interest in CR License, LLC and 5.0% interest, representing all of the voting stock, in CRL Investments, Inc. RESIDENTIAL DEVELOPMENT SEGMENT As of December 31, 2001, the Company owned 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 21 Residential Development Properties. The Residential Development Corporations are responsible for the continued development and the day-to-day operations of the Residential Development Properties. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's voting interests in three of the Residential Development Corporations (The Woodlands Land Company, Inc., Desert Mountain Development Corporation and Crescent Resort Development, Inc.) The Company will fully consolidate the operations of the three Residential Development Corporations beginning on the date of the asset transfers. Management plans to monetize the Company's current investments in the five Residential Development Corporations and reinvest returned capital from the Residential Development Segment primarily into the Office Segment where the Company expects to achieve comparable rates of return. The Woodlands Land Development Company, L.P. and The Woodlands Commercial Properties Company, L.P. (collectively "The Woodlands"), The Woodlands, Texas: The following table shows residential lot sales at an average price per lot and commercial land sales at an average price per acre.
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- (dollars in thousands) 2001 2000 --------------- -------------- Residential lot sales 1,718 2,033 Average sales price per lot $ 72,000 $ 62,000 Commercial land sales 94 acres 124 acres Average sales price per acre $337,000 $308,000
o Average sales price per lot increased by $10,000, or 16%, due to a product mix of higher priced lots from the Carlton Woods development in the year ended December 31, 2001, compared to the same period in 2000. o Carlton Woods is The Woodlands' new upscale residential development. It is a gated community consisting of 491 lots located around a Jack Nicklaus signature golf course. As of December 31, 2001, 213 lots have been sold at prices ranging from $0.1 million to $1.0 million per lot, or an average price of $343,000 per lot. Additional phases within Carlton Woods are expected to be marketed to the public over the next two years. o Future buildout of The Woodlands is estimated at approximately 13,100 residential lots and approximately 1,700 acres of commercial land, of which approximately 1,555 residential lots and 1,075 acres are currently in inventory. o The Company projects residential lot sales at The Woodlands to range between 1,550 lots and 1,800 lots at an average sales price per lot ranging between $70,000 and $80,000 for 2002. 32 Desert Mountain Properties Limited Partnership ("Desert Mountain"), Scottsdale, Arizona: The following table shows residential lot sales at an average price per lot.
FOR THE YEAR ENDED DECEMBER 31, --------------------- (dollars in thousands) 2001 2000 -------- -------- Residential lot sales 86 178 Average sales price per lot(1) $688,000 $619,000
- --------- (1) Including equity golf memberships. o With the higher priced residential lots being completed during the latter phases of development at Desert Mountain, the average sales price per lot increased by $69,000, or 11%, for the year ended December 31, 2001, as compared to the same period in 2000. As a result of product mix and a decline in the economy combined with the events of September 11, 2001, the number of lot sales decreased to 86 lots for the year ended December 31, 2001, as compared to 178 lots for the same period in 2000. o Approved future buildout is estimated to be approximately 300 residential lots, of which approximately 140 are currently in inventory. o As a result of product mix and a decline in the economy, the Company projects residential lot sales in 2002 to range between 50 lots and 75 lots at an average sales price per lot ranging between $700,000 and $800,000. Crescent Resort Development, Inc. ("CRD"), (formerly Crescent Development Management Corp.), Beaver Creek, Colorado: The following table shows total active projects, residential lot and residential unit sales, commercial land sales and average sales price per lot and unit.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 2001 2000 --------------- --------------- Active projects 14 12 Residential lot sales 181 343 Residential unit sales: Townhome sales 11 19 Single-family home sales -- 5 Equivalent timeshare unit sales 11 -- Condominium sales 109 26 Commercial land sales -- acres 9 acres Average sale price per residential lot $73,000 $136,000 Average sale price per residential unit $1.0 million $1.6 million
o Average sales price per lot decreased by $63,000, or 46%, and average sales price per unit decreased $0.6 million, or 38%, due to lower priced product mix sold in the year ended December 31, 2001, as compared to the same period in 2000. o For 2002, the Company projects that residential lot sales will range between 325 lots and 375 lots at an average sales price per lot ranging between $110,000 and $130,000. In addition, the Company expects between 280 and 310 residential unit sales, including single family homes, townhomes and condominiums to be sold at an average sales price per residential unit ranging between $750,000 and $850,000. TEMPERATURE-CONTROLLED LOGISTICS SEGMENT As of December 31, 2001, the Company held a 40% interest in the Temperature-Controlled Logistics Partnership, which owns the Temperature-Controlled Logistics Corporation, which directly or indirectly owns the 33 89 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 COPI. The Company has no interest in AmeriCold Logistics. AmeriCold Logistics, as sole lessee of the Temperature-Controlled Logistics Properties, leases the Temperature-Controlled Logistics Properties from the Temperature-Controlled Logistics Corporation under three triple-net master leases, as amended on January 23, 2002. On February 22, 2001, the Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to restructure certain financial terms of the leases, including the adjustment of the rental obligation for 2001 to $146.0 million, the adjustment of the rental obligation for 2002 to $150.0 million (plus contingent rent in certain circumstances), the increase of the Temperature-Controlled Logistics Corporation's share of capital expenditures for the maintenance of the properties from $5.0 million to $9.5 million (effective January 1, 2000) and the extension of the date on which deferred rent was required to be paid to December 31, 2003. AmeriCold Logistics' same-store earnings before interest, taxes, depreciation and amortization, and rent ("EBITDAR") declined 11% for the year ended December 31, 2001, compared to the same period in 2000. These declines are attributable to a reduction in total customer inventory stored at the warehouses and a reduction in the frequency of customer inventory turnover. AmeriCold Logistics deferred $25.5 million of rent for the year ended December 31, 2001, of which the Company's share was $10.2 million. AmeriCold Logistics also deferred $19.0 million and $5.4 million of rent for the years ended December 31, 2000 and 1999, respectively, of which the Company's share was $7.5 million and $2.1 million, respectively. In December 2001, the Temperature-Controlled Logistics Corporation waived its rights to collect deferred rent of $39.8 million of the total 49.9 million of deferred rent, of which the Company's share was $15.9 million. The Temperature-Controlled Logistics Corporation and the Company had recorded adequate valuation allowances related to their portions of the waived deferred rental revenue during the years ended December 31, 2000 and 2001; therefore, there was no financial statement impact to the Temperature-Controlled Logistics Corporation or to the Company related to the Temperature-Controlled Logistics Corporation's decision to waive collection of deferred rent. Management believes that EBITDAR is a useful financial performance measure for assessing the relative stability of the financial condition of AmeriCold Logistics. The following table shows EBITDAR and lease payment for AmeriCold Logistics for the year ended December 31, 2001 and 2000.
FOR THE YEAR ENDED DECEMBER 31, ------------------- (in millions) 2001 2000 ------ ------ EBITDAR(1) $135.8 $162.1 Lease Payment(2) $146.0 $160.5
- --------- (1) EBITDAR does not represent net income or cash flows from operating, financing or investing activities as defined by GAAP. (2) Represents the rental obligation (excluding the effect of straight-lining rents and deferred rent) of AmeriCold Logistics. o During 2001, the Temperature-Controlled Logistics Corporation completed the acquisition of one facility in the first quarter of 2001 for $10.0 million and completed the construction of one facility in the third quarter of 2001 for $15.8 million, representing approximately 8.5 million cubic feet (0.2 million square feet.) 34 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, 2001, 2000 and 1999 and the variance in dollars between the years ended December 31, 2001 and 2000 and the years ended December 31, 2000 and 1999. See "Note 3. Segment Reporting" included in "Item 8. Financial Statements and Supplementary Data" for financial information about investment segments.
FINANCIAL DATA AS A PERCENTAGE OF TOTAL TOTAL VARIANCE IN DOLLARS BETWEEN REVENUES FOR THE YEAR ENDED DECEMBER 31, THE YEARS ENDED DECEMBER 31, ---------------------------------------- --------------------------------- (IN MILLIONS) 2001 2000 1999 2001 AND 2000 2000 AND 1999 -------- -------- -------- ------------- ------------- REVENUES Office properties 87.7% 84.4% 82.3% $ 4.1 $ (8.5) Resort/Hotel properties 6.6 10.0 8.8 (26.4) 6.9 Interest and other income 5.7 5.6 8.9 (0.1) (26.3) -------- -------- -------- -------- -------- TOTAL REVENUES 100.0% 100.0% 100.0% $ (22.4) $ (27.9) -------- -------- -------- -------- -------- EXPENSES Operating expenses 38.0% 34.8% 34.4% $ 13.9 $ (7.1) Corporate general and administrative 3.5 3.4 2.2 0.1 7.8 Interest expense 26.2 28.3 25.7 (20.8) 11.2 Amortization of deferred financing costs 1.3 1.1 1.4 (0.2) (0.7) Depreciation and amortization 18.1 17.2 17.6 2.4 (7.9) Settlement of merger dispute -- -- 2.0 -- (15.0) Impairment and other charges related to real estate assets 3.6 1.3 24.0 16.0 (169.5) Impairment and other charges related to COPI 13.3 -- -- 92.8 -- -------- -------- -------- -------- -------- TOTAL EXPENSES 104.0% 86.1% 107.3% 104.2 (181.2) -------- -------- -------- -------- -------- OPERATING (LOSS) INCOME (4.0)% 13.9% (7.3)% $ (126.6) $ 153.3 OTHER INCOME Equity in net income of unconsolidated companies: Office properties 0.9 0.4 0.7 2.9 (2.1) Residential development properties 5.9 7.4 5.7 (12.5) 10.6 Temperature-controlled logistics properties 0.2 1.0 2.0 (6.3) (7.6) Other 0.4 1.6 0.7 (8.6) 6.5 -------- -------- -------- -------- -------- TOTAL EQUITY IN NET INCOME FROM UNCONSOLIDATED COMPANIES 7.4% 10.4% 9.1% $ (24.5) $ 7.4 Gain on property sales, net 0.6 17.9 -- (124.5) 128.9 -------- -------- -------- -------- -------- TOTAL OTHER INCOME AND EXPENSE 8.0% 28.3% 9.1% $ (149.0) $ 136.3 -------- -------- -------- -------- -------- (LOSS) INCOME BEFORE MINORITY INTERESTS AND EXTRAORDINARY ITEM 4.0% 42.2% 1.8% $ (275.6) $ 289.6 Minority interests (3.1) (7.1) (0.3) 29.6 (48.6) -------- -------- -------- -------- -------- NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM 0.9% 35.1% 1.5% $ (246.0) $ 241.0 Extraordinary item - extinguishment of debt (1.6) (0.5) -- (6.9) (3.9) -------- -------- -------- -------- -------- NET (LOSS) INCOME (0.7)% 34.6% 1.5% $ (252.9) $ 237.1 6 3/4% Series A Preferred Share distributions (1.9) (1.9) (1.8) -- -- Share repurchase agreement return -- (0.4) (0.1) 2.9 (2.3) Forward share purchase agreement return -- -- (0.6) -- 4.3 -------- -------- -------- -------- -------- NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS (2.6)% 32.3% (1.0)% $ (250.0) $ 239.1 ======== ======== ======== ======== ========
35 COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31, 2000 REVENUES Total revenues decreased $22.4 million, or 3.1%, to $696.0 million for the year ended December 31, 2001, as compared to $718.4 million for the year ended December 31, 2000. The primary components of the decrease in total revenues are discussed below. The increase in Office Property revenues of $4.1 million, or 0.7%, for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is attributable to: o increased revenues of $31.3 million from the 74 consolidated Office Properties that the Company owned or had an interest in as of December 31, 2001, primarily as a result of increased full-service weighted average rental rates (reflecting increases in both rental revenue and operating expense recoveries), and increased occupancy; o increased other income of $4.1 million, primarily due to parking revenue; partially offset by o decreased revenues of $27.3 million due to the disposition of 11 Office Properties and four retail properties during 2000, compared to the disposition of five Office Properties and the joint ventures of two Office Properties during 2001; and o decreased lease termination fees (net of the write-off of deferred rent receivables) of $4.0 million, from $12.0 million for the year ended December 31, 2000, to $8.0 million for the year ended December 31, 2001. The decrease in Resort/Hotel Property revenues of $26.4 million, or 36.6%, for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is attributable to: o decreased revenues from the upscale business-class hotels of $8.1 million, due to the disposition of the Four Seasons Hotel -- Houston in November 2000; o decreased revenues of $6.3 million due to a decrease in rental income attributed to the softening of the economy and the events of September 11, 2001; and o decreased revenues of $12.0 million due to not recognizing revenue during the fourth quarter of 2001 under the leases with COPI. EXPENSES Total expenses increased $104.2 million, or 16.8%, to $724.2 million for the year ended December 31, 2001, as compared to $620.0 million for the year ended December 31, 2000. The primary components of the increase in total expenses are discussed below. The increase in Office Property operating expenses of $13.9 million, or 0.6%, for the year ended December 31, 2001, as compared to the year ended December 31, 2000, is attributable to: o increased expenses of $24.7 million from the 74 consolidated Office Properties that the Company owned or had an interest in as of December 31, 2001, primarily as a result of increased operating expenses for utilities of $7.8 million, taxes of $3.6 million and other increased operating expenses such as insurance, security, and technology initiatives of $13.3 million during the year ended December 31, 2001, as compared to the same period in 2000; partially offset by o decreased expenses of $10.8 million due to the disposition of 11 Office Properties and four retail properties during 2000, compared to the disposition of five Office Properties and the joint ventures of two Office Properties during 2001. 36 The decrease in interest expense of $20.8 million, or 10.2%, for the year ended December 31, 2001, as compared to the same period in 2000, is primarily attributable to a decrease in the weighted average interest rate of 0.61%, or $14.0 million of interest expense, combined with a decrease in the average debt balance of $104.0 million, or $8.0 million of interest expense. The increase in impairment and other charges related to real estate assets of $16.0 million is due to: o the conversion of the Company's preferred member interest in Metropolitan Partners, LLC ("Metropolitan") into common stock of Reckson Associates Realty Corp. ("Reckson"), which resulted in an impairment charge of $11.9 million; and o an impairment loss of $5.0 million recognized on a real estate investment fund, in which the Company has an interest; partially offset by o a decrease in the impairment of the behavioral healthcare properties of $0.9 million. The increase in impairment and other charges related to COPI of $92.8 million is due to the reduction in net assets of $74.8 million, primarily attributable to the write-down of debt and rental obligations of COPI to the estimated underlying collateral value of assets to be received from COPI, and estimated COPI bankruptcy costs to be funded by the Company of $18.0 million. OTHER INCOME Other income decreased $149.0 million, or 72.8%, to $55.7 million for the year ended December 31, 2001, as compared to $204.6 million for the year ended December 31, 2000. This decrease is due to: The decrease in equity in net income of unconsolidated companies of $24.5 million, or 32.4%, for the year ended December 31, 2001, as compared to the same period in 2000, is primarily attributable to: o a decrease in equity in net income of unconsolidated Residential Development Properties of $12.5 million, or 24%, primarily attributable to lower lot sales at Desert Mountain during the year ended December 31, 2001, resulting in a decrease of $16.3 million; partially offset by higher unit sales at CRD, resulting in an increase of $4.5 million; and o a decrease in equity in net income of the Temperature-Controlled Logistics Properties of $6.3 million, or 85%, due to the lease restructuring in 2001 and an increase in deferred rent of $9.2 million; and o a decrease in equity in net income of other unconsolidated Properties of $8.6 million, or 75.0%, primarily attributable to lower earnings of $3.8 million from Metropolitan due to the conversion of the Company's preferred member interest into common stock of Reckson in May 2001, the $1.0 million write-off of the Company's investment in a retail distribution company and lower earnings from DBL Holdings, Inc. ("DBL") of $1.7 million, due to an approximate $12.2 million return of investment received in March 2001; partially offset by o an increase in equity in net income of the unconsolidated Office Properties of $2.9 million, or 94.0%, primarily attributable to lower interest expense at one unconsolidated office property. The net decrease in gain on property sales of $124.5 million for the year ended December 31, 2001, as compared to the same period in 2000, is attributable to a decrease in net gains recognized primarily on Office, Resort/Hotel and behavioral healthcare property sales for the year ended December 31, 2001, as compared with the same period in 2000. EXTRAORDINARY ITEMS The increase in extraordinary items of $6.9 million, or 176.9%, is attributable to the write-off of deferred financing costs related to the early extinguishment of the UBS Facility in May 2001 of $10.8 million, compared with the write-off of deferred financing costs related to the early extinguishment of the BankBoston Facility in February 2000 of $3.9 million. 37 COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31, 1999 REVENUES Total revenues decreased $27.9 million, or 3.7%, to $718.4 million for the year ended December 31, 2000, as compared to $746.3 million for the year ended December 31, 1999. The decrease in Office Property revenues of $8.5 million, or 1.4%, for the year ended December 31, 2000, as compared to the same period in 1999, is attributable to: o decreased revenues of $38.0 million due to the disposition of 11 Office Properties and four retail properties during 2000, which contributed revenues during the full year of 1999, as compared to a partial year in 2000; partially offset by o increased revenues of $24.4 million from the 78 Office Properties owned as of December 31, 2000, primarily as a result of increased weighted average full-service rental rates at these Properties; and o increased revenues of $5.1 million from lease termination fees. The increase in Resort/Hotel Property revenues of $6.9 million, or 10.6%, for the year ended December 31, 2000, as compared to the same period in 1999, is attributable to: o increased revenues of $3.1 million at the luxury resorts and spas primarily due to an increase in percentage rents resulting from increased room revenue due to the 30-room expansion at the Sonoma Mission Inn & Spa that opened in April 2000; and o increased revenues of $2.6 million at the business class hotels primarily due to (i) the reclassification of the Renaissance Houston Hotel from the Office segment to the Resort/Hotel segment as a result of the restructuring of its lease on July 1, 1999, which resulted in $2.4 million of incremental revenues under the new lease and (ii) increased percentage rents due to higher room and occupancy rates at the Omni Austin Hotel, partially offset by (iii) decreased revenues of $1.2 million due to the disposition of one Resort/Hotel Property during the fourth quarter of 2000, which contributed revenues during the full year of 1999, as compared to a partial year in 2000; and o increased revenues of $1.2 million at the destination fitness resorts and spas primarily due to an increase in percentage rents at the Canyon Ranch Properties as a result of higher room rates. The decrease in interest and other income of $26.3 million, or 39.4%, for the year ended December 31, 2000, as compared to the same period in 1999, is primarily attributable to the recognition of rent from Charter Behavioral Health Systems, LLC ("CBHS") on a cash basis beginning in the third quarter of 1999, the filing of voluntary bankruptcy petitions by CBHS and its subsidiaries on February 16, 2000, and a rent stipulation agreed to by certain parties to the bankruptcy proceedings, which resulted in a reduction in behavioral healthcare property revenues, which are included in interest and other income, to $15.4 million for the year ended December 31, 2000 as compared to $41.1 million for the same period in 1999. EXPENSES Total expenses decreased $181.2 million, or 22.6%, to $620.0 million for the year ended December 31, 2000, as compared to $801.2 million for the year ended December 31, 1999. The decrease in Office Property operating expenses of $7.1 million, or 2.8%, for the year ended December 31, 2000, as compared to the same period in 1999, is attributable to: o decreased expenses of $17.2 million due to the disposition of 11 Office Properties and four retail properties during 2000, which incurred expenses during the full year of 1999, as compared to a partial year in 2000; partially offset by o increased expenses of $10.1 million from the 78 Office Properties owned as of December 31, 2000, as a result of (i) increased general repair and maintenance expenses at these Properties of $5.6 million and (ii) an increase in real estate taxes of $4.5 million. 38 The increase in corporate general and administrative expense of $7.8 million, or 47.9%, for the year ended December 31, 2000, as compared to the same period in 1999, is primarily attributable to technology initiatives, employee retention programs, incentive compensation, and additional personnel. The increase in interest expense of $11.2 million, or 5.8%, for the year ended December 31, 2000, as compared to the same period in 1999, is primarily attributable to an increase in the weighted-average interest rate from 7.4% in 1999 to 8.4% in 2000, partially offset by a decrease in average debt balance outstanding from $2.6 billion in 1999 to $2.4 billion in 2000. The decrease in depreciation and amortization expense of $7.9 million, or 6.0%, for the year ended December 31, 2000, as compared to the same period in 1999, is primarily attributable to the cessation of the recognition of depreciation expense on Office Properties and behavioral healthcare properties from the dates they were classified as held for disposition. An additional decrease in expenses of $184.5 million is attributable to: o non-recurring costs of $15.0 million in connection with the settlement of litigation relating to the merger agreement entered into in January 1998 between the Company and Station Casinos, Inc. in the first quarter of 1999; and o a decrease of $169.5 million due to the impairment and other charges related to the behavioral healthcare properties in the third quarter of 1999 and the impairment charge in the fourth quarter of 1999 on one of the Office Properties held for disposition as compared to the year ended December 31, 2000. OTHER INCOME Other income increased $136.3 million, or 199.6%, to $204.6 million for the year ended December 31, 2000, as compared to $68.3 million for the year ended December 31, 1999. The components of the increase in other income are discussed below. The increase in equity in unconsolidated companies of $7.4 million, or 10.8%, for the year ended December 31, 2000, as compared to the same period in 1999 is attributable to: o an increase in equity in net income of the Residential Development Corporations of $10.6 million, or 24.7%, attributable to (i) an increase in average sales price per lot and an increase in membership conversion revenue at Desert Mountain, partially offset by a decrease in lot absorption, which resulted in an increase of $6.0 million in equity in net income to the Company; (ii) an increase in residential lot and commercial land sales and an increase in average sales price per lot at The Woodlands Land Development Company, L.P., partially offset by a decrease in average sales price per acre from commercial land sales, which resulted in an increase of $5.9 million in equity in net income to the Company; and (iii) an increase in commercial acreage sales at CRD, partially offset by a decrease in single-family home sales, which resulted in an increase of $0.8 million in equity in net income to the Company; partially offset by (iv) a decrease in commercial land sales at Houston Area Development Corp., which resulted in a decrease of $2.1 million in equity in net income to the Company; o an increase in equity in net income of the other unconsolidated companies of $6.5 million, or 127.5%, primarily as a result of (i) the dividend income attributable to the 7.5% per annum cash flow preference of the Company's $85.0 million preferred member interest in Metropolitan, which the Company purchased in May 1999; and (ii) an increase in the equity in earnings from DBL as a result of its investment in G2 Opportunity Fund, L.P. ("G2"), which was made in the third quarter of 1999; partially offset by o a decrease in equity in net income of the Temperature-Controlled Logistics Partnership of $7.6 million, or 50.7%, resulting primarily from the recognition of a rent receivable valuation allowance for the year ended December 31, 2000 of $6.5 million; and o a decrease in equity in net income of the unconsolidated office properties of $2.1 million, or 39.6%, primarily attributable to an increase in interest expense as a result of additional financing obtained in July 2000 and an increase in the average rate of debt at The Woodlands Commercial Properties Company, L.P. 39 The increase in net gain on property sales of $128.9 million for the year ended December 31, 2000, as compared to the same period in 1999, is attributable to: o a net gain of $137.4 million primarily recognized on Office, Resort/Hotel and behavioral healthcare property sales; partially offset by o an impairment loss of $8.5 million recognized on a real estate investment fund, in which the Company has an interest. 40 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $36.3 million and $39.0 million at December 31, 2001, and December 31, 2000, respectively. This 6.9% decrease is attributable to $425.5 million used in financing activities, partially offset by $210.0 million and $212.8 million provided by investing and operating activities, respectively.
DECEMBER 31, 2001 ------------- (in millions) Cash Provided by Operating Activities $212.8 Cash Provided by Investing Activities 210.0 Cash Used in Financing Activities (425.5) ------ Decrease in Cash and Cash Equivalents $ (2.7) Cash and Cash Equivalents, Beginning of Period 39.0 ------ Cash and Cash Equivalents, End of Period $ 36.3 ======
OPERATING ACTIVITIES The Company's cash provided by operating activities of $212.8 million is attributable to: o $199.4 million from Property operations; and o $13.4 million representing distributions received in excess of equity in earnings from unconsolidated companies. INVESTING ACTIVITIES The Company's cash provided by investing activities of $210.0 million is primarily attributable to: o $200.4 million of net sales proceeds primarily attributable to the disposition of the two Washington Harbour Office Properties, three Woodlands Office Properties and 18 behavioral healthcare properties; o $129.7 million of proceeds from joint venture partners, primarily as a result of the proceeds of $116.7 million from the joint ventures of two existing Office Properties, Bank One Tower in Austin, Texas and Four Westlake Park in Houston, Texas and $12.9 million from the joint venture of 5 Houston Center Office Property, which is currently being developed; o $107.9 million of proceeds from the sale of marketable securities; and o $32.0 million from return of investment in unconsolidated office properties, Residential Development Properties and other unconsolidated companies. The Company's cash provided by investing activities is partially offset by: o $124.6 million of additional investment in unconsolidated companies, consisting of investments in (i) the upscale Residential Development Properties of $89.0 million, primarily as a result of CRD's investment in Tahoe Mountain Resorts, (ii) Temperature-Controlled Logistics Properties of $10.8 million, (iii) Office Properties of $16.4 million and (iv) other unconsolidated companies of $8.4 million; o $51.8 million for recurring and non-recurring tenant improvement and leasing costs for the Office Properties; o $46.4 million for capital expenditures for rental properties, primarily attributable to non-recoverable building improvements for the Office Properties and replacement of furniture, fixtures and equipment for the Resort/Hotel Properties; o $23.7 million for the development of investment properties, including $12.3 million for development of the 5 Houston Center Office Property and expansions and renovations at the Resort/Hotel Properties; 41 o a $11.2 million increase in notes receivable, primarily as a result of approximately $10.0 million related to secured loans to AmeriCold Logistics; and o a $2.2 million increase in restricted cash and cash equivalents, primarily related to the escrow of funds to purchase a parking garage in Denver, Colorado, which was purchased during the first quarter of 2002, partially offset by escrow reimbursements for capital expenditures at the Resort/Hotel Properties and the Office Properties. FINANCING ACTIVITIES The Company's use of cash for financing activities of $425.5 million is primarily attributable to: o net repayment of the UBS Facility of $553.5 million; o distributions to common shareholders and unitholders of $245.1 million; o repayment and retirement of the iStar Financial Note of $97.1 million; o repurchase of the Company's common shares for $77.4 million; o repayment and retirement of the Deutsche Bank Short-term Loan of $75.0 million; o net capital distributions to joint venture partners of $25.4 million, primarily due to distributions to joint venture preferred equity partners; o debt financing costs of $16.0 million; and o distributions to preferred shareholders of $13.5 million. The use of cash for financing activities is partially offset by: o net borrowings under the Fleet Facility of $283.0 million; o proceeds from notes payable of $393.3 million, primarily attributable to the debt refinancing; and o proceeds from the exercise of common share options of $9.8 million. COPI In April 1997, the Company established a new Delaware corporation, COPI. All of the outstanding common stock of COPI, 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. COPI was formed to become a lessee and operator of various assets to be acquired by the Company and to perform the intercompany agreement between COPI and the Company, pursuant to which each agreed to provide the other with rights to participate in certain transactions. In connection with the formation and capitalization of COPI, and the subsequent operations and investments of COPI since 1997, the Company made loans to COPI under a line of credit and various term loans. On January 1, 2001, The REIT Modernization Act became effective. This legislation allows the Company, through its subsidiaries, to operate or lease certain of its investments that had been previously operated or leased by COPI. COPI and the Company entered into an asset and stock purchase agreement on June 28, 2001, in which the Company agreed to acquire the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting interests held by subsidiaries of COPI in three of the Company's Residential Development Corporations and other assets in exchange for $78.4 million. In connection with that agreement, the Company agreed that it would not charge interest on its loans to COPI from May 1, 2001 and that it would allow COPI to defer all principal and interest payments due under the loans until December 31, 2001. Also on June 28, 2001, the Company entered into an agreement to make a $10.0 million investment in Crescent Machinery Company ("Crescent Machinery"), a wholly owned subsidiary of COPI. This investment, together with capital from a third-party investment firm, was expected to put Crescent Machinery on solid financial footing. Following the date of the agreements relating to the acquisition of COPI assets and stock and the investment in Crescent Machinery, the results of operations for the COPI hotel operations and the COPI land development interests 42 declined, due in part to the slowdown in the economy after September 11. In addition, Crescent Machinery's results of operations suffered because of the economic environment and the overall reduction in national construction levels that has affected the equipment rental and sale business, particularly post September 11. As a result, the Company believes that a significant additional investment would have been necessary to adequately capitalize Crescent Machinery and satisfy concerns of Crescent Machinery's lenders. The Company stopped recording rent from the leases of the eight Resort/Hotel Properties leased to subsidiaries of COPI on October 1, 2001, and recorded impairment and other adjustments related to COPI in the fourth quarter of 2001, based on the estimated fair value of the underlying assets. See "Note 16. COPI" included in "Item 8. Financial Statements and Supplementary Data" for a description of these charges. On January 22, 2002, the Company terminated the purchase agreement pursuant to which the Company would have acquired the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting interests held by subsidiaries of COPI in three of the Residential Development Corporations and other assets. On February 4, 2002, the Company terminated the agreement relating to its planned investment in Crescent Machinery. On February 6, 2002, Crescent Machinery filed for protection under the federal bankruptcy laws. On February 12, 2002, the Company delivered default notices to COPI relating to approximately $49.0 million of unpaid rent and approximately $76.2 million of principal and accrued interest due to the Company under certain secured loans. On February 14, 2002, the Company executed an agreement (the "Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI and COPI's voting interests in three of the Company's Residential Development Corporations and other assets and the Company agreed to assist and provide funding to COPI for the implementation of a prepackaged bankruptcy of COPI. In connection with the transfer, COPI's rent obligations to the Company were reduced by $23.6 million, and its debt obligations were reduced by $40.1 million. These amounts include $18.3 million of value attributed to the lessee interests transferred by COPI to the Company, however, in accordance with GAAP, the Company assigned no value to these interests for financial reporting purposes. The Company holds the lessee interests in the eight Resort/Hotel Properties and the voting interests in the three Residential Development Corporations through three newly organized entities that are wholly owned taxable REIT subsidiaries of the Company. The Company will include these assets in its Resort/Hotel Segment and its Residential Development Segment, and will fully consolidate the operations of the eight Resort/Hotel Properties and the three Residential Development Corporations, beginning on the date of the transfers of these assets. Under the Agreement, the Company will provide approximately $14.0 million to COPI in the form of cash and common shares of the Company to fund costs, claims and expenses relating to the bankruptcy and related transactions, and to provide for the distribution of the Company's common shares to the COPI stockholders. The Company estimates that the value of the common shares that will be issued to the COPI stockholders will be between approximately $5.0 million and $8.0 million. The Agreement provides that COPI and the Company will seek to have a plan of reorganization for COPI, reflecting the terms of the Agreement and a draft plan of reorganization, approved by the bankruptcy court. The actual value of the common shares issued to the COPI stockholders will not be determined until the confirmation of COPI's bankruptcy plan and could vary substantially from the estimated amount. In addition, the Company has agreed to use commercially reasonable efforts to assist COPI in arranging COPI's repayment of its $15.0 million obligation to Bank of America, together with any accrued interest. COPI obtained the loan primarily to participate in investments with the Company. At the time COPI obtained the loan, Bank of America required, as a condition to making the loan, that Richard E. Rainwater, the Chairman of the Board, and John C. Goff, the Chief Executive Officer of the Company, enter into a support agreement with COPI and Bank of America, pursuant to which they agreed to make additional equity investments in COPI if COPI defaulted on payment obligations under its line of credit with Bank of America and the net proceeds of an offering of COPI securities were insufficient to allow COPI to pay Bank of America in full. COPI currently is in default under the line of credit. Effective December 31, 2001, the parties executed an amendment to the line of credit providing that any defaults existing under the line of credit on or before March 8, 2002 are temporarily 43 cured unless and until a new default shall occur. The Company believes, based on advice of counsel, that the support agreement should be unenforceable in a COPI bankruptcy. The Company holds a first lien security interest in COPI's entire membership interest in AmeriCold Logistics. REIT rules prohibit the Company from acquiring or owning the membership interest that COPI owns in AmeriCold Logistics. Under the Agreement, the Company agreed to allow COPI to grant Bank of America a first priority security interest in the membership interest and to subordinate its own security interest to Bank of America. In addition, the Company has agreed to form and capitalize a separate entity to be owned by the Company's shareholders, and to cause the new entity to commit to acquire COPI's entire membership interest in the tenant, for approximately $15.5 million. Under the Agreement, COPI has agreed that it will use the proceeds of the sale of the membership interest to repay Bank of America in full. Completion and effectiveness of the plan of reorganization for COPI is contingent upon a number of conditions, including the vote of COPI's stockholders, the approval of the plan by certain of COPI's creditors and the approval of the bankruptcy court. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES Investments in which the Company does not have a controlling interest are accounted for under the equity method. The following is a summary of the Company's ownership in significant unconsolidated companies or equity investments:
