prem14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Crescent Real Estate Equities Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
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Title of each class of securities to which transaction applies: |
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Common Shares of Beneficial Interest, par value $0.01 per share, of Crescent Real Estate
Equities Company (Company Common Shares)
Units of Limited Partnership Interest of Crescent Real Estate Equities Limited Partnership
(CREELP Limited Partnership Units)
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(2) |
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Aggregate number of securities to which transaction applies: |
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102,893,011 Company Common Shares
810,156 Company Common Shares underlying options to purchase Company Common Shares
8,511,173 CREELP Limited Partnership Units
729,926 CREELP Limited Partnership Units underlying options to purchase CREELP Limited Partnership Units
2,406,750 CREELP Limited Partnership Units issued pursuant to restricted unit awards
(Restricted Unit Awards)
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(3) |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): |
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The filing fee was determined based upon the sum of
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the product of 102,893,011 Company Common Shares multiplied by the
merger consideration of $22.80 per share; |
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the product of 8,511,173 CREELP Limited Partnership Units multiplied by the
product of the merger consideration of $22.80 per share multiplied by two (2); |
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$51,756,182, the amount expected to be paid upon cancellation of outstanding
options; and |
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$109,747,800, the amount expected to be paid upon cancellation of Restricted
Unit Awards. |
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In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended,
the filing fee was determined by multiplying 0.0000307 by the sum of the preceding sentence.
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(4) |
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Proposed maximum aggregate value of transaction: |
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$2,895,574,120
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(5) |
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Total fee paid: |
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$88,895
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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Amount Previously Paid: |
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(2) |
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Form, Schedule or Registration Statement No.: |
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(3) |
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Filing Party: |
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(4) |
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Date Filed: |
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, 2007
Dear Shareholder,
You are cordially invited to attend a special meeting of shareholders of Crescent Real Estate
Equities Company, a Texas real estate investment trust (the Company), to be held at the Hotel
Crescent Court, 400 Crescent Court, Dallas, Texas on , 2007 at , Central Daylight
Saving Time. At the special meeting, we will ask you to approve both the merger of the Company
with and into Moon Acquisition LLC, a Delaware limited liability company and affiliate of Morgan
Stanley Real Estate, which we refer to as the company merger, and the Agreement and Plan of Merger,
dated as of May 22, 2007, by and among the Company, Crescent Real Estate Equities Limited
Partnership, Moon Acquisition Holdings LLC, Moon Acquisition LLC and Moon Acquisition Limited
Partnership, which we refer to as the merger agreement. If the company merger is completed, you,
as a holder of our common shares of beneficial interest, will be entitled to receive $22.80 in cash
in exchange for each share you own, as more fully described in the enclosed proxy statement.
After careful consideration, our board of trust managers unanimously (subject to the recusal
of two trust managers) approved the company merger, the merger agreement and the other transactions
contemplated by the merger agreement, and has declared the company merger, the merger agreement and
the other transactions contemplated by the merger agreement advisable and in the best interests of
the Company and our shareholders.
Our board of trust managers recommends (subject to the recusal of two trust managers) that you
vote FOR the proposal to approve the company merger and the merger agreement.
The company merger and the merger agreement must be approved by the affirmative vote of
holders of at least two-thirds of the outstanding common shares entitled to vote on the matter at
the special meeting. The proxy statement accompanying this letter provides you with more specific
information concerning the special meeting, the company merger, the merger agreement and the other
transactions contemplated by the merger agreement. We encourage you to read carefully the enclosed
proxy statement, including the exhibits. You may also obtain more information about the Company
from us or from documents we have filed with the Securities and Exchange Commission.
Your vote is very important regardless of the number of our common shares that you own.
Whether or not you plan to attend the special meeting, we request that you mark, sign, date and
return the enclosed proxy card as promptly as possible in the postage-prepaid envelope provided to
ensure your representation and the presence of a quorum at the meeting. Alternatively, you may
vote by Internet. The enclosed proxy card contains instructions regarding voting, including
instructions regarding Internet voting. If you attend the special meeting, you may continue to
have your shares voted as instructed in the proxy, or, if you are a holder of record of our common
shares, you may withdraw your proxy at the special meeting and vote your shares in person.
Be advised that if you fail to vote by proxy or in person, or fail to instruct your broker on
how to vote, it will have the same effect as a vote against approval of the company merger, the
merger agreement and the other transactions contemplated by the merger agreement.
Thank you for your cooperation and your continued support.
Sincerely,
John C. Goff
Vice-Chairman of the Board and
Chief Executive Officer
This proxy statement is dated , 2007 and is first being mailed to our shareholders on
or about , 2007.
777 Main Street, Suite 2100
Fort Worth, Texas 76102
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2007
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of Crescent Real
Estate Equities Company, a Texas real estate investment trust (the Company, we or us), which
will be held at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas on , 2007 at
, Central Daylight Saving Time. The special meeting is being held for the purpose of acting
on the following matters:
1. to consider and vote on a proposal to (a) approve the Agreement and Plan of Merger, dated
as of May 22, 2007, by and among the Company, Crescent Real Estate Equities Limited Partnership,
Moon Acquisition Holdings LLC, Moon Acquisition LLC and Moon Acquisition Limited Partnership, which
we refer to as the merger agreement, and (b) approve the merger of the Company with and into Moon
Acquisition LLC, which we refer to as the company merger; and
2. to consider and vote on any other business that properly comes before the special meeting
or any adjournments or postponements of the special meeting, including adjournments and
postponements for the purpose of soliciting additional proxies.
If the company merger is completed, you, as a holder of our common shares, will be entitled to
receive $22.80 in cash in exchange for each share you own, as more fully described in the
accompanying proxy statement.
After careful consideration, our board of trust managers unanimously (subject to the recusal
of two trust managers) approved the company merger, the merger agreement and the other transactions
contemplated by the merger agreement, and has declared the company merger, the merger agreement and
the other transactions contemplated by the merger agreement advisable and in the best interests of
the Company and its shareholders.
Our board of trust managers (subject to the recusal of two trust managers) recommends that you
vote FOR the proposal to approve the company merger and the merger agreement.
All holders of record of our common shares and our Series A and Series B preferred shares, as
of the close of business on the record date, which is , 2007, are entitled to receive
notice of this special meeting. However, only holders of our common shares at the close of
business on the record date are entitled to vote at the special meeting or any postponements or
adjournments of the special meeting. The vote of the holders of our Series A and Series B
preferred shares is not required to approve the company merger or the merger agreement and is not
being solicited.
The proposal to approve the merger agreement and approve the company merger must be approved
by the affirmative vote of at least two-thirds of the outstanding common shares entitled to vote on
the matter at the special meeting. Accordingly, regardless of the number of shares that you own,
your vote is important.
Be advised, if you are a shareholder of record and you fail to authorize a proxy or attend the
special meeting, the effect will be that the common shares that you own will not be counted for
purposes of determining whether a quorum is present and will have the same effect as a vote against
the proposal to approve the merger agreement and the company merger.
Even if you plan to attend the special meeting in person, we request that you authorize your
proxy by either marking, signing, dating and promptly returning the enclosed proxy card in the
postage-paid envelope or submitting your proxy or voting instructions by Internet.
If you own our common shares as a record holder, any proxy may be revoked at any time prior to
its exercise by delivery of a properly executed, later-dated proxy card, by submitting your proxy
or voting instructions by Internet at a later date than your previously submitted proxy, by filing
a written revocation of your proxy with our Corporate Secretary at our address set forth above or
by your voting in person at the special meeting. Attendance at the meeting will not, in itself,
constitute revocation of a previously granted proxy. If you have instructed a broker to vote your
shares, the above-described options for changing your vote do not apply and instead you must follow
the instructions received from your broker to change your vote.
We encourage you to read this proxy statement carefully. If you have any questions or need
assistance voting your shares, please call our proxy solicitor, MacKenzie Partners, Inc., toll-free
at 1-800-322-2885. In addition, you may obtain information about us from certain documents that we
have filed with the Securities and Exchange Commission and from our website at www.crescent.com.
Information contained on our website is not part of, or incorporated in, the proxy statement.
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By Order of the Board of Trust Managers, |
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, 2007
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David M. Dean |
Fort Worth, Texas
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Secretary |
TABLE OF CONTENTS
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Exhibit A: Merger Agreement
Exhibit B: Opinion of Financial Advisor
Exhibit C: Section 25.20 of the Texas Real Estate Investment Trust Act
SUMMARY
This summary highlights only selected information from this proxy statement relating to (1)
the merger of Crescent Real Estate Equities Company with and into Moon Acquisition LLC, which we
refer to as the company merger, (2) the merger of Moon Acquisition Limited Partnership with and
into Crescent Real Estate Equities Limited Partnership, which we refer to as the operating
partnership merger, and (3) certain related transactions. References to the mergers refer to both
the company merger and the operating partnership merger. This summary does not contain all of the
information about the mergers and related transactions contemplated by the merger agreement that is
important to you. As a result, to understand the mergers and the related transactions fully and
for a more complete description of the legal terms of the mergers and related transactions, you
should read carefully this proxy statement in its entirety, including the exhibits and the other
documents to which we have referred you, including the merger agreement attached as Exhibit A.
Each item in this summary includes a page reference directing you to a more complete description of
that item. This proxy statement is first being mailed to our shareholders on or about ___,
2007.
The Parties to the Mergers (Page 18)
Crescent Real Estate Equities Company
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(817) 321-2100
Crescent Real Estate Equities Company, which we refer to as we, us, our, the
company, our company or Crescent, is a Texas real estate investment trust that operates
as a real estate investment trust for federal income tax purposes. Our common shares are
listed on the New York Stock Exchange under the symbol CEI. Through our subsidiaries and
joint ventures, we own and manage a portfolio of 68 premier office buildings totaling 27
million square feet located in select markets across the United States with major
concentrations in Dallas, Houston, Austin, Denver, Miami, and Las Vegas. We also hold
investments in resort residential developments in locations such as Scottsdale, AZ, Vail
Valley, CO, and Lake Tahoe, CA; in destination resorts such as Fairmont Sonoma Mission Inn®
in Sonoma, CA; in a wellness lifestyle leader, Canyon Ranch®; and in AmeriCold Realty Trust,
a temperature-controlled logistics company.
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(817) 321-2100
Crescent Real Estate Equities Limited Partnership, which we refer to as the operating
partnership, is a Delaware limited partnership through which we conduct substantially all of our
business and own, either directly or indirectly through subsidiaries of the operating partnership,
substantially all of our assets.
Moon Acquisition Holdings LLC
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
Moon Acquisition Holdings LLC, which we refer to as Moon Parent, is a Delaware limited
liability company formed in connection with the mergers by affiliates of Morgan Stanley Real Estate.
Morgan Stanley Real Estate is comprised of three major global businesses: Investing, Banking
and Lending. Since 1991, Morgan Stanley Real Estate has acquired $121.5 billion of real estate
assets worldwide and currently manages $55.6 billion in real estate on behalf of its clients. In
addition, Morgan Stanley Real Estate provides a complete range of market-leading investment banking
services to its clients including advice on strategy,
mergers, acquisitions and restructurings, as well as underwriting public and private debt and
equity financings. Morgan Stanley is also a global leader in real estate lending and, using its
own capital, originated approximately $35.5 billion in commercial mortgages in 2006. Morgan
Stanley (NYSE: MS) is a global financial services firm and a market leader in securities,
investment management, and credit services.
Moon Acquisition LLC
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
Moon Acquisition LLC, which we refer to as REIT Merger Sub, is a Delaware limited liability
company and a wholly owned subsidiary of Moon Parent. REIT Merger Sub was formed in connection
with the mergers by Moon Parent.
Moon Acquisition Limited Partnership
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
Moon Acquisition Limited Partnership, which we refer to as Partnership Merger Sub, is a
Delaware limited partnership and a subsidiary of REIT Merger Sub. Partnership Merger Sub was
formed in connection with the mergers by REIT Merger Sub.
The Special Meeting (Page 19)
Date, Time and Purpose of the Special Meeting (Page 19)
The special meeting of our shareholders will be held at 10:00 a.m., Central Daylight Saving
Time, on ___, 2007 at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas. At the
special meeting, you will be asked, by proxy or in person, to approve the company merger and the
merger agreement.
The persons named in the accompanying proxy will also have discretionary authority to vote
upon other business, if any, that properly comes before the special meeting and any adjournments or
postponements of the special meeting, including any adjournments or postponements for the purpose
of soliciting additional proxies to approve the company merger and the merger agreement.
Record Date, Notice and Quorum (Page 20)
All holders of record of our common shares and our Series A and Series B preferred shares as
of the close of business on the record date, which is ___, 2007, are entitled to receive notice
of the special meeting. However, only holders of our common shares at the close of business on the
record date are entitled to vote at the special meeting or any postponements or adjournments of the
special meeting.
You will be entitled to cast one vote for each common share that you owned as of the record
date. On the record date, there were ___common shares outstanding and entitled to vote at the
special meeting.
The presence, in person or by proxy, of holders of common shares entitled to cast a majority
of the votes that are entitled to be cast at the meeting will constitute a quorum for purposes of
the special meeting.
Required Vote (Page 20)
Completion of the mergers requires approval of the proposal to approve the merger agreement
and the company merger by the affirmative vote of the holders of at least two-thirds of the
outstanding common shares
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entitled to vote on the matter at the special meeting. Because the required vote is based on
the number of votes entitled to be cast rather than on the number of votes cast, failure to vote
your common shares (including as a result of broker non-votes) and abstentions will have the same
effect as voting against the proposal to approve the merger agreement and the company merger. The
vote of the holders of our Series A and Series B preferred shareholders is not required to approve
the company merger or the merger agreement and is not being solicited. The operating partnership
merger does not require the approval of any of the holders of our outstanding common shares.
Voting By Our Trust Managers and Executive Officers (Page 20)
As of the record date, our executive officers and trust managers beneficially owned an
aggregate of approximately ___of our common shares, entitling them to exercise in the
aggregate approximately ___% of the voting power of our common shares entitled to vote at the
special meeting. Our executive officers and trust managers have informed us that they intend to
cast the votes they are entitled to cast in favor of the proposal to approve the merger agreement
and the company merger. In addition, the Chairman of our board of trust managers, Richard E.
Rainwater, who directly, indirectly or beneficially owns or controls, as of April 25, 2007,
5,173,949 common shares (other than those issuable upon conversion of partnership units) and
5,723,667 partnership units, has entered into an agreement with Moon Parent and REIT Merger Sub in
which he has agreed to vote the common shares that he is entitled to vote in his capacity as the
beneficial holder of such shares in favor of the proposal to approve the merger agreement and the
company merger.
Proxies; Revocation (Page 21)
Any of our common shareholders of record entitled to vote may vote by authorizing a proxy by
returning the enclosed proxy, submitting a proxy or voting instructions by Internet, or by
appearing and voting at the special meeting in person. If the common shares that you own are held
in street name by your broker, you should instruct your broker on how to vote your shares using
the instructions provided by your broker.
If you own our common shares as a record holder, any proxy may be revoked at any time prior to
its exercise by delivery of a properly executed, later-dated proxy card, by submitting your proxy
or voting instructions by Internet at a later date than your previously submitted proxy, by filing
a written revocation of your proxy with our Corporate Secretary at our address set forth above or
by your voting in person at the special meeting. Attendance at the meeting will not, in itself,
constitute revocation of a previously granted proxy. If you have instructed a broker to vote your
shares, the above-described options for changing your vote do not apply and instead you must follow
the instructions received from your broker to change your vote.
The Mergers and Related Transactions (Page 22)
Pursuant to the merger agreement, on the closing date, we will be merged with and into REIT
Merger Sub with REIT Merger Sub continuing as the surviving entity. We sometimes use the term
surviving entity in this proxy statement to refer to REIT Merger Sub as the surviving entity
following the company merger. The company merger will be effective under all applicable laws upon
the acceptance for record of the articles of merger in respect of the company merger by the county
clerk of Tarrant County, Texas, in accordance with the Texas Real Estate Investment Trust Act (the
Texas REIT Act) and the filing of a certificate of merger with the Secretary of State of the
State of Delaware, in accordance with the Delaware Limited Liability Company Act. We sometimes use
the term company merger effective time in this proxy statement to describe the time the company
merger becomes effective under all applicable laws.
In the company merger, each of our common shares issued and outstanding immediately prior to
the merger effective time and not subject to dissenters rights (other than shares held by us or
our subsidiaries or REIT Merger Sub, which will be automatically canceled and retired and cease to
exist with no payment being made) will automatically be canceled and converted into the right to
receive cash, without interest, equal to $22.80 per common share, reduced by the per share amount,
if any, distributed to holders of our common shares relating to distributions we make that are
necessary for us either to maintain our status as a real estate investment trust or to avoid the
imposition of corporate level tax or excise tax under the U.S. Internal Revenue Code of 1986, as
amended (the Code). We refer to this consideration to be received by our common shareholders in the
company merger as the common share merger consideration.
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In addition, pursuant to the merger agreement, immediately following the company merger,
Partnership Merger Sub will be merged with and into the operating partnership with the operating
partnership continuing as the surviving entity. Each outstanding limited partnership unit in the
operating partnership (other than restricted units and units held by Crescent entities) will
receive cash, without interest, equal to $45.60 per partnership unit (assuming we do not make any
distributions that are necessary for us either to maintain our status as a real estate investment
trust or to avoid the imposition certain U.S. federal tax), which is the product of (A) the common
share merger consideration multiplied by (B) two. We refer to this consideration to be received by
the limited partners of the operating partnership in the operating partnership merger as the
operating partnership merger consideration. The operating partnership merger consideration is
calculated in accordance with the fourth amended and restated agreement of limited partnership of
the operating partnership pursuant to which each partnership unit is exchangeable for two of our
common shares, or the cash value thereof. We sometimes use the term surviving operating
partnership in this proxy statement to refer to the operating partnership as the surviving entity
following the operating partnership merger. We sometimes use the term operating partnership
merger effective time in this proxy statement to describe the time the operating partnership
merger becomes effective under all applicable laws.
Recommendation of Our Board of Trust Managers (Page 31)
On May 21, 2007, after careful consideration, our board of trust managers unanimously (subject
to the recusal of two trust managers):
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determined that it was advisable and in our and our common shareholders best
interests for us to enter into the merger agreement and consummate the company
merger and the other transactions contemplated by the merger agreement; |
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approved the company merger, the merger agreement and the other transactions
contemplated by the merger agreement and directed that the company merger and the
merger agreement be submitted to our common shareholders for approval at a special
meeting of shareholders; and |
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recommended that you vote FOR the proposal to approve the merger agreement and
the company merger. |
Opinion of Our Financial Advisor (Page 31)
On May 21, 2007, Greenhill & Co., LLC, which we refer to as Greenhill, rendered its oral
opinion, which was subsequently confirmed in writing, to our board of trust managers that, as of
May 21, 2007 and based upon and subject to the factors and assumptions set forth therein, the
$22.80 in cash per common share to be received by our common shareholders pursuant to the merger
agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Greenhill, dated May 21, 2007, which sets forth
assumptions made, procedures followed, matters considered and limitations on the review undertaken
in connection with the opinion, is attached as Exhibit B to this proxy statement. Greenhill
provided its opinion for the information and assistance of Crescents board of trust managers in
connection with its consideration of the company merger. The Greenhill opinion is not a
recommendation as to how any common shareholder should vote with respect to the company merger.
Pursuant to a letter agreement, dated March 14, 2007, we engaged Greenhill to act as our
financial advisor in connection with the transactions contemplated by the merger agreement.
Pursuant to the terms of this engagement letter, upon execution of the engagement letter we paid
Greenhill an advisory fee of $1.0 million. Upon announcement of the mergers, we paid Greenhill an
opinion fee of $4.0 million. Finally, in the event of a sale of
50% or more of our outstanding common shares or assets, we have agreed to pay Greenhill a
transaction fee equal to $7.5 million, all of which is payable upon consummation of the
transactions contemplated by the merger agreement.
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Financing Commitment and Guarantees (Page 38)
Moon Parent is paying an aggregate purchase price of approximately $6.5 billion. This amount,
which we refer to as the aggregate purchase price, is expected to be funded by a combination of
equity contributions by Moon Parent, debt financing and the assumption of existing debt.
In connection with the execution and delivery of the merger agreement, an affiliate of Moon
Parent obtained a debt commitment letter from Barclays Capital Real Estate Inc., which we refer to
as the lender, providing for debt financing in an aggregate principal amount not to exceed $3.8
billion (or 85% of our total capitalization excluding certain items, if such amount is less than
$3.8 billion). The debt commitment letter terminates on October 31, 2007, unless extended in
accordance with its terms and the closing of the loan is conditioned on the satisfaction of the
conditions precedent to Moon Parents obligation to consummate the mergers and other customary
closing conditions. The lender has the right to terminate the debt commitment letter under certain
circumstances, including if the merger agreement has been terminated prior to the closing of the
mergers.
The merger agreement does not contain a financing condition. Moon Parent has agreed to use
its reasonable best efforts to arrange the financing on the terms and conditions no less favorable
than those described in the debt commitment letter in the event that the lender terminates or
otherwise fails to perform pursuant to the debt commitment letter.
Additionally, affiliates of Morgan Stanley Real Estate have agreed to guarantee the payment
obligations of Moon Parent, REIT Merger Sub and Partnership Merger Sub under the merger agreement
in an amount up to $300 million.
If all other closing conditions have been satisfied or waived, but Moon Parent fails to obtain
adequate financing to complete the mergers, such failure will constitute a breach of Moon Parents
covenants under the merger agreement. In that event, so long as we and the operating partnership
are not in material breach of our respective obligations under the merger agreement, we would be
able to (1) terminate the merger agreement, (2) receive from Moon Parent an amount equal to all our
reasonable out-of-pocket costs and expenses incurred by us in connection with the proposed
transaction in an amount not to exceed $10 million and (3) take legal action against the affiliates
of Morgan Stanley Real Estate that provided the guarantees, to seek damages of up to a maximum of
$300 million.
Treatment of Series A and Series B Preferred Shares (Page 50)
The merger agreement provides that prior to the company merger effective time, each of the
Series A and Series B preferred shares issued and outstanding will be redeemed by us for cash
pursuant to the terms of such securities; to the extent such redemptions do not occur, the Series A
preferred shares issued and outstanding immediately prior to the company merger effective time will
automatically be converted into, and canceled in exchange for, the right to receive the greater of
(A) the redemption price per share specified in our charter documents and (B) the common share
merger consideration on an as-converted basis pursuant to the terms of our charter documents, and
the Series B preferred shares issued and outstanding immediately prior to the company merger
effective time will automatically be converted into, and canceled in exchange for, the right to
receive the redemption price per share specified in our charter documents.
While holders of Series A and Series B preferred shares are entitled to receive notice of the
special meeting or any postponements or adjournments of the special meeting, they are not entitled
to vote upon the company merger, the merger agreement or any of the other transactions contemplated
by the merger agreement at the special meeting.
Treatment of Partnership Units in Crescent Real Estate Equities Limited Partnership (Page 51)
In connection with the operating partnership merger, at the operating partnership merger
effective time, each limited partnership unit in the operating partnership issued and outstanding
immediately prior to such time (other than units held by us, the general partner of the operating
partnership or any of our subsidiaries, and restricted units) will automatically be canceled and
converted into the right to receive cash, without interest, equal to the operating partnership
merger consideration. This proxy statement does not constitute a solicitation of consents
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in respect of the operating partnership merger and does not constitute an offer to exchange or convert
any partnership units in the operating partnership that you may own for or into newly issued
preferred units or common units in the surviving operating partnership.
Treatment of Options to Purchase Common Shares, Options to Purchase Partnership Units and
Restricted Unit Awards (Pages 50 and 51)
In connection with the company merger:
Options to Purchase Common Shares
Any unexercised and unexpired option to purchase common shares issued under our equity
incentive plans held immediately prior to the company merger effective time (regardless of whether
it is vested or exercisable at that time) will, at the company merger effective time, be canceled
upon the surrender and cancellation of the option agreement representing the option, together with
the delivery of a written instrument executed by the holder thereof, and, in exchange therefor,
REIT Merger Sub will pay to the holder thereof cash in an amount equal to the product of (A) the
number of common shares issuable upon exercise of such option (assuming full vesting) and (B) the
excess, if any, of the common share merger consideration over the exercise price per common share,
which cash payment will be treated as compensation and will be net of any applicable federal or
state withholding tax.
In connection with the operating partnership merger:
Options to Purchase Partnership Units
Any unexercised and unexpired option to purchase partnership units issued under our equity
incentive plans held immediately prior to the company merger effective time (regardless of whether
it is vested or exercisable at that time) will, at the company merger effective time, be canceled
upon the surrender and cancellation of the option agreement representing the option, together with
the delivery of a written instrument executed by the holder thereof, and, in exchange therefor,
Partnership Merger Sub will pay to the holder thereof cash in an amount equal to the product of (A)
the number of partnership units issuable upon exercise of such option (assuming full vesting) and
(B) the excess, if any, of the operating partnership merger consideration over the exercise price
per partnership unit, which cash payment will be treated as compensation and will be net of any
applicable federal or state withholding tax.
Restricted Unit Awards
Other than certain restricted unit awards forfeited prior to the company merger effective time
described in the following paragraph, any unpaid and unexpired restricted unit award held
immediately prior to the company merger effective time (regardless of whether it is vested at that
time) will, at the operating partnership merger effective time, be canceled upon the surrender of
the agreement representing the restricted unit award (or a reasonably satisfactory affidavit of
lost agreement), together with the delivery of a written instrument executed by the holder thereof,
and, in exchange therefor, Partnership Merger Sub will pay to the holder thereof cash in an amount,
without interest, per restricted unit equal to the operating partnership merger consideration, plus
accrued and unpaid dividends.
John C. Goff, our Chief Executive Officer and Vice Chairman of our board of trust managers,
and Dennis H. Alberts, our President and Chief Operating Officer, had each previously received
restricted unit awards that would have fully vested in connection with the mergers. On May 21,
2007, Messrs. Goff and Alberts waived the vesting of and agreed to forfeit, for the benefit of the
shareholders, the portions of their respective restricted stock awards that were designated for
vesting when the share price targets of $25.50 and $27.00 were met and that would have vested in
connection with the mergers. The forfeitures, the value of which totaled approximately $10.3
million, are applicable to the mergers or any transaction our board of trust managers determines to
accept in lieu of the mergers.