COMPANY'S OWNERSHIP Entity CLASSIFICATION AS OF DECEMBER 31, 2001 - --------------------------------------------------- ----------------------------------- ----------------------- Desert Mountain Development Corporation(1) Residential Development Corporation 95.0%(2)(3) The Woodlands Land Company, Inc.(1) Residential Development Corporation 95.0%(2)(4) Crescent Resort Development, Inc.(1) Residential Development Corporation 90.0%(2)(5) Mira Vista Development Corp. Residential Development Corporation 94.0%(2)(6) Houston Area Development Corp. Residential Development Corporation 94.0%(2)(7) Temperature-Controlled Logistics Partnership Temperature-Controlled Logistics 40.0%(8) The Woodlands Commercial Properties Company, L.P. Office 42.5%(9)(10) Main Street Partners, L.P. Office (Bank One Center) 50.0%(11) Crescent 5 Houston Center, L.P. Office (5 Houston Center) 25.0%(12) Austin PT BK One Tower Office Limited Partnership Office (Bank One Tower) 20.0%(13) Houston PT Four Westlake Office Limited Partnership Office (Four Westlake Park) 20.0%(13) DBL Holdings, Inc. Other 97.4%(14) CRL Investments, Inc.(1) Other 95.0%(15) CR License, LLC(1) Other 28.5%(16)
- ---------- (1) On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's interest in these entities. The Company will fully consolidate the operations of these entities, other than CR License, LLC, beginning on the date of the asset transfers. (2) See the Residential Development Properties Table included in "Item 2. Properties" for the Residential Development Corporation's ownership interest in the Residential Development Properties. (3) The remaining 5.0% interest in Desert Mountain Development Corporation, representing 100% of the voting stock, was owned by COPI as of December 31, 2001. (4) The remaining 5.0% interest in The Woodlands Land Company, Inc., representing 100% of the voting stock, was owned by COPI as of December 31, 2001. (5) The remaining 10.0% interest in Crescent Resort Development, Inc., representing 100% of the voting stock, is owned by COPI Colorado, L. P., of which 60.0% was owned by COPI as of December 31, 2001, with 20% owned by John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, and 20% owned by a third party. (6) The remaining 6.0% interest in Mira Vista Development Corp. ("MVDC"), representing 100% of the voting stock, is owned 4.0% by DBL Holdings, Inc. ("DBL") and 2.0% by third parties. (7) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"), representing 100% of the voting stock, is owned 4.0% by DBL and 2.0% by a third party. (8) The remaining 60.0% interest in the Temperature-Controlled Logistics Partnership is owned by Vornado Realty Trust, L.P. (9) The remaining 57.5% interest in The Woodlands Commercial Properties Company, L. P. is owned by Morgan Stanley Real Estate Fund II, L. P. ("Morgan Stanley"). (10) Distributions are made to partners based on specified payout percentages. During the year ended December 31, 2001, the payout percentage to the Company was 49.5%. (11) The remaining 50.0% interest in Main Street Partners, L.P. is owned by TrizecHahn Corporation. (12) See "5 Houston Center" below. 44 (13) See "Four Westlake Park and Bank One Tower" below. (14) John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, obtained the remaining 2.6% economic interest in DBL (including 100% of the voting interest in DBL) in exchange for his voting interests in MVDC and HADC, originally valued at approximately $0.4 million, and approximately $0.06 million in cash, or total consideration valued at $0.4 million. At December 31, 2001, Mr. Goff's interest in DBL was approximately $0.6 million. (15) The remaining 5.0% interest in CRL Investments, Inc. was owned by COPI as of December 31, 2001. (16) Of the remaining 71.5% interest in CR License, LLC, 70.0% is owned by a group of individuals unrelated to the Company, and 1.5% was owned by COPI, as of December 31, 2001. JOINT VENTURE ARRANGEMENTS 5 Houston Center On June 4, 2001, the Company entered into a joint venture arrangement with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to construct the 5 Houston Center Office Property within the Company's Houston Center mixed-use Office Property complex in Houston, Texas. The Class A Office Property will consist of 577,000 net rentable square feet. The joint venture is structured such that the fund holds a 75% equity interest, and the Company holds a 25% equity interest, which is accounted for under the equity method. The Company contributed approximately $8.5 million of land and $12.3 million of development costs to the joint venture entity and received $14.8 million in net proceeds. No gain or loss was recognized by the Company on this transaction. In addition, the Company is developing, and will manage and lease the Property on a fee basis. During the year ended December 31, 2001, the Company recognized $2.3 million for these services. During the second quarter of 2001, the joint venture entity obtained an $82.5 million construction loan guaranteed by the Company, due May 2004, that bears interest at Prime (as defined in the loan agreement) plus 100 basis points or LIBOR plus 225 basis points, at the discretion of the borrower. The interest rate on the loan at December 31, 2001, was 4.12%. The balance outstanding on this construction loan at December 31, 2001, was $10.4 million. Four Westlake Park and Bank One Tower On July 30, 2001, the Company entered into joint venture arrangements with an affiliate of General Electric Pension Fund ("GE") for two Office Properties, Four Westlake Park in Houston, Texas, and Bank One Tower in Austin, Texas. The joint ventures are structured such that GE holds an 80% equity interest in each of Four Westlake Park, a 560,000 square foot Class A Office Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a 390,000 square foot Class A Office Property located in downtown Austin. The Company continues to hold the remaining 20% equity interests in each Property, which are accounted for under the equity method. The joint ventures generated approximately $120.0 million in net proceeds to the Company, including distributions to the Company resulting from mortgage financing at the joint venture level. None of the mortgage financing at the joint venture level is guaranteed by the Company. The joint ventures were accounted for as partial sales of these Office Properties, resulting in a gain of approximately $7.6 million, net of a deferred gain of approximately $1.9 million. In addition, the Company manages and leases the Office Properties on a fee basis. During the year ended December 31, 2001, the Company recognized $0.2 million for these services. UNCONSOLIDATED PROPERTY DISPOSITIONS On September 27, 2001, the Woodlands Commercial Properties Company, L.P., owned by the Company and an affiliate of Morgan Stanley, sold one office/venture tech property located within The Woodlands, Texas. The sale generated net proceeds, after the repayment of debt, of approximately $2.7 million, of which the Company's portion was approximately $1.3 million. The sale generated a net gain of approximately $3.5 million, of which the Company's portion was approximately $1.7 million. The net proceeds received by the Company were used primarily to pay down variable-rate debt. On November 9, 2001, The Woodlands Land Development Company, L.P. owned by the Woodlands Land Company, Inc. and an affiliate of Morgan Stanley, sold two office properties and one retail property located within The Woodlands, Texas. The sales generated proceeds, after the repayment of debt, of approximately $41.8 million, of which the Company's portion was approximately $19.7 million. The sales generated a net gain of approximately $8.0 million, of which the Company's portion was approximately $3.8 million. The net proceeds received by the Company were used primarily to pay down variable-rate debt. 45 METROPOLITAN On May 24, 2001, the Company converted its $85.0 million preferred member interest in Metropolitan and $1.9 million of deferred acquisition costs, into approximately $75.0 million of common stock of Reckson, resulting in an impairment charge of approximately $11.9 million. The Company subsequently sold the Reckson common stock on August 17, 2001, for approximately $78.6 million, resulting in a gain of approximately $3.6 million. The proceeds were used to pay down the Fleet Facility. DISPOSITIONS During the year ended December 31, 2001, the Company sold five Office Properties, 18 behavioral healthcare properties and other assets. The sales generated net proceeds of approximately $200.4 million and a net gain of approximately $4.4 million. Office Segment On July 30, 2001, the GE joint ventures were accounted for as partial sales of two Office Properties, Four Westlake Park in Houston, Texas, and Bank One Tower in Austin, Texas, resulting in a net gain of approximately $7.6 million, net of a deferred gain of $1.9 million. On September 18, 2001, the Company completed the sale of the two Washington Harbour Office Properties. The sale generated net proceeds of approximately $153.0 million and a net loss of approximately $9.8 million. The proceeds from the sale of the Washington Harbour Office Properties were used primarily to pay down variable-rate debt and repurchase approximately 4.3 million of the Company's common shares. The Washington Harbour Office Properties were the Company's only Office Properties in Washington, D.C. On September 28, 2001, The Woodlands Office Equities - '95 Limited ("WOE"), owned by the Company and the Woodlands Commercial Properties Company, L. P., sold two Office Properties located within The Woodlands, Texas. The sale generated net proceeds of approximately $11.3 million, of which the Company's portion was approximately $9.9 million. The sale generated a net gain of approximately $3.4 million, of which the Company's portion was approximately $3.0 million. The proceeds received by the Company were used primarily to pay down variable-rate debt. On December 20, 2001, WOE sold one Office Property located within The Woodlands, Texas. The sale generated net proceeds of approximately $2.0 million, of which the Company's portion was approximately $1.8 million. The sale generated a net gain of approximately $1.7 million, of which the Company's portion was approximately $1.5 million. The proceeds received by the Company were used primarily to pay down variable-rate debt. Behavioral Healthcare Properties During the year ended December 31, 2001, the Company completed the sale of 18 behavioral healthcare properties. The sales generated approximately $34.7 million in net proceeds and a net gain of approximately $1.6 million for the year ended December 31, 2001. The net proceeds from the sale of the 18 behavioral healthcare properties sold during the year ended December 31, 2001 were used primarily to pay down variable-rate debt. As of December 31, 2001, the Company owned 10 behavioral healthcare properties. The Company is actively marketing these 10 behavioral healthcare properties for sale. During the year ended December 31, 2001, the Company recognized an impairment loss of $8.5 million on seven of the behavioral healthcare properties held for disposition. This amount represents the difference between the carrying values and the estimated sales prices less costs of the sales for these seven properties. 46 RELATED PARTY DISCLOSURES DBL As of December 31, 2001, the Company owned 97.44% of DBL with the remaining 2.56% economic interest in DBL (including 100% of the voting interest in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company. Originally, Mr. Goff contributed his voting interests in MVDC and HADC originally valued at approximately $0.4 million, and approximately $0.06 million in cash, or total consideration valued at approximately $0.4 million for his interest in DBL. DBL has two wholly owned subsidiaries, DBL-ABC, Inc., and DBL-CBO, Inc., the assets of which are described in the following paragraphs, and DBL directly holds 66% of the voting stock in MVDC and HADC. At December 31, 2001, Mr. Goff's interest in DBL was approximately $0.6 million. Since June 1999, the Company has contributed approximately $23.8 million to DBL. The contribution was used by DBL to make an equity contribution to DBL-ABC, Inc., which committed to purchase a limited partnership interest representing a 12.5% interest in G2. G2 was formed for the purpose of investing in commercial mortgage backed securities and other commercial real estate investments and is managed and controlled by an entity that is owned equally by Goff-Moore Strategic Partners, LP ("GMSP") and GMAC Commercial Mortgage Corporation ("GMACCM"). The ownership structure of GMSP consists of 50% ownership by Darla Moore, who is married to Richard Rainwater, Chairman of the Board of Trust Managers of the Company, and 50% by John Goff. Mr. Rainwater is also a limited partner of GMSP. At December 31, 2001, DBL has an approximately $14.1 million investment in G2. In March 1999, DBL-CBO, Inc. acquired $6.0 million aggregate principal amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island limited liability company. At December 31, 2001 this investment was valued at approximately $5.4 million. COPI Colorado, L. P. As of December 31, 2001, CRD was owned 90% by the Company and the remaining 10%, representing 100% of the voting stock, was owned by COPI Colorado, L.P., of which 60% was owned by COPI, with 20% owned by John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company and 20% owned by a third party. On February 14, 2001, the Company executed an agreement with COPI, pursuant to which COPI transferred to the Company, in lieu of foreclosure, COPI's 60% general partner interest in COPI Colorado. As a result, the Company owns a 96% interest in CRD, John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company owns a 2.0% interest in CRD and the remaining 2.0% interest is owned by a third party. The Company will fully consolidate the operations of CRD beginning on the date of the asset transfers. Loans to Employees and Trust Managers of the Company for Exercise of Stock Options and Unit Options As of December 31, 2001, the Company had approximately $32.9 million of loans outstanding (including approximately $3.9 million loaned during the year ended December 31, 2001) to certain employees and trust managers of the Company on a recourse basis pursuant to the Company's stock incentive plans and unit incentive plans pursuant to an agreement approved by the Board of Directors and the Executive Compensation Committee of the Company. The proceeds of these loans were used by the employees and the trust managers to acquire common shares of the Company pursuant to the exercise of vested stock and unit options. Pursuant to the loan agreements, these loans may be repaid in full or in part at any time without premium or penalty. John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, had a loan comprising $26.3 million of the $32.9 million total outstanding loans at December 31, 2001. Every month, federal short-term, mid-term and long-term rates (Applicable Federal Rates) are determined and published by the IRS based upon average market yields of specified maturities. Effective November 1, 2001, these loans were amended to reduce the interest rates for their remaining terms to the Applicable Federal Rates as of November. As a result, the interest rates on loans with remaining terms of three years or less at November 1, 2001 were reduced to approximately 2.7% per year and the interest rates on loans with remaining terms greater than three years as of November 1, 2001 were reduced to approximately 4.07% per year. These amended interest rates reflect below prevailing market interest rates; therefore, the Company recorded $0.8 million of compensation expense for the year ended December 31, 2001. Approximately $0.5 million of interest was outstanding related to these loans as of December 31, 2001. 47 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, 2001, approximately $782.7 million was available under the Shelf Registration Statement for the issuance of securities. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY During the year ended December 31, 2000, the Company formed Funding IX and contributed seven Office Properties and two Resort/Hotel Properties to Funding IX. As of December 31 2001, Funding IX held seven Office Properties and one Resort/Hotel Property. As of December 31, 2001, GMACCM held $218.4 million of non-voting, redeemable preferred Class A Units in Crescent Real Estate Funding IX (the "Class A Units"). The Class A Units receive a preferred variable-rate dividend currently calculated at LIBOR plus 450 basis points, or approximately 6.6% per annum as of December 31, 2001, and increasing to LIBOR plus 550 basis points beginning March 16, 2002. The Class A Units are redeemable at the option of the Company at the original purchase price. Funding IX loaned the net proceeds of the sale of Class A Units in Funding IX and a portion of the net proceeds from the sale of one of the Resort/Hotel Properties held by Funding IX, through an intracompany loan to Crescent SH IX, Inc. ("SH IX"), for the purchase of common shares of the Company. See "Share Repurchase Program" below. This intracompany loan is eliminated in consolidation. However, the loan from Funding IX to SH IX matures March 15, 2003 and will be repaid by SH IX to Funding IX at that time. The proceeds received by Funding IX will be used to redeem Class A Units. EMPLOYEE STOCK PURCHASE PLAN On June 25, 2001, the shareholders of the Company approved a new Employee Stock Purchase Plan (the "ESPP"), that is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code ("IRC") of 1986, as amended. The ESPP is regarded as a noncompensatory plan under APB No. 25, because it meets the qualifications under IRC 423. Under the terms of the ESPP, eligible employees may purchase common shares of the Company at a price that is equal to 90% of the lower of the common shares' fair market value at the beginning or the end of a quarterly period. The fair market value of a common share is equal to the last sale price of the common shares on the New York Stock Exchange. Eligible employees may purchase the common shares through payroll deductions of up to 10% of eligible compensation. The ESPP is not subject to the provisions of ERISA. The ESPP was effective October 1, 2001, and will terminate on May 14, 2011. The 1,000,000 common shares that may be issued pursuant to the purchase of common shares under the ESPP represent less than 0.96% of the Company's outstanding common shares at December 31, 2001. SHARE REPURCHASE PROGRAM On October 15, 2001, the Company's Board of Trust Managers authorized an increase in the amount of outstanding common shares that can be repurchased from time to time in the open market or through privately negotiated transactions (the "Share Repurchase Program") from $500.0 million to $800.0 million. The Company commenced its Share Repurchase Program in March 2000. As of December 31, 2001, the Company had repurchased 18,756,423 common shares, 20,286 of which have been retired, at an average price of $19.09 per common share for an aggregate of approximately $358.1 million. As of December 31, 2001, the Company held 14,468,623 of the repurchased common shares in SH IX. See "Sale of Preferred Equity Interests in Subsidiary" above. These common shares are consolidated as treasury shares in accordance with GAAP. However, these shares are held in SH IX until all of the Class A Units are redeemed. Distributions will continue to be paid on these repurchased common shares and will be used to pay dividends on the Class A Units. 48 The Company expects the Share Repurchase Program to continue to be funded through a combination of debt, equity, joint venture capital and selected asset disposition alternatives available to the Company. The amount of common shares that the Company will actually 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 common shares will actually be purchased within any particular time period. SHARE REPURCHASE AGREEMENT On November 19, 1999, the Company entered into an agreement (the "Share Repurchase Agreement") with UBS to purchase a portion of its common shares from UBS. The Company had the option to settle the Share Repurchase Agreement in cash or common shares. During the year ended December 31, 2000, the Company purchased the 5,809,180 common shares from UBS at an average cost of $17.62 per common share for an aggregate of approximately $102.3 million under the Share Repurchase Agreement with UBS. The Company has no further obligation under the Share Repurchase Agreement. The purchases were funded primarily through the sale of Class A Units in Funding IX. See "Sale of Preferred Equity Interests in Subsidiary" above. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," which provides that all business combinations in the scope of the statement are to be accounted for under the purchase method. This statement is effective for all business combinations initiated after June 30, 2001, as well as all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Since the Company currently accounts for its acquisitions under the purchase method, management does not believe that the adoption of this statement will have a material effect on its interim or annual financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses financial accounting and reporting for acquired goodwill and other intangible assets. This statement requires that goodwill and some other intangible assets will no longer be amortized, and provides specific guidance for testing goodwill for impairment. This statement is effective for fiscal years beginning after December 15, 2001. The Company expects its impairment losses to range between $14.0 million and $18.3 million due to the initial application of this statement. These charges relate to unconsolidated companies in which the Company had an interest as of December 31, 2001. These charges will be reported as resulting from a change in accounting principle. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company has determined that SFAS No. 143 will have no material effect on its interim and annual financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Management does not believe that adoption of this statement will have a material effect on its interim or annual financial statements; however, financial statement presentation will be modified to report the results of operations and financial position of a component of an entity that either has been disposed of or is classified as held for sale as discontinued operations. As a result, the Company will reclassify certain amounts in prior period financial statements to conform with the new presentation requirements. LIQUIDITY REQUIREMENTS As of December 31, 2001, the Company had unfunded capital requirements of approximately $40.4 million relating to capital investments. The table below specifies the Company's total capital requirements relating to these projects, amounts funded as of December 31, 2001, amounts remaining to be funded, and short-term and long-term capital requirements. 49
CAPITAL REQUIREMENTS AMOUNT ------------------------ (IN MILLIONS) FUNDED AS OF AMOUNT SHORT-TERM LONG-TERM TOTAL DECEMBER 31, REMAINING (NEXT 12 (12+ PROJECT COST(1) 2001 TO FUND MONTHS)(2) MONTHS)(2) ------- -------- ------------ --------- ----------- ----------- RESIDENTIAL DEVELOPMENT SEGMENT Tahoe Mountain Resorts $ 100.0 $ (71.2) $ 28.8 $ 28.8 $ -- -------- -------- -------- -------- -------- OTHER SunTx(3) $ 19.0 $ (7.4) $ 11.6 $ 4.0 $ 7.6 -------- -------- -------- -------- -------- TOTAL $ 119.0 $ (78.6) $ 40.4 $ 32.8 $ 7.6 ======== ======== ======== ======== ========
- ---------- (1) All amounts are approximate. (2) Reflects the Company's estimate of the breakdown between short-term and long-term capital expenditures. (3) This commitment is related to the Company's investment in a private equity fund. The Company expects to fund its short-term capital requirements of approximately $32.8 million through a combination of cash, net cash flow from operations, return of capital (investment) from the Residential Development Corporations and borrowings under the Fleet Facility. The Company plans to meet its maturing debt obligations during 2002 of approximately $245.2 million, primarily through additional or replacement debt financing or equity transactions. The Company expects to meet its other short-term capital requirements, consisting of normal recurring operating expenses, regular debt service requirements (including debt service relating to additional and replacement debt), additional interest expense related to the cash flow hedge agreements, recurring capital expenditures, non-recurring capital expenditures, such as tenant improvement and leasing costs, and distributions to shareholders and unitholders, primarily through cash flow provided by operating activities. To the extent that the Company's cash flow from operating activities is not sufficient to finance such short-term liquidity requirements, the Company expects to finance such requirements with available cash proceeds received from joint ventures and select property sales, and borrowings under the Fleet Facility or additional debt financing. The Company expects to fund its long-term capital requirements of approximately $7.6 million with available cash proceeds received from joint ventures and select property sales, borrowings under the Fleet Facility or additional debt financing and return of capital (investment) from the Residential Development Corporations. The Company's other long-term liquidity requirements as of December 31, 2001, consist primarily of maturities after December 31, 2002, under the Company's fixed and variable-rate debt, which totaled approximately $2.0 billion as of December 31, 2001. The Company also intends to repay the intracompany loan of approximately $285.0 million from Funding IX to Crescent SH IX at maturity on March 15, 2003, and to redeem the approximately $218.4 million of Class A Units in Funding IX with the proceeds received by Funding IX. The Company expects to meet these long-term liquidity requirements primarily through long-term secured and unsecured borrowings and other debt and equity financing alternatives as well as cash proceeds received from joint ventures and select property sales. 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 underleveraged properties, investment properties, or by investment property acquisitions or developments; o Issuance of additional unsecured debt; o Equity offerings including preferred and/or convertible securities; and o Proceeds from joint ventures and property sales. The following factors could limit the Company's ability to utilize these financing alternatives: 50 o The Company may be unable to obtain debt or equity financing on favorable terms, or at all, as a result of the financial condition of the Company or market conditions at the time the Company seeks additional financing; o Restrictions on the Company's debt instruments or outstanding equity may prohibit it from incurring debt or issuing equity at all, or on terms available under then-prevailing market conditions; and o The Company may be unable to service additional or replacement debt due to increases in interest rates or a decline in the Company's operating performance. In addition to the Company's liquidity requirements stated above, as of December 31, 2001, the Company also has guarantees or letters of credit related to approximately $89.3 million, or 17% of the maximum borrowings available under its unconsolidated debt. At December 31, 2001, the Company had guarantees or letters of credit related to approximately $17.2 million, or 4%, of its total outstanding unconsolidated debt. See "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies" included "Item 8. Financial Statements and Supplementary Data" and for more information about the Company's unconsolidated investments and the underlying debt related to these investments. 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 90% of its REIT taxable income to its shareholders. 51 DEBT FINANCING ARRANGEMENTS The significant terms of the Company's primary debt financing arrangements existing as of December 31, 2001, are shown below (dollars in thousands):
INTEREST BALANCE RATE AT EXPECTED OUTSTANDING AT MAXIMUM DECEMBER 31, MATURITY PAYOFF DECEMBER 31, DESCRIPTION BORROWINGS 2001 DATE DATE 2001 ----------- ---------- ------------ -------- -------- --------------- SECURED FIXED RATE DEBT: JP Morgan Mortgage Note(1) $ 199,386 8.31 % October 2016 October 2006 $ 199,386 AEGON Partnership Note(2) 269,930 7.53 July 2009 July 2009 269,930 LaSalle Note I(3) 239,000 7.83 August 2027 August 2007 239,000 LaSalle Note II(4) 161,000 7.79 March 2028 March 2006 161,000 CIGNA Note (5) 63,500 7.47 December 2002 December 2002 63,500 Metropolitan Life Note V(6) 38,696 8.49 December 2005 December 2005 38,696 Northwestern Life Note (7) 26,000 7.66 January 2004 January 2004 26,000 Mitchell Mortgage Note(8) 6,244 7.00 August 2002 August 2002 6,244 Nomura Funding VI Note (9) 8,187 10.07 July 2020 July 2010 8,187 Woodmen of the World Note(10) 8,500 8.20 April 2009 April 2009 8,500 Rigney Promissory Note (11) 651 8.50 November 2012 June 2012 651 ----------- ------ ----------- Subtotal/Weighted Average $ 1,021,094 7.85 % $ 1,021,094 ----------- ------ ----------- UNSECURED FIXED RATE DEBT: Notes due 2007(12) $ 250,000 7.50 % September 2007 September 2007 $ 250,000 Notes due 2002(12) 150,000 7.00 September 2002 September 2002 150,000 ----------- ------ ----------- Subtotal/Weighted Average $ 400,000 7.31 % $ 400,000 ----------- ------ ----------- SECURED VARIABLE RATE DEBT(13): Fleet Fund I and II Term Loan(14) $ 275,000 5.39 % May 2005 May 2005 $ 275,000 Deutsche Bank - CMBS Loan(15) 220,000 5.84 May 2004 May 2006 220,000 ----------- ------ ----------- Subtotal/Weighted Average $ 495,000 5.59 % $ 495,000 ----------- ------ ----------- UNSECURED VARIABLE RATE DEBT: JPMorgan Loan Sales Facility(16) $ 50,000 3.25 % January 2002 $ 10,000 Fleet Bridge Loan(17) 50,000 5.71 August 2002 August 2002 5,000 Fleet Facility(14) 400,000 3.92 May 2004 May 2005 283,000 ----------- ------ ----------- $ 500,000 3.93 % $ 298,000 ----------- ------ ----------- TOTAL/WEIGHTED AVERAGE $ 2,416,094 6.72 %(18) $ 2,214,094 =========== ====== =========== AVERAGE REMAINING TERM 8.4 years 4.3 years
- ---------- (1) At the end of seven years (October 2006), the interest rate will adjust based on current interest rates at that 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 $177.8 million. (2) The outstanding principal balance of this note at maturity will be approximately $224.1 million. This note is secured by the Greenway Plaza Office Properties. The note agreement requires the Company to maintain compliance with a number of customary covenants, including maintaining the Properties that secure the note and not creating any lien with respect to or otherwise encumbering such Properties. (3) 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. In August 2007, the interest rate will increase, 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 $220.5 million. LaSalle Note I is secured by Properties owned by Crescent Real Estate Funding I, L.P. ("Funding I") (See "Note 1. Organization and Basis of Presentation" included in "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. (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. In March 2006, the interest rate will increase, 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 $154.1 million. LaSalle Note II is secured by Properties owned by Crescent Real Estate Funding II, L.P. ("Funding II") (See "Note 1. Organization and Basis of Presentation" included in "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 52 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 Resort/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. (6) 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 note is secured by the Datran Center 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. (7) 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. (8) The note requires payments of interest only during its term. The Mitchell Mortgage Note is secured by three of The Woodlands Office Properties. The note agreement has no negative covenants. (9) The note was assumed in connection with an acquisition and was not subsequently retired by the Company because of prepayment penalties. Under the terms of the note, principal and interest are payable based on a 25-year amortization schedule. The Company has the option 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 Crescent Real Estate Funding VI, L.P. ("Funding VI") (see "Note 1. Organization and Basis of Presentation" included in "Item 8. Financial Statements and Supplementary Data"). 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. 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. (10) The outstanding principal balance on this note at maturity will be approximately $8.5 million. This note is secured by the Avallon IV Office Property. The note agreement requires that the Company maintains 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) The note requires quarterly payments of principal and interest based on a 15-year amortization schedule through maturity, at which time the outstanding principal balance is due and payable. The Rigney Promissory Note is secured by a parcel of land owned by the Company and located across from an Office Property. The note agreement has no negative covenants. (12) The 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. (13) For the method of calculation of the interest rate for the Company's variable-rate debt, see "Note 6. Notes Payable and Borrowings under the Fleet Facility" included in "Item 8. Financial Statements and Supplementary Data." (14) For a description of the Fleet Fund I and II Term Loan and the Fleet Facility, see "Note 6. Notes Payable and Borrowings under the Fleet Facility" included in "Item 8. Financial Statements and Supplementary Data." The note requires payments of interest only during the first four years with a one-year extension option. The note, due May 2004, bears interest at LIBOR plus 325 basis points (at December 31, 2001, the interest rate was 5.39%). The Fleet Term Loan note is secured by eight Office Properties in Funding I, and 12 Office Properties in Funding II. The Term Loan requires the Company 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, limitations on distributions, and a minimum net worth requirement, and with respect solely to Funding I and Funding II adjusted net operating income to actual debt service and adjusted net operating income to pro forma debt service. (15) This note requires payment of interest only during its term. The notes, due May 2004, bear interest at the 30-day LIBOR rate plus a spread of 164.7 basis points (at December 31, 2001, the interest rate was 5.15%) for the Deutsche Bank-CMBS and a spread of 600 basis points (at December 31, 2001, the interest rate was 9.50%) for the Mezzanine note. The blended rate at December 31, 2001, was 5.84%. The notes have three-year interest only terms and two one-year extension options, and are secured by the Crescent Real Estate Funding X, L.P. ("Funding X") Office Properties and Spectrum Center, L. P. (See "Note 1. Organization and Basis of Presentation" included in "Item 8. Financial Statements and Supplementary Data"). The notes require the Company to maintain compliance with a minimum debt service coverage ratio. (16) The JP Morgan Loan Sales Facility is a $50.0 million unsecured credit facility. The lender is not obligated to fund draws under this loan unless certain conditions not within the control of the Company are satisfied at the time of the draw request. As a result, the Company maintains sufficient availability under the Fleet Facility to repay this loan at any time. (17) The Fleet Bridge Loan is a $50.0 million unsecured credit facility. (18) The overall weighted average interest rate does not include the effect of the Company's cash flow hedge agreements. Including the effect of these agreements, the overall weighted average interest rate would have been 7.58%. 53 Below are the aggregate principal payments required as of December 31, 2001 under indebtedness of the Company by year. Scheduled principal installments and amounts due at maturity are included.