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Interests of Our Trust Managers and Executive Officers (Page 38)
Our trust managers and executive officers and certain other persons may have interests in the
mergers that are different from, or in addition to, yours, including the following:
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unvested common share options held by our trust managers and executive officers
will be canceled at the company merger effective time in exchange for the right to
receive a single lump sum cash payment equal to the product of (A) the number of
common shares issuable upon exercise of such options (assuming full vesting) and
(B) the excess, if any, of the common share merger consideration over the exercise
price per common share; |
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unvested partnership unit options held by our executive officers will be
canceled at the company merger effective time in exchange for the right to receive
a single lump sum cash payment equal to the product of (A) the number of
partnership units issuable upon exercise of such options (assuming full vesting)
and (B) the excess, if any, of the operating partnership merger consideration over
the exercise price per partnership unit; |
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restricted unit awards owned by our executive officers (whether or not then
vested) will be accelerated in accordance with their terms and canceled at the
operating partnership merger effective time in exchange for the right to receive a
single lump sum cash payment equal to the product of (A) the number of partnership
units issuable upon vesting of such awards (assuming full vesting) and (B) the
operating partnership merger consideration, plus accrued but unpaid dividends; and |
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each of our executive officers may, if terminated under certain circumstances
within 12 months following the closing of the mergers, be entitled to severance benefits, comprised of
(a) a lump sum severance payment equal to 12 months of the officers base salary
(18 months of base salary and 150% of the average of the bonuses paid in 2004, 2005
and 2006 for John C. Goff, our Chief Executive Officer, and Dennis H. Alberts, our
President and Chief Operating Officer), (b) health care continuation coverage for
up to 12 months following termination of employment, and (c) outplacement
assistance. |
All of our trust managers were fully aware of the foregoing interests of our trust managers
and executive officers in the mergers and, except for Messrs. Goff and Alberts who recused
themselves, considered them prior to approving the mergers and the merger agreement.
Morgan Stanley Real Estate is currently assessing its staffing requirements with respect to
the ongoing business operations of the surviving entity. As a result, it is possible that the
surviving entity might offer an employment opportunity to one or more of our executive officers
upon or after the completion of the mergers. However, no determination has been made regarding
which, if any, executive officers may be offered employment or the terms of any such employment
opportunity, including compensation.
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No Solicitation of Transactions (Page 59)
The merger agreement contains restrictions on our ability to solicit or engage in discussions
or negotiations with a third party regarding specified transactions involving the company or our
subsidiaries. Notwithstanding these restrictions, under certain circumstances and subject to
certain conditions, our board of trust managers may respond to an unsolicited written acquisition
proposal or terminate the merger agreement and enter into an acquisition agreement with respect to
a superior proposal. Upon entering into an agreement for a transaction that constitutes a superior
proposal, we will be obligated to pay a break-up fee to Moon Parent as described below under
Termination Fees and Expenses.
Conditions to the Mergers (Page 63)
Completion of the mergers depends upon the satisfaction or waiver of a number of conditions,
including, among others:
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approval of the proposal to approve the merger agreement and the company merger
by the requisite shareholder vote in accordance with the Texas REIT Act and our
charter; |
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approval of the proposal to approve the merger agreement and the operating
partnership merger by the requisite affirmative consent of the limited partners of
the operating partnership in accordance with the Delaware Revised Uniform Limited
Partnership Act, as amended, and the operating partnership agreement; |
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expiration or termination of any waiting period relating to and acquisition of
any material governmental approvals, authorizations and consents applicable to the
consummation of the mergers or the redemptions of our preferred shares; |
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no action by any governmental authority that would make illegal or prohibit the
consummation of the mergers or the redemptions of our preferred shares; |
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our and the operating partnerships representations and warranties being true
and correct, except where the failure of such representations and warranties to be
true and correct in all respects without regard to any materiality or material
adverse effect qualifications (other than the representation relating to any
material adverse effect to us) does not and would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect; |
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the performance, in all material respects, by us and the operating partnership,
of all material obligations under the merger agreement and compliance, in all
material respects, with the material agreements and covenants to be performed or
complied with under the merger agreement; |
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since May 22, 2007, there shall not have been an event, occurrence, effect or
circumstance that has resulted or would reasonably be expected to result in, a
material adverse effect on us; and |
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the receipt of a tax opinion of our counsel, Pillsbury Winthrop Shaw Pittman
LLP, opining on our qualification as a REIT under the Code, commencing with our
first taxable year ended December 31, 1994, and that we have no liability for
certain company-level taxes. |
Termination of the Merger Agreement (Page 65)
The merger agreement may be terminated and the mergers may be abandoned at any time prior to
the company merger effective time, as follows:
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by mutual written consent of Moon Parent and us; |
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by either Moon Parent or us if: |
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the company merger has not occurred on or before October 31,
2007, except under certain circumstances, provided that this right will not be
available to a party whose failure to fulfill any obligation under the merger
agreement materially contributed to the failure of the company merger to occur
on or before such date; |
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any governmental authority shall have taken any action which
has the effect of making consummation of either of the mergers or the
redemptions of our preferred shares illegal or otherwise preventing or
prohibiting the consummation of the mergers or the redemptions of our preferred
shares, provided that this right will not be available to a party who failed to
use reasonable best efforts to oppose such action by a governmental authority;
or |
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the requisite vote of our common shareholders to approve the
company merger and the other transactions contemplated by the merger agreement
is not obtained; |
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we or the operating partnership are in breach of the
representations and warranties or covenants or agreements under the merger
agreement and such breach results in the applicable closing condition regarding
representations and warranties or covenants and agreements being incapable of
being satisfied by October 31, 2007, so long as neither Moon Parent, REIT
Merger Sub nor Partnership Merger Sub are in material breach of their
obligations under the merger agreement; |
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our board of trust managers withdraws, modifies or amends its
recommendation that shareholders vote to approve the merger agreement and the
company merger in any manner adverse to Moon Parent; or |
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our board of trust managers recommends or approves an
acquisition proposal or fails to recommend against certain alternative takeover
proposals; |
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Moon Parent, REIT Merger Sub and Partnership Merger Sub are in
breach of the representations and warranties or covenants or agreements under
the merger agreement and such breach results in the applicable closing
condition regarding representations and warranties or covenants and agreements
being incapable of being satisfied by October 31, 2007, so long as we are not
in material breach of our obligations under the merger agreement; or |
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our board of trust managers approves an acquisition proposal so long as: |
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the requisite shareholder vote for the company merger has not been obtained; |
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we are not in or have not been in breach of our obligations under
the merger agreement with regard to prohibitions on soliciting
acquisition proposals or providing information regarding an acquisition
proposal to Moon Parent in any material respects; |
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our board of trust managers has determined in good faith, after
consulting with its financial advisor, that such definitive agreement
constitutes a superior proposal and has determined in good faith, after
consulting with its outside legal counsel, that the failure to take
such actions would be inconsistent with trust managers duties to our
shareholders under applicable laws; |
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we have notified Moon Parent in writing that we intend to enter into
such agreement; |
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during the three business days following the receipt by Moon Parent
of our notice, we have offered to negotiate with, and if accepted, have
negotiated in good faith with, Moon Parent to make adjustments to the
terms and conditions of the merger agreement to enable us to proceed
with the company merger; |
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our board of trust managers has determined in good faith, after the
end of such three business day period, after considering the results of
such negotiations and any revised proposals made by Moon Parent, that
the superior proposal giving rise to such notice continues to be a
superior proposal; and |
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we pay to Moon Parent the termination fee and reasonable transaction
expenses in accordance with the merger agreement simultaneously with
the termination of the merger agreement. |
Termination Fee and Expenses (Page 67)
Under certain circumstances, in connection with the termination of the merger agreement, we
will be required to pay to Moon Parent a termination fee of $64.2 million, less any of Moon
Parents expenses we previously paid. The merger agreement also provides that if either party
terminates the merger agreement in certain circumstances, the breaching party must reimburse the
non-breaching party for its reasonable transaction expenses up to a limit of $10 million.
Regulatory Matters (Page 42)
We currently are unaware of any material federal, state or foreign regulatory requirements or
approvals that are required for the execution of the merger agreement or the completion of either
the company merger or the operating partnership merger other than potential filings and necessary
approvals, if any, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, the acceptance for record of the articles of merger in respect of the company merger by
the county clerk of Tarrant County, Texas, in accordance with the Texas REIT Act, and the filing of
certificates of merger with the Secretary of State of the State of Delaware, in accordance with the
Delaware Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership Act.
Litigation Relating to the Mergers (Page 42)
On May 24, 2007, a purported shareholder class action lawsuit related to the merger agreement
was filed in the District Court of Tarrant County, Texas, naming us and each of our trust managers
as defendants. The lawsuit, Edward Tansey vs. Crescent Real Estate Equities Company, et al. (Cause
No. 352-225130-07), alleges, among other things, that $22.80 per share in cash to be paid to our
common shareholders in connection with the company merger is grossly unfair, that the individual
trust manager defendants breached their fiduciary duties to our common shareholders in negotiating
and approving the merger agreement, and that we aided and abetted our trust managers in such
alleged breach.
On May 25, 2007, a shareholder derivative petition for breach of fiduciary duty related to the
merger agreement was filed in the District Court of Tarrant County, Texas, naming each of our trust
managers, as well as Morgan Stanley Real Estate and Morgan Stanley & Co., Inc. (the Morgan Stanley
Defendants) as defendants and naming us as a nominal defendant. The lawsuit, John Gomez vs.
Richard Rainwater, et al. (Cause No. 141-224134-07), alleges, among other things, that $22.80 per
share in cash to be paid to our common shareholders in connection with the company merger
substantially undervalues the Company and is an unfair price, that the individual trust manager
defendants breached their fiduciary duties to our common shareholders in negotiating and approving
the merger agreement, that the Morgan Stanley Defendants aided and abetted our trust managers in
such alleged breach, that our trust managers abused their ability to control and influence us, that
our trust managers committed waste of corporate assets, and that our trust managers usurped a
corporate opportunity (and were aided and abetted by the Morgan Stanley Defendants in that
wrongdoing).
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On May 30, 2007, a shareholder derivative petition for breach of fiduciary duty related to the
merger agreement was filed in the District Court of Tarrant County, Texas, naming each of our trust
managers, as well as the Morgan Stanley
Defendants as defendants and naming us as a nominal defendant. The lawsuit, Willard Nelson vs.
Richard Rainwater, et al. (Cause No. 141-224214-07), alleges, among other things, that $22.80 per
share in cash to be paid to our common shareholders in connection with the company merger
substantially undervalues the Company and is an unfair price, that the individual trust manager
defendants breached their fiduciary duties to our common shareholders in negotiating and approving
the merger agreement, that the Morgan Stanley Defendants aided and abetted our trust managers in
such alleged breach, that our trust managers abused their ability to control and influence us, that
our trust managers committed waste of corporate assets, and that our trust managers usurped a
corporate opportunity (and were aided and abetted by the Morgan Stanley Defendants in that
wrongdoing).
On June 11, 2007, a purported shareholder class action lawsuit related to the merger agreement
was filed in the District Court of Tarrant County, Texas, naming us and each of our trust managers,
as well as Moon Acquisition Holdings, LLC, Moon Acquisition, LLC and Moon Acquisition Limited
Partnership (the Moon Defendants), as defendants. The lawsuit, Edward Acuff vs. Richard
Rainwater, et al. (Case No. 067-224428-07), alleges, among other things, that $22.80 per share in
cash to be paid to our common shareholders in connection with the company merger is an
insufficient price, that the individual trust manager defendants breached their fiduciary duties
to our common shareholders in negotiating and approving the merger agreement, and that we and the
Moon Defendants aided and abetted the trust managers in such alleged breach.
We intend to vigorously defend each of these actions. However, even if these lawsuits are
determined to be without merit, they may potentially delay or, if the delay is substantial enough
to prevent the closing of the mergers by October 31, 2007, prevent the closing of the mergers.
Dissenters Rights of Appraisal (Page 73)
Under the Texas REIT Act, our common shareholders may dissent from the plan of merger to which
we are a party. If you dissent, you may file a petition in any court of competent jurisdiction in
Tarrant County, Texas, which is where our principal office is located, asking for a finding and
determination of the fair value of your common shares. A court may then appoint appraisers to
examine our books and records and make a determination of the fair value of the common shares after
finishing their investigation. After receiving the report of the appraisers regarding the fair
value of the common shares, the court will then determine the fair value of the shares and will
order payment to be made. If you demand payment for your common shares in accordance with the
Texas REIT Act, you will not be entitled to vote or exercise other rights related to your shares,
except the right to receive payment for your shares and the right to maintain an action to obtain
relief on the ground that our action would be or was fraudulent.
We encourage you to read Section 25.20 of the Texas Real Estate Investment Trust Act
carefully, which is attached as Exhibit C to this proxy statement.