SECURED UNSECURED TOTAL ---------- ---------- ---------- (in thousands) 2002 $ 80,157 $ 165,000 $ 245,157 2003 15,060 -- 15,060 2004 262,857(1) 283,000(1) 545,857 2005 329,339 -- 329,339 2006 347,207 -- 347,207 Thereafter 481,474 250,000 731,474 ---------- ---------- ---------- $1,516,094 $ 698,000 $2,214,094 ========== ========== ==========
- ---------- (1) These amounts do not represent the effect of a one-year extension option of the Fleet Facility and two one-year extension options on the Deutsche Bank - CMBS Loan. The Company has approximately $245.2 million of secured and unsecured debt due during 2002, consisting primarily of the Cigna Note, the Mitchell Mortgage Note and the 2002 Notes which are expected to be funded through replacement debt financing. 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. Debt service coverage ratios for a particular period are 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 calculation of the debt service coverage ratio for the Fleet Facility is calculated using the method described above, including certain pro forma adjustments. Any uncured or unwaived events of default on the Company's loans can trigger an acceleration of payment on the loan in default. In addition, a default by the Company or any of its subsidiaries with respect to any indebtedness in excess of $5.0 million generally will result in a default under the Fleet Facility and the Fleet I and II Term Loan after the notice and cure periods for the other indebtedness have passed. As of December 31, 2001, the Company was in compliance with all of its debt service coverage ratios and other covenants related to its outstanding debt. The Company's debt facilities generally prohibit loan pre-payment for an initial period, allow pre-payment with a penalty during a following specified period and allow pre-payment without penalty after the expiration of that period. During the year ended December 31, 2001, there were no pre-payment penalties. As of December 31, 2001, there were no provisions related to the Company's existing debt that would require increased collateral under any situation. DEBT REFINANCING AND FLEET FACILITY In May 2001, the Company (i) repaid and retired the UBS Facility which consisted of the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan II; (ii) repaid and retired the iStar Financial Note; and (iii) modified and replaced the Fleet Term Note II with proceeds from a $970.0 million debt refinancing. In May 2001, the Company wrote off $10.8 million of deferred financing costs related to the early extinguishment of the UBS Facility which is included in Extraordinary Item - Extinguishment of Debt. 54 New Debt Resulting from Refinancing
MAXIMUM INTEREST MATURITY DESCRIPTION BORROWING RATE DATE - ----------------------------- --------- ------------------------- ---------- (dollars in millions) Fleet Facility $400.0(1) LIBOR + 187.5 basis points 2004(2) Fleet Fund I and II Term Loan $275.0 LIBOR + 325 basis points 2005 Deutsche Bank - CMBS Loan $220.0 LIBOR + 234 basis points 2004(3) Deutsche Bank Short-Term Loan $ 75.0 LIBOR + 300 basis points 2001(4)
- ---------- (1) The $400.0 million Fleet Facility is an unsecured revolving line of credit. The weighted average interest rate from the origination of the loan in May 2001 through December 31, 2001 is 5.38%. (2) One-year extension option. (3) Two one-year extension options. (4) Repaid September 19, 2001. Debt Repaid or Modified by Refinancing
MAXIMUM INTEREST MATURITY BALANCE DESCRIPTION BORROWING RATE DATE REPAID/MODIFIED(1) - ---------------------- --------- -------------------------- --------- ---------------------- (dollars in millions) UBS Line of Credit $300.0 LIBOR + 250 basis points 2003 $165.0 UBS Term Loan I $146.8 LIBOR + 250 basis points 2003 $146.8 UBS Term Loan II $326.7 LIBOR + 275 basis points 2004 $326.7 Fleet Term Note II $200.0 LIBOR + 400 basis points 2003 $200.0 iStar Financial Note $ 97.1 LIBOR + 175 basis points 2001 $ 97.1
- ---------- (1) All the amounts listed, other than the Fleet Term Note II, were repaid. In May 2001, the Fleet Term Note II was modified and replaced by the Fleet Fund I and II Term Loan. CASH FLOW HEDGES The Company uses derivative financial instruments to convert a portion of its variable-rate debt to fixed-rate debt and to manage its fixed to variable-rate debt ratio. As of December 31, 2001, the Company had entered into three cash flow hedge agreements which are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133". The following table shows information regarding the Company's cash flow hedge agreements as of December 31, 2001 and interest expense for the year ended December 31, 2001 (dollars in millions):
ADDITIONAL INTEREST EXPENSE ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE YEAR DATE AMOUNT DATE RATE MARKET VALUE ENDED DECEMBER 31, 2001 - ----------- ---------- --------- --------- ------------ ----------------------- 9/1/1999 $ 200.0 9/2/2003 6.183% $ (10.8) $ 3.5 2/4/2000 $ 200.0 2/3/2003 7.11% $ (10.8) $ 6.0 4/18/2000 $ 100.0 4/18/2004 6.76% $ (7.2) $ 2.7
The Company has designated its three cash flow hedge agreements as cash flow hedges of LIBOR-based monthly interest payments on a designated pool of variable-rate LIBOR indexed debt that reprices closest to the reset dates of each cash flow hedge agreement. For retrospective effectiveness testing, the Company uses the cumulative dollar offset approach as described in Derivatives Implementation Group ("DIG") Issue E8. The DIG is a task force designed to assist the FASB in answering questions that companies have resulting from implementation of SFAS No. 133 and 138. The Company uses the 55 change in variable cash flows method as described in DIG Issue G7 for prospective testing as well as for the actual recording of ineffectiveness, if any. Under this method, the Company will compare the changes in the floating rate portion of each cash flow hedge to the floating rate of the hedged items. The cash flow hedges have been and are expected to remain highly effective. Changes in the fair value of these highly effective hedging instruments are recorded in accumulated other comprehensive income. The effective portion that has been deferred in accumulated other comprehensive income will be reclassified to earnings as interest expense when the hedged items impact earnings. If a cash flow hedge falls outside 80%-125% effectiveness for a quarter, all changes in the fair value of the cash flow hedge for the quarter will be recognized in earnings during the current period. If it is determined based on prospective testing that it is no longer likely a hedge will be highly effective on a prospective basis, the hedge will no longer be designated as a cash flow hedge and no longer qualify for accounting in accordance with SFAS Nos. 133 and 138. Over the next twelve months, an estimated $16.4 million to $18.4 million will be reclassified from accumulated other comprehensive income to interest expense and charged against earnings related to the effective portions of the cash flow hedge agreements. INTEREST RATE CAPS In connection with the closing of the Deutsche Bank-CMBS Loan in May 2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a notional amount of $220.0 million, and simultaneously sold a LIBOR interest rate cap with the same terms. Since these instruments do not reduce the Company's net interest rate risk exposure, they do not qualify as hedges and changes to their respective fair values are charged to earnings. As the significant terms of these arrangements are substantially the same, the effects of a revaluation of these instruments are expected to substantially offset each other. FUNDS FROM OPERATIONS FFO, based on the revised definition adopted by the Board of Governors of the NAREIT, effective January 1, 2000, and as used in this document, means: o Net Income (Loss) - determined in accordance with GAAP; o excluding gains (or losses) from sales of depreciable operating property; o excluding extraordinary items (as defined by GAAP); 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 investment segments. 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, 2001, and 2000, were $245.1 and $281.2 million, respectively. The Company reported FFO of $177.1 million and $326.9 million for the years ended December 31, 2001 and 2000, respectively. Excluding the impairment and other charges related to COPI of $92.8 million, the Company would have reported FFO of $269.9 million for the year ended December 31, 2001. 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 90% of its REIT taxable income 56 (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. STATEMENTS OF FUNDS FROM OPERATIONS (DOLLARS AND SHARES/UNITS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------- 2001 2000 --------- --------- Net (loss) income $ (4,659) $ 248,122 Adjustments to reconcile net (loss) income to funds from operations: Depreciation and amortization of real estate assets 122,033 119,999 Gain on rental property sales, net (2,835) (128,355) Impairment and other charges related to real estate assets 21,705 9,349 Extraordinary item - extinguishment of debt 10,802 3,928 Adjustment for investments in real estate mortgages and equity of unconsolidated companies: Office Properties 6,955 4,973 Residential Development Properties 13,037 25,130 Temperature-Controlled Logistics Properties 22,671 26,131 Other 144 -- Unitholder minority interest 765 31,120 6 3/4% Series A Preferred Share distributions (13,501) (13,500) --------- --------- Funds from operations(1) $ 177,117 $ 326,897 Investment Segments: Office Segment $ 358,349 $ 361,574 Resort/Hotel Segment 45,282 71,446 Residential Development Segment 54,051 78,600 Temperature-Controlled Logistics Segment 23,806 33,563 Corporate and other adjustments: Interest expense (182,410) (203,197) 6 3/4% Series A Preferred Share distributions (13,501) (13,500) Other(2)(3) 8,571 22,484 Corporate general & administrative (24,249) (24,073) Impairment and other charges related to COPI (92,782) -- --------- --------- Funds from operations(1) $ 177,117 $ 326,897 ========= ========= Basic weighted average shares 107,613 113,524 ========= ========= Diluted weighted average shares/units(4) 122,544 128,732 ========= =========
- ---------- (1) To calculate basic funds from operations, deduct Unitholder minority interest. (2) Includes interest and other income, preferred return paid to GMACCM, other unconsolidated companies, less depreciation and amortization of non-real estate assets and amortization of deferred financing costs. (3) For purposes of this schedule, the behavioral healthcare properties' financial information has been included in this line item. (4) See calculations for the amounts presented in the reconciliation following this table. 57 The following schedule reconciles the Company's basic weighted average shares to the diluted weighted average shares/units presented above:
FOR THE YEAR ENDED DECEMBER 31, --------------------- (SHARES/UNITS IN THOUSANDS) 2001 2000 ------- ------- Basic weighted average shares: 107,613 113,524 Add: Weighted average units 13,404 14,011 Share and unit options 1,527 1,197 ------- ------- Diluted weighted average shares/units 122,544 128,732 ======= =======
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31 ------------------------------ 2001 2000 --------- --------- Funds from operations $ 177,117 $ 326,897 Adjustments: Depreciation and amortization of non-real estate assets 2,934 2,646 Impairment and other charges related to real estate assets 96,412 -- Amortization of deferred financing costs 9,327 9,497 Gain on undeveloped land (1,590) (577) Increase in receivables from COPI (20,458) -- Minority interest in joint ventures profit and depreciation and amortization 21,854 21,076 Adjustment for investments in real estate mortgages and equity of unconsolidated companies (42,807) (56,234) Change in deferred rent receivable 3,744 (8,504) Change in current assets and liabilities (60,768) (25,956) Distributions received in excess of earnings from unconsolidated companies 13,874 3,897 Equity in earnings in excess of distributions received from unconsolidated companies (476) (10,641) 6 3/4% Series A Preferred Share distributions 13,501 13,500 Non cash compensation 149 114 --------- --------- Net cash provided by operating activities $ 212,813 $ 275,715 ========= =========
HISTORICAL RECURRING OFFICE 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, 2001, 2000 and 1999, attributable to signed leases, all of which have commenced or will commence during the next 12 months (i.e., the renewal or replacement tenant began or will begin to pay rent) for the Office Properties consolidated in the Company's financial statements during each of the periods presented. Tenant improvement and leasing costs for signed leases during a particular period do not necessarily equal the cash paid for tenant improvement and leasing costs during such period due to timing of payments. 58
2001 2000 1999 ---------- ---------- ---------- CAPITAL EXPENDITURES: Capital Expenditures (in thousands) $ 15,672 $ 9,199 $ 6,048 Per square foot $ 0.58 $ 0.33 $ 0.19 TENANT IMPROVEMENT AND LEASING COSTS:(1) Replacement Tenant Square Feet 1,099,868 1,126,394 1,259,660 Renewal Tenant Square Feet 790,203 1,490,930 1,385,911 Tenant Improvement Costs (in thousands) $ 12,154 $ 16,541 $ 14,339 Per square foot leased $ 6.43 $ 6.32 $ 5.42 Tenant Leasing Costs (in thousands) $ 7,238 $ 11,621 $ 7,804 Per square foot leased $ 3.83 $ 4.44 $ 2.95 Total (in thousands) $ 19,392 $ 28,162 $ 22,143 Total per square foot $ 10.26 $ 10.76 $ 8.37 Average lease term 5.2 years 5.1 years 4.5 years Total per square foot per year $ 1.97 $ 2.10 $ 1.87
- ---------- (1) Excludes leasing activity for leases that have less than a one-year term (i.e., storage and temporary space). Capital expenditures may fluctuate in any given period subject to the nature, extent and timing of improvements required to be made in the Company's Office 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 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's use of financial instruments, such as debt instruments, 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 also enters into derivative financial instruments such as interest rate swaps to mitigate its interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of its variable-rate debt. The following discussion of market risk is based solely on hypothetical changes in interest rates related to the Company's variable-rate debt. 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 $2.2 billion at December 31, 2001, of which approximately $0.3 billion, or approximately 14%, was unhedged variable-rate debt. The weighted average interest rate on such variable-rate debt was 3.9% as of December 31, 2001. A 10% (39.0 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 $1.0 million based on the unhedged variable-rate debt outstanding as of December 31, 2001, as a result of the increased interest expense associated with the change in rate. Conversely, a 10% (39.0 basis point) decrease in the weighted average interest rate on such unhedged variable-rate debt would result in an annual increase in net income and cash flows of approximately $1.0 million based on the unhedged variable rate debt outstanding as of December 31, 2001, as a result of the decreased interest expense associated with the change in rate. 59 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants......................................................... 61 Consolidated Balance Sheets at December 31, 2001 and 2000........................................ 62 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999....... 63 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 ........................................................................................ 64 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999....... 65 Notes to Consolidated Financial Statements....................................................... 66 Schedule III Consolidated Real Estate Investments and Accumulated Depreciation .................. 103
60 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, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. 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 financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in 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, February 21, 2002 61 CRESCENT REAL ESTATE EQUITIES COMPANY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, ---------------------------- 2001 2000 ------------ ------------ ASSETS: Investments in real estate: Land $ 265,594 $ 310,301 Land held for investment or development 108,274 116,480 Building and improvements 2,980,116 3,201,332 Furniture, fixtures and equipment 74,773 62,802 Less - accumulated depreciation (648,834) (564,805) ------------ ------------ Net investment in real estate $ 2,779,923 $ 3,126,110 Cash and cash equivalents $ 36,285 $ 38,966 Restricted cash and cash equivalents 115,531 94,568 Accounts receivable, net 28,654 42,200 Deferred rent receivable 66,362 82,775 Investments in real estate mortgages and equity of unconsolidated companies 838,317 845,317 Notes receivable, net 132,065 141,407 Other assets, net 145,012 171,975 ------------ ------------ Total assets $ 4,142,149 $ 4,543,318 ============ ============ LIABILITIES: Borrowings under credit facility $ 283,000 $ 553,452 Notes payable 1,931,094 1,718,443 Accounts payable, accrued expenses and other liabilities 220,068 202,591 ------------ ------------ Total liabilities $ 2,434,162 $ 2,474,486 ------------ ------------ COMMITMENTS AND CONTINGENCIES: MINORITY INTERESTS: Operating partnership, 6,594,521 and 6,995,823 units, respectively $ 69,910 $ 100,586 Investment in joint ventures 232,137 236,919 ------------ ------------ Total minority interests $ 302,047 $ 337,505 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred shares, $.01 par value, authorized 100,000,000 shares: 6 3/4% Series A Convertible Cumulative Preferred Shares, liquidation preference $25.00 per share, 8,000,000 shares issued and outstanding at December 31, 2001 and 2000 $ 200,000 $ 200,000 Common shares, $.01 par value, authorized 250,000,000 shares, 123,396,017, and 121,818,653 shares issued and outstanding at December 31, 2001 and 2000, respectively 1,227 1,211 Additional paid-in capital 2,234,360 2,221,531 Retained deficit (638,435) (402,337) Accumulated other comprehensive income (31,484) (6,734) ------------ ------------ $ 1,765,668 $ 2,013,671 Less - shares held in treasury, at cost, 18,770,418 and 14,468,623 common shares at December 31, 2001 and 2000, respectively (359,728) (282,344) ------------ ------------ Total shareholders' equity $ 1,405,940 $ 1,731,327 ------------ ------------ Total liabilities and shareholders' equity $ 4,142,149 $ 4,543,318 ============ ============
The accompanying notes are an integral part of these financial statements. 62 CRESCENT REAL ESTATE EQUITIES COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ REVENUES: Office properties $ 610,116 $ 606,040 $ 614,493 Resort/Hotel properties 45,748 72,114 65,237 Interest and other income 40,190 40,251 66,549 ------------ ------------ ------------ Total revenues $ 696,054 $ 718,405 $ 746,279 ------------ ------------ ------------ EXPENSES: Real estate taxes $ 84,488 $ 83,939 $ 84,401 Repairs and maintenance 39,247 39,024 44,024 Other rental property operating 140,146 127,078 128,723 Corporate general and administrative 24,249 24,073 16,274 Interest expense 182,410 203,197 192,033 Amortization of deferred financing costs 9,327 9,497 10,283 Depreciation and amortization 126,157 123,839 131,657 Settlement of merger dispute -- -- 15,000 Impairment and other charges related to the real estate assets 25,332 9,349 178,838 Impairment and other charges related to COPI 92,782 -- -- ------------ ------------ ------------ Total expenses $ 724,138 $ 619,996 $ 801,233 ------------ ------------ ------------ Operating (loss) income $ (28,084) $ 98,409 $ (54,954) OTHER INCOME AND EXPENSE: Equity in net income of unconsolidated companies: Office properties 6,124 3,164 5,265 Residential development properties 41,014 53,470 42,871 Temperature-controlled logistics properties 1,136 7,432 15,039 Other 2,957 11,645 5,122 ------------ ------------ ------------ Total equity in net income of unconsolidated companies $ 51,231 $ 75,711 $ 68,297 Gain on property sales, net 4,425 128,932 -- ------------ ------------ ------------ Total other income and expense $ 55,656 $ 204,643 $ 68,297 ------------ ------------ ------------ INCOME BEFORE MINORITY INTERESTS $ 27,572 $ 303,052 $ 13,343 AND EXTRAORDINARY ITEM Minority interests (21,429) (51,002) (2,384) ------------ ------------ ------------ INCOME BEFORE EXTRAORDINARY ITEM $ 6,143 $ 252,050 $ 10,959 Extraordinary item - extinguishment of debt (10,802) (3,928) -- ------------ ------------ ------------ NET (LOSS) INCOME $ (4,659) $ 248,122 $ 10,959 6 3/4% Series A Preferred Share distributions (13,501) (13,500) (13,500) Share repurchase agreement return -- (2,906) (583) Forward share purchase agreement return -- -- (4,317) ------------ ------------ ------------ NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS $ (18,160) $ 231,716 $ (7,441) ============ ============ ============ BASIC EARNINGS PER SHARE DATA: Net (loss) income before extraordinary item $ (0.07) $ 2.08 $ (0.06) Extraordinary item - extinguishment of debt (0.10) (0.03) -- ------------ ------------ ------------ Net (loss) income- basic $ (0.17) $ 2.05 $ (0.06) ============ ============ ============ DILUTED EARNINGS PER SHARE DATA: Net (loss) income before extraordinary item $ (0.07) $ 2.05 $ (0.06) Extraordinary item - extinguishment of debt (0.10) (0.03) -- ------------ ------------ ------------ Net (loss) income - diluted $ (0.17) $ 2.02 $ (0.06) ============ ============ ============
The accompanying notes are an integral part of these financial statements. 63 CRESCENT REAL ESTATE EQUITIES COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Preferred Shares Treasury Shares Common Shares --------------------- ------------------------ ------------------------- Shares Net Value Shares Par Value Shares Par Value --------- --------- ---------- ---------- ------------ --------- 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 -- -- -- -- -- -- Unrealized Net Gain on Cash Flow Hedges -- -- -- -- -- -- --------- --------- ---------- ---------- ------------ --------- SHAREHOLDERS' EQUITY, December 31, 1999 8,000,000 $ 200,000 -- $ -- 121,537,353 $ 1,208 Issuance of Common Shares -- -- -- -- 5,762 -- Exercise of Common Share Options -- -- -- -- 208,700 2 Preferred Equity Issuance Cost -- -- -- -- -- -- Issuance of Shares in Exchange for Operating Partnership Units -- -- -- -- 87,124 1 Share Repurchases -- -- 8,700,030 (180,723) -- -- Share Repurchase Agreement -- -- 5,788,879 (101,976) -- -- Retirement of Treasury Shares -- -- (20,286) 355 (20,286) -- Retirement of Restricted Shares -- -- -- -- -- -- Dividends Paid -- -- -- -- -- -- Net Income -- -- -- -- -- -- Unrealized Net Loss on Available-for-Sale Securities -- -- -- -- -- -- Unrealized Net Loss on Cash Flow Hedges -- -- -- -- -- -- --------- --------- ---------- ---------- ------------ --------- SHAREHOLDERS' EQUITY, December 31, 2000 8,000,000 $ 200,000 14,468,623 $ (282,344) 121,818,653 $ 1,211 Issuance of Common Shares -- -- -- -- 6,610 1 Exercise of Common Share Options -- -- -- -- 768,150 7 Issuance of Shares in Exchange for Operating Partnership Units -- -- -- -- 802,604 8 Share Repurchases -- -- 4,301,795 (77,384) -- -- Dividends Paid -- -- -- -- -- -- Net Loss -- -- -- -- -- -- Sale of/Unrealized Gain on Marketable Securities -- -- -- -- -- -- Unrealized Net Loss on Cash Flow Hedges -- -- -- -- -- -- --------- --------- ---------- ---------- ------------ --------- SHAREHOLDERS' EQUITY, December 31, 2001 8,000,000 $ 200,000 18,770,418 $ (359,728) 123,396,017 $ 1,227 ========= ========= ========== ========== ============ =========
Deferred Accumulated Additional Compensation Retained Other Paid-in on Restricted Earnings Comprehensive Capital Shares (Deficit) Income Total ---------- ------------- --------- ------------- ---------- 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 Unrealized Net Gain on Cash Flow Hedges -- -- -- 280 280 ---------- ------------- --------- ------------ ---------- SHAREHOLDERS' EQUITY, December 31, 1999 $2,229,680 $ (41) $(386,532) $ 12,459 $2,056,774 Issuance of Common Shares 114 -- -- -- 114 Exercise of Common Share Options 1,490 -- -- -- 1,492 Preferred Equity Issuance Cost (10,006) -- -- -- (10,006) Issuance of Shares in Exchange for Operating Partnership Units 608 -- -- -- 609 Share Repurchases -- -- -- -- (180,723) Share Repurchase Agreement -- -- -- -- (101,976) Retirement of Treasury Shares (355) -- -- -- -- Retirement of Restricted Shares -- 41 -- -- 41 Dividends Paid -- -- (250,427) -- (250,427) Net Income -- -- 234,622 -- 234,622 Unrealized Net Loss on Available-for-Sale Securities -- -- -- (7,584) (7,584) Unrealized Net Loss on Cash Flow Hedges -- -- -- (11,609) (11,609) ---------- ------------- --------- ------------ ---------- SHAREHOLDERS' EQUITY, December 31, 2000 $2,221,531 $ -- $(402,337) $ (6,734) $1,731,327 Issuance of Common Shares 148 -- -- -- 149 Exercise of Common Share Options 9,832 -- -- -- 9,839 Issuance of Shares in Exchange for Operating Partnership Units 2,849 -- -- -- 2,857 Share Repurchases -- -- -- -- (77,384) Dividends Paid -- -- (217,938) -- (217,938) Net Loss -- -- (18,160) -- (18,160) Sale of/Unrealized Gain on Marketable Securities -- -- -- (7,522) (7,522) Unrealized Net Loss on Cash Flow Hedges -- -- -- (17,228) (17,228) ---------- ------------- --------- ------------ ---------- SHAREHOLDERS' EQUITY, December 31, 2001 $2,234,360 $ -- $(638,435) $ (31,484) $1,405,940 ========== ============= ========= ============ ==========
The accompanying notes are an integral part of these financial statements. 64 CRESCENT REAL ESTATE EQUITIES COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (4,659) $ 248,122 $ 10,959 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 135,484 133,336 141,940 Extraordinary item - extinguishment of debt 10,802 3,928 -- Impairment and other charges related to real estate assets 25,332 9,349 120,573 Impairment and other charges related to COPI 92,782 -- -- Increase in COPI hotel accounts receivable (20,458) -- -- Gain on property sales, net (4,425) (128,932) -- Minority interests 21,429 51,002 2,384 Non cash compensation 149 114 118 Distributions received in excess of earnings from unconsolidated companies: Office properties -- 1,589 3,757 Residential development properties 3,392 -- -- Temperature-controlled logistics 10,392 2,308 25,404 Other 90 -- 1,128 Equity in earnings in excess of distributions received from unconsolidated companies: Office properties (476) -- -- Residential development properties -- (6,878) (7,808) Other -- (3,763) -- Decrease (increase) in accounts receivable 845 (4,996) (4,474) Decrease (increase) in deferred rent receivable 3,744 (8,504) (636) (Increase) decrease in other assets (22,301) (19,672) 30,857 Increase in restricted cash and cash equivalents (18,759) (12,570) (9,682) (Increase) decrease in accounts payable, accrued expenses and other liabilities (20,550) 11,282 21,540 ------------ ------------ ------------ Net cash provided by operating activities $ 212,813 $ 275,715 $ 336,060 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of land held for investment or development -- (22,021) (500) Proceeds from property sales 200,389 627,775 -- Proceeds from joint venture transactions 129,651 -- -- Proceeds from sale of marketable securities 107,940 -- -- Development of investment properties (23,723) (41,938) (27,781) Capital expenditures - rental properties (46,427) (26,559) (20,254) Tenant improvement and leasing costs - rental properties (51,810) (68,461) (58,462) (Increase) decrease in restricted cash and cash equivalents (2,204) 5,941 (31,416) Return of investment in unconsolidated companies: Office properties 349 12,359 -- Residential development properties 19,251 61,641 78,542 Other 12,359 1,858 -- Investment in unconsolidated companies: Office properties (16,360) -- (262) Residential development properties (89,000) (91,377) (52,514) Temperature-controlled logistics (10,784) (17,100) (40,791) Other (8,418) (3,947) (104,805) (Increase) decrease in notes receivable (11,219) (9,865) 52,432 ------------ ------------ ------------ Net cash provided by (used in) investing activities $ 209,994 $ 428,306 $ (205,811) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Debt financing costs (16,061) (18,628) (16,665) Settlement of Forward Share Purchase Agreement -- -- (149,384) Borrowings under Fleet Boston Credit Facility -- -- 51,920 Payments under Fleet Boston Credit Facility -- (510,000) (201,920) Borrowings under UBS Facility 105,000 1,017,819 -- Payments under UBS Facility (658,452) (464,367) -- Borrowings under Fleet Facility 618,000 -- -- Payments under Fleet Facility (335,000) -- -- Notes payable proceeds 393,336 -- 929,700 Notes payable payments (180,685) (370,486) (498,927) Capital proceeds - joint venture preferred equity partner -- 275,000 -- Preferred equity issuance costs -- (10,006) -- Capital distributions - joint venture preferred equity partner (19,897) (72,297) -- Capital distributions - joint venture partner (5,557) (10,312) (3,190) Proceeds from exercise of share options 9,839 1,492 32,634 Treasury share repurchases (77,384) (281,462) -- 6 3/4% Series A Preferred Share distributions (13,501) (13,500) (13,500) Dividends and unitholder distributions (245,126) (281,234) (298,283) ------------ ------------ ------------ Net cash used in financing activities $ (425,488) $ (737,981) $ (167,615) ------------ ------------ ------------ DECREASE IN CASH AND CASH EQUIVALENTS $ (2,681) $ (33,960) $ (37,366) CASH AND CASH EQUIVALENTS, Beginning of period 38,966 72,926 110,292 ------------ ------------ ------------ End of period $ 36,285 $ 38,966 $ 72,926 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 65 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 for federal income tax purposes (a "REIT"), and, together with its subsidiaries, provides management, leasing and development services for some of its properties. The term "Company" includes, unless the context otherwise indicates, Crescent Equities, a Texas REIT, and all of its direct and indirect subsidiaries. The direct and indirect subsidiaries of Crescent Equities at December 31, 2001, included: o CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP The "Operating Partnership." o CRESCENT REAL ESTATE EQUITIES, LTD. The "General Partner" of the Operating Partnership. o SUBSIDIARIES OF THE OPERATING PARTNERSHIP AND THE GENERAL PARTNER Crescent Equities conducts all of its business through the Operating Partnership and its other subsidiaries. The Company is structured to facilitate and maintain the qualification of Crescent Equities as a REIT. The following table shows the subsidiaries of the Company that owned or had an interest in Properties (as defined below) as of December 31, 2001: Operating Partnership:(1) The Avallon IV, Bank One Center, Bank One Tower, Datran Center (two Office Properties), Four Westlake Park, Houston Center (three Office Properties), The Park Shops at Houston Center, The Woodlands Office Properties (eight Office Properties) and 301 Congress Avenue Crescent Real Estate The Aberdeen, The Avallon I, II & III, Carter Funding I, L.P.: Burgess Plaza, The Citadel, The Crescent Atrium, ("Funding I") The Crescent Office Towers, Regency Plaza One, Waterside Commons and 125 E. John Carpenter Freeway Crescent Real Estate Albuquerque Plaza, Barton Oaks Plaza One, Funding II, L.P.: Briargate Office and Research Center, Hyatt ("Funding II") Regency Albuquerque, Park Hyatt Beaver Creek Resort and Spa, 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 (ten Office Funding III, IV and V, Properties) and Renaissance Houston Hotel L.P.: ("Funding III, IV and (V")(2) Crescent Real Estate Canyon Ranch - Lenox Funding VI, L.P.: ("Funding VI") Crescent Real Estate 10 behavioral healthcare properties Funding VII, L.P.: ("Funding VII") Crescent Real Estate The Addison, Addison Tower, Austin Centre, The Funding VIII, L.P.: Avallon V, Canyon Ranch - Tucson, Cedar Springs ("Funding VIII") Plaza, Frost Bank Plaza, Greenway I & IA (two Office Properties), Greenway II, Omni Austin Hotel, Palisades Central I, Palisades Central II, Sonoma Mission Inn & Spa, Stemmons Place, Three Westlake Park, Trammell Crow Center, 3333 Lee Parkway, Ventana Inn & Spa, 1800 West Loop South and 5050 Quorum
66 Crescent Real Estate Chancellor Park, Denver Marriott City Center, MCI Funding IX, L.P.: Tower, Miami Center, Reverchon Plaza, 44 Cook ("Funding IX") (3) Street, 55 Madison and 6225 N. 24th Street Crescent Real Estate Fountain Place and Post Oak Central (three Office Funding X, L.P. Properties) ("Funding X") Crescent Spectrum Spectrum Center Center, L.P. (4):
- ---------- (1) The Operating Partnership has a 50% interest in Bank One Center, a 20% interest in Bank One Tower and a 20% interest in Four Westlake Park. See "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies" for a description of the ownership structure of these Properties. (2) 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. (3) Funding IX holds its interests in Chancellor Park and Miami Center through its 100% membership interests in the owners of the Properties, Crescent Chancellor Park, LLC and Crescent Miami Center, LLC. (4) Crescent Spectrum Center, L.P. holds its interest in Spectrum Center through its ownership of the underlying land and notes and a mortgage on the Property. As of December 31, 2001, Crescent SH IX, Inc. ("SH IX"), a subsidiary of the Company, owned 14,468,603 common shares of beneficial interest in Crescent Equities. See "Note 6. Notes Payable and Borrowings under Fleet Facility" for a list of certain other subsidiaries of the Company, all of which are consolidated in the Company's financial statements and were formed primarily for the purpose of obtaining secured debt or joint venture financing. See "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies" for a table that lists the Company's ownership in significant unconsolidated subsidiaries and equity investments as of December 31, 2001 including the four Office Properties in which the Company owned an interest through these unconsolidated companies and equity investments and the Company's ownership interests in the Residential Development Segment and the Temperature-Controlled Logistics Segment. SEGMENTS As of December 31, 2001, the Company's assets and operations were composed of four major investment segments: o Office Segment; o Resort/Hotel Segment; o Residential Development Segment; and o Temperature-Controlled Logistics Segment. Within these segments, the Company owned or had an interest in the following real estate assets (the "Properties") as of December 31, 2001: o OFFICE SEGMENT consisted of 74 office properties (collectively referred to as the "Office Properties") located in 26 metropolitan submarkets in six states, with an aggregate of approximately 28.0 million net rentable square feet. o RESORT/HOTEL SEGMENT consisted of five luxury and destination fitness resorts and spas with a total of 1,028 rooms/guest nights and four upscale business-class hotel properties with a total of 1,769 rooms (collectively referred to as the "Resort/Hotel Properties"). o RESIDENTIAL DEVELOPMENT SEGMENT consisted of the Company's ownership of real estate mortgages and non-voting common stock representing interests ranging from 90% to 95% in five unconsolidated residential development corporations (collectively referred to as the "Residential Development Corporations"), which in 67 turn, through joint venture or partnership arrangements, owned 21 upscale residential development properties (collectively referred to as the "Residential Development Properties"). o TEMPERATURE-CONTROLLED LOGISTICS SEGMENT consisted of the Company's 40% interest in a general partnership (the "Temperature-Controlled Logistics Partnership"), which owns all of the common stock, representing substantially all of the economic interest, of AmeriCold Corporation (the "Temperature-Controlled Logistics Corporation"), a REIT, which, as of December 31, 2001, directly or indirectly owned 89 temperature-controlled logistics properties (collectively referred to as the "Temperature-Controlled Logistics Properties") with an aggregate of approximately 445.2 million cubic feet (17.7 million square feet) of warehouse space. On February 14, 2002, the Company executed an agreement with Crescent Operating, Inc. ("COPI"), pursuant to which COPI transferred to the Company, in lieu of foreclosure, the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI and COPI's voting common stock in three of the Company's Residential Development Corporations. See "Note 20. Subsequent Events" for additional information regarding the Company's agreement with COPI. For purposes of investor communications, the Company classifies its luxury and destination fitness resorts and spas and upscale Residential Development Properties as a single group referred to as the "Resort and Residential Development Sector" due to their similar targeted customer characteristics. This group does not contain the four upscale business-class hotel properties. Additionally, for investor communications, the Company classifies its Temperature-Controlled Logistics Properties and its upscale business-class hotel properties as the "Investment Sector." However, for purposes of segment reporting as defined in Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information" and this Annual Report on Form 10-K, the Resort/Hotel Properties, including the upscale business-class hotel properties, the Residential Development Properties and the Temperature-Controlled Logistics Properties are considered three separate reportable segments. See "Note 3. Segment Reporting" for a table showing total revenues, funds from operations, and equity in net income of unconsolidated companies for each of these investment segments for the years ended December 31, 2001, 2000 and 1999 and identifiable assets for each of these investment segments at December 31, 2001 and 2000. BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company include all direct and indirect subsidiary entities. The equity interests in those direct and indirect subsidiaries the Company does not own are reflected as minority interests. All significant intercompany balances and transactions have been eliminated. Certain amounts in prior year financial statements have been reclassified to conform with current year presentation. 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: Buildings and Improvements 5 to 40 years Tenant Improvements Terms of leases Furniture, Fixtures and Equipment 3 to 5 years
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 68 for disposition, the Company reduces its carrying costs to the fair value less costs to sell. See "Note 17. Dispositions" for a description of impairment losses recognized during 2001, 2000 and 1999. Depreciation expense is not recognized on Properties 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, 2001, the Company's Office Properties in Dallas/Fort Worth and Houston represented an aggregate of approximately 77% of its office portfolio based on total net rentable square feet. The Dallas/Fort Worth Office Properties accounted for approximately 41% of that amount and the Houston Office Properties accounted for the remaining 36%. 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. 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 and capital requirements related to cash flow hedges. 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 (when it approximates the effective interest method) over the terms of the respective loans. The effective interest method is used to amortize deferred financing costs on loans where the straight-line basis does not approximate the effective interest method, 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. When a decline in the fair value of marketable securities is determined to be other than temporary, the cost basis is written down to fair value and the amount of the write-down is included in earnings for the applicable period. A decline in the fair value of a marketable security is deemed nontemporary if its cost basis has exceeded its fair value for a period of six to nine months. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to convert a portion of its variable-rate debt to fixed-rate debt and to manage its fixed to variable-rate debt ratio. As of December 31, 2001, the Company has entered into three cash flow hedge agreements which are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Under SFAS No. 133, the Company's cash flow hedges 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 and the cash flow hedge's gain or loss is reported in earnings when the interest on the underlying debt affects earnings. Any ineffective portion of the hedges is reported in earnings immediately. In connection with the debt refinancing in May 2001, the Company entered into a LIBOR interest rate cap, and simultaneously sold a LIBOR interest rate cap with the same terms. These instruments do not qualify as hedges and changes to their respective fair values are charged to earnings monthly. 69 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 prior line of credit with UBS (the "UBS Facility") and the Company's line of credit (the "Fleet 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, 2001 and 2000. REVENUE RECOGNITION OFFICE PROPERTIES The Company, as a lessor, has retained substantially all of the risks and benefits of ownership of the Office 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. RESORT/HOTEL PROPERTIES Prior to the enactment of the REIT Modernization Act, the Company's status as a REIT for federal income tax purposes prohibited it from operating the Resort/Hotel Properties. As of December 31, 2001, the Company had leased all of the Resort/Hotel Properties, except the Omni Austin Hotel, to subsidiaries of Crescent Operating, Inc. ("COPI") pursuant to eight separate leases. The Omni Austin Hotel had been leased under a separate lease to HCD Austin Corporation. During 2001 and 2000, the leases provided for the payment by the lessee of the Resort/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 Resort/Hotel Properties. Base rental income under these leases was recognized on a straight-line basis over the terms of the respective leases. Contingent revenue was recognized when the thresholds upon which it is based had been met. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties previously leased to COPI. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES Investments in which the Company does not have a controlling interest are accounted for under the equity method. See "Note 4. Investments in Real Estate Mortgages and Equity in Unconsolidated Companies" for a list of the unconsolidated entities and the Company's ownership of each. INCOME TAXES 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 90% 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. 70 USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 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.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 2001 2000 ----------------------------------------- --------------------------------------------- Income Wtd. Avg. Per Share Wtd. Avg. Per Share (Loss) Shares Amount Income Shares Amount --------- ------------ ------------ ------------ ------------ -------------- BASIC EPS - Net income before extraordinary item $ 6,143 107,613 $ 252,050 113,524 6 3/4% Series A Preferred Share distributions (13,501) (13,500) Share repurchase agreement return -- (2,906) Forward share purchase agreement return -- -- --------- ------------ ------------ ------------ ------------ -------------- Net (loss) income available to common shareholders before extraordinary item $ (7,358) 107,613 $ (0.07) $ 235,644 113,524 $ 2.08 Extraordinary item - extinguishment of debt (10,802) (0.10) (3,928) (0.03) --------- ------------ ------------ ------------ ------------ -------------- Net (loss) income available to common shareholders $ (18,160) 107,613 $ (0.17) $ 231,716 113,524 $ 2.05 ========= ============ ============ ============ ============ ============= DILUTED EPS - Net (loss) income before extraordinary item $ (7,358) 107,613 $ 235,644 113,524 Effect of dilutive securities: Additional common shares obligation relating to: Share and unit options -- 1,527 -- 1,197 Forward share purchase agreement -- -- -- -- --------- ------------ ------------ ------------ ------------ -------------- Net (loss) income available to common shareholders before extraordinary $ (7,358) 109,140 $ (0.07) $ 235,644 114,721 $ 2.05 item Extraordinary item - extinguishment of debt (10,802) (0.10) (3,928) (0.03) --------- ------------ ------------ ------------ ------------ -------------- Net (loss) income available to common shareholders $ (18,160) 109,140 $ (0.17) $ 231,716 114,721 $ 2.02 ========= ============ ============ ============ ============ ============== FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------- 1999 ------------------------------------------- Income Wtd. Avg. Per Share (Loss) Shares Amount ------------ ------------ ------------ BASIC EPS - Net income before extraordinary item $ 10,959 122,876 6 3/4% Series A Preferred Share distributions (13,500) Share repurchase agreement return (583) Forward share purchase agreement return (4,317) ------------ ------------ ------------ Net (loss) income available to common shareholders before extraordinary item $ (7,441) 122,876 $ (0.06) Extraordinary item - extinguishment of debt -- -- ------------ ------------ ------------ Net (loss) income available to common shareholders $ (7,441) 122,876 $ (0.06) ============ ============ ============ DILUTED EPS - Net (loss) income before extraordinary item $ (7,441) 122,876 Effect of dilutive securities: Additional common shares obligation relating to: Share and unit options -- 1,674 Forward share purchase agreement -- 263 ------------ ------------ ------------ Net (loss) income available to common shareholders before extraordinary $ (7,441) 124,813 $ (0.06) item Extraordinary item - extinguishment of debt -- -- ------------ ------------ ------------ Net (loss) income available to common shareholders $ (7,441) 124,813 $ (0.06) ============ ============ ============
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, 2001, 2000 and 1999, since the effect of their conversion is antidilutive. 71 SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid on debt ............................................. $ 174,584 $ 202,478 $ 188,475 Additional interest paid in conjunction with cash flow hedges ......................................................... 11,036 1,042 344 ------------ ------------ ------------ Total Interest Paid .............................................. $ 185,620 $ 203,520 $ 188,819 ============ ============ ============ 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 ................................................ $ 2,857 $ 609 $ 1,939 Issuance of Operating Partnership units in conjunction with settlement of an obligation .............................. -- 2,125 1,786 Acquisition of partnership interests .............................. -- -- 3,774 Sale of marketable securities ..................................... (8,118) -- -- Unrealized gain (loss) on available-for-sale securities ........... 596 (7,584) 17,216 Forward Share Purchase Agreement Return ........................... -- -- 4,317 Share Repurchase Agreement Return ................................. -- 2,906 583 Impairment and other charges related to real estate assets ........................................................... 25,332 9,349 178,838 Adjustment of cash flow hedge to fair value ....................... (17,228) (11,609) 280 Equity investment in a tenant in exchange for office space/other investment ventures .................. -- 4,485 -- Impairment related to a real estate investment in which the Company has an interest ...................................... -- 8,525 -- Acquisition of ownership of certain assets previously owned by Broadband Office, Inc. ....................................... 7,200 -- -- Impairment and other charges related to COPI ...................... 92,782 -- -- Additional compensation expense related to employee notes receivable ................................................... 750 -- --
NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," which provides that all business combinations in the scope of the statement are to be accounted for under the purchase method. This statement is effective for all business combinations initiated after June 30, 2001, as well as all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Since the Company currently accounts for its acquisitions under the purchase method, management does not believe that the adoption of this statement will have a material effect on its interim or annual financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which addresses financial accounting and reporting for acquired goodwill and other intangible assets. This statement requires that goodwill and some other intangible assets will no longer be amortized, and provides specific guidance for testing goodwill for impairment. This statement is effective for fiscal years beginning after December 15, 2001. The Company expects its impairment losses to range between $14,000 and $18,300 due to the initial application of this statement. These charges relate to unconsolidated 72 companies in which the Company had an interest in as of December 31, 2001. These charges will be reported as resulting from a change in accounting principle. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company has determined that SFAS No. 143 will have no material effect on its interim and annual financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. Management does not believe that adoption of this statement will have a material effect on its interim or annual financial statements; however, financial statement presentation will be modified to report the results of operations and financial position of a component of an entity that either has been disposed of or is classified as held for sale as discontinued operations. As a result, the Company will reclassify certain amounts in prior period financial statements to conform with the new presentation requirements. 3. SEGMENT REPORTING: The Company currently has four major investment segments: the Office Segment; the Resort/Hotel Segment; the Residential Development Segment; and the Temperature-Controlled Logistics 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 revised definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), effective January 1, 2000, and as used in this document, means: o Net Income (Loss) - determined in accordance with generally accepted accounting principles ("GAAP"); o excluding gains (or losses) from sales of depreciable operating property; o excluding extraordinary items (as defined by GAAP); 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 investment 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. 73 Selected financial information related to each segment for the years ended December 31, 2001, 2000 and 1999 is presented below.
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ REVENUES: Office Segment(1) $ 610,116 $ 606,040 $ 614,493 Resort/Hotel Segment 45,748 72,114 65,237 Residential Development Segment -- -- -- Temperature-Controlled Logistics Segment -- -- -- Corporate and Other(2) 40,190 40,251 66,549 ------------ ------------ ------------ TOTAL REVENUE $ 696,054 $ 718,405 $ 746,279 ============ ============ ============ FUNDS FROM OPERATIONS: Office Segment $ 358,349 $ 361,574 $ 367,830 Resort/Hotel Segment 45,282 71,446 64,079 Residential Development Segment 54,051 78,600 74,597 Temperature-Controlled Logistics Segment 23,806 33,563 37,439 Corporate and other adjustments: Interest expense (182,410) (203,197) (192,033) 6 3/4% Series A Preferred Share distributions (13,501) (13,500) (13,500) Other(3) 8,571 22,484 33,639 Corporate general & administrative (24,249) (24,073) (16,274) Impairment and other charges related to COPI (92,782) -- -- Settlement of merger dispute -- -- (15,000) ------------ ------------ ------------ TOTAL FUNDS FROM OPERATIONS $ 177,117 $ 326,897 $ 340,777 ADJUSTMENTS TO RECONCILE FUNDS FROM OPERATIONS TO NET INCOME: Depreciation and amortization of real estate assets (122,033) (119,999) (128,403) Gain on rental property sales, net 2,835 128,355 (16,361) Impairment and other charges related to real estate assets (21,705) (9,349) (136,435) Extraordinary item - extinquishment of debt (10,802) (3,928) -- Adjustment for investments in real estate mortgages and equity of unconsolidated companies: Office Properties (6,955) (4,973) (6,110) Residential Development Properties (13,037) (25,130) (31,725) Temperature-Controlled Logistics Properties (22,671) (26,131) (22,400) Other (144) -- (611) Unitholder minority interests (765) (31,120) (1,273) 6 3/4% Series A Preferred Share distributions 13,501 13,500 13,500 ------------ ------------ ------------ NET (LOSS) INCOME $ (4,659) $ 248,122 $ 10,959 ============ ============ ============ EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES: Office Properties $ 6,124 $ 3,164 $ 5,265 Resort/Hotel Properties -- -- -- Residential Development Properties 41,014 53,470 42,871 Temperature-Controlled Logistics Properties 1,136 7,432 15,039 Other(3) 2,957 11,645 5,122 ------------ ------------ ------------ TOTAL EQUITY IN NET INCOME OF UNCONSOLIDATED COMPANIES $ 51,231 $ 75,711 $ 68,297 ============ ============ ============
BALANCE AT DECEMBER 31, --------------------------- 2001 2000 ------------ ------------ IDENTIFIABLE ASSETS: Office Segment $ 2,727,939 $ 3,088,653 Resort/Hotel Segment 442,724 468,286 Residential Development Segment 371,535 305,187 Temperature-Controlled Logistics Segment 308,427 308,035 Other(3) 291,524 373,157 ------------ ------------ TOTAL IDENTIFIABLE ASSETS $ 4,142,149 $ 4,543,318 ============ ============
- ---------- (1) Excludes financial information for the four Office Properties included in "Equity of Net Income of Unconsolidated Companies." (2) For purposes of this Note, the behavioral healthcare properties' financial information has been included in this line item. 74 (3) Includes interest and other income, behavioral healthcare property income, preferred return paid to GMAC Commercial Mortgage Corporation ("GMACCM"), other unconsolidated companies, less depreciation and amortization of non-real estate assets and amortization of deferred financing costs. At December 31, 2001, COPI was the Company's largest lessee in terms of total revenues. COPI was the lessee of eight of the Resort/Hotel Properties for the year ended December 31, 2001. Total revenues recognized from COPI for the year ended December 31, 2001 were approximately 6% of the Company's total revenues. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties previously leased to COPI. See "Note 4. Investments in Real Estate Mortgages and Equity of Unconsolidated Companies - Temperature-Controlled Logistics Properties" for a description of the sole lessee of the Temperature-Controlled Logistics Properties. 4. INVESTMENTS IN REAL ESTATE MORTGAGES AND EQUITY OF UNCONSOLIDATED COMPANIES: Investments in which the Company does not have a controlling interest are accounted for under the equity method. The following is a summary of the Company's ownership in significant unconsolidated companies or equity investments:
COMPANY'S OWNERSHIP ENTITY CLASSIFICATION AS OF DECEMBER 31, 2001 - --------------------------------------------------- ------------------------------------- ---------------------------- Desert Mountain Development Corporation (1) Residential Development Corporation 95.0%(2)(3) The Woodlands Land Company, Inc.(1) Residential Development Corporation 95.0%(2)(4) Crescent Resort Development, Inc. (1) Residential Development Corporation 90.0%(2)(5) Mira Vista Development Corp. Residential Development Corporation 94.0%(2)(6) Houston Area Development Corp. Residential Development Corporation 94.0%(2)(7) Temperature-Controlled Logistics Partnership Temperature-Controlled Logistics 40.0%(8) The Woodlands Commercial Properties Company, L.P. Office 42.5%(9)(10) Main Street Partners, L.P. Office (Bank One Center) 50.0%(11) Crescent 5 Houston Center, L.P. Office (5 Houston Center) 25.0%(12) Austin PT BK One Tower Office Limited Partnership Office (Bank One Tower) 20.0%(13) Houston PT Four Westlake Office Limited Partnership Office (Four Westlake Park) 20.0%(13) DBL Holdings, Inc. Other 97.4%(14) CRL Investments, Inc.(1) Other 95.0%(15) CR License, LLC(1) Other 28.5%(16)
- ---------- (1) On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's interest in these entities. The Company will fully consolidate the operations of these entities, other than CR License, LLC, beginning on the date of the asset transfers. (2) See the Residential Development Properties Table included in "Item 2. Properties" for the Residential Development Corporation's ownership interest in the Residential Development Properties. (3) The remaining 5.0% interest in Desert Mountain Development Corporation, which represents 100% of the voting stock, was owned by COPI as of December 31, 2001. (4) The remaining 5.0% interest in The Woodlands Land Company, Inc., which represents 100% of the voting stock, was owned by COPI as of December 31, 2001. (5) The remaining 10.0% interest in Crescent Resort Development, Inc., which represents 100% of the voting stock, was owned by COPI Colorado, L. P., of which 60.0% was owned by COPI as of December 31, 2001, with 20% owned by John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, and 20% owned by a third party. (6) The remaining 6.0% interest in Mira Vista Development, Corp. ("MVDC"), which represents 100% of the voting stock, is owned 4.0% by DBL Holdings, Inc. ("DBL") and 2.0% by third parties. (7) The remaining 6.0% interest in Houston Area Development Corp. ("HADC"), which represents 100% of the voting stock, is owned 4.0% by DBL Holdings, Inc. ("DBL") and 2.0% by a third party. (8) The remaining 60.0% interest in the Temperature-Controlled Logistics Partnership is owned by Vornado Realty Trust, L.P. (9) The remaining 57.5% interest in The Woodlands Commercial Properties Company, L. P. is owned by Morgan Stanley Real Estate Fund II, L. P. ("Morgan Stanley"). (10) Distributions are made to partners based on specified payout percentages. During the year ended December 31, 2001, the payout percentage to the Company was 49.5%. (11) The remaining 50.0% interest in Main Street Partners, L.P. is owned by TrizecHahn Corporation. (12) See "5 Houston Center" below. (13) See "Four Westlake Park and Bank One Tower" below. (14) John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, obtained the remaining 2.6% economic interest in DBL (including 100% of the voting interest in DBL) in exchange for his voting interests in MVDC and HADC, originally valued at approximately $380, and approximately $63 in cash, or total consideration valued at approximately $443. At December 31, 2001, Mr. Goff's interest in DBL was approximately $554. 75 (15) The remaining 5.0% interest in CRL Investments, Inc., which represents 100% of the voting stock, was owned by COPI as of December 31, 2001. (16) Of the remaining 71.5% interest in CR License, LLC, 70.0% is owned by a group of individuals unrelated to the Company, and 1.5% was owned by COPI, as of December 31, 2001. JOINT VENTURE ARRANGEMENTS 5 Houston Center On June 4, 2001, the Company entered into a joint venture arrangement with a pension fund advised by JP Morgan Investment Management, Inc. ("JPM") to construct the 5 Houston Center Office Property within the Company's Houston Center mixed-use Office Property complex in Houston, Texas. The Class A Office Property will consist of 577,000 net rentable square feet. The joint venture is structured such that the fund holds a 75% equity interest, and the Company holds a 25% equity interest in the Property, which is accounted for under the equity method. The Company contributed approximately $8,500 of land and $12,300 of development costs to the joint venture entity and received a distribution of $14,800 of net proceeds. No gain or loss was recognized by the Company on this transaction. In addition, the Company is developing, and will manage and lease the Property on a fee basis. During the year ended December 31, 2001, the Company recognized $2,300 for these services. During the second quarter of 2001, the joint venture entity obtained an $82,500 construction loan guaranteed by the Company, due May 2004, that bears interest at Prime (as defined in the loan agreement) plus 100 basis points or LIBOR plus 225 basis points, at the discretion of the borrower. The interest rate on the loan at December 31, 2001 was 4.12%. The balance outstanding on this construction loan at December 31, 2001, was $10,429. Four Westlake Park and Bank One Tower On July 30, 2001, the Company entered into joint venture arrangements with an affiliate of General Electric Pension Fund ("GE") for two Office Properties, Four Westlake Park in Houston, Texas, and Bank One Tower in Austin, Texas. The joint ventures are structured such that GE holds an 80% equity interest in each of Four Westlake Park, a 560,000 square foot Class A Office Property located in the Katy Freeway submarket of Houston, and Bank One Tower, a 390,000 square foot Class A Office Property located in downtown Austin. The Company continues to hold the remaining 20% equity interests in each Property, which are accounted for under the equity method. The joint ventures generated approximately $120,000 in net proceeds to the Company, including distributions to the Company resulting from mortgage financing at the joint venture level. None of the mortgage financing at the joint venture level is guaranteed by the Company. The joint ventures were accounted for as partial sales of these Office Properties, resulting in a gain of approximately $7,577, net of a deferred gain of approximately $1,894. In addition, the Company manages and leases the Office Properties on a fee basis. During the year ended December 31, 2001, the Company recognized $227 for these services. METROPOLITAN On May 24, 2001, the Company converted its $85,000 preferred member interest in Metropolitan Partners, LLC ("Metropolitan") and $1,900 of deferred acquisition costs, into approximately $75,000 of common stock of Reckson Associates Realty Corp. ("Reckson"), resulting in an impairment charge of approximately $11,900. The Company subsequently sold the Reckson common stock on August 17, 2001 for approximately $78,600, resulting in a gain of approximately $3,600. The proceeds were used to pay down the Fleet Facility. DISPOSITIONS On September 27, 2001, the Woodlands Commercial Properties Company, L.P., ("Woodlands CPC"), owned by the Company and an affiliate of Morgan Stanley, sold one office/venture tech property located within The Woodlands, Texas. The sale generated net proceeds, after the repayment of debt, of approximately $2,700, of which the Company's portion was approximately $1,300. The sale generated a net gain of approximately $3,500, of which the Company's portion was approximately $1,700. The net proceeds received by the Company were used primarily to pay down variable-rate debt. 76 On November 9, 2001, The Woodlands Land Development Company, L.P., owned by the The Woodlands Land Company, Inc. and an affiliate of Morgan Stanley, sold two office properties and one retail property located within The Woodlands, Texas. The sales generated net proceeds, after the repayment of debt, of approximately $41,800, of which the Company's portion was approximately $19,700. The sale generated a net gain of approximately $8,000, of which the Company's portion was approximately $3,800. The net proceeds received by the Company were used primarily to pay down variable-rate debt. During the year ended December 31, 2000, the Woodlands CPC also sold four office/venture tech properties located within The Woodlands, Texas. The sale generated net proceeds of approximately $51,800, of which the Company's portion was approximately $22,000. The sale generated a net gain of approximately $11,800, of which the Company's portion was approximately $5,000. The proceeds received by the Company were used primarily for working capital purposes. TEMPERATURE-CONTROLLED LOGISTICS PROPERTIES Effective March 12, 1999, the Company, Vornado Realty Trust, COPI, the Temperature-Controlled Logistics Partnership and the Temperature-Controlled Logistics Corporation (including all affiliated entities that owned any portion of the business operations of the Temperature-Controlled Logistics Properties at that time) sold all of the non-real estate assets, encompassing the business operations, for approximately $48.7 million to a newly formed partnership ("AmeriCold Logistics") owned 60% by Vornado Operating L.P. and 40% by a newly formed subsidiary of COPI. The Company has no interest in AmeriCold Logistics. As of December 31, 2001, the Company held a 40% interest in the Temperature-Controlled Logistics Partnership, which owns the Temperature-Controlled Logistics Corporation, which directly or indirectly owns the 89 Temperature-Controlled Logistics Properties, with an aggregate of approximately 445.2 million cubic feet (17.7 million square feet) of warehouse space. AmeriCold Logistics, as sole lessee of the Temperature-Controlled Logistics Properties, leases the Temperature-Controlled Logistics Properties from the Temperature-Controlled Logistics Corporation under three triple-net master leases, as amended on January 23, 2002. On February 22, 2001, the Temperature-Controlled Logistics Corporation and AmeriCold Logistics agreed to restructure certain financial terms of the leases, including the adjustment of the rental obligation for 2001 to $146,000, the adjustment of the rental obligation for 2002 to $150,000 (plus contingent rent in certain circumstances), the increase of the Temperature-Controlled Logistics Corporation's share of capital expenditures for the maintenance of the properties from $5,000 to $9,500 (effective January 1, 2000) and the extension of the date on which deferred rent was required to be paid to December 31, 2003. AmeriCold Logistics' same-store earnings before interest, taxes, depreciation and amortization, and rent declined 11% for the year ended December 31, 2001, compared to 2000. These declines are attributable to a reduction in total customer inventory stored at the warehouses and a reduction in the frequency of customer inventory turnover. AmeriCold Logistics deferred $25,500 of rent for the year ended December 31, 2001, of which the Company's share was $10,200. AmericCold Logistics also deferred $19,000 and $5,400 of rent for the years ended December 31, 2000 and 1999, respectively, of which the Company's share was $7,500 and $2,100, respectively. In December 2001, the Temperature Controlled Logistics Corporation waived its right to collect $39,800 of the total $49,900 of deferred rent, of which the Company's share was $15,900. The Temperature-Controlled Logistics Corporation and the Company had recorded adequate valuation allowances related to their portions of the waived deferred rental revenue during the years ended December 31, 2000 and 2001; therefore, there was no financial statement impact to the Temperature-Controlled Logistics Corporation or to the Company related to the Temperature-Controlled Logistics Corporation's decision to waive collection of deferred rent. 77 OTHER During the year ended December 31, 2001, the Company recognized an impairment loss of $5,000, which is included in Impairment and Other Charges Related to Real Estate Assets, on a real estate investment fund that holds marketable securities, in which the Company has an interest. During the year ended December 31, 2000, the Company recognized an impairment loss of $8,525, which is included in Gain on Property Sales, Net, on a real estate investment fund that holds marketable securities, in which the Company has an interest. The Company reports its share of income and losses based on its ownership interest in its respective equity investments, adjusted for any preference payments. 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," "Office" and "Other," as applicable, as of December 31, 2001, 2000 and 1999. BALANCE SHEETS:
BALANCE AT DECEMBER 31, 2001 --------------------------------------------------------- RESIDENTIAL TEMPERATURE- DEVELOPMENT CONTROLLED CORPORATIONS LOGISTICS OFFICE OTHER ------------ ------------ ------------ ------------ Real estate, net $ 933,411 $ 1,272,784 $ 553,147 Cash 28,231 23,412 28,224 Other assets 158,385 82,967 31,654 ------------ ------------ ------------ Total assets $ 1,120,027 $ 1,379,163 $ 613,025 ============ ============ ============ Notes payable $ 225,263 $ 558,949 $ 324,718 Notes payable to the Company 240,827 4,833 -- Other liabilities 475,709 46,395 29,394 Equity 178,228 768,986 258,913 ------------ ------------ ------------ Total liabilities and equity $ 1,120,027 $ 1,379,163 $ 613,025 ============ ============ ============ Company's share of unconsolidated debt(1) $ 90,949 $ 223,580 $ 126,580 ============ ============ ============ Company's investments in real estate mortgages and equity of unconsolidated companies $ 371,535 $ 308,427 $ 121,423 $ 36,932 ============ ============ ============ ============
SUMMARY STATEMENTS OF OPERATIONS:
FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------------ RESIDENTIAL TEMPERATURE- DEVELOPMENT CONTROLLED CORPORATIONS LOGISTICS OFFICE(2) OTHER ------------ ------------ ------------ ------------ Total revenues $ 476,803 $ 120,531 $ 88,835 Expenses: Operating expense 362,984 13,349(3) 37,128 Interest expense 7,981 44,988 19,184 Depreciation and amortization 14,510 58,855 19,387 Taxes 11,095 -- -- ------------ --------- ------------ Total expenses 396,570 117,192 75,699 ------------ --------- ------------ Net income $ 80,233 $ 3,339(3) $ 13,136 ============ ========= ============ Company's equity in net income of unconsolidated companies $ 41,014 $ 1,136 $ 6,124 $ 2,957 ============ ============ ============ ============
78 - ---------- (1) The Company has guarantees or letters of credit related to approximately $89,300, or 17% of its maximum borrowings available under its unconsolidated debt. At December 31, 2001, the Company had guarantees or letters of credit related to approximately $17,000, or 4% of its total outstanding unconsolidated debt. (2) This column includes information for Four Westlake Park and Bank One Tower. These Office Properties were contributed by the Company to joint ventures on July 30, 2001. Therefore, net income for 2001 includes only the months of August through December for these Properties. (3) Inclusive of the preferred return paid to Vornado Realty Trust (1% per annum of the Total Combined Assets). BALANCE SHEETS:
BALANCE AT DECEMBER 31, 2000 --------------------------------------------------------- RESIDENTIAL TEMPERATURE- DEVELOPMENT CONTROLLED CORPORATIONS LOGISTICS OFFICE OTHER ------------ ------------ ------------ ------------ Real estate, net $ 798,312 $ 1,303,810 $ 394,724 Cash 59,639 19,606 34,599 Other assets 196,547 82,883 34,897 ------------ ------------ ------------ Total assets $ 1,054,498 $ 1,406,299 $ 464,220 ============ ============ ============ Notes payable $ 255,356 $ 561,321 $ 251,785 Notes payable to the Company 189,932 11,333 -- Other liabilities 388,980 78,042 46,054 Equity 220,230 755,603 166,381 ------------ ------------ ------------ Total liabilities and equity $ 1,054,498 $ 1,406,299 $ 464,220 ============ ============ ============ Company's share of unconsolidated debt $ 103,100 $ 224,528 $ 118,485 ============ ============ ============ Company's investments in real estate mortgages and equity of unconsolidated companies $ 305,187 $ 308,035 $ 98,308 $ 133,787 ============ ============ ============ ============
SUMMARY STATEMENTS OF OPERATIONS:
FOR THE YEAR ENDED DECEMBER 31, 2000 ------------------------------------------------------------- RESIDENTIAL TEMPERATURE- DEVELOPMENT CONTROLLED CORPORATIONS LOGISTICS OFFICE OTHER ------------ ------------ ------------ ------------ Total revenues $ 544,792 $ 154,341 $ 89,841 Expenses: Operating expense 402,577 21,982(1) 34,261 Interest expense 7,223 46,637 25,359 Depreciation and amortization 16,311 57,848 20,673 Taxes 33,214 7,311 -- Other (income) expense -- (2,886) -- ------------ ------------ ------------ Total expenses $ 459,325 $ 130,892 $ 80,293 ------------ ------------ ------------ Net income $ 85,467 $ 23,449(1) $ 9,548 ============ ============ ============ Company's equity in net income of unconsolidated companies $ 53,470 $ 7,432 $ 3,164 $ 11,645 ============ ============ ============ ============
- ---------- (1) Inclusive of the preferred return paid to Vornado Realty Trust (1% per annum of the Total Combined Assets). 79 SUMMARY STATEMENTS OF OPERATIONS:
FOR THE YEAR ENDED DECEMBER 31, 1999 ------------------------------------------------------------- RESIDENTIAL TEMPERATURE- DEVELOPMENT CONTROLLED CORPORATIONS LOGISTICS OFFICE OTHER ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
- ---------- (1) Inclusive of the preferred return paid to Vornado Realty Trust (1% per annum of the Total Combined Assets). 5. OTHER ASSETS, NET:
BALANCE AT DECEMBER 31, ---------------------------- 2001 2000 ------------ ------------ Leasing costs $ 142,440 $ 123,036 Deferred financing costs 46,305 48,645 Prepaid expenses 9,444 3,690 Marketable securities 10,832 50,321 Other 33,272 23,927 ------------ ------------ $ 242,293 $ 249,619 Less - Accumulated amortization (97,281) (77,644) ------------ ------------ $ 145,012 $ 171,975 ============ ============
80 6. NOTES PAYABLE AND BORROWINGS UNDER FLEET FACILITY: The following is a summary of the Company's debt financing at December 31, 2001 and 2000:
BALANCE AT DECEMBER 31, ----------------------- SECURED DEBT 2001 2000 ---------- ---------- UBS Term Loan II,(1) secured by the Funding VIII Properties and the Washington Harbour Office Properties ........................................................................................... $ -- $ 326,677 Fleet Fund I and II Term Loan(2)(5) due May 2005, bears interest at LIBOR plus 325 basis points (at December 31, 2001, the interest rate was 5.39%), with a four-year interest-only term, secured by equity interests in Funding I and II with a combined book value of $275,000 at December 31, 2001 ................................................................................. 275,000 200,000 AEGON Note(3) due July 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 $263,456 at December 31, 2001 ............................... 269,930 274,320 LaSalle Note I(4) 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 $262,672 at December 31, 2001 ............................................................... 239,000 239,000 Deutsche Bank-CMBS Loan due May 2004, bears interest at the 30-day LIBOR rate plus 234 basis points (at December 31, 2001, the interest rate was 5.84%), with a three-year interest-only term and two one-year extension options, secured by the Funding X Properties and Spectrum Center with a combined book value of $304,699 ............................................................... 220,000 -- JP Morgan Mortgage Note(6) due October 2016, bears interest at a fixed rate of 8.31% with a two-year interest-only term (through October 2001), followed by principal amortization based on a 15-year amortization schedule through maturity in October 2016, secured by the Houston Center mixed-use Office Property complex with a combined book value of $268,978 at December 31, 2001 ....................................................................... 199,386 200,000 LaSalle Note II(7) 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 $308,145 at December 31, 2001 ............................................................... 161,000 161,000 UBS Term Loan I,(1) secured by the Funding VIII Properties and the Washington Harbour Office Properties ........................................................................................... -- 146,775 iStar Financial Note due September 2001, bears interest at 30-day LIBOR plus 1.75% (at December 31, 2000, the rate was 8.57%) with an interest-only term, secured by the Fountain Place Office Property with a book value of $112,332 at December 31, 2000 ............. -- 97,123 UBS Line of Credit,(1) secured by the Funding VIII Properties and the Washington Harbour Properties ........................................................................................... -- 80,000 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 Resort/Hotel Property with a combined book value of $103,773 at December 31, 2001 .......................................... 63,500 63,500
81
BALANCE AT DECEMBER 31, ----------------------- SECURED DEBT -- CONTINUED 2001 2000 ---------- ---------- Metropolitan Life Note V 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 Properties with a combined book value of $68,653 at December 31, 2001 .................. $ 38,696 $ 39,219 Northwestern Life Note due January 2004, bears interest at 7.66% with an interest-only term, secured by the 301 Congress Avenue Office Property with a book value of $36,234 at December 31, 2001 .................................................................................... 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 $12,464 at December 31, 2000 ............... -- 9,263 Nomura Funding VI Note(8) 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 book value of $35,043 at December 31, 2001 ................ 8,187 8,330 Woodmen of the World Note (9) due April 2009, bears interest at 8.20% with an initial five-year interest-only term (through April 2006), followed by principal amortization based on a 25-year amortization schedule, secured by the Avallon IV Office Property with a book value of $12,858 ........ 8,500 -- Mitchell Mortgage Note due August 2002, bears interest at 7.00% with an interest-only term, secured by three of The Woodlands Office Properties with a combined book value of $9,167 ............. 6,244 -- 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 book value of $17,123 at December 31, 2001 .................................................... 651 688 UNSECURED DEBT Fleet Facility(2) due May 2004, bears interest at LIBOR plus 187.5 basis points (at December 31, 2001, the interest rate was 3.92%), with a three-year interest-only term and a one year extension option ............................................................................ 283,000 -- 2007 Notes(10) 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(10) bear interest at a fixed rate of 7.00% with a five-year interest-only term, due September 2002 ....................................................................................... 150,000 150,000 SHORT-TERM BORROWINGS Short-term borrowings (11); variable interest rates ranging from the Fed Funds rate plus 150 basis points to LIBOR plus 375 basis points, with maturities up to August 2002.............................. 15,000 -- ---------- ---------- Total Notes Payable ............................................................................. $2,214,094 $2,271,895 ========== ==========
- --------- (1) The UBS Facility was entered into effective January 31, 2000 and amended on May 10, 2000 and May 18, 2000. As amended, the UBS Facility consisted of three tranches: the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan II. In May 2001, the Company repaid and retired the UBS Facility with proceeds from a $970,000 debt refinancing. The interest rate on the UBS Line of Credit and the UBS Term Loan I was equal to LIBOR plus 250 basis points. The interest rate on the UBS Term Loan II was equal to LIBOR plus 275 basis points. As of December 31, 2000, the interest rate on the UBS Line of Credit and UBS Term Loan I was 9.20%, and the interest rate on the UBS Term Loan II was 9.46%. The weighted average interest rate on the UBS Line of Credit for the year ended December 31, 2000 was 8.91%. The Fleet Fund I and II Term Loan is the result of the modification of the Fleet Term Note II. As of December 31, 2000, the UBS Facility was secured by 25 Office Properties and four Resort/Hotel Properties with a combined book value of $1,042,207. (2) For a description of the Fleet Fund I and II Term Loan and the Fleet Facility, see "Debt Refinancing and Fleet Facility" section below. (3) The outstanding principal balance of this note at maturity will be approximately $224,100. (4) In August 2007, the interest rate will increase, 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 $220,500. (5) The Fleet Fund I and II Term Loan, entered into in May 2001, modified and replaced the previously outstanding Fleet Term Note II. Prior to the modification and replacement, the Fleet Term Note II was due August 31, 2003, bore interest at the 30-Day LIBOR rate plus 234 basis points (at December 31, 2000, the interest rate was 10.63%) with a four-year interest-only term, secured by equity interests in Funding I and II with a combined value of $200,000 at December 31, 2000. (6) At the end of seven years (October 2006), the interest rate will adjust based on current interest rates at that 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 $177,800. 82 (7) In March 2006, the interest rate will increase, 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 $154,100. (8) 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. (9) The outstanding principal balance of this loan at maturity will be approximately $8,200. (10) The notes were issued in an offering registered with the SEC. (11) Short-term borrowings include the unsecured JP Morgan Loan Sales Facility, a $50,000 credit facility, and the $50,000 unsecured Fleet Bridge Loan. The lender under the JP Morgan Loan is not required to fund draws under the loan unless certain conditions not within the control of the Company are met. As a result, the Company maintains sufficient availability under the Fleet Facility to repay the JP Morgan Loan Sales Facility at any time. At December 31, 2001, $10,000 was outstanding on the JP Morgan Loan Sales Facility and $5,000 was outstanding on the Fleet Bridge Loan. Below are the aggregate principal payments required as of December 31, 2001 under indebtedness of the Company by year. Scheduled principal installments and amounts due at maturity are included.