Material United States Federal Income Tax Consequences (Page 44)
The receipt of the common share merger consideration for each of our common shares pursuant to
the company merger will be a taxable transaction for U.S. federal income tax purposes. Generally,
for U.S. federal income tax purposes, you will recognize gain or loss measured by the difference,
if any, between the common share merger consideration received in exchange for our common shares
and your adjusted tax basis in our common shares. In addition, under certain circumstances, we may
be required to withhold a portion of your common share merger consideration under applicable tax
laws. Tax matters can be complicated, and the tax consequences of the company merger to you will
depend on your particular tax situation. We encourage you to consult your tax advisor regarding
the tax consequences of the company merger to you.
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Delisting and Deregistration of Our Common Shares and Our Series A and Series B Preferred Shares;
Deregistration of Partnership Units (Page 48)
If the company merger is completed, our common shares and our Series A and Series B preferred
shares will no longer be listed on the New York Stock Exchange and will be deregistered under the
Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition, the operating
partnerships partnership units will be deregistered under the Exchange Act.
Market Price and Dividend Data (Page 69)
Our common shares, par value $0.01 per share, are listed on the New York Stock Exchange under
the ticker symbol CEI. On May 22, 2007, the last trading day prior to the date of the public
announcement of the merger agreement, the closing price of our common shares on the New York Stock
Exchange was $21.62 per share. On ___, 2007, the last trading day before the date of this
proxy statement, the closing price of our common shares on the New York Stock Exchange was $___
per share. You are encouraged to obtain current market quotations for our common shares.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGERS
The following questions and answers address briefly some questions you may have regarding the
special meeting and the proposed mergers. These questions and answers may not address all
questions that may be important to you as a shareholder. Please refer to the more detailed
information contained elsewhere in this proxy statement, as well as the additional documents to
which it refers or which it incorporates by reference, including the merger agreement, a copy of
which is attached to this proxy statement as Exhibit A. We encourage you to read the merger
agreement carefully and in its entirety, as it is the principal document governing the mergers.
Q: Why am I receiving this proxy statement and proxy card?
A: You are being asked to consider and approve the company merger, the merger agreement and the
transactions contemplated therein. You are being asked to cast one vote per common share of which
you are the holder of record, for or against the above transaction. For additional information
about the mergers, please review the merger agreement attached to this proxy statement as Exhibit A
and incorporated by reference into this proxy statement.
Q: What is the proposed transaction?
A: The proposed transaction is the acquisition of the company and, through such acquisition, the
ownership of its subsidiaries, including the operating partnership, by affiliates of Morgan Stanley
Real Estate pursuant to the merger agreement. Once the company merger and the merger agreement
have been approved by our shareholders and the other closing conditions under the merger agreement
have been satisfied or waived, the company will be merged with and into REIT Merger Sub with REIT
Merger Sub continuing as the surviving entity. Immediately after the company merger, Moon
Acquisition Limited Partnership will merge with and into the operating partnership, with the
operating partnership surviving the operating partnership merger and continuing to exist as a
subsidiary of REIT Merger Sub. For additional information about the mergers, please review the
merger agreement attached to this proxy statement as Exhibit A and incorporated by reference into
this proxy statement.
Q: As a common shareholder of Crescent, what will I receive as a result of the company merger?
A: In exchange for each outstanding common share that you own immediately prior to the merger
effective time, you will receive the common share merger consideration, which is an amount equal to
$22.80 in cash, without interest. The amount of the common share merger consideration will only be
adjusted to the extent that we are required to make distributions for certain tax purposes prior to
the merger effective time.
Q: Will I receive any regular quarterly dividends with respect to the common shares that I own?
A: No. Under the terms of the merger agreement, we may not declare or pay any other dividends to
you without the prior written consent of Moon Parent other than as may be required to maintain our
qualification as a REIT and avoid certain company-level taxes. We do not anticipate making any
further distributions to maintain our qualification as a REIT as a result of the receipt of the
common share merger consideration by our common shareholders being able to qualify as a
distribution for such purposes.
Q: Why are no regular quarterly dividends being paid?
A: Dividends paid year-to-date by us, combined with the payment of the common share merger
consideration, are anticipated to exceed the minimum required distributions to maintain our
qualification as a REIT.
Q: When do you expect the mergers to be completed?
A: We are working toward completing the mergers as quickly as possible, and we anticipate that the
mergers will be completed in the third quarter of 2007. In order to complete the company merger,
we must obtain the requisite shareholder approval of the company merger and satisfy, or have
waived, the other closing conditions
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under the merger agreement. The operating partnership merger does not require the approval of any
of our common shareholders.
Q: Who is soliciting my proxy?
A: This proxy is being solicited by our board of trust managers.
Q: What vote of common shareholders is required to approve the company merger and the merger
agreement?
A: Approval of the proposal to approve the merger agreement and consummate the company merger
requires the affirmative vote of the holders of at least two-thirds of the outstanding common
shares entitled to vote on the matter at the special meeting. Because the required vote is based
on the number of votes entitled to be cast in person or by proxy rather than on the number of votes
cast in person or by proxy, failure to vote your shares (including as a result of broker non-votes)
and abstentions will have the same effect as voting against the proposal to approve the merger
agreement and the company merger. The operating partnership merger does not require the approval
of any of our shareholders.
Q: If the company merger is completed, when can I expect to receive the common shares merger
consideration for my common shares?
A: Promptly after the completion of the company merger, you will receive a letter of transmittal
describing how you may exchange your common shares for the common share merger consideration. You
should not send your share certificates to us or anyone else until you receive these instructions.
Q: When and where is the special meeting?
A: The special meeting of shareholders will take place on ___at 10:00 a.m., Central Daylight
Saving Time, at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas.
Q: Who can vote and attend the special meeting?
A: All of our common shareholders of record as of the close of business on ___, the record date
for the special meeting, are entitled to receive notice of and attend the special meeting or any
adjournments or postponements of the special meeting and are entitled to vote at the special
meeting or any adjournments or postponements of the special meeting. Each common share entitles
you to one vote on each matter properly brought before the special meeting. The vote of the
holders of our Series A and Series B preferred shareholders is not required to approve the company
merger or the merger agreement and is not being solicited.
Q: How does the common share merger consideration compare to the market price of the common shares?
A: The cash consideration of $22.80 for each of our common shares represents an approximate 8.8%
premium to the closing price of our common shares on May 21, 2007, the last trading day before we
received Greenhills oral opinion with respect to the fairness of the mergers, an approximate 12.2%
premium to the average closing price of our common shares for the 30-day period ended May 21, 2007,
an approximate 12.2% premium to the average closing price of our common shares for the 60-day
period ended May 21, 2007, and an approximate 11.2% premium to the average closing price of our
common shares for the 90-day period ended May 21, 2007.
Q: How does our board of trust managers recommend that I vote?
A: Our board of trust managers (subject to the recusal of two trust managers) recommends that our
common shareholders vote in favor of the proposal to approve the merger agreement and the company
merger. In making this determination, John C. Goff, our Chief Executive Officer and Vice Chairman
of our board of trust managers, and Dennis H. Alberts, our President and Chief Operating Officer,
recused themselves.
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Q: Do any of the companys executive officers and trust managers or any other person have any
interest in the mergers that is different than mine?
A: Yes. Our trust managers and executive officers may have interests in the mergers that are
different from, or in addition to, yours, including the consideration that they would receive with
respect to their options to purchase our common shares, options to purchase partnership units, and
restricted units in connection with the mergers. Further, under certain circumstances, our
executive officers will be entitled to certain severance payments and benefits following the
closing of the mergers. Please see The Mergers Interests of Our Trust Managers and Executive
Officers on page 38 for additional information about possible interests that our trust managers
and executive officers may have in the mergers that are different than yours.
Q: How do I cast my vote?
A: If you are a common shareholder of record on the record date, you may vote in person at the
special meeting or authorize a proxy for the special meeting. You can authorize your proxy by
completing, signing, dating and returning the enclosed proxy card in the accompanying
pre-addressed, postage paid envelope, or, if you prefer, by following the instructions on your
proxy card for Internet proxy authorization.
Q: How do I cast my vote if my common shares are held of record in street name?
A: If you hold your common shares in street name through a broker, bank or other nominee, your
broker, bank or nominee will not vote your shares unless you provide instructions on how to vote.
You must obtain a proxy form from the broker, bank or other nominee that is the record holder of
your shares and provide the record holder of your shares with instructions on how to vote your
shares, in accordance with the voting directions provided by your broker, bank or nominee. If your
shares are held in street name, please refer to the voting instruction card used by your broker,
bank or other nominee, or contact them directly, to see if you may submit voting instructions using
the Internet or telephone.
Q: What will happen if I abstain from voting or fail to vote?
A: If you abstain from voting, fail to cast your vote in person or by proxy or if you hold your
shares in street name and fail to give voting instructions to the record holder of your shares,
it will have the same effect as a vote against the proposal to approve the merger agreement and the
company merger.
Q: How will proxy holders vote my shares?
A: If you properly submit a proxy prior to the special meeting, your common shares will be voted as
you direct. If you submit a proxy but no direction is otherwise made, your common shares will be
voted FOR the proposal to approve the merger agreement and the company merger.
Q: What happens if I sell my shares before the special meeting?
A: If you held your common shares on the record date but transfer them prior to the merger
effective time, you will retain your right to vote at the special meeting, but not the right to
receive the common share merger consideration for the common shares. The right to receive such
consideration will pass to the person who owns the shares you previously owned when the company
merger becomes effective.
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. If you own our common shares as a record holder, you may revoke a previously granted proxy
at any time before it is exercised by filing with our Corporate Secretary a notice of revocation or
a duly executed proxy bearing a later date, submitting voting instructions again by Internet, or by
attending the meeting and voting in person. Attendance at the meeting will not, in itself,
constitute revocation of a previously granted proxy. If you have instructed a broker to vote your
shares, the above-described options for changing your vote do not apply and instead you must follow
the instructions received from your broker to change your vote.
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Q: Is the company merger expected to be taxable to me?
A: Yes. The receipt of the common share merger consideration for each common share pursuant to the
company merger will be a taxable transaction for U.S. federal income tax purposes. Generally, for
U.S. federal income tax purposes, you will recognize gain or loss measured by the difference, if
any, between the common share merger consideration received in exchange for our common shares and
your adjusted tax basis in our common shares. In addition, under certain circumstances, we may be
required to withhold a portion of your common share merger consideration under applicable tax laws.
You should read The Mergers Material United States Federal Income Tax Consequences on page 44
for a more complete discussion of the U.S. federal income tax consequences. Tax matters can be
complicated, and the tax consequences of the company merger to you will depend on your particular
tax situation. We encourage you to consult your tax advisor regarding the tax consequences of the
company merger to you.
Q: Should I send in my share certificates now?
A: No. Shortly after the company merger is completed, you will receive a letter of transmittal
with instructions informing you how to send your share certificates to the paying agent in order to
receive the common share merger consideration. You should use the letter of transmittal to
exchange share certificates for the common share merger consideration to which you are entitled.
DO NOT SEND ANY SHARE CERTIFICATES WITH YOUR PROXY.
Q: What rights do I have if I oppose the company merger?
A: If you are a common shareholder of record, you can vote against the company merger by indicating
a vote against the proposal on your proxy card and signing and mailing your proxy card, by
submitting voting instructions against the proposal to approve the merger agreement and the company
merger by Internet or voting against the proposal to approve the merger agreement and the company
merger in person at the special meeting. If you hold your shares in street name, you can vote
against the company merger in accordance with the voting instructions provided to you by the record
holder of your shares. Subject to certain conditions, you are entitled to dissenters rights under
Texas law. Please see Dissenters Rights of Appraisal on page 73.
Q: What will happen to the common shares that I currently own after completion of the company
merger?
A: Following the completion of the company merger, your shares will be canceled and will represent
only the right to receive your portion of the common share merger consideration. Trading in our
common shares on the New York Stock Exchange will cease. Price quotations for our common shares
will no longer be available and we will cease filing periodic reports with the Securities and
Exchange Commission (the SEC).
Q: Have any shareholders already agreed to approve the company merger or the operating partnership
merger?
A: Yes. The Chairman of our board of trust managers, Richard E. Rainwater, who directly,
indirectly or beneficially owns or controls, as of April 25, 2007, 5,173,949 common shares (other
than those issuable upon conversion of partnership units) and 5,723,667 partnership units, has
entered into an agreement with Moon Parent and REIT Merger Sub in which he has agreed to vote the
common shares that he is entitled to vote in his capacity as the beneficial holder of such shares
in favor of the proposal to approve the merger agreement and the company merger. Similarly, we and
Crescent Real Estate Equities, Ltd., the sole general partner of the operating partnership, have
entered into an agreement with Moon Parent, REIT Merger Sub and Partnership Merger Sub pursuant to
which we and Crescent Real Estate Equities, Ltd. have agreed to vote all of our interests in the
operating partnership in favor of the proposal to approve the merger agreement approve the
operating partnership merger. In addition, our executive officers and trust managers have informed
us that they intend to vote our common shares that they beneficially own in favor of the proposal
to approve the merger agreement and the company merger.
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Q: Where can I find more information about the company?
A: We file certain information with the SEC. You may read and copy this information at the SECs
public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these
facilities. This information is also available at the Internet site the SEC maintains at
www.sec.gov and on our website at www.crescent.com. Information contained on our website is not
part of, or incorporated in, this proxy statement. You can also request copies of these documents
from us. See Where You Can Find More Information on page 75.
Q: Who will solicit and pay the cost of soliciting proxies?
A: We will bear the cost of soliciting proxies for the special meeting. Our board of trust
managers is soliciting your proxy on our behalf. Our officers, trust managers and employees may
solicit proxies by telephone and facsimile, by mail, on the Internet or in person. They will not
be paid any additional amounts for soliciting proxies. We have retained MacKenzie Partners, Inc.
to assist us in the solicitation of proxies, and will pay up to $30,000, plus reimbursement of
out-of-pocket expenses, to MacKenzie Partners, Inc. for its services. We will also request that
banking institutions, brokerage firms, custodians, trustees, nominees, fiduciaries and other like
parties forward the solicitation materials to the beneficial owners of common shares held of record
by such person, and we will, upon request of such record holders, reimburse forwarding charges and
out-of-pocket expenses.
Q: Who can help answer my other questions?
A: If you have more questions about the special meeting, the mergers or authorizing your proxy, you
should contact our proxy solicitation agent, MacKenzie Partners, Inc., as follows:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
1-800-322-2885 or call collect to 212-929-5500
If your broker holds your shares, you should also call your broker for additional information.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Information both included and incorporated by reference in this proxy statement may contain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements, which are based on various assumptions and describe our future
plans, strategies, and expectations, are generally identified by our use of words such as intend,
plan, may, should, will, project, estimate, anticipate, believe, expect,
continue, potential, opportunity, and similar expressions, whether in the negative or
affirmative. We cannot guarantee that we actually will achieve these plans, intentions or
expectations, including completing the mergers on the terms summarized in this proxy statement. All
statements regarding our expected financial position, business and financing plans are
forward-looking statements.
Except for historical information, matters discussed in this proxy statement are subject to
known and unknown risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Factors which could have a material adverse effect on our operations and future prospects or
the completion of the mergers include, but are not limited to:
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the satisfaction of the conditions to consummate the company merger, including
the receipt of the required shareholder and regulatory approvals; |
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the satisfaction of the conditions to consummate the operating partnership
merger, including the receipt of the required consent of the limited partners and
regulatory approvals; |
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the availability of Moon Parents financing required to complete the mergers; |
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the occurrence of any event, change or other circumstances that could give rise
to the termination of the merger agreement; |
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the failure of the mergers to close for any other reason; |
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the amount of the costs, fees, expenses and charges related to the mergers and
the actual terms of certain financings that will need to be obtained for the
mergers; |
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the outcome of the legal proceedings that have been or may be instituted against
us and others following announcement of our entering into the merger agreement; |
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the impact of substantial indebtedness that will need to be incurred to finance
the consummation of the mergers; |
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risks that the proposed transaction disrupts current plans and operations
including potential difficulties in employee retention; |
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our exclusive remedy against Moon Parent, REIT Merger Sub and Partnership Merger
Sub with respect to any breach of the merger agreement is to seek damages up to the
amount of $300 million, which may not be adequate to cover our damages; |
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the effect of the announcement of the proposed mergers on our customer
relationships, operating results and business generally; |
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actions, strategies and performance of affiliates that we may not control or
companies in which we have made investments; |
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any change in market conditions that would impair our ability to complete our
previously announced strategic plan; |
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our geographic market concentration may cause our overall operating results to
be less favorable than operating results in the strongest markets; |
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general economic and market conditions, particularly as they affect the real estate market; |
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our ability to maintain our status as a REIT for federal and state income tax purposes; and |
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the effect of war, terrorism or catastrophic events. |
These risks and uncertainties, along with the risks that are set forth in the Risk Factors,
Legal Proceedings and Management Discussion and Analysis of Results of Operations and Financial
Condition sections of our or the operating partnerships SEC filings, including our and the
operating partnerships most recent filings on Forms 10-Q and 10-K, should be considered in
evaluating any forward-looking statements contained in this proxy statement. All forward-looking
statements speak only as of the date of this proxy statement. All subsequent written and oral
forward-looking statements attributable to us or any person acting on our behalf are qualified by
the cautionary statements in this section.
All information contained in this proxy statement concerning Moon Parent and its subsidiaries
or the financing arrangements related to the mergers has been supplied by Moon Parent, REIT Merger
Sub and Partnership Merger Sub and has not been independently verified by us.
THE PARTIES TO THE MERGERS
Crescent Real Estate Equities Company
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(817) 321-2100
We operate as a real estate investment trust, or REIT, for federal income tax purposes and
provide management, leasing and development services for some of our properties. Through our
subsidiaries and joint ventures, we own and manage a portfolio of 68 premier office buildings
totaling 27 million square feet located in select markets across the United States with major
concentrations in Dallas, Houston, Austin, Denver, Miami, and Las Vegas. We also hold investments
in resort residential developments in locations such as Scottsdale, AZ, Vail Valley, CO, and Lake
Tahoe, CA; in destination resorts such as Fairmont Sonoma Mission Inn® Sonoma, CA; in a wellness
lifestyle leader, Canyon Ranch®; and in AmeriCold Realty Trust, a temperature-controlled logistics
company. Additional information about us is available on our website at http://www.crescent.com.
The information contained on our website is not incorporated into, and does not form a part of,
this proxy statement or any other report or document on file with or furnished to the SEC. Our
common shares are listed on the New York Stock Exchange under the symbol CEI. For additional
information about us and our business, please refer to Where You Can Find More Information on
page 75.
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(817) 321-2100
The operating partnership is a Delaware limited partnership through which we conduct
substantially all of our business and own, either directly or indirectly through subsidiaries of
the operating partnership, substantially all of our assets.
Moon Acquisition Holdings LLC
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
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Moon Acquisition Holdings LLC, which we refer to as Moon Parent, is a Delaware limited
liability company formed in connection with the mergers by affiliates of Morgan Stanley Real
Estate.
Morgan Stanley Real Estate is comprised of three major global businesses: Investing, Banking
and Lending. Since 1991, Morgan Stanley Real Estate has acquired $121.5 billion of real estate
assets worldwide and currently manages $55.6 billion in real estate on behalf of its clients. In
addition, Morgan Stanley Real Estate provides a complete range of market-leading investment banking
services to its clients including advice on strategy, mergers, acquisitions and restructurings, as
well as underwriting public and private debt and equity financings. Morgan Stanley is also a
global leader in real estate lending and, using its own capital, originated approximately $35.5
billion in commercial mortgages in 2006. Morgan Stanley (NYSE: MS) is a global financial services
firm and a market leader in securities, investment management, and credit services.
Moon Acquisition LLC
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
Moon Acquisition LLC, which we refer to as REIT Merger Sub, is a Delaware limited liability
company and a wholly owned subsidiary of Moon Parent. REIT Merger Sub was formed in connection
with the mergers by Moon Parent.
Moon Acquisition Limited Partnership
c/o Morgan Stanley Real Estate
1585 Broadway
New York, NY 10036
(212) 761-4000
Moon Acquisition Limited Partnership, which we refer to as Partnership Merger Sub, is a
Delaware limited partnership and a subsidiary of REIT Merger Sub. Partnership Merger Sub was
formed in connection with the mergers by Moon Parent.
THE SPECIAL MEETING
Date, Time and Purpose of the Special Meeting
This proxy statement is being furnished to our common shareholders in connection with the
solicitation of proxies from our common shareholders by our board of trust managers for use at a
special meeting to be held on , at , Central Daylight Saving Time. The special
meeting will take place at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas. The
purpose of the special meeting is for you to consider and vote upon a proposal to approve the
merger agreement and the company merger of Crescent Real Estate Equities Company with and into REIT
Merger Sub with REIT Merger Sub surviving the company merger, and to transact any other business
that may properly come before the special meeting or any adjournments or postponements of the
special meeting. Our common shareholders must approve the merger agreement and the company merger.
A copy of the merger agreement is attached as Exhibit A to this proxy statement, which we
encourage you to read carefully in its entirety.
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Record Date, Notice and Quorum
All holders of record of our common shares and our Series A and Series B preferred shares as
of the close of business on the record date, which is , 2007, are entitled to receive notice
of the special meeting. However, only our common shareholders at the close of business on the
record date are entitled to vote at the special meeting or any postponements or adjournments of the
special meeting. On the record date, there were common shares outstanding.
The holders of a majority of our common shares that were outstanding as of the close of
business on the record date, represented in person or by proxy, will constitute a quorum for
purposes of the special meeting. A quorum is necessary to hold the special meeting. Any of our
common shares held by any of our subsidiaries are not considered to be outstanding for purposes of
determining a quorum. Common shares held by shareholders present at the meeting in person who do
not vote and ballots marked abstain, against or withhold authority will be counted as present
at the meeting for quorum purposes. If a broker submits a proxy indicating that it does not have
discretionary authority as to certain shares to vote on a particular matter (broker non-votes),
those shares will not be considered as present with respect to such matter. Under the rules of the
New York Stock Exchange, brokers are precluded from exercising their voting discretion with respect
to the approval of non-routine matters, such as the company merger or the merger agreement.
Required Vote
Completion of the mergers requires approval of the proposal to approve the merger agreement
and the company merger by the affirmative vote of the holders of at least two-thirds of the
outstanding common shares entitled to vote on the matter at the special meeting. Each common share
that was outstanding on the record date entitles the holder to cast one vote at the special
meeting.
Record holders may vote or cause their shares to be voted using one of the following methods:
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mark, sign, date and return the enclosed proxy card by mail; or |
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authorize your proxy or submit voting instructions by Internet by following the
instructions included with your proxy card; or |
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appear and vote in person by ballot at the special meeting. |
Regardless of whether you plan to attend the special meeting, we request that you complete and
return a proxy for your common shares as described above as promptly as possible.
If you own common shares through a bank, brokerage firm or nominee (i.e., in street name),
you must provide voting instructions in accordance with the instructions on the voting instruction
card that your bank, brokerage firm or nominee provides to you. You should instruct your bank,
brokerage firm or nominee as to how to vote your common shares, following the directions contained
in such voting instruction card. If you have not received such voting instructions or require
further information regarding such voting instructions, contact your broker, bank or nominee who
can give you directions on how to vote your common shares.
Voting by our Trust Managers and Executive Officers
As of the record date, our executive officers and trust managers beneficially owned an
aggregate of approximately common shares, entitling them to exercise in the aggregate
approximately % of the voting power of common shares entitled to vote at the special meeting.
Our executive officers and trust managers have informed us that they intend to vote their common
shares in favor of the proposal to approve the company merger and the merger agreement.
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Voting Agreements
The Chairman of our board of trust managers, Richard E. Rainwater, who directly, indirectly or
beneficially owns or controls, as of April 25, 2007, 5,173,949 common shares (other than those
issuable upon conversion of partnership units) and 5,723,667 partnership units, has entered into an
agreement with Moon Parent and REIT Merger Sub in which he has agreed to vote the common shares
that he is entitled to vote in his capacity as the beneficial holder of such shares in favor of the
proposal to approve the merger agreement and the company merger. Similarly, we and Crescent Real
Estate Equities, Ltd., the sole general partner of the operating partnership, have entered into an
agreement with Moon Parent, REIT Merger Sub and Partnership Merger Sub pursuant to which we and
Crescent Real Estate Equities, Ltd. have agreed to vote all of our interests in the operating
partnership in favor of the proposal to approve the merger agreement and the operating partnership
merger.
Proxies and Revocation
If you authorize a proxy, your common shares will be voted at the special meeting as you
indicate on your proxy. If no instructions are indicated on your signed proxy card, your shares
will be voted FOR the proposal to approve the merger agreement and the company merger.
If you are a record holder of common shares, you may revoke your proxy at any time, but only
before the proxy is voted at the special meeting, in any of three ways:
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by delivering, prior to the date of the special meeting, a written revocation of
your proxy dated after the date of the proxy that is being revoked to our Corporate
Secretary at 777 Main Street, Suite 2100, Fort Worth, Texas 76102; or |
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by delivering to our Corporate Secretary a later-dated, duly executed proxy or by
authorizing your proxy or submitting voting instructions by Internet at a date after
the date of the previously authorized proxy relating to the same shares; or |
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by attending the special meeting and voting in person by ballot. |
Attendance at the special meeting will not, in itself, constitute revocation of a previously
authorized proxy.
If you own our common shares in street name, you may revoke or change a previously
authorized proxy by following the instructions provided by the bank, brokerage firm, nominee or
other party that is the registered owner of our common shares.
We do not expect that any matter other than (i) the proposal to approve the merger agreement
and the company merger and (ii) to consider and vote on any other business that properly comes
before the special meeting or any adjournments or postponements of the special meeting, including
adjournments and postponements for the purpose of soliciting additional proxies, will be brought
before the special meeting. If, however, such a matter is properly presented at the special
meeting or any adjournments or postponements of the special meeting, the persons appointed as
proxies will have discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment.
We will pay the costs of soliciting proxies for the special meeting. Our officers, trust
managers and employees may solicit proxies by telephone and facsimile, by mail, on the Internet or
in person. They will not be paid any additional amounts for soliciting proxies. We will also
request that individuals and entities holding our common shares in their names, or in the names of
their nominees, that are beneficially owned by others, send proxy materials to and obtain proxies
from those beneficial owners, and, upon request, will reimburse those holders for their reasonable
expenses in performing those services. We have retained MacKenzie Partners, Inc. to assist us in
the solicitation of proxies, and will pay up to $30,000, plus reimbursement of out-of-pocket
expenses, to MacKenzie Partners, Inc. for its services. In addition, our arrangement with
MacKenzie Partners, Inc. includes provisions obligating us to indemnify it for certain liabilities
that could arise in connection with its solicitation of proxies on our behalf.