SECURED UNSECURED TOTAL ---------- ---------- ---------- 2002 $ 80,157 $ 165,000 $ 245,157 2003 15,060 -- 15,060 2004 262,857(1) 283,000(1) 545,857 2005 329,339 -- 329,339 2006 347,207 -- 347,207 Thereafter 481,474 250,000 731,474 ---------- ---------- ---------- $1,516,094 $ 698,000 $2,214,094 ========== ========== ==========
- --------- (1) These amounts do not represent the effect of a one-year extension option on the Fleet Facility and two one-year extension options on the Deutsche Bank -- CMBS Loan. The Company has approximately $245,157 of secured and unsecured debt payments due during 2002, consisting primarily of the Cigna Note, the Mitchell Mortgage Note and the 2002 Notes which are expected to be funded through replacement debt financing. Any uncured or unwaived events of default on the Company loans can trigger an acceleration of payment on the loan in default. In addition, a default by the Company or any of its subsidiaries with respect to any indebtedness in excess of $5,000 generally will result in a default under the Fleet Facility and the Fleet I and II Term Loan after the notice and cure periods for other indebtedness have passed. As of December 31, 2001, the Company was in compliance with all of its debt service coverage ratios and other covenants related to its outstanding debt. The Company's debt facilities generally prohibit loan pre-payment for an initial period, allow pre-payment with a penalty during a following specified period and allow pre-payment without penalty after the expiration of that period. During the year ended December 31, 2001, there were no circumstances that would require pre-payment penalties or increased collateral related to the Company's existing debt. In addition to the subsidiaries listed in "Note 1. Organization and Basis of Presentation," certain other subsidiaries of the Company were formed primarily for the purpose of obtaining secured and unsecured debt or joint venture financings. The following lists these entities, all of which are consolidated and are grouped based on the Properties to which they relate: Funding I and Funding II Properties (CREM Holdings, LLC, Crescent Capital Funding, LLC, Crescent Funding Interest, LLC, CRE Management I Corp., CRE Management II Corp.); Funding III Properties (CRE Management III Corp.); Funding IV Properties (CRE Management IV Corp.); Funding V Properties (CRE Management V Corp.); Funding VI Properties (CRE Management VI Corp.); Funding VIII Properties (CRE Management VIII, LLC); Funding IX Properties (CRE Management IX, LLC); Funding C Properties (CREF X Holdings Management, LLC, CREF X Holdings, L. P., CRE Management X, LLC); Spectrum Center Partners, L.P., Spectrum Mortgage Associates, L. P., CSC Holdings Management, LLC, Crescent SC Holdings, L. P., CSC Management, LLC); and 5 Houston Center (Development Property) (C5HC Management, LLC, Crescent 5 Houston Center, L. P.). DEBT REFINANCING AND FLEET FACILITY In May 2001, the Company (i) repaid and retired the UBS Facility which consisted of the UBS Line of Credit, the UBS Term Loan I and the UBS Term Loan II; (ii) repaid and retired the iStar Financial Note; and (iii) modified and replaced the Fleet Term Note II with proceeds from a $970,000 debt refinancing. In May 2001, The Company wrote off $10,800 of deferred financing costs related to the early extinguishment of the UBS Facility which is included in Extraordinary Item -- extinguishment of debt. 83 New Debt Resulting from Refinancing
MAXIMUM INTEREST MATURITY DESCRIPTION BORROWING RATE DATE - ------------------------------ --------- -------------------------- -------- Fleet Facility $400,000(1) LIBOR + 187.5 basis points 2004(2) Fleet Fund I and II Term Loan $275,000 LIBOR + 325 basis points 2005 Deutsche Bank - CMBS Loan $220,000 LIBOR + 234 basis points 2004(3) Deutsche Bank Short-Term Loan $ 75,000 LIBOR + 300 basis points 2001(4)
- --------- (1) The $400,000 Fleet Facility is an unsecured revolving line of credit. The weighted average interest rate from the origination of the note in May 2001 through December 31, 2001 is 5.38%. (2) One-year extension option. (3) Two one-year extension options. (4) Repaid September 19, 2001. Debt Repaid or Modified and Replaced by Refinancing
MAXIMUM INTEREST MATURITY BALANCE DESCRIPTION BORROWING RATE DATE REPAID/MODIFIED(1) - ------------------------------ --------- ------------------------ -------- ------------------ UBS Line of Credit $300,000 LIBOR + 250 basis points 2003 $165,000 UBS Term Loan I $146,775 LIBOR + 250 basis points 2003 $146,775 UBS Term Loan II $326,677 LIBOR + 275 basis points 2004 $326,677 Fleet Term Note II $200,000 LIBOR + 400 basis points 2003 $200,000 iStar Financial Note $ 97,123 LIBOR + 175 basis points 2001 $ 97,123
- --------- (1) All the amounts listed, other than the Fleet Term Note II, were repaid. In May 2001, the Fleet Term Note II was modified and replaced by the Fleet Fund I and II Term Loan. 7. INTEREST RATE CAPS: In connection with the closing of the Deutsche Bank -- CMBS Loan in May 2001, the Company entered into a LIBOR interest rate cap struck at 7.16% for a notional amount of $220,000, and simultaneously sold a LIBOR interest rate cap with the same terms. Since these instruments do not reduce the Company's net interest rate risk exposure, they do not qualify as hedges and changes to their respective fair values are charged to earnings. As the significant terms of these arrangements are substantially the same, the effects of a revaluation of these instruments are expected to substantially offset each other. 8. CASH FLOW HEDGES: The Company uses derivative financial instruments to convert a portion of its variable-rate debt to fixed-rate debt and to manage its fixed to variable-rate debt ratio. As of December 31, 2001, the Company had entered into three cash flow hedge agreements which are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133." The following table shows information regarding the Company's cash flow hedge agreements as of December 31, 2001, and interest expense for the year ended December 31, 2001:
INTEREST EXPENSE ISSUE NOTIONAL MATURITY REFERENCE FAIR FOR THE YEAR DATE AMOUNT DATE RATE MARKET VALUE ENDED DECEMBER 31, 2001 - --------- -------- --------- --------- ------------ ----------------------- 9/1/1999 $200,000 9/2/2003 6.183% $(10,800) $3,500 2/4/2000 $200,000 2/3/2003 7.11% $(10,800) $6,000 4/18/2000 $100,000 4/18/2004 6.76% $ (7,200) $2,700
84 The Company has designated its three cash flow hedge agreements as cash flow hedges of LIBOR-based monthly interest payments on a designated pool of variable-rate LIBOR indexed debt that reprices closest to the reset dates of each cash flow hedge agreement. For retrospective effectiveness testing, the Company uses the cumulative dollar offset approach as described in Derivatives Implementation Group ("DIG") Issue E8. The DIG is a task force designed to assist the FASB in answering questions that companies have resulting from implementation of SFAS No. 133 and 138. The Company uses the change in variable cash flows method as described in DIG Issue G7 for prospective testing as well as for the actual recording of ineffectiveness, if any. Under this method, the Company will compare the changes in the floating rate portion of each cash flow hedge to the floating rate of the hedged items. The cash flow hedges have been and are expected to remain highly effective. Changes in the fair value of these highly effective hedging instruments are recorded in accumulated other comprehensive income. The effective portion that has been deferred in accumulated other comprehensive income will be reclassified to earnings as interest expense when the hedged items impact earnings. If a cash flow hedge falls outside 80%-125% effectiveness for a quarter, all changes in the fair value of the cash flow hedge for the quarter will be recognized in earnings during the current period. If it is determined based on prospective testing that it is no longer likely a hedge will be highly effective on a prospective basis, the hedge will no longer be designated as a cash flow hedge and no longer qualify for accounting in accordance with SFAS Nos. 133 and 138. Over the next twelve months, an estimated $16,400 to $18,400 will be reclassified from accumulated other comprehensive income to interest expense and charged against earnings related to the effective portions of the cash flow hedge agreements. 9. RENTALS UNDER OPERATING LEASES: During 2001, the Company received rental income from the lessees of Office Property and Resort/Hotel Property space under operating leases. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which the Company acquired, in lieu of foreclosure, the lessee interests in the eight Resort/Hotel Properties previously leased to COPI. Therefore, no future rental income from the operating lessee will be recognized for these Resort/Hotel Properties. The Company recognized percentage rental income from the Resort/Hotel Properties of approximately $14,665, $24,622 and $19,648 for the years ended December 31, 2001, 2000 and 1999, respectively. 85 For noncancelable operating leases for consolidated Office Properties owned as of December 31, 2001, future minimum rentals (base rents) during the next five years and thereafter (excluding tenant reimbursements of operating expenses for Office Properties) are as follows:
OFFICE PROPERTIES ----------- 2002 $ 410,459 2003 350,022 2004 268,891 2005 213,334 2006 165,175 Thereafter 482,383 ----------- $ 1,890,264 ===========
Generally, the Office Property leases also require that each tenant reimburse the Company for increases in operating expenses above operating expenses during the base year of the tenant's lease. These amounts totaled $98,816, $91,735 and $92,865, for the years ended December 31, 2001, 2000 and 1999, 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. See "Note 2. Summary of Significant Accounting Policies," for further discussion of revenue recognition, and "Note 3. Segment Reporting," for further discussion of significant tenants. 10. COMMITMENTS AND CONTINGENCIES: LEASE COMMITMENTS The Company has 12 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, 2001, 2000, and 1999 was $2,766, $2,869 and $2,642, respectively. Future minimum lease payments due under such leases as of December 31, 2001, are as follows:
LEASES COMMITMENTS ----------- 2002 $ 2,121 2003 2,129 2004 2,136 2005 2,143 2006 2,155 Thereafter 107,219 ----------- $ 117,903 ===========
COPI COMMITMENTS See "Note 20. Subsequent Events," for a description of the Company's commitments related to the agreement with COPI, executed on February 14, 2002. 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. 86 11. STOCK AND UNIT BASED COMPENSATION: STOCK OPTION PLANS Crescent Equities has two stock incentive plans, the 1995 Stock Incentive Plan (the "1995 Plan") and the 1994 Stock Incentive Plan (the "1994 Plan"). 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, Crescent Equities had granted, net of forfeitures, 2,509,800 options and no restricted shares. The maximum number of options and/or restricted shares that Crescent Equities was able to initially grant at inception under the 1995 Plan was 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, 2001, the number of shares Crescent Equities may grant under the 1995 Plan is 9,677,794. Under the 1995 Plan, Crescent Equities had granted, net of forfeitures, options and restricted shares of 8,546,700 and 23,715 respectively, through December 31, 2001. 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. STOCK OPTIONS PLANS A summary of the status of Crescent Equities' 1994 and 1995 Plans as of December 31, 2001, 2000 and 1999 and changes during the years then ended is presented in the table below:
2001 2000 1999 ----------------------- ----------------------- ----------------------- OPTIONS TO WTD. AVG. OPTIONS TO WTD. AVG. OPTIONS TO WTD. AVG. ACQUIRE EXERCISE ACQUIRE EXERCISE ACQUIRE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- --------- ---------- --------- ---------- -------- Outstanding as of January 1, 7,966 $ 21 6,661 $ 21 6,967 $ 21 Granted 559 22 1,665 20 3,489 16 Exercised (747) 17 (209) 15 (2,900) 13 Forfeited (803) 20 (151) 20 (895) 30 Expired -- -- -- -- -- -- ---------- --------- ---------- --------- ---------- -------- Outstanding/Wtd. Avg. as of December 31, 6,975 $ 21 7,966 $ 21 6,661 $ 21 ---------- --------- ---------- --------- ---------- -------- Exercisable/Wtd. Avg. as of December 31, 3,127 $ 24 2,630 $ 23 1,721 $ 24
The following table summarizes information about the options outstanding and exercisable at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WTD. AVG. YEARS NUMBER REMAINING NUMBER RANGE OF OUTSTANDING BEFORE WTD. AVG. EXERCISABLE WTD. AVG. EXERCISE PRICES AT 12/31/01 EXPIRATION EXERCISE PRICE AT 12/31/01 EXERCISE PRICE - --------------- ----------- --------------- -------------- ----------- -------------- $11 to 19 3,258 7.4 years $ 16 1,252 $ 16 $19 to 27 2,221 8.3 22 599 22 $27 to 39 1,496 6.1 32 1,276 32 ----- --------- ----- ----- ----- $11 to 39 6,975 7.4 years $ 21 3,127 $ 24 ===== ========= ===== ===== =====
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 87 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, 2001, 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 2001, 2000 or 1999. The 1996 Unit Plan provides for the grant of options to acquire up to 2,000,000 units. Through December 31, 2001, the Operating Partnership had granted, net of forfeitures, options to acquire 1,778,571 units. Forfeited options are available for grant. The unit options granted under the 1996 Unit Plan were priced at fair market value on the date of grant, generally 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. In addition, 100,000 unit options vest 50% after three years and 50% after five years. 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 or, at the option of the Company, an equivalent amount of cash. A summary of the status of the Company's 1996 Unit Plan as of December 31, 2001, 2000 and 1999, 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
2001 2000 1999 ------------------------ ------------------------ ------------------------- SHARES WTD. AVG. SHARES WTD. AVG. SHARES WTD. AVG. UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE UNIT OPTIONS PRICE UNIT OPTIONS PRICE UNIT OPTIONS PRICE ------------ --------- ------------ --------- ------------ --------- Outstanding as of January 1, 2,414 $ 17 2,414 $ 17 4,000 $ 18 Granted -- -- -- -- 200 16 Exercised (20) 18 -- -- (1,143) 18 Forfeited -- -- -- -- (643) 18 Expired -- -- -- -- -- -- ------------ --------- ------------ --------- ------------ --------- Outstanding/Wtd. Avg. as of December 31, 2,394 $ 17 2,414 $ 17 2,414 $ 17 ------------ --------- ------------ --------- ------------ --------- Exercisable/Wtd. Avg. as of December 31, 1,766 $ 18 1,571 $ 18 1,143 $ 18
Effective March 5, 2001, the Operating Partnership granted options to acquire 150,000 Units to Dennis H. Alberts, in connection with his employment as the Chief Operating Officer of the General Partner and the Company. The Units were priced at $21.84, which was the fair market value at the date of grant. 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:
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 2001 2000 1999 ------------------------- ------------------------ ------------------------ AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- ----------- --------- Basic EPS: Net (Loss) Income available to common shareholders $ (18,160) $ (23,301) $ 231,716 $ 226,112 $ (7,441) $ (12,998) Diluted EPS: Net (Loss) Income available to common shareholders (18,160) (23,301) 231,716 226,112 (7,441) (12,998) Basic (Loss) Earnings per Share (0.17) (0.22) 2.05 1.99 (0.06) (0.11) Diluted (Loss) Earnings per Share (0.17) (0.22) 2.02 1.97 (0.06) (0.11)
At December 31, 2001, 2000 and 1999, the weighted average fair value of options granted was $2.73, $2.46 and $2.80, 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.
2001 2000 1999 -------- -------- -------- Life of options 10 years 10 years 10 years Risk-free interest rates 4.4% 8.0% 8.0% Dividend yields 8.3% 10.0% 12.0% Stock price volatility 25.7% 26.0% 27.0%
88 12. SALE OF PREFERRED EQUITY INTERESTS IN SUBSIDIARY: During the year ended December 31, 2000, the Company formed Funding IX and contributed seven Office Properties and two Resort/Hotel Properties to Funding IX. As of December 31, 2001, Funding IX held seven Office Properties and one Resort/Hotel Property. The Company owns 100% of the common voting interests in Funding IX, 0.1% in the form of a general partner interest and 99.9% in the form of a limited partner interest. As of December 31, 2001, GMAC Commercial Mortgage Corporation ("GMACCM") held $218,400 of non-voting, redeemable preferred Class A Units in Funding IX (the "Class A Units"). The Class A Units receive a preferred variable-rate dividend currently calculated at LIBOR plus 450 basis points, or approximately 6.6% per annum as of December 31, 2001, and increasing to LIBOR plus 550 basis points beginning March 15, 2002. The Class A Units are redeemable at the option of the Company at the original purchase price. Funding IX contributed the net proceeds of the sale of Class A Units in Funding IX through an intracompany loan to Crescent SH IX, Inc. ("SH IX"), for the purchase of common shares of the Company. See "Share Repurchase Program" below. This intracompany loan is eliminated in consolidation. However, the loan between Funding IX and SH IX matures March 15, 2003. The Company intends to repay the loan of approximately $285,000 at that time. The proceeds received by Funding IX will be used to redeem Class A Units. 13. SHAREHOLDERS' EQUITY: EMPLOYEE STOCK PURCHASE PLAN On June 25, 2001, the shareholders of the Company approved a new Employee Stock Purchase Plan (the "ESPP") that is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code ("IRC") of 1986, as amended. The ESPP is regarded as a noncompensatory plan under APB No. 25, because it meets the qualifications under IRC 423. Under the terms of the ESPP, eligible employees may purchase common shares of the Company at a price that is equal to 90% of the lower of the common shares' fair market value at the beginning or the end of a quarterly period. The fair market value of a common share is equal to the last sale price of the common shares on the New York Stock Exchange. Eligible employees may purchase the common shares through payroll deductions of up to 10% of eligible compensation. The ESPP is not subject to the provisions of ERISA. The ESPP was effective October 1, 2001, and will terminate on May 14, 2011. The 1,000,000 common shares that may be issued pursuant to the purchase of common shares under the ESPP represent less than 0.96% of the Company's outstanding common shares at December 31, 2001. FORWARD SHARE PURCHASE AGREEMENT 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 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. 89 SHARE REPURCHASE PROGRAM On October 15, 2001, the Company's Board of Trust Managers authorized an increase in the amount of outstanding common shares that can be repurchased from time to time in the open market or through privately negotiated transactions (the "Share Repurchase Program") from $500,000 to $800,000. The Company commenced its Share Repurchase Program in March 2000. As of December 31, 2001, the Company had repurchased 18,756,423 common shares, 20,286 of which have been retired, at an average price of $19.09 per common share for an aggregate of approximately $358,115. As of December 31, 2001, the Company held 14,468,623 of the repurchased common shares in SH IX, a wholly-owned subsidiary. The 14,468,623 common shares were repurchased with the net proceeds of the sale of Class A Units in Funding IX and with a portion of the net proceeds from the sale of one of the Properties held by Funding IX. See "Note 12. Sale of Preferred Equity Interests in Subsidiary." These common shares are consolidated as treasury shares in accordance with GAAP. However, these shares are held in SH IX until all of the Class A Units are redeemed. Distributions will continue to be paid on these repurchased common shares and will be used to pay dividends on the Class A Units. The Company expects the Share Repurchase Program to continue to be funded through a combination of debt, equity, joint venture capital and selected asset disposition alternatives available to the Company, which, in some cases, may be secured by the repurchased common shares, equity offerings including preferred and/or convertible securities, and asset sales. The amount of common shares that the Company will actually 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 common shares will actually be purchased within any particular time period. SHARE REPURCHASE AGREEMENT On November 19, 1999, the Company entered into an agreement (the "Share Repurchase Agreement") with UBS to purchase a portion of its common shares from UBS. The Company had the option to settle the Share Repurchase Agreement in cash or common shares. During the year ended December 31, 2000, the Company purchased the 5,809,180 common shares from UBS at an average cost of $17.62 per common share for an aggregate of approximately $102,333 under the Share Repurchase Agreement with UBS. The Company has no further obligation under the Share Repurchase Agreement. The purchases were funded primarily through the sale of Class A Units in Funding IX. See "Note 12. Sale of Preferred Equity Interests in Subsidiary." DISTRIBUTIONS On October 17, 2001, the Company announced that due to its revised cash flow expectations in the uncertain economic environment and measuring its payout ratios to those of the Company's peer group, the Company was reducing its quarterly distributions from $0.55 per common share, or an annualized distribution of $2.20 per common share, to $0.375 per common share, or an annualized distribution of $1.50 per common share. 90 The following table summarizes the distributions paid or declared to common shareholders, unitholders and preferred shareholders during the year ended December 31, 2001.
ANNUAL DIVIDEND/ TOTAL RECORD PAYMENT DIVIDEND/ SECURITY DISTRIBUTION AMOUNT DATE DATE DISTRIBUTION - --------------------------------- ------------ ------- --------- --------- ------------ Common Shares/Units(1) $0.550 $74,697(2) 1/31/01 2/15/01 $2.20 Common Shares/Units(1) $0.550 $74,789(2) 4/30/01 5/15/01 $2.20 Common Shares/Units(1) $0.550 $74,986(2) 7/31/01 8/15/01 $2.20 Common Shares/Units(1) $0.375(3) $49,937(2) 10/31/01 11/15/01 $1.50(3) Common Shares/Units(1) $0.375(3) $49,706(2) 1/31/02 2/15/02 $1.50(3) 6 3/4% Series A Preferred Shares $0.422 $ 3,375 1/31/01 2/15/01 $1.69 6 3/4% Series A Preferred Shares $0.422 $ 3,375 4/30/01 5/15/01 $1.69 6 3/4% Series A Preferred Shares $0.422 $ 3,375 7/31/01 8/15/01 $1.69 6 3/4% Series A Preferred Shares $0.422 $ 3,375 10/31/01 11/15/01 $1.69 6 3/4% Series A Preferred Shares $0.422 $ 3,375 1/31/02 2/15/02 $1.69
- --------- (1) Represents one-half the amount of the distribution per unit because each unit is exchangeable for two common shares. (2) These distribution amounts include $7,958 for each of the distributions paid on February 15, 2001, May 15, 2001, August 15, 2001, and $5,426 for each of the distributions paid on November 15, 2001 and February 15, 2002, which were paid on common shares held by the Company in Crescent SH IX, and which are eliminated in consolidation. (3) On October 17, 2001, the Company announced a reduction in its quarterly distribution from $0.55 per common share, or an annualized distribution of $2.20 per common share, to $0.375 per common share, or an annualized distribution of $1.50 per common share. The distributions to common shareholders and unitholders paid during the year ended December 31, 2000, were $298,547, or $2.20 per common share and equivalent unit. As of December 31, 2000, the Company was holding 14,468,623 of its common shares in Crescent SH IX. The distribution amounts above include $17,313 of distributions for the year ended December 31, 2000, which were paid for common shares held by the Company, and which are eliminated in consolidation. 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 preferred shareholders during the year ended December 31, 2000, were $13,500, or $1.6875 per preferred share. Common Shares Following is the income tax status of distributions paid on common shares and equivalent units during the years ended December 31, 2001, and 2000 to common shareholders:
2001 2000 ------ ----- Ordinary dividend 50.3% 51.5% Capital gain -- 6.4% Return of capital 49.7% 35.9% Unrecaptured Section 1250 gain -- 6.2%
Preferred Shares Following is the income tax status of distributions paid during the years ended December 31, 2001 and 2000 to preferred shareholders:
2001 2000 ------ ----- Ordinary dividend 100.0% 83.7% Capital gain -- 8.2% Unrecaptured Section 1250 gain -- 8.1%
91 14. MINORITY INTEREST: Minority interest represents (i) the limited partner interests owned by limited partners in the Operating Partnership ("units"), and (ii) joint venture and preferred equity interests held by third parties in other consolidated subsidiaries. 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, 2001, there were 401,302 units exchanged for 802,604 common shares of Crescent Equities. 15. RELATED PARTY DISCLOSURES: DBL HOLDINGS, INC. ("DBL") As of December 31, 2001, the Company owned 97.44% of DBL with the remaining 2.56% economic interest in DBL (including 100% of the voting interest in DBL) held by John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company. Originally, Mr. Goff contributed his voting interests in MVDC and HADC, originally valued at approximately $380, and approximately $63 in cash, or total consideration valued at approximately $443 for his interest in DBL. DBL has two wholly owned subsidiaries, DBL-ABC, Inc. and DBL-CBO, Inc., the assets of which are described in the following paragraphs and DBL directly holds 66% of the voting stock in Mira Vista and HADC. At December 31, 2001, Mr. Goff's interest in DBL was approximately $554. Since June 1999, the Company contributed approximately $23,800 to DBL. The contribution was used by DBL to make an equity contribution to DBL-ABC, Inc., which committed to purchase a limited partnership interest representing a 12.5% interest in G2 Opportunity Fund, LP ("G2"). G2 was formed for the purpose of investing in commercial mortgage backed securities and other commercial real estate investments and is managed and controlled by an entity that is owned equally by Goff-Moore Strategic Partners, LP ("GMSP") and GMACCM. The ownership structure of GMSP consists of 50% ownership by Darla Moore, who is married to Richard Rainwater, Chairman of the Board of Trust Managers of the Company and 50% by John Goff. Mr. Rainwater is also a limited partner of GMSP. At December 31, 2001, DBL has an approximately $14,100 investment in G2. In March 1999, DBL-CBO, Inc. acquired $6,000 aggregate principal amount of Class C-1 Notes issued by Juniper CBO 1999-1 Ltd., a Cayman Island limited liability company. At December 31, 2001 this investment was valued at approximately $5,400. COPI COLORADO, L. P. As of December 31, 2001, Crescent Resort Development, Inc. ("CRD") was owned 90% by the Company and the remaining 10%, representing 100% of the voting stock, was owned by COPI Colorado, L.P. of which 60% was owned by COPI, with 20% owned by Mr. John Goff, Vice Chairman of the Board of Trust Managers and Chief Executive Officer of the Company and 20% owned by a third party. On February 14, 2002, the Company executed an agreement with COPI, pursuant to which COPI transferred to the Company, in lieu of foreclosure, COPI's 60% general partner interest in COPI Colorado. As a result, the Company owns a 96% interest in CRD, John Goff, Vice Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, owns a 2.0% interest and the remaining 2.0% interest is owned by a third party. The Company will fully consolidate the operations of CRD beginning on the date of the asset transfer. LOANS TO EMPLOYEES AND TRUST MANAGERS OF THE COMPANY FOR EXERCISE OF STOCK OPTIONS AND UNIT OPTIONS As of December 31, 2001, the Company had approximately $32,900 of loans outstanding (including approximately $3,855 loaned during the year ended December 31, 2001) to certain employees and trust managers of the Company on a recourse basis pursuant to the Company's stock incentive plans and unit incentive plans pursuant to an agreement approved by the Board of Directors and the Executive Compensation Committee of the Company. The proceeds of these loans were used by the employees and the trust managers to acquire common shares of the Company pursuant to the exercise of vested stock and unit options. Pursuant to the loan agreements, these loans may be repaid in full or in part at any time without 92 premium or penalty. John Goff, Vice-Chairman of the Board of Trust Managers and Chief Executive Officer of the Company, had a loan representing $26,300 of the $32,900 total outstanding loans at December 31, 2001. Every month, federal short-term, mid-term and long-term rates (Applicable Federal Rates) are determined and published by the IRS based upon average market yields of specified maturities. The November Applicable Federal Rates are the new interest rates. Effective November 1, 2001, these loans were amended to reduce the interest rates for their remaining terms to the Applicable Federal Rates. As a result, the interest rates on loans with remaining terms of three years or less at November 1, 2001 were reduced to approximately 2.7% per year and the interest rates on loans with remaining terms greater than three years as of November 1, 2001 were reduced to approximately 4.07% per year. These amended interest rates reflect below prevailing market interest rates; therefore, the Company recorded $750 of compensation expense for the year ended December 31, 2001. Approximately $466 of interest was outstanding related to these loans as of December 31, 2001. 16. COPI: In April 1997, the Company established a new Delaware corporation, COPI. All of the outstanding common stock of COPI, 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. COPI was formed to become a lessee and operator of various assets to be acquired by the Company and to perform the intercompany agreement between COPI and the Company, pursuant to which each agreed to provide the other with rights to participate in certain transactions. In connection with the formation and capitalization of COPI, and the subsequent operations and investments of COPI since 1997, the Company made loans to COPI under a line of credit and various term loans. On January 1, 2001, The REIT Modernization Act became effective. This legislation allows the Company, through its subsidiaries, to operate or lease certain of its investments that had been previously operated or leased by COPI. COPI and the Company entered into an asset and stock purchase agreement on June 28, 2001, in which the Company agreed to acquire the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting interests held by subsidiaries of COPI in three of the Company's Residential Development Corporations and other assets in exchange for $78,400. In connection with that agreement, the Company agreed that it would not charge interest on its loans to COPI from May 1, 2001 and that it would allow COPI to defer all principal and interest payments due under the loans until December 31, 2001. Also on June 28, 2001, the Company entered into an agreement to make a $10,000 investment in Crescent Machinery Company ("Crescent Machinery"), a wholly owned subsidiary of COPI. This investment, together with capital from a third-party investment firm, was expected to put Crescent Machinery on solid financial footing. Following the date of the agreements relating to the acquisition of COPI assets and stock and the investment in Crescent Machinery, the results of operations for the COPI hotel operations and the COPI land development interests declined, due in part to the slowdown in the economy after September 11. In addition, Crescent Machinery's results of operations suffered because of the economic environment and the overall reduction in national construction levels that has affected the equipment rental and sale business, particularly post September 11. As a result, the Company believes that a significant additional investment would have been necessary to adequately capitalize Crescent Machinery and satisfy concerns of Crescent Machinery's lenders. The Company stopped recording rent from the leases of the eight Resort/Hotel Properties leased to subsidiaries of COPI on October 1, 2001, and recorded the following impairment and other adjustments related to COPI in the fourth quarter of 2001, based on the estimated fair value of the underlying collateral. 93 IMPAIRMENT AND OTHER ADJUSTMENTS RELATED TO COPI Resort/Hotel Accounts Receivable, net of allowance $ 33,200 Resort/Hotel Straight-Line Rent 12,700 Notes Receivable and Accrued Interest 71,500 Asset transaction costs 2,800 --------- $ 120,200 Less estimated collateral value to be received from COPI: Estimated Fair Value of Resort/Hotel FF&E $ 6,900 Estimated Fair Value of Voting Stock of Residential Development Corporations $ 38,500 --------- $ 45,400 --------- Impairment of assets $ 74,800 Plus Estimated Costs Related to a COPI Bankruptcy 18,000 --------- Impairment and other charges related to COPI $ 92,800 =========
For a description of the COPI assets transferred to subsidiaries of the Company, in lieu of foreclosure, of certain COPI assets, see "Note 20. Subsequent Events." 17. DISPOSITIONS: OFFICE SEGMENT On September 18, 2001, the Company completed the sale of the two Washington Harbour Office Properties. The sale generated net proceeds of approximately $153,000 and a net loss of approximately $9,800. The proceeds from the sale of the Washington Harbour Office Properties were used primarily to pay down variable-rate debt and repurchase approximately 4.3 million of the Company's common shares. The Washington Harbour Office Properties were the Company's only Office Properties in Washington, D.C. On September 28, 2001, the Woodlands Office Equities -- '95 Limited ("WOE"), owned by the Company and the Woodlands CPC, sold two Office Properties located within The Woodlands, Texas. The sale generated net proceeds of approximately $11,281, of which the Company's portion was approximately $9,857. The sale generated a net gain of approximately $3,418, of which the Company's portion was approximately $2,987. The proceeds received by the Company were used primarily to pay down variable-rate debt. On December 20, 2001, WOE sold one Office Property located within The Woodlands, Texas. The sale generated net proceeds of approximately $2,016, of which the Company's portion was approximately $1,761. The sale generated a net gain of approximately $1,688, of which the Company's portion was approximately $1,475. The proceeds received by the Company were used primarily to pay down variable-rate debt. The following table summarizes the condensed results of operations for the years ended December 31, 2001, 2000 and 1999 for the five Office Properties sold during 2001.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 ------- ------- ------- Revenue $16,673 $22,751 $20,683 Operating Expenses 5,998 7,460 6,588 ------- ------- ------- Net Operating Income $10,675(1) $15,291 $14,095 ======= ======= =======
- --------- (1) Net operating income for 2001 only includes the period for which the disposition Properties were held during the year. 94 During the year ended December 31, 2000, the Company completed the sale of 11 wholly-owned Office Properties. The sale of the 11 Office Properties generated approximately $268,233 of net proceeds. The proceeds were used primarily to pay down variable-rate debt. The Company recognized a net gain, which is included in Gain on Property Sales, net, of approximately $35,841 related to the sale of the 11 Office Properties during the year ended December 31, 2000. During the year ended December 31, 1999, the Company recognized an impairment loss of approximately $16,800 on one of the 11 Office Properties sold during the year ended December 31, 2000. The Company also recognized a loss of approximately $5,000, which is included in Gain on Property Sales, net, during the year ended December 31, 2000 on one of the 11 Office Properties sold. The losses represented the differences between the carrying values of the Office Properties and the sales prices less costs of the sales. During the year ended December 31, 2000, the Woodlands Retail Equities - - '96 Limited, owned by the Company and the Woodlands CPC completed the sale of its retail portfolio, consisting of the Company's four retail properties located in The Woodlands, Texas. The sale generated approximately $42,700 of net proceeds, of which the Company's portion was approximately $32,000. The sale generated a net gain of approximately $6,500, of which the Company's portion was approximately $4,900. The proceeds received by the Company were used primarily to pay down variable-rate debt. The net operating income for the years ended December 31, 2000 and 1999 for the four retail properties was $15 and $3,792, respectively. Net operating income for the year ended 2000 only includes the periods for which these properties were held during the year. RESORT/HOTEL SEGMENT On November 3, 2000, the Company completed the sale of the Four Seasons Hotel -- Houston for a sales price of approximately $105,000. The Company used approximately $19,700 of the proceeds to buy out the Property lease with COPI and the asset management contract, and for other transaction costs. The sale generated net proceeds of approximately $85,300. The Company also used approximately $56,600 of the net proceeds to redeem Class A Units in Funding IX, through which the Company owned the Property, from GMACCM. See "Note 12. Sale of Preferred Equity Interests in Subsidiary" for a description of the ownership structure of Funding IX. The sale generated a net gain, which is included in Gain on Property Sales, net, of approximately $28,715. The Company's net operating income for the years ended December 31, 2000 and 1999 for the Four Seasons Hotel -- Houston was $7,591 and $9,237, respectively. The operating results of this property are included in operating income for 2000 only for the periods for which this Property was held during the year. 95 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
2001 ----------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- --------- ------------- ------------ Revenues $ 178,846 $ 190,216 $ 175,982 $ 151,010 Income before minority interests and extraordinary item 41,000 34,101 30,508 (78,037) Minority interests (9,752) (8,337) (8,049) 4,709 Extraordinary Item -- (10,802) -- -- Net income available to common shareholders -- basic 27,873 11,587 19,084 (76,704) -- diluted 27,873 11,587 19,084 (76,704) Per share data: Basic Earnings Per Common Share -- Income before extraordinary item 0.26 0.21 0.18 (0.72) -- Net income 0.26 0.11 0.18 (0.72) Diluted Earnings Per Common Share -- Income before extraordinary item 0.26 0.20 0.17 (0.72) -- Net income 0.26 0.10 0.17 (0.72)
2000 ----------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- --------- ------------- ------------ Revenues $ 175,788 $ 175,229 $ 177,147 $ 190,241 Income before minority interests and extraordinary item 62,082 44,737 100,877 95,356 Minority interests (7,032) (8,675) (17,702) (17,593) Extraordinary Item (3,928) -- -- -- Net income available to common shareholders -- basic 45,671 31,969 83,175 70,901 -- diluted 45,671 31,969 83,175 70,901 Per share data: Basic Earnings Per Common Share -- Income before extraordinary item 0.41 0.28 0.71 0.66 -- Net income 0.38 0.28 0.71 0.66 Diluted Earnings Per Common Share -- Income before extraordinary item 0.41 0.27 0.70 0.65 -- Net income 0.38 0.27 0.70 0.65