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Adjournments and Postponements
Although it is not currently expected, the special meeting may be adjourned or postponed for
the purpose of soliciting additional proxies if we have not received sufficient proxies to
constitute a quorum or sufficient votes to approve the merger agreement and the company merger at
the special meeting of shareholders. Any adjournments or postponements may be made without notice,
other than by an announcement at the special meeting, by approval of the holders of a majority of
the votes cast on the matter at the special meeting, whether or not a quorum exists. If no
instructions are indicated on your signed proxy card, your shares will be voted in favor of an
adjournment. Any adjournment or postponement of the special meeting for the purpose of soliciting
additional proxies will allow shareholders who have already sent in their proxies to revoke them at
any time prior to their use.
THE MERGERS
General Description of the Mergers
Under the terms of the merger agreement, certain funds managed by Morgan Stanley Real Estate
will indirectly acquire us and our subsidiaries, including the operating partnership, through their
ownership of Moon Parent. To accomplish this, the following transactions will occur:
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On the closing date of the mergers, we will be merged with and into REIT Merger Sub
with REIT Merger Sub continuing as the surviving entity following the company merger
and our common shares issued and outstanding immediately prior to the company merger
effective time and not subject to dissenters rights (other than shares held by us or
our subsidiaries or REIT Merger Sub, which will be automatically canceled and retired
and cease to exist with no payment being made, and shares held by properly dissenting
shareholders) will automatically be canceled and converted into the right to receive
cash, without interest, equal to $22.80 per common share, reduced by the per share
amount, if any, distributed to holders of our common shares relating to distributions
we make that are necessary for us either to maintain our status as a real estate
investment trust or to avoid the imposition of corporate level tax or excise tax under
the U.S. Internal Revenue Code of 1986, as amended; |
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Immediately following the company merger, Partnership Merger Sub will merge with and
into the operating partnership with the operating partnership surviving and each
limited partnership unit of the operating partnership (other than units held by
Crescent affiliates or restricted units) will receive cash, without interest, equal to
$45.60 per unit (assuming we do not make any distributions that are necessary for us
either to maintain our status as a real estate investment trust or to avoid the
imposition certain U.S. federal tax), which is the product of (A) the common share
merger consideration multiplied by (B) two; |
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Any unexercised and unexpired option to purchase common shares issued under our
equity incentive plans held immediately prior to the company merger effective time
(regardless of whether it is vested or exercisable at that time) will, at the company
merger effective time, be canceled upon the surrender and cancellation of the option
agreement representing the option, together with the delivery of a written instrument
executed by the holder thereof, and, in exchange therefor, REIT Merger Sub will pay to
the holder thereof cash in an amount equal to the product of (A) the number of common
shares issuable upon exercise of such option (assuming full vesting) and (B) the
excess, if any, of the common share merger consideration over the exercise price per
common share, which cash payment will be treated as compensation and will be net of any
applicable federal or state withholding tax; |
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Any unexercised and unexpired option to purchase partnership units issued under our
equity incentive plans held immediately prior to the company merger effective time
(regardless of whether it is vested or exercisable at that time) will, at the company
merger effective time, be canceled upon the surrender and cancellation of the option
agreement representing the option, together with the delivery of a written instrument
executed by the holder thereof, and, in exchange therefor, Partnership Merger Sub will
pay to the holder thereof cash in an amount equal to the product of (A) the number of
partnership units issuable upon exercise of such option (assuming full vesting) and (B)
the excess, if any, of the |
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operating partnership merger consideration over the exercise price per partnership unit,
which cash payment will be treated as compensation and will be net of any applicable
federal or state withholding tax; |
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Other than certain restricted unit awards forfeited prior to the company merger
effective time, any unpaid and unexpired restricted unit award held immediately prior
to the company merger effective time (regardless of whether it is vested at that time)
will, at the operating partnership merger effective time, be canceled upon the
surrender of the agreement representing the restricted unit award (or a reasonably
satisfactory affidavit of lost agreement), together with the delivery of a written
instrument executed by the holder thereof, and, in exchange therefor, Partnership
Merger Sub will pay to the holder thereof cash in an amount, without interest, per
restricted unit equal to the operating partnership merger consideration, plus accrued
and unpaid dividends; and |
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Prior to the company merger effective time, each of the Series A and Series B
preferred shares issued and outstanding will be redeemed by us for cash pursuant to the
terms of such securities; to the extent such redemptions do not occur, the Series A
preferred shares issued and outstanding immediately prior to the company merger
effective time will automatically be converted into, and canceled in exchange for, the
right to receive the greater of (A) the redemption price per share specified in our
charter documents and (B) the common share merger consideration on an as-converted
basis pursuant to the terms of our charter documents, and the Series B preferred shares
issued and outstanding immediately prior to the company merger effective time will
automatically be converted into, and canceled in exchange for, the right to receive the
redemption price per share specified in our charter documents. |
After completion of the redemptions and the consummation of the mergers, REIT Merger Sub will
own all of the equity interests previously owned by us in the operating partnership and other
subsidiaries, including Crescent Real Estate Equities, Ltd.s general partnership interest and our
approximately 81% limited partnership interest in the operating partnership.
This proxy statement does not constitute a solicitation of consents in respect of the
operating partnership merger and does not constitute an offer to exchange or convert any
partnership units in the operating partnership that you may own for or into newly issued preferred
units or common units in the surviving operating partnership.
Background of the Mergers
In late 2005, our board of trust managers began to consider whether we could enhance
shareholder value by taking advantage of abundant private acquisition capital and historically high
real estate values in many of our markets by selling our office and hotel properties. Our board of
trust managers considered the advice of management and Lehman Brothers Inc. (Lehman) and decided
to explore the possibility of effecting a strategic recapitalization of the Company. The central
elements of this plan involved the selling of our office properties and our resort and hotel
properties in separate portfolio transactions and thereafter recapitalizing and transitioning
Crescent into a C-corporation to focus on and pursue the lifestyle and wellness business associated
with its resort residential development and Canyon Ranch businesses.
With the assistance of Lehman, we conducted a targeted and confidential sales process for our
office portfolio beginning in early 2006, which was to be followed by a similar sales process for
our resort and hotel portfolio. In connection with the potential office portfolio sale, we
executed confidentiality agreements with a number of prospective purchasers, including Morgan
Stanley Real Estate. The office portfolio sales process yielded two offers to acquire the entire
portfolio of office properties, as well as offers for certain components of the portfolio. Neither
of the portfolio offers was at a price that our board of trust managers believed, after
consultation with Lehman, was reflective of the aggregate market value of our office properties if
sold individually. As a result, our board of trust managers determined not to proceed with the
prospective office portfolio bidders and elected instead to pursue marketing the properties and
addressing the offers for components separately through sales of smaller portfolios and individual
assets.
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We also undertook a sales process for our resort and hotel properties portfolio beginning in
May 2006. We executed confidentiality agreements with a number of prospective purchasers of the
properties. The sales process yielded two offers to acquire the portfolio of resort and hotel
properties at prices reasonably acceptable to our board of trust managers. We negotiated a sales
contract with one of the prospective purchasers, who eventually determined not to move forward on
its initially indicated price. We then entered into negotiations with the second prospective
purchaser.
Contemporaneously with the office and resort and hotel marketing efforts, our board of trust
managers authorized our management to determine if there were any investors with an interest in
participating in the contemplated recapitalization of the remaining assets of the company into a
publicly traded C-corporation. During the spring of 2006, our representatives informally discussed
possible C-corporation recapitalization transactions with several potential counterparties,
including Morgan Stanley Real Estate. Although these discussions did not generate acceptable
pricing or terms for the C-corporation recapitalization component of the strategic recapitalization
plan for the Company, during the spring and early summer of 2006 several of these counterparties
did express an interest in exploring the possibility of acquiring the company. However, except as
described below, none of these parties made a formal offer to us.
By August 2006, these discussions resulted in a formal offer from an investment group to
purchase all of our assets other than our office and hotel assets, with the expectation that we
would then liquidate our office, resort and hotel assets as part of the continuing sales activities
described above. As a part of its offer (the August Offer), the investment group required the
continued participation of, and a significant equity investment from, senior management. In
addition, an affiliate of Morgan Stanley had agreed to provide certain senior subordinated debt as
a part of the financing of the August Offer being arranged by the investment group. After receipt
of the August Offer, we suspended our negotiations with the second bidder from the sales process
for our resort and hotel portfolio and any sales efforts on the office portfolio.
In contemplation of receiving the August Offer, our board of trust managers formed a special
committee of independent trust managers composed of Paul E. Rowsey, III, Anthony M. Frank, William
F. Quinn and Terry N. Worrell (the Special Committee) to represent our public shareholders in
considering the offer as well as alternative transactions. The Special Committee hired Greenhill &
Co., LLC (Greenhill) as its financial adviser and Carrington, Coleman, Sloman & Blumenthal,
L.L.P. as its legal counsel. During the fall of 2006 the Special Committee considered the August
Offer and, on October 23, 2006, formally rejected the August Offer due to execution and structuring
risks associated with that offer.
On November 7, 2006, we announced that [d]uring 2006, the Company has conducted an extensive
review of its strategic alternatives, that we had received the August Offer, that our board had
established a special committee of independent trust managers to assist in its consideration of
strategic alternatives and to respond to the [August Offer], that we had rejected the August Offer
and that we were continuing to review our strategic alternatives.
From November 2006 to February 2007, management and our board of trust managers continued to
analyze the prospects for our various assets and business lines in light of the evolving market
conditions and the results of our strategic process to date. In early 2007, our board of trust
managers decided to implement a new strategic plan (the Plan) which was designed to simplify our
business model in order to become a pure-play office REIT. We announced the Plan on March 1, 2007.
Under the Plan, we intended to (i) sell our resort and hotel properties, our resort residential
developments, virtually all of our suburban Dallas office properties, all of our Austin office
properties and our single office properties in Phoenix, Arizona, and Seattle, Washington, (ii)
reduce our general and administrative expenses, (iii) retire debt and (iv) consider alternatives
for our investment in Canyon Ranch in conjunction with the founders of Canyon Ranch.
Since March 1, we have been engaged in implementing the Plan. As of today, we have made the
following progress with implementing the Plan:
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sold our resort and hotel portfolio other than the Fairmont Sonoma Mission Inn,
which is under contract to be sold; |
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sold our property in Seattle, Washington, and an office property under development
and another office property in Austin, Texas; |
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placed our portfolio of selected Dallas office properties under contract; |
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contracted for the sale of our remaining Austin office properties and our Phoenix office property; |
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commenced the initial marketing process for our resort residential development
investments, which we have suspended as a result of our entry into the merger
agreement; and |
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commenced our reduction of general and administrative expenses. |
During late 2006 and early 2007, representatives of a number of companies, including Morgan
Stanley Real Estate and another party (the Other Party),
had indicated an interest to our
management and Greenhill regarding the possibility of acquiring us. With the exception of the
contacts described below with Morgan Stanley Real Estate and the Other Party, none of these
discussions led to any proposals by any of the parties.
On March 6, 2007, representatives of Morgan Stanley Real Estate contacted our management to
express a preliminary interest in acquiring us. Management discussed this interest with our
chairman of the board, our lead independent director, the chairman of the Special Committee and
Greenhill. Based on those discussions, we and Greenhill indicated to Morgan Stanley Real Estate
that our board of trust managers would entertain offers for our entire business. No details
regarding any potential transaction were discussed.
Also during March 2007, our board of trust managers authorized management and Greenhill to
work with the founders of Canyon Ranch to evaluate a variety of options for that business,
including a possible sale of our interest to the founders and a joint sale of all of the Canyon
Ranch businesses. This process has been suspended as a result of our
entry into the merger agreement.
On March 9, 2007, Morgan Stanley Real Estate delivered a letter (the March 9 Letter) to us
indicating its interest in purchasing us for a price of between $22.50 and $23.00 per share,
subject to due diligence. Morgan Stanley Real Estate indicated that it was a sophisticated,
experienced and capable purchaser of companies like us and that its bid did not contemplate the
participation of our management. It also indicated that its offer was
subject to two to three weeks of customary due diligence. The offer
also recognized that a potential transaction may have important tax
and
structuring considerations, which referred primarily to its desire to purchase assets, its concern
regarding possible tax liabilities, and its requirement that we
suspend further dividend payments.
On March 10, 2007, our board of trust managers held a special meeting to discuss the progress
of our implementation of the Plan and the March 9 Letter. At that meeting our board of trust
managers created a working group composed of members of our board of trust managers, our management
and our advisors to develop and recommend a response to the March 9 Letter. Our board of trust
managers determined that it was appropriate for our management to work with the board in connection
with the March 9 Letter since the letter did not contemplate managements participation in the
transaction.