19. BEHAVIORAL HEALTHCARE PROPERTIES: During the years ended December 31, 2001 and 2000, payment and treatment of rent for the behavioral healthcare properties was subject to a rent stipulation agreed to by certain of the parties involved in the Charter Behavioral Health Systems, LLC ("CBHS") bankruptcy proceeding. The Company received approximately $6,000 and $15,400, which is included in Interest and Other Income, in repayments of a working capital loan, rent and interest from CBHS during the years ended December 31, 2001 and 2000, respectively. The Company did not incur any expense related to the behavioral healthcare properties recognized for the years ended December 31, 2001, 2000 or 1999. During the year ended December 31, 2001, the Company completed the sale of 18 behavioral healthcare properties. The sales generated approximately $34,700 in net proceeds and a net gain of approximately $1,600 for the year ended December 31, 2001. The net proceeds from the sale of the 18 behavioral healthcare properties sold during the year ended December 31, 2001 were used primarily to pay down variable-rate debt. As of December 31, 2001, the Company owned 10 behavioral healthcare properties, all of which were classified as held for disposition. The carrying value of the behavioral healthcare properties at December 31, 2001, was approximately $27,937. Depreciation expense has not been recognized since the dates the behavioral healthcare properties were classified as held for sale. The Company is actively marketing for sale these behavioral healthcare properties. 96 During the year ended December 31, 2001, the Company recognized an impairment loss of approximately $8,500 on the behavioral healthcare properties held for disposition, which is included in Impairment and Other Charges Related to Real Estate Assets. This amount represents the difference between the carrying values and the estimated sales prices less costs of the sales for seven of the behavioral healthcare properties. During the year ended December 31, 2000, the Company completed the sale of 60 behavioral healthcare properties previously classified as held for disposition. The sales generated approximately $233,700 in net proceeds and a net gain of approximately $58,600 for the year ended December 31, 2000. During the year ended December 31, 2000, the Company recognized an impairment loss of $9,300 on the behavioral healthcare properties held for disposition. This amount represents the difference between the carrying values and the estimated sales prices less costs of the sales for 13 of the 28 behavioral healthcare properties. The net proceeds from the sale of the 60 behavioral healthcare properties sold during the year ended December 31, 2000 were used primarily to pay down variable-rate debt. As of December 31, 1999, the Company owned 88 behavioral healthcare properties. 20. SUBSEQUENT EVENTS: OFFICE SEGMENT On January 18, 2002, the Company completed the sale of the Cedar Springs Office Property located in Dallas, Texas. The sale generated net proceeds of approximately $12,000 and a net gain of approximately $4,500. The proceeds from the sale of Cedar Springs were used primarily to pay down variable-rate debt. COPI On January 22, 2002, the Company terminated the purchase agreement pursuant to which the Company would have acquired the lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI, the voting interests held by subsidiaries of COPI in three of the Residential Development Corporations and other assets. On February 4, 2002, the Company terminated the agreement relating to its planned investment in Crescent Machinery. On February 6, 2002, Crescent Machinery filed for protection under the federal bankruptcy laws. On February 12, 2002, the Company delivered default notices to COPI relating to approximately $49,000 of unpaid rent and approximately $76,200 of principal and accrued interest due to the Company under certain secured loans. On February 14, 2002, the Company executed an agreement (the "Agreement") with COPI, pursuant to which COPI transferred to subsidiaries of the Company, in lieu of foreclosure, COPI's lessee interests in the eight Resort/Hotel Properties leased to subsidiaries of COPI, COPI's voting interests in three of the Company's Residential Development Corporations and other assets and the Company agreed to assist and provide funding to COPI for the implementation of a prepackaged bankruptcy of COPI. In connection with the transfer, COPI's rent obligations to the Company were reduced by $23,600, and its debt obligations were reduced by $40,100. These amounts include $18,300 of value attributed to the lessee interests transferred by COPI to the Company; however, in accordance with GAAP, the Company assigned no value to these interests for financial reporting purposes. The Company holds the lessee interests in the eight Resort/Hotel Properties and the voting interests in the three Residential Development Corporations through three newly organized entities that are wholly owned taxable REIT subsidiaries of the Company. The Company will include these assets in its Resort/Hotel Segment and its Residential Development Segment, and will fully consolidate the operations of the eight Resort/Hotel Properties and the three Residential Development Corporations, beginning on the date of the transfers of these assets. Under the Agreement, the Company has agreed to provide approximately $14,000 to COPI in the form of cash and common shares of the Company to fund costs, claims and expenses relating to the bankruptcy and related transactions, and to provide for the distribution of the Company's common shares to the COPI stockholders. The Company estimates that the value of the common shares that will be issued to the COPI stockholders will be approximately $5,000 to $8,000. The Agreement provides that COPI and the Company will seek to have a plan of reorganization for COPI, reflecting the terms of the Agreement and a draft plan of reorganization, approved by the bankruptcy court. The actual value of the common shares 97 issued to the COPI stockholders will not be determined until the confirmation of COPI's bankruptcy plan and could vary substantially from the estimated amount. In addition, the Company has agreed to use commercially reasonable efforts to assist COPI in arranging COPI's repayment of its $15,000 obligation to Bank of America, together with any accrued interest. COPI obtained the loan primarily to participate in investments with the Company. At the time COPI obtained the loan, Bank of America required, as a condition to making the loan, that Richard E. Rainwater, the Chairman of the Board, and John C. Goff, the Chief Executive Officer of the Company, enter into a support agreement with COPI and Bank of America, pursuant to which they agreed to make additional equity investments in COPI if COPI defaulted on payment obligations under its line of credit with Bank of America and the net proceeds of an offering of COPI securities were insufficient to allow COPI to pay Bank of America in full. The Company believes, based on advice of counsel, that the support agreement should be unenforceable in a COPI bankruptcy. Effective December 31, 2001, the parties executed an amendment to the line of credit providing that any defaults existing under the line of credit on or before March 8, 2002 are temporarily cured unless and until a new default shall occur. The Company holds a first lien security interest in COPI's entire membership interest in Americold Logistics. REIT rules prohibit the Company from acquiring or owning the membership interest that COPI owns in Americold Logistics. Under the Agreement, the Company agreed to allow COPI to grant Bank of America a first priority security interest in the membership interest and to subordinate its own security interest to Bank of America. In addition, the Company has agreed to form and capitalize a separate entity to be owned by the Company's shareholders, and to cause the new entity to commit to acquire COPI's entire membership interest in the tenant for approximately $15,500. Under the Agreement, COPI has agreed that it will use the proceeds of the sale of the membership interest to repay Bank of America in full. Completion and effectiveness of the plan of reorganization for COPI is contingent upon a number of conditions, including the vote of COPI's stockholders, the approval of the plan by certain of COPI's creditors and the approval of the bankruptcy court. The following Unaudited Condensed Consolidated Pro Forma Financial Statements are based upon the historical financial statements of the Company and of the assets being transferred to the Company from COPI under the Agreement. The Unaudited Condensed Consolidated Pro Forma Balance Sheet as of December 31, 2001 is presented as if principal transactions contemplated by the Agreement had been completed on December 31, 2001. The Unaudited Condensed Consolidated Pro Forma Statements of Operations for the years ended December 31, 2001 and 2000 are presented as if these transactions had occurred as of the beginning of the respective periods. The Unaudited Condensed Consolidated Pro Forma Financial Statements have been prepared based on a number of assumptions, estimates and uncertainties including, but not limited to, estimates of the fair values of assets received and liabilities assumed and estimated transaction costs. As a result of these assumptions, estimates and uncertainties, the accompanying Unaudited Condensed Consolidated Pro Forma Financial Statements do not purport to predict the actual financial condition as of December 31, 2001 or results of operations that would have been achieved had the principal transactions contemplated by the Agreement had been completed as of January 1, 2001 or 2000. 98 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 2001 ------------------ Real estate, net $3,361,929 Cash 191,128 Other assets 1,011,741 ---------- Total assets $4,564,798 ========== Notes payable $2,396,290 Other liabilities 442,467 Minority interests 353,012 Total shareholders' equity 1,373,029 ---------- Total liabilities and shareholders' equity $4,564,798 ==========
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001 2000 ------------- ------------- Total revenues $ 1,148,828 $ 1,209,881 Total expenses 1,069,608 1,084,201 ------------- ------------- Operating Income 79,220 125,680 Total other income and expense 53,161 195,349 Income before minority interests, income taxes and extraordinary item 132,381 321,029 Income before extraordinary item and cumulative effect of change in accounting principle 94,929 249,871 ============= ============= Basic Earnings per share(1) $ 0.88 $ 2.20 Diluted Earnings per share(1) $ 0.87 $ 2.18
(1) Represents earnings per share for income before extraordinary item and cumulative effect of change in accounting principle. The unaudited pro forma condensed consolidated balance sheet combines the Company's consolidated historical balance sheet for the year ended December 31, 2001 with the following adjustments: o Reflects the inclusion of the assets and liabilities of the eight Hotel/Resort Properties as of December 31, 2001; o Eliminates the eight Hotel/Resort Properties' initial working capital receivable on the Company's balance sheet with the offsetting net working capital payable; o Adjusts the historical balance sheet to consolidate the balance sheets of Desert Mountain Development Corporation ("DMDC"), The Woodlands Land Company ("TWLC"), other entities, and COPI Colorado (which, as the owner of 100% of the voting stock of Crescent Resort Development, Inc. ("CRD"), consolidates the balance of CRD) as a result of the Company's retention of voting stock of DMDC, TWLC and other entities, and the Company's retention of the 60% general partnership interest in COPI Colorado. o Eliminates the Company's equity investment in the historical December 31, 2001 balance sheet for DMDC, TWLC, CRD and other entities; 99 o Eliminates the intercompany loans and associated accrued interest and capitalized interest between the Company and DMDC, CRD and other entities; o Reflects the Company's capitalization of a new entity to be owned by shareholders that will be committed to acquire COPI's membership interest in AmeriCold Logistics; and o Reflects the issuance of $5,000 of the Company's shares to COPI stockholders. The unaudited pro forma condensed consolidated operating results combine the Company's consolidated historical statements of operations for the years ended December 31, 2001 and 2000 with the following adjustments: o Excludes the $92,782 impairment and other charges related to COPI as contained in the Company's historical 2001 consolidated statement of operations, as it's deemed non-recurring; o Includes the operating results for the eight Hotel/Resort Properties after deducting the amount of the lessee rent payments due under the respective leases; o Eliminates hotel lessees' rent expense to the Company and the Company's rental revenue from the hotel lessees; o Reflects the consolidation of the operations of DMDC, TWLC, other entities and COPI Colorado with the Company's historical Statement of Operations, as a result of the Company's retention of voting stock for DMDC, TWLC, and other entities and the Company's retention of the 60% general partnership interest in COPI Colorado; o Eliminates the Company's historical equity in net income for DMDC, TWLC, CRD and other entities; o Eliminates intercompany interest expense on the loans from the Company to DMDC and CRD; o Reflects income tax benefit for the hotel business, calculated as 40% of the net loss for the hotel lessees; and o Reflects the additional shares issued to COPI shareholders, valued at $5,000, using the Company's current share price of $17.91. 100 SCHEDULE III CRESCENT REAL ESTATE EQUITIES COMPANY CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION DECEMBER 31, 2001 (dollars in thousands)
Costs Capitalized Impairment Subsequent to to Carrying Initial Costs Acquisitions Value ----------------------- ---------------- ------------- Land, Buildings, Buildings, Buildings, Improvements, Improvements, Improvements Furniture, Furniture, Furniture, Buildings and Fixtures and Fixtures and Fixtures and Description Land Improvements Equipment Equipment Land Equipment - ---------------------------------------------- -------- ------------- ---------------- -------------- -------- ------------ The Citadel, Denver, CO $ 1,803 $ 17,259 $ 4,782 $ -- $ 1,803 $ 22,041 Las Colinas Plaza, Irving, TX 2,576 7,125 1,965 -- 2,581 9,085 Carter Burgess Plaza, Fort Worth, TX 1,375 66,649 39,131 -- 1,375 105,780 The Crescent Office Towers, Dallas, TX 6,723 153,383 83,870 -- 6,723 237,253 MacArthur Center I & II, Irving, TX 704 17,247 5,007 -- 880 22,078 125. E. John Carpenter Freeway, Irving, TX 2,200 48,744 2,903 -- 2,200 51,647 Regency Plaza One, Denver, CO 950 31,797 2,664 -- 950 34,461 The Avallon, Austin, TX 475 11,207 723 -- 475 11,930 Waterside Commons, Irving, TX 3,650 20,135 7,445 -- 3,650 27,580 Two Renaissance Square, Phoenix, AZ -- 54,412 10,290 -- -- 64,702 Liberty Plaza I & II, Dallas, TX 1,650 15,956 538 -- 1,650 16,494 6225 North 24th Street, Phoenix, AZ 719 6,566 3,433 -- 719 9,999 Denver Marriott City Center, Denver, CO -- 50,364 6,981 -- -- 57,345 MCI Tower, Denver, CO -- 56,593 3,267 -- -- 59,860 Spectrum Center, Dallas, TX 2,000 41,096 8,009 -- 2,000 49,105 Ptarmigan Place, Denver, CO 3,145 28,815 5,437 -- 3,145 34,252 Stanford Corporate Centre, Dallas, TX -- 16,493 6,507 -- -- 23,000 Barton Oaks Plaza One, Austin, TX 900 8,207 2,032 -- 900 10,239 The Aberdeen, Dallas, TX 850 25,895 409 -- 850 26,304 12404 Park Central, Dallas, TX 1,604 14,504 4,933 -- 1,604 19,437 Briargate Office and 0 -- Research Center, Colorado Springs, CO 2,000 18,044 1,603 -- 2,000 19,647 Hyatt Regency Beaver Creek, Avon, CO 10,882 40,789 19,698 -- 10,882 60,487 Albuquerque Plaza, Albuquerque, NM -- 36,667 2,689 -- 101 39,255 Hyatt Regency Albuquerque, Albuquerque, NM -- 32,241 4,840 -- -- 37,081 The Woodlands Office Properties, Houston, TX(2) 12,007 35,865 (12,417) -- 8,735 26,720 Sonoma Mission Inn & Spa, Sonoma, CA $ 10,000 $ 44,922 $ 36,444 $ -- $ 10,000 $ 81,366 Bank One Tower, Austin, TX (3) 3,879 35,431 (39,310) -- -- -- Life on Which Depreciation in Latest come Accumulated Date of Acquisition Statement Is Description Total Depreciation Construction Date Computed - ------------------------------------------------- -------- ------------ ------------ ------------ -------------- The Citadel, Denver, CO $ 23,844 $ (15,092) 1987 1987 (1) Las Colinas Plaza, Irving, TX 11,666 (4,739) 1989 1989 (1) Carter Burgess Plaza, Fort Worth, TX 107,155 (47,594) 1982 1990 (1) The Crescent Office Towers, Dallas, TX 243,976 (159,434) 1985 1993 (1) MacArthur Center I & II, Irving, TX 22,958 (8,354) 1982/1986 1993 (1) 125. E. John Carpenter Freeway, Irving, TX 53,847 (10,614) 1982 1994 (1) Regency Plaza One, Denver, CO 35,411 (7,139) 1985 1994 (1) The Avallon, Austin, TX 12,405 (2,125) 1986 1994 (1) Waterside Commons, Irving, TX 31,230 (5,193) 1986 1994 (1) Two Renaissance Square, Phoenix, AZ 64,702 (14,627) 1990 1994 (1) Liberty Plaza I & II, Dallas, TX 18,144 (3,173) 1981/1986 1994 (1) 6225 North 24th Street, Phoenix, AZ 10,718 (2,891) 1981 1995 (1) Denver Marriott City Center, Denver, CO 57,345 (13,117) 1982 1995 (1) MCI Tower, Denver, CO 59,860 (9,457) 1982 1995 (1) Spectrum Center, Dallas, TX 51,105 (11,103) 1983 1995 (1) Ptarmigan Place, Denver, CO 37,397 (8,294) 1984 1995 (1) Stanford Corporate Centre, Dallas, TX 23,000 (4,807) 1985 1995 (1) Barton Oaks Plaza One, Austin, TX 11,139 (2,343) 1986 1995 (1) The Aberdeen, Dallas, TX 27,154 (6,357) 1986 1995 (1) 12404 Park Central, Dallas, TX 21,041 (4,043) 1987 1995 (1) Briargate Office and -- -- Research Center, Colorado Springs, CO 21,647 (3,655) 1988 1995 (1) Hyatt Regency Beaver Creek, Avon, CO 71,369 (10,104) 1989 1995 (1) Albuquerque Plaza, Albuquerque, NM 39,356 (6,271) 1990 1995 (1) Hyatt Regency Albuquerque, Albuquerque, NM 37,081 (8,041) 1990 1995 (1) The Woodlands Office Properties, Houston, TX(2) 35,455 (8,813) 1980-1993 1995 (1) Sonoma Mission Inn & Spa, Sonoma, CA $ 91,366 $ (10,734) 1927 1996 (1) Bank One Tower, Austin, TX (3) -- -- 1974 1996 (1)
101 SCHEDULE III
Costs Capitalized Impairment Subsequent to to Carrying Initial Costs Acquisitions Value ----------------------- ---------------- ------------- Land, Buildings, Buildings, Buildings, Improvements, Improvements, Improvements Furniture, Furniture, Furniture, Buildings and Fixtures and Fixtures and Fixtures and Description Land Improvements Equipment Equipment Land Equipment - ---------------------------------------------- -------- ------------- ---------------- -------------- -------- ------------ Canyon Ranch, Tucson, AZ 14,500 43,038 5,842 -- 17,846 45,534 3333 Lee Parkway, Dallas, TX 1,450 13,177 3,881 -- 1,468 17,040 Greenway I & IA, Richardson, TX 1,701 15,312 523 -- 1,701 15,835 Three Westlake Park, Houston, TX 2,920 26,512 3,114 -- 2,920 29,626 Frost Bank Plaza, Austin, TX -- 36,019 5,427 -- -- 41,446 301 Congress Avenue, Austin, TX 2,000 41,735 7,716 -- 2,000 49,451 Chancellor Park, San Diego, CA 8,028 23,430 (5,202) -- 2,328 23,928 Canyon Ranch, Lenox, MA 4,200 25,218 12,941 -- 4,200 38,159 Greenway Plaza Office Portfolio, Houston, TX 27,204 184,765 105,498 -- 27,204 290,263 The Woodlands Office Properties, Houston, TX 2,393 8,523 -- -- 2,393 8,523 1800 West Loop South, Houston, TX 4,165 40,857 2,945 -- 4,165 43,802 55 Madison, Denver, CO 1,451 13,253 1,325 -- 1,451 14,578 Miami Center, Miami, FL 13,145 118,763 7,726 -- 13,145 126,489 44 Cook, Denver, CO 1,451 13,253 2,516 -- 1,451 15,769 Trammell Crow Center, Dallas, TX 25,029 137,320 13,596 -- 25,029 150,916 Greenway II, Richardson, TX 1,823 16,421 1,105 -- 1,823 17,526 Fountain Place, Dallas, TX 10,364 103,212 8,825 -- 10,364 112,037 Behavioral Healthcare Facilities(4) 89,000 301,269 (235,137) (122,202) 12,785 20,145 Houston Center, Houston, TX 52,504 224,041 15,366 -- 47,406 244,505 Ventana Country Inn, Big Sur, CA 2,782 26,744 3,941 -- 2,782 30,685 5050 Quorum, Dallas, TX 898 8,243 846 -- 898 9,089 Addison Tower, Dallas, TX 830 7,701 663 -- 830 8,364 Cedar Springs Plaza, Dallas, TX 700 6,549 1,281 -- 700 7,830 Palisades Central I, Dallas, TX 1,300 11,797 1,513 -- 1,300 13,310 Palisades Central II, Dallas, TX 2,100 19,176 5,803 -- 2,100 24,979 Reverchon Plaza, Dallas, TX 2,850 26,302 2,198 -- 2,850 28,500 Stemmons Place, Dallas, TX -- 37,537 3,686 -- -- 41,223 The Addison, Dallas, TX 1,990 17,998 790 -- 1,990 18,788 Sonoma Golf Course, Sonoma, CA 14,956 -- 2,139 -- 11,795 5,300 Austin Centre, Austin, TX 1,494 36,475 2,675 -- 1,494 39,750 Omni Austin Hotel, Austin, TX 2,409 56,670 3,280 -- 2,409 59,950 Washington Harbour, Washington, D.C. (5) $ 16,100 $ 146,438 $ (162,538) $ -- $ -- $ -- Four Westlake Park, Houston, TX (3) 3,910 79,190 (79,190) -- 3,910 -- Post Oak Central, Houston, TX 15,525 139,777 8,492 -- 15,525 148,269 Datran Center, Miami, FL -- 71,091 3,528 -- -- 74,619 Life on Which Depreciation in Latest come Accumulated Date of Acquisition Statement Is Description Total Depreciation Construction Date Computed - ------------------------------------------------- -------- ------------ ------------ ------------ -------------- Canyon Ranch, Tucson, AZ 63,380 (6,626) 1980 1996 (1) 3333 Lee Parkway, Dallas, TX 18,508 (3,330) 1983 1996 (1) Greenway I & IA, Richardson, TX 17,536 (2,045) 1983 1996 (1) Three Westlake Park, Houston, TX 32,546 (3,765) 1983 1996 (1) Frost Bank Plaza, Austin, TX 41,446 (6,590) 1984 1996 (1) 301 Congress Avenue, Austin, TX 51,451 (8,701) 1986 1996 (1) Chancellor Park, San Diego, CA 26,256 (3,542) 1988 1996 (1) Canyon Ranch, Lenox, MA 42,359 (7,317) 1989 1996 (1) Greenway Plaza Office Portfolio, Houston, TX 317,467 (52,175) 1969-1982 1996 (1) The Woodlands Office Properties, Houston, TX 10,916 (1,805) 1995-1996 1996 (1) 1800 West Loop South, Houston, TX 47,967 (4,966) 1982 1997 (1) 55 Madison, Denver, CO 16,029 (2,229) 1982 1997 (1) Miami Center, Miami, FL 139,634 (13,615) 1983 1997 (1) 44 Cook, Denver, CO 17,220 (2,723) 1984 1997 (1) Trammell Crow Center, Dallas, TX 175,945 (20,323) 1984 1997 (1) Greenway II, Richardson, TX 19,349 (2,074) 1985 1997 (1) Fountain Place, Dallas, TX 122,401 (12,580) 1986 1997 (1) Behavioral Healthcare Facilities(4) 32,930 (4,995) 1850-1992 1997 (1) Houston Center, Houston, TX 291,911 (28,034) 1974-1983 1997 (1) Ventana Country Inn, Big Sur, CA 33,467 (4,270) 1975-1988 1997 (1) 5050 Quorum, Dallas, TX 9,987 (1,202) 1980/1986 1997 (1) Addison Tower, Dallas, TX 9,194 (1,184) 1980/1986 1997 (1) Cedar Springs Plaza, Dallas, TX 8,530 (1,309) 1980/1986 1997 (1) Palisades Central I, Dallas, TX 14,610 (1,916) 1980/1986 1997 (1) Palisades Central II, Dallas, TX 27,079 (3,532) 1980/1986 1997 (1) Reverchon Plaza, Dallas, TX 31,350 (3,760) 1980/1986 1997 (1) Stemmons Place, Dallas, TX 41,223 (5,486) 1980/1986 1997 (1) The Addison, Dallas, TX 20,778 (2,215) 1980/1986 1997 (1) Sonoma Golf Course, Sonoma, CA 17,095 (1,063) 1929 1998 (1) Austin Centre, Austin, TX 40,644 (4,195) 1986 1998 (1) Omni Austin Hotel, Austin, TX 62,359 (8,618) 1986 1998 (1) Washington Harbour, Washington, D.C. (5) $ -- $ -- 1986 1998 (1) Four Westlake Park, Houston, TX (3) 3,910 -- 1992 1998 (1) Post Oak Central, Houston, TX 163,794 (14,478) 1974-1981 1998 (1) Datran Center, Miami, FL 74,619 (6,940) 1986-1992 1998 (1)
102 SCHEDULE III
Costs Capitalized Impairment Subsequent to to Carrying Initial Costs Acquisitions Value ----------------------- ---------------- ------------- Land, Buildings, Buildings, Buildings, Improvements, Improvements, Improvements Furniture, Furniture, Furniture, Buildings and Fixtures and Fixtures and Fixtures and Description Land Improvements Equipment Equipment Land Equipment - ---------------------------------------------- -------- ------------- ---------------- -------------- -------- ------------ Avallon Phase II, Austin, TX 1,102 -- 23,365 -- 1,236 23,231 Plaza Park Garage 2,032 14,125 570 -- 2,032 14,695 Washington Harbour Phase II, Washington, D.C 15,279 411 283 -- 15,322 651 5 Houston Center, Houston, TX 7,598 -- (7,598) -- -- -- Houston Center Land, Houston, TX 14,642 -- 22 -- 14,515 149 Crescent Real Estate Equities L.P. -- -- 29,648 -- -- 29,648 Other 23,270 2,874 17,059 -- 29,608 13,595 Land held for development or sale, Dallas, TX 27,288 -- (7,474) -- 19,670 144 -------- ------------- ---------------- -------------- -------- ------------ Total $492,475 $ 3,031,622 $ 26,862 $ (122,202) $373,868 $ 3,054,889 ======== ============= ================ ============== ======== ============ Life on Which Depreciation in Latest come Accumulated Date of Acquisition Statement Is Description Total Depreciation Construction Date Computed - ------------------------------------------------- ---------- ------------ ------------ ------------ -------------- Avallon Phase II, Austin, TX 24,467 (2,055) 1997 -- (1) Plaza Park Garage 16,727 (1,020) 1998 -- (1) Washington Harbour Phase II, Washington, D.C. 15,973 -- 1998 -- (1) 5 Houston Center, Houston, TX -- -- -- -- (1) Houston Center Land, Houston, TX 14,664 (18) -- -- (1) Crescent Real Estate Equities L.P. 29,648 (9,202) -- -- (1) Other 43,203 (822) -- -- (1) Land held for development or sale, Dallas, TX 19,814 -- -- -- -- ---------- ------------ Total $3,428,757 $ (648,834) ========== ============
(1) Depreciation of the real estate assets is calculated over the following estimated useful lives using the straight-line method: Building and improvements 5 to 40 years Tenant improvements Terms of leases Furniture, fixtures, and equipment 3 to 5 years (2) During the year ended December 31, 2001, The Woodlands Office Equities - '95 Limited, owned by the Company and the Woodlands Commercial Properties Company, L.P., sold three of The Woodlands Office Properties. (3) On July 30, 2001, the Company entered into joint venture arrangements with GE for these Office Properties. The gross amount at which land is carried for Four Westlake Park includes $3,910 of land, which was not joint ventured. (4) Depreciation on behavioral healthcare properties held for sale ceased from 11/11/99 through 12/31/01 (the period over which these properties were held for sale). (5) These Office Properties were sold on September 18, 2001. 103 A summary of combined real estate investments and accumulated depreciation is as follows:
2001 2000 1999 ------------ ------------ ------------ Real estate investments: Balance, beginning of year $ 3,690,915 $ 4,095,574 $ 4,129,372 Acquisitions -- 22,170 -- Improvements 98,946 108,950 95,210 Dispositions (352,646) (526,430) (8,435) Impairments (8,458) (9,349) (120,573) ------------ ------------ ------------ Balance, end of year $ 3,428,757 $ 3,690,915 $ 4,095,574 ============ ============ ============ Accumulated Depreciation: Balance, beginning of year $ 564,805 $ 507,520 $ 387,457 Depreciation 111,086 123,839 120,745 Dispositions (27,057) (66,554) (682) ------------ ------------ ------------ Balance, end of year $ 648,834 $ 564,805 $ 507,520 ============ ============ ============
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 2002. 104 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 2002. 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 2002. 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 2002. 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, 2001 and 2000. Crescent Real Estate Equities Company Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999. Crescent Real Estate Equities Company Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999. Crescent Real Estate Equities Company Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. 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, 2001. 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 statements. 105
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.01 Restated Declaration of Trust of Crescent Real Estate Equities Company, as amended (filed as Exhibit 3.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 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 quarter ended September 30, 1998 and incorporated herein by reference) 4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to the Registrant's Registration Statement on Form S-3 (File No. 333-21905) 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 No. 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 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) 4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 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 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 (b) (4) (iii), the Registrant by this filing agrees, upon request, to furnish to the Securities and Exchange Commission a copy of other instruments defining the rights of holders of long-term debt of the Registrant 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)
106
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.02 Noncompetition Agreement of Richard E. Rainwater, as assigned to Crescent Real Estate Equities Limited Partnership on May 5, 1994 (filed as Exhibit No. 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 No. 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 as Exhibit No. 10.04 to the 1999 10-K and incorporated herein by reference) 10.05 Eighth Amendment to the Employment Agreement of John C. Goff, dated as of April 10, 2001, effective as of January 1, 2001 (filed as Exhibit No. 10.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (the "2001 2Q 10-Q") and incorporated herein by reference) 10.06 Employment Agreement of Jerry R. Crenshaw, Jr., dated as of December 14, 1998 (filed as Exhibit No. 10.08 to the 1999 10-K and incorporated herein by reference) 10.07 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) 10.08 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) 10.09 Third Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed as Exhibit No. 10.01 to the 2001 2Q 10-Q and incorporated herein by reference) 10.10 Amendment dated as of November 4, 1999 to the Crescent Real Estate Equities Company 1994 Stock Incentive Plan and the Second Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed as Exhibit No. 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 10-K") and incorporated herein by reference) 10.11 Amendment dated as of November 1, 2001 to the Crescent Real Estate Equities Company 1994 Stock Incentive Plan and the Third Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed herewith) 10.12 Amended and Restated 1995 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's Registration Statement on Form S-8 (File No. 333-3452) and incorporated herein by reference) 10.13 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan, as amended (filed as Exhibit No. 10.14 to the 1999 10-K and incorporated herein by reference) 10.14 Amendment dated as of November 5, 1999 to the 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan (filed as Exhibit No. 10.13 to the Registrant's 2000 10-K and incorporated herein by reference)
107
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.15 Crescent Real Estate Equities, Ltd. Dividend Incentive Unit Plan (filed as Exhibit No. 10.14 to the Registrant's 2000 10-K and incorporated herein by reference) 10.16 Annual Incentive Compensation Plan for select Employees of Crescent Real Estate Equities, Ltd. (filed as Exhibit No. 10.15 to the 2000 10-K and incorporated herein by reference) 10.17 Crescent Real Estate Equities, Ltd. First Amended and Restated 401(k) Plan, as amended (filed as Exhibit No. 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference) 10.18 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) 21.01 List of Subsidiaries (filed herewith) 23.01 Consent of Arthur Andersen LLP (filed herewith)
(b) Reports on Form 8-K None (c) Exhibits See Item 14(a)(3) above. 108 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 13th day of March, 2002. CRESCENT REAL ESTATE EQUITIES COMPANY (Registrant) By /s/ John C. Goff --------------------------------------------- John C. Goff Trust Manager and Chief Executive Officer SIGNATURES Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Richard E. Rainwater Trust Manager and Chairman of the Board 3/13/02 - -------------------------------- Richard E. Rainwater /s/ John C. Goff Trust Manager and Chief Executive 3/13/02 - -------------------------------- Officer (Principal Executive Officer) John C. Goff /s/ Jerry R. Crenshaw Jr. Senior Vice President and Chief Financial 3/13/02 - -------------------------------- Officer (Principal Accounting and Financial Officer) Jerry R. Crenshaw Jr. /s/ Anthony M. Frank Trust Manager 3/13/02 - -------------------------------- Anthony M. Frank /s/ William F. Quinn Trust Manager 3/13/02 - -------------------------------- William F. Quinn /s/ Paul E. Rowsey, III Trust Manager 3/13/02 - -------------------------------- Paul E. Rowsey, III /s/ David M. Sherman Trust Manager 3/13/02 - -------------------------------- David M. Sherman
109 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.01 Restated Declaration of Trust of Crescent Real Estate Equities Company, as amended (filed as Exhibit 3.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 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 quarter ended September 30, 1998 and incorporated herein by reference) 4.01 Form of Common Share Certificate (filed as Exhibit No. 4.03 to the Registrant's Registration Statement on Form S-3 (File No. 333-21905) 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 No. 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 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) 4.05 6-5/8% Note due 2002 (filed as Exhibit No. 4.07 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 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 (b) (4) (iii), the Registrant by this filing agrees, upon request, to furnish to the Securities and Exchange Commission a copy of other instruments defining the rights of holders of long-term debt of the Registrant 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)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.02 Noncompetition Agreement of Richard E. Rainwater, as assigned to Crescent Real Estate Equities Limited Partnership on May 5, 1994 (filed as Exhibit No. 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 No. 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 as Exhibit No. 10.04 to the 1999 10-K and incorporated herein by reference) 10.05 Eighth Amendment to the Employment Agreement of John C. Goff, dated as of April 10, 2001, effective as of January 1, 2001 (filed as Exhibit No. 10.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (the "2001 2Q 10-Q") and incorporated herein by reference) 10.06 Employment Agreement of Jerry R. Crenshaw, Jr., dated as of December 14, 1998 (filed as Exhibit No. 10.08 to the 1999 10-K and incorporated herein by reference) 10.07 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) 10.08 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) 10.09 Third Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed as Exhibit No. 10.01 to the 2001 2Q 10-Q and incorporated herein by reference) 10.10 Amendment dated as of November 4, 1999 to the Crescent Real Estate Equities Company 1994 Stock Incentive Plan and the Second Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed as Exhibit No. 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 10-K") and incorporated herein by reference) 10.11 Amendment dated as of November 1, 2001 to the Crescent Real Estate Equities Company 1994 Stock Incentive Plan and the Third Amended and Restated 1995 Crescent Real Estate Equities Company Stock Incentive Plan (filed herewith) 10.12 Amended and Restated 1995 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan (filed as Exhibit No. 99.01 to the Registrant's Registration Statement on Form S-8 (File No. 333-3452) and incorporated herein by reference) 10.13 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan, as amended (filed as Exhibit No. 10.14 to the 1999 10-K and incorporated herein by reference) 10.14 Amendment dated as of November 5, 1999 to the 1996 Crescent Real Estate Equities Limited Partnership Unit Incentive Plan (filed as Exhibit No. 10.13 to the Registrant's 2000 10-K and incorporated herein by reference)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.15 Crescent Real Estate Equities, Ltd. Dividend Incentive Unit Plan (filed as Exhibit No. 10.14 to the Registrant's 2000 10-K and incorporated herein by reference) 10.16 Annual Incentive Compensation Plan for select Employees of Crescent Real Estate Equities, Ltd. (filed as Exhibit No. 10.15 to the 2000 10-K and incorporated herein by reference) 10.17 Crescent Real Estate Equities, Ltd. First Amended and Restated 401(k) Plan, as amended (filed as Exhibit No. 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference) 10.18 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) 21.01 List of Subsidiaries (filed herewith) 23.01 Consent of Arthur Andersen LLP (filed herewith)
EX-10.01 3 d94913ex10-01.txt SECOND AMENDED/RESTATED AGREEMENT OF LP EXHIBIT 10.01 ------------------------------------ SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP ------------------------------------ Dated as of November 1, 1997 TABLE OF CONTENTS
Page ---- 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
(i) 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
(ii) 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
(iii) 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
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) 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 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;
Number of REIT Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ---- ------------ 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
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Number of REIT Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ---- ------------ 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
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Number of REIT Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ---- ------------ 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