On March 12, 2007, our board of trust managers held a special meeting to consider approval of
the resort and hotel portfolio sale contract and to hear and consider the working groups
recommendation for responding to the March 9 Letter. At that meeting our board of trust managers
approved the resort and hotel portfolio sale contract, authorized the retention of Greenhill to
represent us in connection with the Morgan Stanley Real Estate proposal and authorized the working
group to engage in discussions with Morgan Stanley Real Estate regarding a possible acquisition of
us.
On March 14, 2007, we entered into an engagement letter with Greenhill regarding its
representation of us. Greenhill met with Morgan Stanley Real Estate and conveyed that our board of
trust managers believed the offer contained in the March 9 Letter was inadequate, but indicated
that our board of trust managers would be willing to consider an offer in excess of $24 per share
for us and that our board of trust managers believed that any offer would require a fiduciary-out
provision with a low break-up fee in order to permit a realistic opportunity for other bidders to
make offers for us following announcement of a transaction. At that meeting, Morgan Stanley Real
Estate
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indicated that it would need to obtain a step-up in tax basis in our assets and that it
would need to consider the cost and structuring implications associated with obtaining the basis step-up.
Between March 14 and March 24, 2007, Morgan Stanley Real Estate was provided with limited
confidential information relating to us, under the terms of a pre-existing confidentiality
agreement. Additionally, our representatives and Morgan Stanley Real Estate had informal
discussions in which we reiterated our concerns with the price offered in the March 9 Letter and
the need for an ability to entertain other offers. Morgan Stanley
Real Estate indicated that our assets did not support a valuation of
over $24 per share and disagreed with our assessment of the
appropriate size of a
break-up fee in connection with the boards fiduciary out provision (i.e., that provision in the
deal that would allow our board to accept a higher price for the company) because the proposed
transaction was not a management buy-out and because the Company had been actively entertaining
offers for parts or all of the company since the end of 2005. Though there was a difference
between the parties in values and other terms, each party believed that the other was sufficiently
interested in a transaction to engage in a serious exploration of a transaction.
On March 24, 2007, we entered into a confidentiality agreement with Morgan Stanley Real Estate
pursuant to which, among other things, we agreed to negotiate exclusively with Morgan Stanley Real
Estate until April 9, 2007, which period would automatically extend until April 16, 2007 if we did
not terminate the exclusivity period.
Between March 24, 2007 and April 9, 2007, Morgan Stanley Real Estate conducted extensive due
diligence. During this time, our representatives, Greenhill and our other advisors participated in
numerous meetings and telephone conversations during which information was conveyed to Morgan
Stanley Real Estate.
On April 10, 2007, Morgan Stanley Real Estate delivered a letter to our board of trust
managers (the April 10 Letter) offering to purchase us for $22.75 per common share (based on a
share count of 128.2 million). The April 10 Letter contemplated that any further
declared dividends would be considered a deduction from the proposed purchase price. The offer was
not contingent on receipt of financing and contemplated a deal protection and fiduciary out
structure similar to a recent Morgan Stanley Real Estate acquisition which provided for a break-up
fee of approximately 3% of equity value, among other items.
On April 10, 2007, our board of trust managers met to discuss the April 10 Letter. At that
meeting our board of trust managers discussed the offer contained in the April 10 Letter, including
the deal protection mechanisms and dividend restrictions included in the offer. Our board of trust
managers also discussed the asset valuations likely underlying the proposal as well as the progress
we had made at executing our Plan and the various execution risks inherent in fully executing the
Plan. Specifically, our board of trust managers considered execution risks inherent in selling our
interests in joint venture arrangements, such as our resort residential development and Canyon
Ranch business, which involve complex ownership and control structures and long-standing personal
relationships with the joint venture partners.
On April 16, 2007, our board of trust managers declared our expected first quarter dividend of
$0.375 per common share. This dividend was paid on May 15, 2007 to common shareholders of record
on April 30, 2007.
On April 19, 2007, our board of trust managers met to discuss the status of the discussions
with Morgan Stanley Real Estate. Our board of trust managers discussed the status of our hotel and
office sale processes, as well as the prospects for the marketing and sale of the resort
residential business, which was expected to commence soon. Our board of trust managers then
received a presentation from Greenhill relating to the valuation of the company and trading
multiples for the company as a whole and the company after complete implementation of the Plan.
Our board of trust managers also discussed our managements views on valuation of different assets.
Our board of trust managers discussed the long-term prospects for the value of the company, as
well as the importance of the fiduciary-out provisions in any transaction with a prospective
purchaser. Pillsbury Winthrop Shaw Pittman LLP, company counsel, also advised our board of trust
managers on its fiduciary duties in the context of the offer made in the April 10 Letter and the
likely process if our board of trust managers elected to negotiate a transaction with Morgan
Stanley Real Estate.
Based on the April 19, 2007 board deliberations and at the direction of our board of trust
managers, the working group requested that Greenhill deliver a counterproposal of $23.25 per common
share with payment of the $0.375 per share dividend declared on April 16, 2007 not deducted, but
with no future payment of dividends, and a
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fiduciary out provision that included a break-up fee equal to 1% of equity value for 45 days,
which would increase to 3% thereafter. Greenhill delivered the offer to Morgan Stanley Real Estate
on April 22, 2007.
Also on April 19, 2007, certain members of our management met with representatives of the
Other Party and its investment banker. At that meeting, the representatives indicated that the
Other Party had access to unspecified sources of equity capital and debt financing that would
permit it to make an offer to acquire us. On April 24, 2007, we received a letter from the Other
Party offering to acquire us for $24 per common share (the April 24 Letter). The April 24 Letter
contemplated, among other things, that we and the Other Party would enter into a preliminary
agreement, after which the Other Party would conduct due diligence. If at the end of the due
diligence period, the Other Party was willing to execute a definitive purchase agreement on the
terms outlined in the preliminary agreement and, if we were unwilling to do so, we would owe the
Other Party an unspecified break-up fee. Our board of trust managers authorized Greenhill to meet
with the Other Party to discuss the April 24 Letter and attempt to ascertain if the Other Party had
access to the necessary equity and debt to finance the offer represented in the April 24 Letter.
On April 26, 2007, our board of trust managers met to discuss and approve the sales of its
portfolios of suburban Dallas and Austin office properties. At the meeting our board of trust
managers also discussed the status of the discussions with Morgan Stanley Real Estate. As of the
time of that meeting, we had not received a response from Morgan Stanley Real Estate to the offer
delivered by Greenhill on April 22.
After our board of trust managers meeting on April 26, Morgan Stanley Real Estate contacted
Greenhill to indicate that it would change its offer to $22.75 per common share, with no deduction
for the dividend declared by us on April 16, 2007, no further dividend payments, and a reduced
break-up fee of $0.50 per common share (or approximately 2.2% of equity value). Members of the
working group discussed the Morgan Stanley Real Estate offer and determined to counter with a price
of $23 per share and a break-up fee of 1.5% of equity value for the first 45 days, rising to 3%
thereafter. Morgan Stanley Real Estate declined to accept the counteroffer. On April 27, 2007,
our board of trust managers met, and Greenhill described these discussions.
On May 1, 2007, our board of trust managers met to discuss the status of the discussions with
Morgan Stanley Real Estate. At the meeting our board of trust managers discussed the course of
negotiations with Morgan Stanley Real Estate in detail. Our board of trust managers determined to
defer the question of whether to continue discussions with Morgan Stanley Real Estate to a meeting
to be held in the following few days.
On May 2, 2007, Greenhill met with representatives of the Other Party and its financial
backer. At that meeting Greenhill indicated that the Other Party would need to demonstrate the
availability of equity and debt financing in order for us to consider further discussions with the
Other Party. Our board of trust managers considered the Other Partys position in the marketplace
and its lack of equity as a deterrent to entering into further discussions with the Other Party.
On May 8, 2007, the Other Party contacted Greenhill and stated that the Other Party was not
interested in pursuing a transaction with us due to complications concerning our joint venture
holdings, difficulty obtaining financing, uncertainty regarding tax structuring, and concern over
transaction-related costs.
On May 7, 2007, our board of trust managers met to continue deliberations relating to the
discussions with Morgan Stanley Real Estate. At the beginning of the meeting, John C. Goff, our
Chief Executive Officer and Vice Chairman of our board of trust managers, and Dennis H. Alberts,
our President and Chief Operating Officer, offered of their own volition to waive the vesting of
and to forfeit, for the benefit of the shareholders, the portions of their respective restricted
stock awards that were designated for vesting when the share price targets of $25.50 and $27.00
were hit and that would have vested in connection with an acquisition of the company by Morgan
Stanley Real Estate. They explained that the proposed forfeitures, the value of which totaled
approximately $10.3 million, were intended to be for the benefit of the shareholders. Thereafter,
our board of trust managers received a presentation from Greenhill describing the Morgan Stanley
Real Estate offer. Our board of trust managers discussed the alternatives available to us in light
of the offer received from Morgan Stanley Real Estate, including continuing to implement the Plan,
accepting the offer from Morgan Stanley Real Estate, or conducting a more formal sale process for
our business. Our board of trust managers considered the valuation information provided by
Greenhill as well as net asset value information provided by our management. In addition, our
board of trust managers considered the execution risks inherent in the Plan. Based on these
considerations, our board of trust managers decided to authorize
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the working group to negotiate with Morgan Stanley Real Estate to attempt to reach a
definitive agreement for the acquisition of us at a price of $22.75 per common share (plus the
value of the forfeitures by Messrs. Goff and Alberts described above), with no right to pay future
dividends, and a fiduciary out provision that included a break-up fee of $0.50 per share
(approximately 2.2% of equity value). The forfeitures, which were accepted by our board of trust
managers on May 21, 2007, are applicable to the mergers or any other transaction our board of trust
managers determines to accept in lieu of the mergers.
On May 9, 2007, we and Morgan Stanley Real Estate entered into an exclusivity agreement
pursuant to which both of us agreed to negotiate exclusively with the other until 12:00 p.m.,
Central Daylight Saving Time, on May 19, 2007.
From May 10 through May 22, 2007, our representatives and Morgan Stanley Real Estate engaged
in an intensive due diligence process and negotiated a definitive merger agreement. The merger
agreement negotiations addressed, among other areas, the scope of the fiduciary protections to be
included in the agreement, the guarantees to be given by affiliates of Morgan Stanley Real Estate,
the scope of the limitations on our business activities between execution and the closing of the
mergers, the conditions to each partys obligations to close the mergers and each partys rights to
terminate the merger agreement, the nature and breadth of the representations and warranties to be
made by us and the terms of severance to be provided to any of our employees terminated in
connection with the mergers. During this period, the parties also continued to negotiate the price
per share to be paid by Morgan Stanley Real Estate in connection with the mergers. The final
purchase price of $22.80 per common share was agreed based on the $22.75 per share price offered by
Morgan Stanley Real Estate, and a proportional increase to such price to reflect the value of the
equity award forfeitures by Messrs. Goff and Alberts that was partially offset by additional costs
of the transaction identified by Morgan Stanley Real Estate.
On
May 20, 2007 and continuing to May 21, our board of trust
managers met twice to consider the
merger agreement and the transactions contemplated by the merger
agreement. At those meetings
members of the working group briefed our board of trust managers on the content of the merger
agreement and the few remaining open issues on the merger agreement. Greenhill made a presentation
to the board of trust managers and provided its oral advice that the consideration to be received
by our common shareholders pursuant to the merger agreement was fair to our common shareholders
from a financial point of view. The board of trust managers considered the merger agreement and
the transactions contemplated by the merger agreement, Greenhills advice as to the fairness of the
merger consideration, the execution risks associated with the Plan, the future prospects for
shareholders to realize value from implementation of the Plan, and other factors discussed below
under Reasons for the Merger. Based on these deliberations, the board of trust managers
accepted the recommendation of the working group and approved the mergers and the merger agreement,
subject to appropriate resolution of the remaining open issues on the merger agreement.
On May 21, 2007, consistent with their offers made on May 7, Messrs. Goff and Alberts waived
the vesting of and agreed to forfeit, for the benefit of the shareholders, the portions of their
respective restricted stock awards that were designated for vesting when the share price targets of
$25.50 and $27.00 were hit and that would have vested in connection with the mergers.
On May 21 and 22, 2007, the parties resolved the remaining open issues on the merger agreement
consistent with the direction and authorization of our board of trust managers.
The merger agreement was signed on May 22, 2007, and we issued a press release announcing the
execution of the merger agreement that evening.
Certain of the factors considered by our board of trust managers are described in greater
detail under the heading Reasons for the Mergers.