WHEREAS, on May 14, 1997, Crescent Equities issued 500,000 REIT Shares in a public stock offering at a cash price of $25.875 per share, which cash proceeds were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the First Amended Agreement; -4- WHEREAS, on June 30, 1997, (i) the Partnership issued 1,046 Partnership Units valued at $66,421 to Texas Greenbrier Associates, Inc. ("Greenbrier") pursuant to a Consultant Unit Agreement dated August 15, 1995 between Greenbrier and the Partnership; and (ii) Greenbrier immediately exercised its Exchange Right with respect to such 1,046 Partnership Units; WHEREAS, on July 8, 1997, Crescent Equities issued 217 REIT Shares to each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in payment of trust managers' fees and, in connection therewith, Crescent Equities shall receive credit for an aggregate Capital Contribution to the Partnership of $20,018.25; Whereas, On July 25, 1997, Crescent Equities issued 351,185 REIT Shares in a public offering at a cash price of $28.475 per share, which cash proceeds were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the First Amended Agreement; WHEREAS, on August 12, 1997, Crescent Equities issued 4,700,000 REIT Shares to UBS Securities (Portfolio) LLC at a price of $31.5625 per share, pursuant to that certain Purchase Agreement, dated as of August 11, 1997, by and among Crescent Equities, UBS Securities (Portfolio) LLC and Union Bank of Switzerland, London Branch, acting through its agent UBS Securities LLC, which cash proceeds were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the First Amended Agreement; WHEREAS, effective August 29, 1997, Crescent Equities granted (i) 33 REIT Shares to Tommy Ellis; (ii) 33 REIT Shares to Alan Friedman; (iii) 34 REIT Shares to Shannon Gilbert; (iv) 34 REIT Shares to Jana Irwin; (v) 33 REIT Shares to John Walker; and (vi) 33 REIT Shares to John Zogg, in accordance with resolutions of the Board of Trust Managers of Crescent Equities, dated as of August 29, 1997 and, in connection therewith, Crescent Equities shall receive credit for an aggregate Capital Contribution to the Partnership of $6,325.00; WHEREAS, on August 31, 1997, Crescent Equities rescinded 177,604 Partnership Units held by Canyon Ranch, Inc. pursuant to Article II of that certain Contribution Agreement dated July 26, 1996 between the Partnership and Canyon Ranch, Inc. WHEREAS, on September 8, 1997, Gerald W. Haddock exercised his Exchange Right with respect to 8,900 Partnership Units; WHEREAS, on September 22, 1997, Crescent Equities issued 307,831 REIT Shares in a public offering at a cash price of $32.485 per share, which cash proceeds were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the First Amended Agreement; WHEREAS, on October 1, 1997, Greenbrier exercised options to purchase 25,500 REIT Shares pursuant to the 1994 stock option plan of Crescent Equities and, in connection therewith, Crescent Equities shall receive credit for a Capital Contribution to the Partnership of $1,012,031.25; WHEREAS, on October 7, 1997, Crescent Equities issued 138 REIT Shares to each of Morton H. Meyerson, William F. Quinn and Paul E. Rowsey, III in payment of trust managers' fees and, in connection therewith, Crescent Equities shall receive credit for an aggregate Capital Contribution to the Partnership of $16,767; WHEREAS, on October 8, 1997, Crescent Equities issued 10,000,000 REIT Shares in a public stock offering at a cash price of $39.00 per share, which cash proceeds were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the First Amended Agreement; -5- 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 -6- 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; -7- (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. -8- "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. -9- "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 -10- 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. -11- "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) -12- 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. -13- "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. -14- "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 -15- 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 -16- 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. -17- "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 -18- 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: -19- (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 -20- 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 -21- 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 -22- 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 -23- 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 -24- (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 -25- 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 -26- 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; -27- (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 -28- 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 -29- 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 -30- 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; -31- 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, -32- 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 -33- 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. -34- 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. -35- 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 -36- 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 -37- 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 -38- 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 -39- 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. -40- 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. -41- 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 -42- 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. -43- 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 -44- 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. -45- 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 -46- 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 -47- 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. -48- 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 -49- 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. -50- 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 -51- 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 -52- 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 -53- 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 -54- 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"): -55- 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 -56- 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. -57- 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 -58- 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 -59- 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: -60- (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: -61- (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 -62- "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. -63- 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. -64- 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. -65- 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. -66- 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] -67- 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:
Number of REIT Capital Individual Exercise Date Shares Purchased Stock Option Plan Contribution -------------- ------------- ---------------- ----------------- ------------ 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
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
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:
Number of Partnership Units Individual or Entity Exercise Date Exchanged ------------------------------ -------------------- -------------------- 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
WHEREAS, on December 8, 1997, Richard E. Rainwater assigned 1,300 Partnership Units to Darla D. Moore; WHEREAS, on December 19, 1997, Crescent Equities issued 5,375,000 REIT Shares in a public stock offering at a cash price of $38.125 per share, which cash proceeds aggregating $204,921,875 were contributed to the Partnership by Crescent Equities pursuant to Section 4.2 of the Effective Agreement; WHEREAS, effective as of December 31, 1997, Crescent Equities issued 30,933 REIT Shares to Senterra Real Estate Group, L.L.C. ("Senterra") in satisfaction of certain obligations of the Partnership to Senterra, and, in connection therewith, Crescent Equities shall receive credit for a Capital Contribution to the Partnership of $1,200,000; WHEREAS, on January 5, 1998, Canyon Ranch, Inc. assigned 61,250 Partnership Units to the University of Arizona Foundation; -2- WHEREAS, on January 8, 1998. Crescent Equities issued 196 REIT Shares to each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment of trust managers' fees and, in connection therewith, Crescent Equities shall receive credit for a Capital Contribution to the Partnership of $20,064; WHEREAS, on January 16, 1998, Darla D. Moore assigned 682 Partnership Units to the Scott Asset Trust UA and 682 Partnership Units to the Pridemore Asset Trust UA; WHEREAS, on January 16, 1998, Richard E. Rainwater assigned 682 Partnership Units to the Scott Asset Trust UA and 682 Partnership Units to the Pridemore Asset Trust UA; WHEREAS, on February 19,1998, Crescent Equities issued 8,000,000 6-3/4% Series A Convertible Cumulative Preferred Shares ("Series A Preferred Shares") and, in connection therewith, the General Partner, pursuant to Section 8.7.C of the Effective Agreement, is required to cause the Partnership to issue to Crescent Equities preferred equity ownership interests in the Partnership ("Series A Preferred Partnership Units"), and, pursuant to its authority under Sections 6.1.C and 8.7.C of the Effective Agreement, desires to make such revisions to the Agreement as are necessary to reflect the issuance of the Series A Preferred Partnership Units; and WHEREAS, the General Partner desires to amend the Effective Agreement pursuant to its authority under Sections 2.4 and 14.1.B of the Effective Agreement and the powers of attorney granted to the General Partner by the Limited Partners in order to reflect the aforementioned. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: 1. In order to reflect (i) the Capital Contributions of Crescent Equities aggregating $366,500 in connection with the exercise of options to purchase REIT Shares by Julie C. Carey, Anna Dean, Howard Lovett, Bobby Vann, Bret Angle, Lynn B. Sonsel, Fred Hoeckstra and Anthony M. Frank, as more fully set forth above, (ii) the exercise by Gerald W. Haddock, the Pridemore Asset Trust UA, the Scott Asset Trust UA, Peter G. Henry, the University of Arizona Foundation, The Joost Family Living Trust, Robert J. Stirk, and the Lone Star Trust of their Exchange Rights with respect to Partnership Units, as more fully set forth above, (iii) the assignment by Richard E. Rainwater of 1,300 Partnership Units to Darla D. Moore, (iv) the Capital Contribution by Crescent Equities on December 19, 1997 of $204,921,875 in connection with the public stock offering of 5,375,000 REIT Shares at $38,125 per share, (v) the assignment by Canyon Ranch, Inc. of 61,250 Partnership Units to the University of Arizona Foundation, (vi) the Capital Contribution by Crescent Equities on December 31, 1997, of $1,200,000 in connection with the issuance OF 30,933 REIT Shares to Senterra in satisfaction of certain obligations of the Partnership to Senterra, (vii) the Capital Contribution by Crescent Equities on January 8, 1998, of $20,064 in connection with the issuance of 196 REIT shares to each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III in payment of trust managers' fees, (viii) the assignment by Darla D. Moore of 682 Partnership Units to each of the Scott Irrevocable Asset Trust and the Pridemore Irrevocable Asset Trust, and (ix) the assignment by Richard E. Rainwater of 682 Partnership Units to each of the Scott Irrevocable Asset Trust and the Pridemore Irrevocable Asset Trust, Exhibit A to the Effective Agreement is hereby deleted in its entirety and replaced with the Exhibit A attached to this First Amendment and made a part hereof. -3- 2. Pursuant to Section 8.7.C of the Effective Agreement, effective as of February 19, 1998, the issuance date of Series A Preferred Shares by Crescent Equities, the Partnership hereby issues 8,000,000 Series A Preferred Partnership Units to Crescent Equities. (a) Crescent Equities shall have a zero percentage Partnership Interest with respect to such Series A Preferred Partnership Units and shall have no voting rights other than the right to vote on any amendment to the Effective Agreement if such amendment would (i) convert the Series A Preferred Partnership Units into a general partner's interest, (ii) modify the limited liability of Crescent Equities with respect to the Series A Preferred Partnership Units, or (iii) alter the distribution, redemption, conversion or liquidation rights of the Series A Preferred Partnership Units as set forth in paragraphs 2(b) through (e) below. (b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to any distributions of Available Cash under such provision, the General Partner shall cause distributions of Available Cash to be made quarterly in cash on the 15th day, or if not a Business Day, the next succeeding Business Day, of February, May, August and November in each year, beginning November 15, 1998, (or on any other date on which Crescent Equities makes a distribution of accrued, unpaid quarterly distributions to the holders of Series A Preferred Shares) to Crescent Equities in an amount equal to the amount that is required to be distributed by Crescent Equities on that date to the holders of Series A Preferred Shares. (c) Notwithstanding Sections 6.1.A and B of the Effective Agreement (i) Each year, after giving effect to the special allocations set forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the Partnership shall be allocated first to Crescent Equities until the cumulative amount allocated under this paragraph 2(c)(i) to Crescent Equities for the current year and all prior years is equal to the cumulative amount for the current year and all prior years of the distributions made to Crescent Equities under paragraph 2(b) above and the portion of the distributions made to Crescent Equities under paragraph 2(d) below (if any) that exceeds $25 per Series A Preferred Partnership Unit. Any remaining Net Profits or Net Losses (other than gain or loss from a sale or other disposition of all or substantially all of the assets of the Partnership, which shall be allocated as set forth in paragraphs 2(c)(ii) and (iii) below) shall be allocated as set forth in Sections 6.1.A and B of the Effective Agreement. (ii) The gain of the Partnership from a sale or other disposition of all or substantially all of the assets of the Partnership shall be allocated among the Partners as follows: (A) first, to Crescent Equities in the amount necessary to cause its Capital Account balance to be equal to the liquidation preference payable by Crescent Equities on the outstanding Series A Preferred Shares (the "Liquidation Preference") (i.e., a liquidation payment of $25 per Series A Preferred Partnership Unit, necessary, plus and accrued, unpaid quarterly distribution thereon), (B) second, to the Partners in the amounts necessary, and in the ratio of such amounts, to cause the Capital Account balance of Crescent Equities in excess of the liquidation Preference and the Capital Account of each other Partner to be in the same ratio as their respective Partnership Interests, and (iii) thereafter, to all of the Partners in proportion to their respective Partnership Interests (iii) The loss of the Partnership from a sale or other disposition of all or substantially all of the assets of the Partnership shall be allocated among the Partners as follows: (A) first, to the Partners, if any, having positive Capital Account balances, in the amounts necessary, and in the ratio of such amounts, so as to cause the positive Capital Account Balance of Crescent -4- Equities to equal the Liquidation Preference and the positive Capital Account balance of each other Partner to equal zero (or, if there is insufficient loss to accomplish this result, loss shall be allocated in a manner so as to cause the positive Capital Account balance of Crescent Equities in excess of the Liquidation Preference and the positive Capital Account balance of each other Partner to be in the same ratio as their respective Partnership Interests), (B) second, to Crescent Equities, until its positive Capital Account balance equals zero, and (C) thereafter, to the Partners in proportion to their respective Partnership Interests. (d) In the event that Crescent Equities exercises its redemption right with respect to the Series A Preferred Shares, the Partnership shall concurrently redeem a corresponding amount of Series A Preferred Partnership Units at the same redemption price paid by Crescent Equities for the Series A Preferred Shares (i.e., a redemption payment of $25 per Series A Preferred Partnership Unit, plus any accrued, unpaid quarterly distribution thereon). (e) Upon exercise of any conversion right with respect to Series A Preferred Shares, (i) Crescent Equities shall, as of the date on which the conversion is consummated, be deemed to have contributed to the Partnership as Contributed Funds pursuant to Section 4.2.A(2) of the Effective Agreement an amount equal to the Value (computed as of the Business Day immediately preceding the date on which such conversion is consummated) of the REIT Shares delivered by Crescent Equities to such holder of Series A Preferred Shares, (ii) the Partnership Interests of Crescent Equities and the other Limited Partners shall be adjusted as set forth in Section 4.2 of the Effective Agreement, and (iii) a corresponding portion of Series A Preferred Partnership Units shall be retired. 3. Except as the context may otherwise require, any terms used in this First Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this First Amendment as in the Effective Agreement. 4. Except as herein amended, the Effective Agreement is hereby ratified, confirmed, and reaffirmed for all purposes and in all respects. IN WITNESS WHEREOF, the undersigned has executed this First Amendment as of the date first written above. GENERAL PARTNER: CRESCENT REAL ESTATE EQUITIES, LTD., a Delaware corporation, on its own behalf and as attorney-in-fact for the Limited Partners pursuant to Sections 2.4 and 14.1.B of the Effective Agreement By: /s/ DAVID M. DEAN ----------------------------- Name: David M. Dean ----------------------------- Title: Senior Vice President, Law ----------------------------- [EXHIBITS OMITTED] -5- 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: 1. In order to reflect the issuance of a Limited Partnership interest including 125,155 Partnership Units to Senterra and Senterra's immediate distribution of 83,441, 20,857 and 20,857 Partnership Units to Senterra Corporation, Blalock, and Tofsky, respectively, Exhibit A to the Effective Agreement is hereby deleted in its entirety and replaced with the Exhibit A attached to this Second Amendment and made a part hereof. 2. Each of Senterra Corporation, Blalock, and Tofsky hereby acknowledges that it acquired a Limited Partnership Interest in exchange for a Capital Contribution by Senterra of the Property, which Capital Contribution has a Net Asset Value of $8,521,500. 3. Each of Senterra Corporation, Blalock, and Tofsky hereby acknowledges its acceptance of all of the terms and conditions of the Effective Agreement, including without limitation the power of attorney granted in Section 2.4 of the Effective Agreement, and all of the terms and conditions hereof. 4. Except as the context may otherwise require, any terms used in this Second Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this Second Amendment as in the Effective Agreement. 5. Except as herein amended, the Effective Agreement is hereby ratified, confirmed, and reaffirmed for all purposes and in all respects. IN WITNESS WHEREOF, the undersigned has executed this Second Amendment as of the date first written above. GENERAL PARTNER: CRESCENT REAL ESTATE EQUITIES, LTD., a Delaware corporation, on its own behalf and as attorney-in-fact for the Limited Partners pursuant to Sections 2.4 and 14.1.B of the Effective Agreement By: /s/ DAVID M. DEAN -------------------------------- Name: DAVID M. DEAN -------------------------------- Title: Senior Vice President, Law -------------------------------- -2- NEW LIMITED PARTNERS: /s/ MYRON G. BLALOCK, III --------------------------------------- Myron G. Blalock, III /s/ NEIL H. TOFSKY --------------------------------------- Neil H. Tofsky SENTERRA CORPORATION, a Texas corporation By: /s/ DOUGLAS W. SCHNITZER ----------------------------------- Name: Douglas W. Schnitzer Title: President The undersigned is executing this Second Amendment for the sole purpose of evidencing its contribution to the Partnership of the property and assets specified in the Contract in exchange for a Limited Partnership Interest including 123,155 Partnership Units, and its immediate withdrawal as a Partner in connection with the distribution of 20,857 Partnership Units to each of Blalock and Tofsky, and 83,441 Partnership Units to Senterra Corporation. SENTERRA REAL ESTATE GROUP, L.L.C., a Texas limited liability company By: /s/ NEIL H. TOFSKY ----------------------------------- Name: Neil H. Tofsky Title: President [EXHIBITS OMITTED] -3- 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 Partnership in exchange for the issuance of a Limited Partnership Interest to Alan R. Novak ("Novak"), the sole shareholder of Lano; WHEREAS, the General Partner desires to reflect the admission of AHHC and Novak as Additional Limited Partners, in exchange for the Capital Contributions described above, pursuant to Section 4.3 of the Effective Agreement, upon the terms and conditions set forth herein; WHEREAS, the General Partner further desires to grant Partnership Units (as defined in Article I of the Effective Agreement) to Novak and AHHC pursuant to Section 4.3 of the Effective Agreement upon the terms and conditions set forth herein; and WHEREAS, the General Partner desires to amend the Effective Agreement pursuant to its authority under Sections 2.4 and 14.1.B of the Effective Agreement and the powers of attorney granted to the General Partner by the Limited Partners in order to reflect the aforementioned. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: 1. In exchange for the Capital Contribution of AHHC described above (which Capital Contribution has a Net Asset Value of $4,940,095), the Partnership hereby admits AHHC as an Additional Limited Partner effective as of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with AHHC having the Partnership Interest and number of Partnership Units set forth on Exhibit A hereto opposite its name. 2. In exchange for the Capital Contribution of Lano described above (which Capital Contribution has a Net Asset Value of $2,509,905), the Partnership hereby admits Novak as an Additional Limited Partner effective as of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with Novak having the Partnership Interest and number of Partnership Units set forth on Exhibit A hereto opposite its name. 3. Each of Novak and AHHC hereby acknowledges its acceptance of all of the terms and conditions of the Effective Agreement, including without limitation the power of attorney granted in Section 2.4 of the Effective Agreement, and all of the terms and conditions hereof. 4. Novak and AHHC, each for itself, hereby irrevocably constitutes and appoints the General Partner, with full power of substitution, its true and lawful attorney for each of Novak and AHHC and in the name, place, and stead of each of them, and for each of their use and benefit, to execute a future amendment to the Effective Agreement and such other documents and instruments, and to take such actions, as the General Partner deems necessary, desirable or appropriate to effect the issuance of additional Partnership Units or, as the case may be, the retirement and cancellation of Partnership Units pursuant to the provisions of the Assignment and Assumption Agreement. Each of Novak and AHHC agrees that this power of attorney is a power coupled with an interest and shall survive and not be effected by the termination of this Third -2- Amendment (unless and until replaced by a power of attorney granting at least the same rights to the General Partner) or by the transfer of all or any portion of either Novak's or AHHC's Limited Partnership Interest and shall extend to the successors and assigns of Novak and AHHC. Each of Novak and AHHC hereby agrees to be bound by any representation made by the General Partner, acting in good faith under this power of attorney, and each of Novak and AHHC hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner, taken in good faith under this power of attorney. 5. Neither Novak nor AHHC may sell, assign, transfer, convey, or otherwise dispose of its Partnership Units for twelve (12) months from the date of this Third Amendment. 6. Notwithstanding anything to the contrary contained in Section 2.C of Exhibit C to the Effective Agreement, for purposes of Section 2.B(1)(a) of such Exhibit C, the General Partner shall have the authority, in its sole and absolute discretion, to elect the method to be used under Treasury Regulations section 1.704-3 to take into account the variation between the fair market value and the adjusted tax basis of the Contract as of the date of its contribution to the Partnership. 7. In order to reflect the issuance of a Limited Partnership Interest including 36,185 Partnership Units to Novak and a Limited Partnership Interest including 71,222 Partnership Units to AHHC, Exhibit A to the Effective Agreement is hereby deleted in its entirety and replaced with the Exhibit A attached to this Third Amendment and made a part hereof. 8. Except as the context may otherwise require, any terms used in this Third Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this Third Amendment as in the Effective Agreement. 9. This Third Amendment may be executed in several counterparts, each of which will be deemed an original, and all of which will constitute but one and the same instrument. 10. Except as herein amended, the Effective Agreement is hereby ratified, confirmed, and reaffirmed for all purposes and in all respects. -3- IN WITNESS WHEREOF, the undersigned has executed this Third Amendment as of the date first written above. GENERAL PARTNER: --------------- CRESCENT REAL ESTATE EQUITIES, LTD., a Delaware corporation, on its own behalf and as attorney-in-fact for the Limited Partners pursuant to Sections 2.4 and 14.1.B of the Effective Agreement By: /s/ David M. Dean ------------------------------------- Name: David M. Dean ----------------------------------- Title: Senior Vice President, Law ---------------------------------- NEW LIMITED PARTNERS: /s/ Alan R. Novak ---------------------------------------- Alan R. Novak ARMADA/HOFFLER HOLDING COMPANY, a Virginia corporation By: /s/ A. Russell Kirk ------------------------------------- Name: A. Russell Kirk ----------------------------------- Title: Vice Chairman ---------------------------------- [Exhibits omitted.] -4- 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"); WHEREAS, under the Purchase Agreement, (i) Myers Group III has agreed to contribute to the Partnership a 40% undivided interest in certain assets, free and clear of any all encumbrances other than certain permitted encumbrances, as more fully set forth in the Purchase Agreement (the "Myers Group III Contributed Assets") in exchange for a Limited Partnership Interest in the Partnership, and (ii) Myers Group IV has agreed to contribute to the Partnership a 40% undivided interest in certain assets, free and clear of any all encumbrances other than certain permitted encumbrances, as more fully set forth in the Purchase Agreement (the "Myers Group IV Contributed Assets") in exchange for a Limited Partnership Interest in the Partnership; WHEREAS, the General Partner desires to reflect the admission of Myers Group III and Myers Group IV as Additional Limited Partners, in exchange for the Capital Contributions described above, pursuant to Section 4.3 of the Effective Agreement, upon the terms and conditions set forth herein; WHEREAS, the General Partner further desires to grant Partnership Units (as defined in Article I of the Effective Agreement) to Myers Group III and Myers Group IV pursuant to Section 4.3 of the Effective Agreement upon the terms and conditions set forth herein; and WHEREAS, the General Partner desires to amend the Effective Agreement pursuant to its authority under Sections 2.4 and 14.1.B of the Effective Agreement and the powers of attorney granted to the General Partner by the Limited Partners in order to reflect the aforementioned. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Crescent Equities shall receive credit for a Capital Contribution to the Partnership of $44,058,737 on April 29, 1998 pursuant to Sections 4.2 of the Effective Agreement in connection with the issuance of 1,365,138 REIT Shares in a public stock offering. 2. In exchange for the Capital Contribution of Myers Group III described above (which Capital Contribution has a Net Asset Value of $489,183), the Partnership hereby admits Myers Group III as an Additional Limited Partner effective as of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with Myers Group III having the Limited Partnership Interest and number of Partnership Units set forth on Exhibit A hereto opposite its name. 3. In exchange for the Capital Contribution of Myers Group IV described above (which Capital Contribution has a Net Asset Value of $3,510,817), the Partnership hereby admits Myers Group IV as an Additional Limited Partner effective as of the date hereof, pursuant to Section 4.3 of the Effective Agreement, with Myers Group IV having the Limited Partnership Interest and number of Partnership Units set forth on Exhibit A hereto opposite its name. 4. Each of Myers Group III and Myers Group IV hereby acknowledges its acceptance of all of the terms and conditions of the Effective Agreement, including without limitation the -2- power of attorney granted in Section 2.4 of the Effective Agreement, and all of the terms and conditions hereof. 5. Myers Group III and Myers Group IV, each for itself, hereby irrevocably constitutes and appoints the General Partner, with full power of substitution, its true and lawful attorney for each of Myers Group III and Myers Group IV and in the name, place, and stead of each of them, and for each of their use and benefit, to execute a future amendment to the Effective Agreement and such other documents and instruments, and to take such actions, as the General Partner deems necessary, desirable or appropriate to effect any adjustment to the Limited Partnership Interest (and the number of Partnership Units) of Myers Group III or Myers Group IV pursuant to the provisions of the Purchase Agreement. Each of Myers Group III and Myers Group IV agrees that this power of attorney is a power coupled with an interest and shall survive and not be effected by the termination of this Fourth Amendment (unless and until replaced by a power of attorney granting at least the same rights to the General Partner) or by the transfer of all or any portion of either Myers Group III's or Myers Group IV's Limited Partnership Interest and shall extend to the successors and assigns of Myers Group III and Myers Group IV. Each of Myers Group III and Myers Group IV hereby agrees to be bound by any representation made by the General Partner, acting in good faith under this power of attorney, and each of Myers Group III and Myers Group IV hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner, taken in good faith under this power of attorney. 6. Notwithstanding anything to the contrary contained in Section 2.C of Exhibit C to the Effective Agreement, for purposes of Section 2.B(1)(a) of such Exhibit C, the General Partner shall have the authority, in its sole and absolute discretion, to elect the method to be used under Treasury Regulations section 1.704-3 to take into account the variation between the fair market value and the adjusted tax basis of the Myers Group III Contributed Assets and the Myers Group IV Contributed Assets as of their date of contribution to the Partnership. 7. In addition to the transfer restrictions set forth in Article 11 of the Effective Agreement, each of Myers Group III and Myers Group IV hereby acknowledges the transfer restrictions set forth in Section 5.14 of the Purchase Agreement, and further agrees that it (and any successor owner of its Limited Partnership Interest) shall not transfer any Limited Partnership Interest owned by it except in a transfer that constitutes a transfer of all of its Limited Partnership Interest and Partnership Units, to a Person that constitutes only one "partner" in the Partnership for purposes of Regulations Section 1.7704-1. 8. In order to reflect the issuance of a Limited Partnership Interest including 7,123 Partnership Units to Myers Group III and a Limited Partnership Interest including 51,121 Partnership Units to Myers Group IV, Exhibit A to the Effective Agreement is hereby deleted in its entirety and replaced with the Exhibit A attached to this Fourth Amendment and made a part hereof. 9. Each of Myers Group III and Myers Group IV hereby agrees to execute (or cause its beneficial owners to execute, as required) any and all applications, documents or disclosures -3- which may be required by any regulating agency or commission having jurisdiction over any aspect of the gaming industry or gaming establishments. 10. The General Partner hereby confirms that, as of the date of this Fourth Amendment, the Exchange Factor is two (2). 11. Except as the context may otherwise require, any terms used in this Fourth Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this Fourth Amendment as in the Effective Agreement. 12. This Fourth Amendment may be executed in several counterparts, each of which will be deemed an original, and all of which will constitute but one and the same instrument. 13. Except as herein amended, the Effective Agreement is hereby ratified, confirmed, and reaffirmed for all purposes and in all respects. [SIGATURES ARE CONTAINED ON THE FOLLOWING PAGE.] -4- 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- 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 which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Pursuant to Section 8.7.C of the Effective Agreement, effective as of June 30, 1998, the issuance date of Series B Preferred Shares by Crescent Equities, the Partnership hereby issues 6,948,734 Series B Preferred Partnership Units to Crescent Equities. (a) Crescent Equities shall have a zero percentage Partnership Interest with respect to such Series B Preferred Partnership Units and shall have no voting rights other than the right to vote on any amendment to the Effective Agreement if such amendment would (i) convert the Series B Preferred Partnership Units into a general partner's interest, (ii) modify the limited liability of Crescent Equities with respect to the Series B Preferred Partnership Units, or (iii) alter the distribution, redemption, conversion or liquidation rights of the Series B Preferred Partnership Units as set forth in paragraphs 1(b) through (e) below. (b) Notwithstanding Section 5.2 of the Effective Agreement, and prior to any distributions of Available Cash under such provision, the General Partner shall cause distributions of Available Cash to be made in cash, on any date on which Crescent Equities makes a distribution of accrued, unpaid quarterly distributions to the holders of Series A Preferred Shares or of extraordinary cash distributions to the holders of Series B Preferred Shares, to Crescent Equities in an amount equal to the amount that is required to be distributed by Crescent Equities on that date to the holders of Series A Preferred Shares and Series B Preferred Shares. Notwithstanding Section 5.4 of the Effective Agreement, the General Partner shall cause the Partnership to make non-cash distributions of assets to Crescent Equities on any date on which Crescent Equities is required to make non-cash distributions of assets to the Series B Preferred Shares in an amount equal to the amount that is required to be distributed by Crescent Equities on that date to the holders of the Series B Preferred Shares. (c) Notwithstanding Sections 6.1.A and B of the Effective Agreement: (i) Each year, after giving effect to the special allocations set forth in Section 1 of Exhibit C to the Effective Agreement, gross income of the Partnership shall be allocated first to Crescent Equities until the cumulative amount allocated under this paragraph 1(c)(i) to Crescent Equities for the current year and all prior years is equal to the cumulative amount for the current year and all prior years of the sum of (A) the distributions made to Crescent Equities under paragraph 1(b) above, and (B) the portion of the distributions made to Crescent Equities under paragraph 2(d) of the First Amendment (if any) that exceeds $25 per Series A Preferred Partnership Unit. Any remaining Net Profits or Net Losses (other than gain or loss from a sale or other disposition of all or substantially all of the assets of the Partnership, which shall be allocated as set forth in paragraphs 1(c)(ii) and (iii) below) shall be allocated as set forth in Sections 6.1.A and B of the Effective Agreement. (ii) The gain of the Partnership from a sale or other disposition of all or substantially all of the assets of the Partnership shall be allocated among the Partners as follows: (A) first, to Crescent Equities in the amount necessary to cause its Capital Account balance to be equal to the liquidation preferences payable by Crescent Equities on the outstanding Series A Preferred Shares and Series B Preferred Shares (the "Liquidation Preferences") (i.e., a liquidation payment of $25 per Series A Preferred Partnership Unit, plus any accrued, unpaid quarterly distribution thereon, and a liquidation payment of $32.38 per Series B Preferred Partnership Unit, plus -2- 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- 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- 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:
Number of REIT Stock Option Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ----------- ------------ Alan Powers 3/16/98 600 1994 Plan $20,550.00 Alan Powers 3/16/98 1,200 1995 Plan $41,100.00
Number of REIT Stock Option Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ------------ ------------ 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
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Number of REIT Stock Option Capital Individual Exercise Date Shares Purchased Plan Contribution - ---------- ------------- ---------------- ------------ ------------ 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
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:
Number of Partnership Individual or Entity Exercise Date Units Exchanged -------------------- ------------- -------------------- 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
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- 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- 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- 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- 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; 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:
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
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Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
-3-
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
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- 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- 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- 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- 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] 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; 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:
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
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- 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- 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- 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- 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] 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"); 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:
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
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- 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- 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 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 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 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 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 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:
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
-2-
Number of REIT Stock Capital Individual Exercise Date Shares Purchased Option Plan Contribution - ---------- ------------- ---------------- ----------- ------------ 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
-3- 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- 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- 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- 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"); 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- 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- 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. 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:
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- --------- ----------------- ------------ 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
2
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- --------- ----------------- ------------ 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
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 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 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 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 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 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 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:
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- --------- ----------------- ------------ 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
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:
Number of Individual Exercise Date Partnership Units Exchanged - ---------- ------------- --------------------------- Gerald Haddock 1/24/00 10,000 Scott Irrevocable Asset Trust 1/25/00 400 Pridemore Irrevocable Asset Trust 1/25/00 2,662
2 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 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 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 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. 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- 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- SIXTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP THIS SIXTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated as of July 31, 2001, is entered into by and between 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, and the Fifteenth Amendment to the Second Amendment and Restated Agreement of Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated as of March 1, 2000 (hereinafter referred to as the "Effective Agreement"), Rainwater RainAm Investors, and Samuel H. Yager. 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, 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:
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ David M. Dean 2/16/00 800 1994 Plan $12,700.00 Morton H. Meyerson 3/6/00 2,800 First Amended and $46,025.00 Restated 1995 Plan Morton H. Meyerson 3/14/00 2,800 First Amended and $46,200.00 Restated 1995 Plan Terri E. Black 3/14/00 1,800 1995 Plan $29,700.00 David M. Dean 3/14/00 6,000 1995 Plan $99,000.00 Kimberly A. Dean 3/14/00 3,000 1994 Plan $49,500.00 Dallas E. Lucas 5/15/00 10,000 1994 Plan $181,875.00 Dallas E. Lucas 5/16/00 10,000 1994 Plan $190,000.00 Dallas E. Lucas 5/17/00 5,000 1994 Plan $95,000.00 Dallas E. Lucas 5/19/00 10,000 1994 Plan $191,250.00 Dallas E. Lucas 5/22/00 4,800 1994 Plan $91,200.00 Dallas E. Lucas 5/23/00 10,000 1995 Plan $196,875.00 Dallas E. Lucas 5/24/00 14,000 1995 Plan $280,875.00
-2-
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ Elizabeth V. Corbell 6/21/00 400 1994 Plan $8,825.00 Nancy Hancock Lovett 6/26/00 5,000 1995 Plan $107,500.00 Kimberly A. Dean 7/11/00 6,000 1994 Plan $132,000.00 Michael A. Howell 7/17/00 400 First Amended and $8,825.00 Restated 1995 Plan Henry L. Cosby 7/17/00 200 First Amended and $4,412.50 Restated 1995 Plan Jack T. Gardner 7/19/00 3,200 1994 Plan $70,200.00 Bobby C. Vann 7/19/00 200 First Amended and $4,387.50 Restated 1995 Plan Jennifer A. Benton 7/19/00 1,600 1994 Plan $35,100.00 John R. Leathers 8/10/00 400 First Amended and $8,950.00 Restated 1995 Plan Teresa J. Shiller 8/25/00 200 First Amended and $4,475.00 Restated 1995 Plan Jennifer L. Miller 9/7/00 800 1994 Plan $17,850.00 Carlos S. Gonzalez 9/7/00 200 First Amended and $4,462.50 Restated 1995 Plan Barry L. Gruebbel 9/15/00 4,000 1994 Plan $91,250.00 John L. Zogg 10/31/00 1,200 1994 Plan $24,150.00 John L. Zogg 10/31/00 12,000 1995 Plan $241,500.00 Kimberly A. Dean 11/10/00 5,500 1994 Plan $111,375.00 Suzanne M. Stevens 12/11/00 12,000 Second Amended and Restated $279,000.00 1995 Plan Anna M. Dean 12/15/00 600 First Amended and $13,762.50 Restated 1995 Plan Melissa R. Graham 12/27/00 1,280 Second Amended and Restated $29,440.00 1995 Plan Jennifer A. Benton 3/14/01 400 1995 Plan $8,544.00 Mark R. Stanfield 3/15/01 4,200 1995 Plan $88,494.00 Mark R. Stanfield 3/15/01 2,120 Second Amended and Restated $44,668.40 1995 Plan
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Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ Howard W. Lovett 3/15/01 16,700 1995 Plan $351,869.00 Howard W. Lovett 3/15/01 24,800 First Amended and $522,536.00 Restated 1995 Plan Howard W. Lovett 3/15/01 20,000 Second Amended and Restated $421,000.00 1995 Plan Morton H. Meyerson 3/21/01 2,800 First Amended and $61,488.00 Restated 1995 Plan Robert L. Hustwit 3/30/01 2,120 Second Amended and Restated $48,124.00 1995 Plan Steven R. Cole 4/5/01 16,000 Second Amended and Restated $367,040.00 1995 Plan David S. Sikute 4/5/01 940 Second Amended and Restated $21,563.60 1995 Plan Brett Angle 4/5/01 200 First Amended and $4,588.00 Restated 1995 Plan Lori D. Brigman 4/11/01 3,400 Second Amended and Restated $77,486.00 1995 Plan C. Robert Baird 4/16/01 1,700 Second Amended and Restated $38,845.00 1995 Plan Dennis H. Alberts 4/17/01 60,000 Second Amended and Restated $1,394,400.00 1995 Plan Debra A. Wilson 4/18/01 2,560 Second Amended and Restated $60,800.00 1995 Plan William D. Miller 4/18/01 16,000 Second Amended and Restated $380,000.00 1995 Plan Jennifer L. Miller 4/20/01 860 Second Amended and Restated $20,622.80 1995 Plan Wayne B. Posey 4/20/01 1,500 First Amended and $35,970.00 Restated 1995 Plan Wayne B. Posey 4/20/01 5,100 Second Amended and Restated $122,298.00 1995 Plan William D. Rudd 4/20/01 1,280 Second Amended and Restated $30,694.40 1995 Plan Gerald W. Haddock 5/8/01 14,600 1995 Plan $349,962.00
-4-
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ Cheryl L. Dillon 5/9/01 400 First Amended and $9,580.00 Restated 1995 Plan Gerald W. Haddock 5/9/01 20,000 1995 Plan $479,000.00 Gerald W. Haddock 5/10/01 20,000 1995 Plan $482,200.00 Joseph D. Ambrose, III 5/10/01 3,000 1994 Plan $72,330.00 Joseph D. Ambrose, III 5/10/01 16,000 1995 Plan $385,760.00 Jeffrey L. Fitzgerald 5/10/01 1,000 1994 Plan $24,110.00 Jeffrey L. Fitzgerald 5/10/01 6,000 1995 Plan $144,660.00 Ann-Elaine Carroll 5/16/01 2,120 Second Amended and Restated $51,049.60 1995 Plan Sharon K. Haines 5/22/01 1,280 Second Amended and Restated $31,488.00 1995 Plan Alan D. Friedman 5/24/01 70,000 Second Amended and Restated $1,721,300.00 1995 Plan Philip J. Durst 5/29/01 520 First Amended and $12,812.80 Restated 1995 Plan Jason E. Anderson 6/01/01 8,650 Second Amended and Restated $209,589.50 1995 Plan Keira Breeden Moody 6/01/01 8,650 Second Amended and Restated $209,589.50 1995 Plan Barry L. Gruebbel 6/4/01 10,000 Second Amended and Restated $246,000.00 1995 Plan Elizabeth V. Corbell 6/5/01 1,200 1995 Plan $29,652.00 Julie D. Greenspan 6/6/01 1,100 Second Amended and Restated $27,170.00 1995 Plan Jenny H. Townsend 6/12/01 400 First Amended and $9,980.00 Restated 1995 Plan Jenny H. Townsend 6/12/01 1,020 Second Amended and Restated $25,449.00 1995 Plan Angela Petrucci 6/14/01 400 First Amended and $9,920.00 Restated 1995 Plan Jeffrey L. Fitzgerald 6/14/01 15,000 First Amended and $372,000.00 Restated 1995 Plan
-5-
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ Tracy D. Barrells 6/18/01 2,000 Second Amended and Restated $49,980.00 1995 Plan Elizabeth V. Corbell 6/18/01 2,120 Second Amended and Restated $52,978.80 1995 Plan William D. Rudd 6/22/01 750 Second Amended and Restated $18,667.50 1995 Plan Wanda A. Boughtin-Stiles 6/29/01 940 Second Amended and Restated $23,095.80 1995 Plan Jonetta L. Brooks 7/6/01 3,200 Second Amended and Restated $79,968.00 1995 Plan Kurtis D. Adams 7/17/01 600 First Amended and $14,880.00 Restated 1995 Plan Raymond S. Cortez 7/17/01 600 First Amended and $14,880.00 Restated 1995 Plan Henry L. Cosby 7/17/01 200 First Amended and $4,960.00 Restated 1995 Plan Carlos S. Gonzalez 7/17/01 200 First Amended and $4,960.00 Restated 1995 Plan Michael A. Howell 7/19/01 200 First Amended and $4,948.00 Restated 1995 Plan John R. Leathers 7/20/01 200 First Amended and $4,940.00 Restated 1995 Plan William D. Gump 7/24/01 2,000 Second Amended and Restated $49,700.00 1995 Plan Teresa J. Shiller 7/24/01 200 First Amended and $4,970.00 Restated 1995 Plan Daniel D. Thompson 7/24/01 200 First Amended and $4,970.00 Restated 1995 Plan Richard M. Flusche 7/26/01 800 First Amended and $19,976.00 Restated 1995 Plan John L. Zogg, Jr. 7/30/01 65,000 Second Amended and Restated $1,548,300.00 1995 Plan John L. Zogg, Jr. 7/30/01 8,000 1995 Plan $190,560.00 John L. Zogg, Jr. 7/30/01 6,000 First Amended and $142,920.00 Restated 1995 Plan
-6-
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ David M. Dean 7/30/01 24,000 First Amended and $571,680.00 Restated 1995 Plan Olin C. Garrison 7/31/01 1,000 First Amended and $24,130.00 Restated 1995 Plan
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:
Number of Individual Exercise Date Partnership Units Exchanged - ---------- ------------- --------------------------- Anastasia Elisabeth Smith S Trust 2/4/00 500 Joshua Nicholas Smith S Trust 2/4/00 500 Zachary Charles Smith S Trust 2/4/00 500 Peter G. Henry 5/8/00 12,500 Anastasia Elisabeth Smith S Trust 5/31/00 500 Joshua Nicholas Smith S Trust 5/31/00 500 Zachary Charles Smith S Trust 5/31/00 500 Gerald W. Haddock 12/6/00 5,000 Gerald W. Haddock 12/14/00 10,000 Cynthia M. Carpenter 1/2/01 4,003 Pridemore Irrevocable Asset Trust 1/22/01 2,220 Caroline Hunt Trust Estate 4/2/01 371,301 Gerald W. Haddock 5/25/01 10,000 Alan D. Friedman 6/19/01 16,000
WHEREAS, on April 4, 2000, Crescent Equities purchased 20,286 REIT Shares with a value of $354,818.37, and in connection therewith, pursuant to Section 8.7.E of the Effective Agreement, the General Partner caused the Partnership to purchase from Crescent Equities a portion of its Partnership Interest on the same terms that Crescent Equities purchased such REIT Shares; WHEREAS, on April 7,2000, Crescent Equities issued 357 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 $20,014.31; -7- WHEREAS, on July 11, 2000, Crescent Equities issued 680, 705, and 730 REIT Shares to each of Morton H. Meyerson, William F. Quinn, and Paul E. Rowsey, III, respectively, in payment of trust managers' fees and, in connection therewith, Crescent Equities shall receive credit for an aggregate Capital Contribution to the Partnership of $46,530.00; WHEREAS, on October 6, 2000, Crescent Equities issued 438 REIT Shares to Morton H. Meyerson, and 463 REIT Shares to each of 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 $29,411.25; WHEREAS, on January 8, 2001, Crescent Equities issued 411 REIT Shares to Morton H. Meyerson, and 483 REIT Shares to each of 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 $31,671.00; WHEREAS, on January 22, 2001, Darla D. Moore assigned 1,110 Partnership Units to the Pridemore Irrevocable Asset Trust; WHEREAS, on January 22, 2001, Richard E. Rainwater assigned 1,110 Partnership Units to the Pridemore Irrevocable Asset Trust; WHEREAS, on April 2, 2001, Rainwater RainAm Investors transferred 7,548 Partnership Units to Samuel H. Yager; WHEREAS, on April 6, 2001, Crescent Equities issued 467 REIT Shares to each of Morton H. Meyerson and David E. Sherman, and 540 REIT Shares to each of 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 $45,556.68: WHEREAS, on July 9, 2001, Crescent Equities issued 339 REIT Shares to Morton H. Meyerson, 475 REIT Shares to William F. Quinn, and 430 REIT Shares to each of David E. Sherman 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 $41,096.70; 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. 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: -8- 1. In order to reflect (i) the Capital Contributions of Crescent Equities aggregating $14,544,162.70 in connection with the exercise of options to purchase REIT Shares by David M. Dean, Morton H. Meyerson, Terri E. Black, Kimberly A. Dean, Dallas E. Lucas, Elizabeth V. Corbell, Nancy Hancock Lovett, Michael A. Howell, Henry L. Cosby, Jack T. Gardner, Bobby C. Vann, Jennifer A. Benton, John R. Leathers, Teresa J. Shiller, Jennifer L. Miller, Carlos S. Gonzalez, Barry L. Gruebbel, John L. Zogg, Suzanne M. Stevens, Anna M. Dean, Melissa R. Graham, Mark. R. Stanfield, Howard W. Lovett, Robert L. Hustwit, Steven R. Cole, David S. Sikute, Brett Angle, Lori D. Brigman, C. Robert Baird, Dennis H. Alberts, Debra A. Wilson, William D. Miller, Wayne B. Posey, William D. Rudd, Gerald W. Haddock, Cheryl L. Dillon, Joseph D. Ambrose, III, Jeffrey L. Fitzgerald, Ann-Elaine Carroll, Sharon K. Haines, Alan D. Friedman, Philip J. Durst, Jason E. Anderson, Keira Breeden Moody, Elizabeth V. Corbell, Julie D. Greenspan, Jenny H. Townsend, Angela Petrucci, Tracy D. Barrells, Wanda A. Boughtin-Stiles, Jonetta L. Brooks, Kurtis D. Adams, Raymond S. Cortez, William D. Gump, Daniel D. Thompson, Richard M. Flusche, and Olin C. Garrison, as more fully set forth above, (ii) the exercise by Anastasia Elisabeth Smith S Trust, Joshua Nicholas Smith S Trust, Zachary Charles Smith S Trust, Peter G. Henry, Gerald W. Haddock, Cynthia M. Carpenter, Pridemore Irrevocable Asset Trust, Caroline Hunt Trust Estate, and Alan D. Friedman of their Exchange Rights with respect to Partnership Units, as more fully set forth above, (v) the Capital Contribution by Crescent Equities on April 7, 2000, of $20,014.31, 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, (vi) the Capital Contribution by Crescent Equities on July 11, 2000, of $46,530.00, 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, (vii) the Capital Contribution by Crescent Equities on October 6, 2000, of $29,411.25, 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, (viii) the Capital Contribution by Crescent Equities on January 8, 2001, of $31,671.00, 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, (ix) the Capital Contribution by Crescent Equities on April 6, 2001, of $45,556.68, in connection with the issuance of REIT Shares to each of Morton H. Meyerson, William F. Quinn, David E. Sherman, and Paul E. Rowsey, III, in payment of trust managers' fees, (x) the Capital Contribution by Crescent Equities on July 9, 2001, of $41,096.70, in connection with the issuance of REIT Shares to each of Morton H. Meyerson, William F. Quinn, David E. Sherman, and Paul E. Rowsey, III, in payment of trust managers' fees, (xi) the assignment of Partnership Units by each of Darla D. Moore and Richard E. Rainwater to the Pridemore Irrevocable Asset Trust, (xii) the assignment by Rainwater RainAm Investors of Partnership Units to Samuel H. Yager, and (xiii) the purchase by the Partnership of a portion of the Partnership Interest of Crescent Equities 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 Sixteenth Amendment and made part hereof. 2. Rainwater RainAm Investors hereby acknowledges its transfer of 7,548 Partnership Units to Samuel H. Yager and withdraws as a Limited Partner with respect to the Partnership Interest represented by such Partnership Units. -9- 3. Samuel H. Yager hereby acknowledges his 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. 4. The General Partner hereby admits Samuel H. Yager as a Substituted Limited Partner effective as of April 2, 2001, pursuant to Article 11 of the Effective Agreement, having the Partnership Interest and number of Partnership Units set forth on Exhibit A hereto opposite his name. The Partnership Units of Samuel H. Yager shall have the Exchange Rights set forth in Section 8.6 of the Effective Agreement. 5. Except as the context may otherwise require, any terms used in this Sixteenth Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this Sixteenth Amendment as in the Effective Agreement. 6. Except as herein amended, the Effective Agreement is hereby ratified, confirmed, and reaffirmed for all purposes and in all respects. -10- IN WITNESS WHEREOF, the undersigned have executed this Sixteenth 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: Executive Vice President, Law and Administration and Secretary --------------------------------- LIMITED PARTNER: RAINWATER RAINAM INVESTORS By: /s/ J. RANDALL CHAPPEL ------------------------------------ Name: J. Randall Chappel ---------------------------------- Title: Special Agent --------------------------------- SUBSTITUTED LIMITED PARTNER: /s/ SAMUEL H. YAGER --------------------------------------- Samuel H. Yager -11- EXHIBIT A PARTNERS, PARTNERSHIP UNITS AND PARTNERSHIP INTERESTS
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- General Partner: Crescent Real Estate Equities, Ltd. None 1.000000% 777 Main Street Suite 2100 Fort Worth, TX 76102 Limited Partners: Crescent Real Estate Equities Company None 88.969777% 777 Main Street Suite 2100 Fort Worth, TX 76102 Anderson, John H. 286,389 0.435083% 450 East Las Olas Blvd., Suite 700 Fort Lauderdale, FL 33301 Big Bend III Investments, L.P. 18,989 0.028848% 4514 Cole Avenue, Suite 400 Dallas, TX 75205 Blalock, Myron G. III 20,857 0.031686% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Canyon Ranch, Inc. 503,429 0.764810% 8600 E. Rockcliff Rd. Tucson, AZ 85750 Cruce, Ervin D. 2,110 0.003206% 6233 Indian Creek Fort Worth, TX 76107 Friedman, Alan D. 11,150 0.016939% 4408 Fairfax Dallas, TX 75205
A-1
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Friedman and Uhlemeyer, Inc. 1,055 0.001603% 500 Throckmorton, Box 44225 Fort Worth, TX 76102 Goff, John C. 956,485 1.453094% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Haddock, Diane 1,000 0.001519% 777 Main Street, Suite 2100 Fort Worth, TX 76102 Haddock, Gerald W. 210,419 0.319669% 777 Main Street, Suite 2100 Fort Worth, TX 76102 Hersh, Kenneth A. 422 0.000641% c/o Natural Gas Partners, L.P. 777 Main Street, Suite 2250 Fort Worth, TX 76102 Joost, Peter M. 25,000 0.037980% 555 California Street, Suite 5180 San Francisco, CA 94104 Kelly, Thomas L., II 8,440 0.012822% c/o CHB Capital Partners 511 16th Street, Suite 600 Denver, CO 80202 Kelly, W. Whitney 1,285 0.001952% 777 Main Street, Suite 1160 Fort Worth, TX 76102 Lewis, Michael S. 960 0.001458% 4405 Hanover Dallas, TX 75225 Luce, Thomas W., III, Trustee 4,220 0.006411% David N. Meyerson 1982 Trust UA 8/16/82 4514 Cole Avenue, Suite 400 Dallas, TX 75205
A-2
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Luce, Thomas W., III, Trustee 4,220 0.006411% Marti A. Meyerson 1982 Trust UA 8/16/82 4514 Cole Avenue, Suite 400 Dallas, TX 75205 Moore, Darla 1,074 0.001632% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Moore, Samuel S. 1,055 0.001603% 100 Crescent Court, Suite 1000 Dallas, TX 75201 Myers Group III, Inc. 7,123 0.010821% 11218 John Galt Boulevard, Suite 300 Omaha, NE 68137-2320 Attn: Charles C. Myers Myers Group, IV, Inc. 51,121 0.077663% 11218 John Galt Boulevard, Suite 300 Omaha, NE 68137-2320 ATTN: Charles C. Myers Office Towers LLC 1,652,399 2.510327% 639 Isbell Road, #390 Reno, NV 89509 Attn: Ms. Jan George Rainwater, Inc. 24,753 0.037605% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater Investor Partners, Ltd. 1,212,918 1.842667% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Courtney E. 21,098 0.032052% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds
A-3
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Rainwater, Matthew J. 21,098 0.032052% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Richard Todd 21,098 0.032052% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater RainAm Investors 270,164 0.410434% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Richard E. 166,977 0.253672% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Roberts, Peter H. 339,543 0.515834% 2 Harborage Island Fort Lauderdale, FL 33316 Rosewood Property Company 632,998 0.961652% 500 Crescent Court Suite 300 Dallas, TX 75201 Attn: Paul E. Rowsey, III Senterra Corporation 83,441 0.126764% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Attn: Douglas Schnitzer Small, Robert I. 2,110 0.003206% P.O. Box 338 Ross, CA 94957
A-4
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Smith, Anastasia Elisabeth S Trust 516 0.000784% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Smith, Joshua Nicholas S Trust 516 0.000784% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Smith, Zachary Charles S Trust 516 0.000784% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Taurus Investment Group, Inc. 1,205 0.001831% 1400 E. Newport Center Drive, Suite 209 Deerfield Beach, FL 33442 Tofsky, Neil H. 20,857 0.031686% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Varma, Sanjay 1,266 0.001923% 777 Main Street, Suite 2100 Fort Worth, TX 76102 Wassel, James S. 598 0.000908% 14 Hartshorne Lane Rumson, NJ 07760 Wilson, Thomas L. 642 0.000975% 5441 Northcrest Road Fort Worth, TX 76107 Wright, Christina V. 1,950 0.002962% c/o East West Resorts Management, Inc. 15 Highlands Lane Avon, CO 81620
A-5
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Yager, Samuel H. 7,548 0.011467% 800 Bering Drive Houston, TX 77057 Yates, Murphy C. 1,285 0.001952% 777 Main Street, Suite 2100 Fort Worth, TX 76102 6,602,299 100% ========= =========
Series A Preferred Partnership Unit Holder: Crescent Real Estate Equities Company 8,000,000 Series A Preferred 777 Main Street, Suite 2100 Partnership Units Fort Worth, Texas 76102 A-6 SEVENTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP THIS SEVENTEENTH AMENDMENT TO THE SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, dated as of December 31, 2001, 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 (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, and the Fifteenth Amendment to the Second Amendment and Restated Agreement of Lim- ited Partnership of Crescent Real Estate Equities Limited Partnership, dated as of March 1, 2000, and the Sixteenth Amendment to the Second Amendment and Restated Agreement of Limited Partnership of Crescent Real Estate Equities Limited Partnership, dated as of July 31, 2001, 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, 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:
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ Bobby C. Van 8/3/01 200 First Amended and Restated $ 4,870.00 1995 Plan Sanjay Varma 8/7/01 131,500 1995 Plan $3,251,995.00 Sanjay Varma 8/8/01 900 1995 Plan $ 22,221.00 Elizabeth A. Hays 8/13/01 1,020 Second Amended and Restated $ 25,143.00 1995 Plan Elizabeth A. Hays 8/13/01 600 First Amended and Restated $ 14,790.00 1995 Plan Sandra N. Porter 8/13/01 500 Second Amended and Restated $ 12,325.00 1995 Plan Jenny H. Townsend 8/13/01 200 First Amended and Restated $ 4,930.00 1995 Plan James D. Dockal 8/13/01 1,600 1995 Plan $ 39,440.00 James D. Dockal 8/13/01 1,760 First Amended and Restated $ 43,384.00 1995 Plan
-2-
Number of REIT Shares Capital Individual Exercise Date Purchased Stock Option Plan Contribution - ---------- ------------- ----------- ----------------- ------------ James D. Dockal 8/13/01 4,260 Second Amended and Restated $ 105,009.00 1995 Plan Sanjay Varma 8/15/01 3,000 1995 Plan $ 74,220.00 Eric P. Painter 8/15/01 400 First Amended and Restated $ 9,896.00 1995 Plan Eric P. Painter 8/15/01 1,020 Second Amended and Restated $ 25,234.80 1995 plan Sanjay Varma 8/16/01 5,600 1995 Plan $ 138,600.00 Sanjay Varma 8/17/01 59,000 1995 Plan $1,460,250.00 Joe D. Dobbs 8/23/01 1,700 Second Amended and Restated $ 42,007.00 1995 Plan Nancy Hancock Lovett 8/23/01 600 1995 Plan $ 14,826.00 Jack T. Gardner 9/5/01 500 1995 Plan $ 11,790.00 Jack T. Gardner 9/6/01 300 1995 Plan $ 6,888.00 Jack T. Gardner 9/6/01 1,280 Second Amended and Restated $ 29,388.80 1995 Plan Jane B. Page 9/18/01 26,700 Second Amended and Restated $ 567,642.00 1995 Plan Jane B. Page 9/19/01 1,300 Second Amended and Restated $ 26,962.00 1995 Plan Nancy Hancock Lovett 10/4/01 700 1995 Plan $ 13,916.00
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:
Number of Individual Exercise Date Partnership Units Exchanged - ---------- ------------- --------------------------- Joshua Nicholas Smith S Trust 10/16/01 315 Anastasia Elisabeth Smith S Trust 10/16/01 315 Zachary Charles Smith S Trust 10/16/01 315 Robert I. Small 12/12/01 2,110 Rosewood Property Company 12/20/01 3,668 Samuel S. Moore 12/27/01 1,055
-3- WHEREAS, on October 5, 2001, Crescent Equities issued 477 REIT Shares to David E. Sherman, 506 REIT Shares to William F. Quinn, and 562 REIT Shares to 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 $30,560.10; WHEREAS, on the dates set forth in the following table, Crescent Equities purchased the number of REIT Shares with the value indicated opposite each such date, and in connection therewith, pursuant to Section 8.7.E of the Effective Agreement, the General Partner caused the Partnership to purchase from Crescent Equities a portion of its Partnership Interest on the same terms that Crescent Equities purchased such REIT Shares:
Number of Value of Date REIT Shares Purchased REIT Shares Purchased ---- --------------------- --------------------- 10/22/01 540,600 $ 9,711,933.00 10/23/01 206,100 $ 3,704,689.00 10/24/01 206,300 $ 3,706,881.00 10/25/01 424,000 $ 7,641,794.00 10/26/01 311,500 $ 5,616,345.00 10/29/01 1,042,000 $18,913,655.00 10/30/01 369,500 $ 6,661,937.00 10/31/01 320,000 $ 5,796,864.00 11/01/01 254,000 $ 4,571,670.00 11/02/01 326,000 $ 5,803,517.00 11/19/01 25,000 $ 424,500.00 11/20/01 12,000 $ 204,360.00 12/04/01 250,800 $ 4,296,204.00
WHEREAS, on December 28, 2001, Rainwater Investor Partners, Ltd. and Rainwater RainAm Investors, L.P. were merged with and into Office Towers LLC, causing the 1,212,918 Partnership Units owned by Rainwater Investor Partners, Ltd. and the 270,164 Partnership Units owned by Rainwater RainAm Investors, L.P. to be transferred to Office Towers LLC; WHEREAS, on December 31, 2001, Richard E. Rainwater assigned 400 Partnership Units to Darla Moore; and 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. -4- 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 $5,945,727.60 in connection with the exercise of options to purchase REIT Shares by Bobby C. Van, Sanjay Varma, Elizabeth A. Hays, Sandra N. Porter, Jenny H. Townsend, James D. Dockal, Eric P. Painter, Joe D. Dobbs, Nancy Hancock Lovett, Jack T. Gardner, and Jane B. Page, as more fully set forth above, (ii) the exercise by the Joshua Nicholas Smith S Trust, the Anastasia Elisabeth Smith S Trust, the Zachary Charles Smith S Trust, Robert I. Small, Rosewood Property Company, and Samuel S. Moore of their Exchange Rights with respect to Partnership Units, as more fully set forth above, (iii) the Capital Contribution by Crescent Equities on October 5, 2001, of $30,560.10, in connection with the issuance of REIT Shares to each of David E. Sherman, William F. Quinn, and Paul E. Rowsey, III, in payment of trust managers' fees, (iv) the assignment of Partnership Units by Richard E. Rainwater to Darla Moore, (v) the merger of Rainwater Investor Partners, Ltd. and Rainwater RainAm Investors, L.P. with and into Office Towers LLC, and (vi) the purchase by the Partnership of a portion of the Partnership Interest of Crescent Equities 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 Seventeenth Amendment and made part hereof. 2. Except as the context may otherwise require, any terms used in this Seventeenth Amendment which are defined in the Effective Agreement shall have the same meaning for purposes of this Seventeenth Amendment as in the Effective Agreement. 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 Seventeenth 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: Executive Vice President, Law and Administration and Secretary ------------------------------------------- -5- EXHIBIT A PARTNERS, PARTNERSHIP UNITS AND PARTNERSHIP INTERESTS
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- General Partner: Crescent Real Estate Equities, Ltd. None 1.000000% 777 Main Street Suite 2100 Fort Worth, TX 76102 Limited Partners: Crescent Real Estate Equities Company None 88.676743% 777 Main Street Suite 2100 Fort Worth, TX 76102 Anderson, John H. 286,389 0.448322% P.O. Box 460430 Fort Lauderdale, FL 33346 Big Bend III Investments, L.P. 18,989 0.029726% 4514 Cole Avenue, Suite 400 Dallas, TX 75205 Blalock, Myron G. III 20,857 0.032650% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Canyon Ranch, Inc. 503,429 0.788083% 8600 E. Rockcliff Rd. Tucson, AZ 85750 Cruce, Ervin D. 2,110 0.003303% 6233 Indian Creek Fort Worth, TX 76107 Friedman, Alan D. 11,150 0.017455% 4408 Fairfax Dallas, TX 75205
A-1
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Friedman and Uhlemeyer, Inc. 1,055 0.001652% c/o Mrs. Bayard H. Friedman 1301 Shady Oaks Lane Fort Worth, TX 76107 Goff, John C. 956,485 1.497310% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Haddock, Diane 1,000 0.001565% 777 Main Street, Suite 2100 Fort Worth, TX 76102 Haddock, Gerald W. 210,419 0.329396% 777 Main Street, Suite 2100 Fort Worth, TX 76102 Hersh, Kenneth A. 422 0.000661% c/o Natural Gas Partners, L.P. 777 Main Street, Suite 2250 Fort Worth, TX 76102 Joost, Peter M. 25,000 0.039136% 555 California Street, Suite 5180 San Francisco, CA 94104 Kelly, Thomas L., II 8,440 0.013212% c/o CHB Capital Partners 511 16th Street, Suite 600 Denver, CO 80202 Kelly, W. Whitney 1,285 0.002012% 777 Main Street, Suite 1160 Fort Worth, TX 76102 Lewis, Michael S. 960 0.001503% 4405 Hanover Dallas, TX 75225
A-2
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Luce, Thomas W., III, Trustee 4,220 0.006606% David N. Meyerson 1982 Trust UA 8/16/82 4514 Cole Avenue, Suite 400 Dallas, TX 75205 Luce, Thomas W., III, Trustee 4,220 0.006606% Marti A. Meyerson 1982 Trust UA 8/16/82 4514 Cole Avenue, Suite 400 Dallas, TX 75205 Moore, Darla 1,474 0.002307% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Myers Group III, Inc. 7,123 0.011151% 11218 John Galt Boulevard, Suite 300 Omaha, NE 68137-2320 Attn: Charles C. Myers Myers Group, IV, Inc. 51,121 0.080026% 11218 John Galt Boulevard, Suite 300 Omaha, NE 68137-2320 ATTN: Charles C. Myers Office Towers LLC 3,135,481 2.586714% 639 Isbell Road, #390 Reno, NV 89509 Attn: Ms. Jan George Rainwater, Inc. 24,753 0.038749% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater Investor Partners, Ltd. 0 1.898738% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds
A-3
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Rainwater, Courtney E. 21,098 0.033027% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Matthew J. 21,098 0.033027% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Richard Todd 21,098 0.033027% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater RainAm Investors 0 0.422923% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Rainwater, Richard E. 166,577 0.260765% 777 Main Street, Suite 2250 Fort Worth, TX 76102 Attn: Karen Reynolds Roberts, Peter H. 339,543 0.531531% 2 Harborage Island Fort Lauderdale, FL 33316 Rosewood Property Company 629,330 0.985172% 500 Crescent Court Suite 300 Dallas, TX 75201 Attn: Paul E. Rowsey, III Senterra Corporation 83,441 0.130621% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Attn: Douglas Schnitzer
A-4
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Smith, Anastasia Elisabeth S Trust 201 0.000315% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Smith, Joshua Nicholas S Trust 201 0.000315% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Smith, Zachary Charles S Trust 201 0.000315% The Northern Trust Company Partnership Administration, C-2N P.O. Box 92984 Chicago, IL 92984 Taurus Investment Group, Inc. 1,205 0.001886% 1400 E. Newport Center Drive, Suite 209 Deerfield Beach, FL 33442 Tofsky, Neil H. 20,857 0.032650% 12 Greenway Plaza, Suite 1400 Houston, TX 77046 Varma, Sanjay 1,266 0.001982% c/o Sonoma Spa Resorts 777 Main Street, Suite 1390 Fort Worth, TX 76102 Wassel, James S. 598 0.000936% 14 Hartshorne Lane Rumson, NJ 07760 Wilson, Thomas L. 642 0.001005% 5441 Northcrest Road Fort Worth, TX 76107 Wright, Christina V. 1,950 0.003053% c/o East West Resorts Management, Inc. 15 Highlands Lane Avon, CO 81620
A-5
Partnership Partnership Name and Address of Partner Units Interests - --------------------------- ----------- ----------- Yager, Samuel H. 7,548 0.011816% 800 Bering Drive Houston, TX 77057 Yates, Murphy C. 1,285 0.002012% 777 Main Street, Suite 2100 Fort Worth, TX 76102 6,594,521 100% =========== =========
Series A Preferred Partnership Unit Holder: Crescent Real Estate Equities Company 8,000,000 Series A Preferred Partnership Units 777 Main Street, Suite 2100 Fort Worth, Texas 76102
A-6 EX-10.11 4 d94913ex10-11.txt AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN EXHIBIT 10.11 AMENDMENT DATED AS OF NOVEMBER 1, 2001 TO THE CRESCENT REAL ESTATE EQUITIES COMPANY 1994 STOCK INCENTIVE PLAN AND THE THIRD AMENDED AND RESTATED 1995 CRESCENT REAL ESTATE EQUITIES COMPANY STOCK INCENTIVE PLAN 3.2 PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares purchased shall be paid at the time of exercise of the Option either (i) in cash, (ii) by certified or cashier's check, (iii) by delivery to the Company (either directly or by attestation) of shares of Common Stock already owned by the Participant, if permitted by the Committee, (iv) by cash or certified or cashier's check for the par value of the Plan Shares plus a promissory note for the balance of the purchase price, such note to provide for the right to repay the note partially or wholly with Common Stock and to bear interest at a rate at least equal to the applicable Federal rate (within the meaning of Section 7872(f)(2) of the Code), and otherwise to have such terms as shall be specified by the Committee, (v) by delivery of a copy of irrevocable instructions from the Optionee to a broker or dealer, reasonably acceptable to the Company, to sell certain of the Plan Shares upon exercise of the Option 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 or (vi) as to Employees and Advisors, in any other form of valid consideration, as permitted by the Committee in its discretion. If any portion of the purchase price or a note given at the time of exercise is paid in shares of Common Stock, those shares shall be valued at the then Fair Market Value. Pursuant to the authority granted in the Plan, and subject to the limitations contained in clause (iv), the Committee may amend or revise the terms of a note previously issued pursuant to this Section 3.2, or replace it with a new note, provided that no such amendment or revision that could have an adverse effect on the Optionee shall be effective without the consent of the Optionee. EX-21.01 5 d94913ex21-01.txt LIST OF SUBSIDIARIES EXHIBIT 21.01 SUBSIDIARIES OF THE REGISTRANT The following list includes the Company's principal subsidiaries as of December 31, 2001. 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. CRE Management X, L.P., a Delaware limited partnership 13. Crescent Real Estate Funding I, L.P., a Delaware limited partnership 14. Crescent Real Estate Funding II, L.P., a Delaware limited partnership 15. Crescent Real Estate Funding III, L.P., a Delaware limited partnership 16. Crescent Real Estate Funding IV, L.P., a Delaware limited partnership 17. Crescent Real Estate Funding V, L.P., a Delaware limited partnership 18. Crescent Real Estate Funding VI, L.P., a Delaware limited partnership 19. Crescent Real Estate Funding VII, L.P., a Delaware limited partnership 20. Crescent Real Estate Funding VIII, L.P., a Delaware limited partnership 21. Crescent Real Estate Funding IX, L.P., a Delaware limited partnership 22. Crescent Real Estate Funding X, L.P., a Delaware limited partnership 23. CREM Holdings, L.L.C., a Delaware limited liability company 24. Crescent Capital Funding, L.L.C., a Delaware limited liability company 25. Crescent Funding Interest, L.L.C., a Delaware limited liability company 26. Crescent Entertainment Company, L.P., a Texas limited partnership 27. Crescent Entertainment Management L.L.C., a Texas limited liability company 28. CEC Management, L.L.C., a Texas limited liability company 29. Crescent Duddleston Hotel Partnership, L.P., a Texas limited partnership 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. The Woodlands Commercial Properties Company, L.P., a Texas limited partnership 34. 301 Congress Avenue, L.P., a Delaware limited partnership 35. Crescent/301, L.L.C., a Delaware limited liability company 36. Crescent Commercial Realty Corp., a Delaware corporation 37. Crescent Commercial Realty Holdings, L.P., a Delaware limited partnership 38. G/C Waterside Associates L.L.C., a Texas limited liability company 39. Waterside Commons Limited Partnership, a Texas limited partnership 40. Crescent 1717 Main, L.L.C., a Texas limited liability company 41. Crescent E&M, L.L.C., a Texas limited liability company 42. Crescent Ervay & Main, L.P., a Texas limited partnership 43. Main Street Partners, L.P., a Texas limited partnership 44. Main Street Partners Management Company, L.P., a Texas limited partnership 45. MSPF Holdings, GP, LLC, a Delaware limited liability company 46. MSPF Holdings, L.P., a Delaware limited partnership 47. MSPF GP, LLC, a Delaware limited liability company 48. Main Street Partners Funding, L.P., a Delaware limited partnership 49. C5HC Management, LLC, a Delaware limited liability company 50. Crescent 5 Houston Center, L.P., a Delaware limited partnership 51. Crescent NADE, L.P., a Delaware limited partnership 52. Austin PT BK One Tower Office Limited Partnership, a Delaware limited partnershi 53. Crescent BK One Tower GP, LLC, a Delaware limited liability company 54. Crescent Four Westlake GP, LLC, a Delaware limited liability company 55. Houston PT Four Westlake Office Limited Partnership, a Delaware limited partnership 56. Spectrum Mortgage Associates, L.P., a Delaware limited partnership 57. CSC Holdings Management, LLC, a Delaware limited liability company 58. Crescent SC Holdings, L.P., a Delaware limited partnership 59. CSC Management, LLC, a Delaware limited liability company 60. Crescent Spectrum Center, L.P., a Delaware limited partnership 61. SCL GP, LLC, a Delaware limited liability company 62. Spectrum Center, Ltd., a Texas limited partnership 63. SCP Holdings Management, LLC, a Delaware limited liability company 64. SCP Holdings, L.P., a Delaware limited partnership 65. SCP Management, LLC, a Delaware limited liability company 66. Spectrum Center Partners, L.P., a Delaware limited partnership 67. CREF X Holdings Management, LLC, a Delaware limited liability company 68. CREF X Holdings, L.P., a Delaware limited partnership 69. Crescent Potomac Harbour, L.L.C., a Delaware limited liability company 70. Crescent SH IX, Inc., a Delaware corporation 71. CRE Aviation Interests, L.L.C., a Delaware limited liability company 72. Crescent Chancellor Park, LLC, a Delaware limited liability company 73. Crescent Miami Center, LLC, a Delaware limited liability company 74. Crescent TRS Holdings Corp., a Delaware corporation 75. Crescent Hospitality, Inc., a Delaware corporation 76. Crescent Property Services, Inc., a Delaware corporation 77. Crescent Travel Services, Inc., a Delaware corporation 78. Crescent Business Centers Corp., a Delaware corporation 79. California Street Parking, LLC, a Delaware limited liability company EX-23.01 6 d94913ex23-01.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated February 21, 2002 included in 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. 333-41049, No. 333-42417, No. 333-47563, No. 333-57863, No. 333-64377, No. 333-64379, and No. 333-77941. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 2001 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Dallas, Texas March 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----