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Reasons for the Mergers
Our board of trust managers considered both our short-term and long-term interests, as well as
those of our shareholders and the holders of units of limited partnership interest in the operating
partnership. In particular, our board of trust managers considered the following factors, which in
the aggregate it deemed favorable, in reaching its decision to approve the mergers, the merger
agreement and the other transactions contemplated by the merger agreement and to recommend approval
of the merger agreement and the company merger to our common shareholders:
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the current and historical market prices of our common shares, specifically the fact
that our common shares traded below managements net asset value estimates until August
2006, when market rumors of our possible sale apparently began to circulate, and the
fact that the cash merger consideration of $22.80 per share represented an approximate
8.8% premium to the closing price of our common shares on May 21, 2007, the last
trading day before we received Greenhills oral opinion with respect to the fairness of
the mergers, an approximate 12.2% premium to the average closing price of our common
shares for the 30-day period ended May 21, 2007, an approximate 12.2% premium to the
average closing price of our common shares for the 60-day period ended May 21, 2007,
and an approximate 11.2% premium to the average closing price of our common shares for
the 90-day period ended May 21, 2007; |
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although we had begun to implement the Plan, the mergers provide greater certainty
of enhanced value to our shareholders than pursuing the Plan as a result of the risks
and uncertainties in implementing the Plan, including the execution risks associated
with selling our joint venture investments, and the costs associated with implementing
the Plan, including sales costs, debt pre-payment penalties and tax costs that may have
been incurred as a result of selling assets held in our taxable REIT subsidiaries; |
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assuming we were able to fully implement our Plan, although we had been successful
in the past in implementing our business strategy, the mergers provide greater
certainty of enhanced value to our shareholders than pursuing our business strategy of
operating a pure-play office REIT as a result of the risks and uncertainties associated
with that business, including those associated with changes in general economic
conditions, changes in supply or demand for properties, market fluctuations in rental
rates, fluctuations in interest rates, and changes in the debt and equity markets; |
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favorable conditions for sale transactions in the real estate markets generally,
including prices for real estate assets being extremely high and the number of large
portfolio acquisitions and public real estate mergers in recent years occurring at
favorable pricing; |
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the high probability that the mergers would be completed based on, among other
things, Morgan Stanley Real Estates proven ability to complete large acquisition
transactions, Morgan Stanley Real Estates extensive experience in the real estate
industry, the lack of a financing condition, and the $300 million guarantee of Moon
Parents, REIT Merger Subs and Partnership Merger Subs obligations under the merger
agreement by affiliates of Morgan Stanley Real Estate; |
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the terms and conditions of the merger agreement, which were reviewed by our board
of trust managers with our financial and legal advisors, and in particular the fact
that such terms were the product of arms-length negotiations between the parties with
management not participating as equity investors with Morgan Stanley Real Estate and
the break-up fee of 2.2% of the equity value of the transaction being below the average
break-up fee of several recent transactions identified by Greenhill; |
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the financial analysis of Greenhill, and its oral opinion, which was subsequently
confirmed in writing, to our board of trust managers that as of May 21, 2007, and based
upon and subject to the factors and assumptions set forth therein, the consideration of
$22.80 per common share, in cash, to be received by our common shareholders pursuant to
the merger agreement was fair from a financial point of view to such shareholders, and
the consideration of $45.60 per partnership unit, in cash, to be received by the |
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holders of partnership units pursuant to the merger agreement was fair from a financial
point of view to such holders (see Opinion of Our Financial Advisor on page 31); |
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our ability, under the merger agreement, under certain circumstances, to consider
and respond to an unsolicited written acquisition proposal, and if, after consultation
with our financial advisors, the board of trust managers determines in good faith that
such acquisition proposal is a superior proposal and determines in good faith, after
consultation with legal counsel, that failure to take such action would be inconsistent
with the boards duties to our shareholders under applicable law, and Moon Parent
chooses not to negotiate improvements to the merger agreement to make it superior, our
ability to terminate the merger agreement upon the payment of a termination fee of
$64.2 million; |
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the fact that our management team recommended the mergers to
our board of trust managers; |
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the fact that the all cash merger consideration will provide our shareholders with
immediate fair value, in cash, for their investment in our shares; and |
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the company merger and merger agreement is subject to the approval of our common
shareholders. |
Our board of trust managers also considered the following potentially negative factors in its
deliberations concerning the merger agreement and the mergers:
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the company merger would preclude our shareholders from having the opportunity to
participate in the future performance of our assets, future earnings growth, future
appreciation of the value of our common shares or future dividends that could be
expected if the Plan were successfully implemented; |
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the significant costs involved in connection with entering into and completing the
mergers and the substantial time and effort of management required to consummate the
mergers and related disruptions to the operation of our business; |
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the restrictions on the conduct of our business prior to the completion of the
mergers, which could delay or prevent us from undertaking business opportunities that
may arise pending completion of the mergers; |
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the pending mergers or failure to complete the mergers may cause substantial harm to
relationships with our employees and may divert management and employee attention away
from the day to day operation of our business; |
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our inability to solicit competing acquisition proposals and the possibility that
the $64.2 million termination fee or up to $10 million expense reimbursement payable by
us upon the termination of the merger agreement under certain circumstances could
discourage other potential bidders from making a competing bid to acquire us; |
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the fact that an all-cash merger would be taxable to our shareholders for U.S.
federal income tax purposes; |
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our inability to take action to cause specific performance or require Moon Parent to
complete the mergers, and our exclusive remedy for such failure to complete the mergers
being to seek damages up to the amount of Morgan Stanley Real Estate affiliates $300
million guarantee; and |
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some of our trust managers and executive officers may have interests in the mergers
that are different from, or in addition to, Crescents shareholders (see Interests
of Our Trust Managers and Executive Officers on page 38). |
The foregoing discussion of the factors considered by our board of trust managers is not
intended to be exhaustive, but rather includes the material factors considered by our board of
trust managers. In reaching its decision to approve the mergers, the merger agreement and the
other transactions contemplated by the merger agreement, our board of trust managers did not
quantify or assign any relative weights to the factors considered and
- 30 -
individual trust managers may have given different weights to different factors. In
the event the mergers are not completed for any reason, we expect to continue to pursue the Plan
with the intention of delivering further improvement in our financial results and enhanced
shareholder value.
Recommendation of Our Board of Trust Managers
After careful consideration, our board of trust managers has unanimously (subject to the
recusal of two trust managers) approved the company merger, the merger agreement and the other
transactions contemplated by the merger agreement and has declared the company merger, the merger
agreement and the other transactions contemplated by the merger agreement advisable and in the best
interests of Crescent and our shareholders. In making this determination, John C. Goff, our Chief
Executive Officer and Vice Chairman of our board of trust managers, and Dennis H. Alberts, our
President and Chief Operating Officer, recused themselves. Our board of trust managers (subject to
the recusal of two trust managers) recommends that you vote FOR the proposal to approve the
merger agreement and the company merger.
Opinion of Our Financial Advisor
On May 21, 2007, Greenhill & Co., LLC, which we refer to as Greenhill, rendered its oral
opinion, which was subsequently confirmed in writing, to our board of trust managers that, as of
May 21, 2007 and based upon and subject to the factors and assumptions set forth therein, the
$22.80 in cash per common share to be received by our common shareholders pursuant to the merger
agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Greenhill, dated May 21, 2007, which sets forth
assumptions made, procedures followed, matters considered and limitations on the review undertaken
in connection with the opinion, is attached as Exhibit B to this proxy statement. The summary of
Greenhills opinion that is set forth below is qualified in its entirety by reference to the full
text of the opinion. You are urged to read the opinion in its entirety.
Greenhill provided its opinion for the information and assistance of our board of trust
managers in connection with its consideration of the mergers. The Greenhill opinion is not a
recommendation as to how any common shareholder should vote with respect to the company merger.
In connection with rendering the opinion described above, Greenhill reviewed, among other things:
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the draft of the merger agreement presented to our board of trust managers on May 21, 2007; |
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the guarantees described in Guarantees and Remedies; |
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certain of our publicly available financial statements; |
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certain research analysts estimates of our future financial performance; |
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certain other publicly available business and financial information relating to us
that Greenhill deemed relevant; and |
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certain information, including financial forecasts and projections and other
financial and operating data concerning us, prepared by our management. |
Greenhill also held discussions with members of our senior management regarding their
assessment of the past and current business operations, financial condition, and future prospects
of Crescent. In addition, Greenhill reviewed the reported price and trading activity for Crescent
common shares, compared certain financial and stock market information for Crescent with similar
information for certain other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the office real estate industry
specifically and in other real estate industries generally and performed such other studies
and analyses, and considered such other factors, as it considered appropriate.
- 31 -
Greenhill assumed and relied upon, without independent verification, the accuracy and
completeness of all of the financial, accounting, legal, tax and other information discussed with
or reviewed by it for purposes of rendering its opinion. In that regard, Greenhill assumed, with
the consent of our board of trust managers, that the financial forecasts prepared by our management
were reasonably prepared on a basis reflecting our best currently available estimates and good
faith judgments as to our future financial performance, and Greenhill relied upon such forecasts in
arriving at its opinion. Greenhill expressed no opinion with respect to such forecasts or the
assumptions upon which they are based. In addition, Greenhill did not conduct a physical
inspection of our properties or facilities, nor did we make any independent evaluation or appraisal
of our assets and liabilities (including any contingent, derivative or off-balance-sheet assets and
liabilities) or any of our subsidiaries, nor was any such evaluation or appraisal of our assets or
liabilities or any of our subsidiaries furnished to Greenhill. Greenhills opinion does not
address our underlying business decision to engage in the transaction. Greenhills opinion is
necessarily based on economic, monetary, market and other conditions as in effect on, and the
information made available to Greenhill as of, May 21, 2007. Subsequent developments may affect
Greenhills opinion, but it has no obligation to update, revise or reaffirm its opinion.
The preparation of a fairness opinion is a complex process and is not necessarily suited to
partial analysis or summary description. Selecting portions of the analyses or of the summary set
forth below, without considering the analyses as a whole, could create an incomplete view of the
processes underlying Greenhills opinion. In arriving at its fairness determination, Greenhill
considered the results of all of its analyses and did not attribute any particular weight to any
single factor or analysis considered by it. Rather, Greenhill made its determination as to
fairness on the basis of its experience and professional judgment after considering the results of
all of its analyses. No company or transaction used in Greenhills analyses as a comparison is
directly comparable to us or the contemplated transaction.
The following is a summary of the material financial analyses delivered by Greenhill to our
board of trust managers in connection with rendering the opinion described above, but does not
purport to be a complete description of the financial analyses performed by Greenhill. Some of the
summaries of the financial analyses include information presented in tabular format. The tables
must be read together with the full text of each summary and are alone not a complete description
of Greenhills financial analyses. We provided Greenhill with 127,694,812 as the number of fully
diluted outstanding common shares of Crescent for purposes of this analysis. This number of fully
diluted outstanding common shares of Crescent included 102,893,011 outstanding shares, 17,022,346
shares issuable upon conversion of partnership units, 4,813,500 shares issuable upon conversion of
Series A and B restricted units net of forfeitures, 664,294 shares issuable pursuant to an exchange
agreement with a joint venture partner, and 2,301,661 shares issuable with respect to options to
purchase common shares of Crescent (calculated using the treasury method). Except as otherwise
noted, the following quantitative information, to the extent that it is based on market data, is
based on market data as it existed on or before May 21, 2007 and is not necessarily indicative of
current market conditions.
Net Asset Value Analysis. Greenhill analyzed our net asset value per share using asset
valuations provided by our management, based on our current asset holdings and assuming no discount
attributable to the various assets in which we own a joint venture share. Using this information
provided by our management, Greenhill calculated an illustrative per diluted share net asset value
of the common shares of Crescent equal to between $23.92 and $24.14.
In addition, Greenhill performed a net asset value analysis on us using net asset valuations
provided by the our management, but assuming execution of our strategic plan, announced on March 1,
2007, which contemplated various asset sales and debt prepayments as well as the disposition of our
interests in Canyon Ranch. These transactions would have resulted in the incurrence by us of
various costs, including transaction costs, debt prepayment penalties, and taxes owed by our
taxable REIT subsidiary upon the sale of certain hotel assets and resort residential properties,
and potential capital gains taxes due on the sale of other assets. Accordingly, using information
provided by our management, Greenhill adjusted the net asset value downward for these costs.
Additionally, Greenhill added to the net asset value the projected dividends to be paid to
shareholders for the remainder of 2007, representing the estimated cash flows to shareholders
during such period. After making such
adjustments, and based on information provided by our management, Greenhill estimated our net
asset value after costs related to executing our strategic plan at between $22.91 and $23.10 per
diluted share.
- 32 -
Greenhill also noted public research analysts estimates of per share net asset value of the
common shares of Crescent obtained from BB&T Capital Markets, Bear Stearns, Citigroup, Green Street
Advisors, Merrill Lynch, Morgan Stanley, and RBC Capital Markets as of May 21, 2007, ranging from
$18.00 to $28.00, with an average estimate of $22.40 and a median estimate of $21.62. A subset of
the firms providing estimates of per share net asset value also provided per share target prices
for the common shares of Crescent. These firms included BB&T Capital Markets, Bear Stearns, Green
Street Advisors, Morgan Stanley, and RBC Capital Markets. Their per share target price ranged from
$20.00 to $28.00, with an average target price of $21.93 and a median target price of $20.66.
In addition to considering the net asset value estimates described above, Greenhill also
examined our significant holdings of non-control positions in a number of joint ventures with other
parties and their potential adverse impact on valuation. Greenhill believes, in its professional
judgment, that as a result of reduced decision and management rights and other structural
complexities inherent in these holdings, it is appropriate to consider a minority-discount to the
above net asset value estimates with respect to such joint venture holdings. In estimating a
reasonable discount to net asset value as a result of these positions, Greenhill reviewed the
ownership structures and key terms of selected major joint ventures in which we are a stakeholder
and applied a range of minority discounts of between 5% and 10% to our managements valuation
estimates (which on their own did not include any adjustment for minority holdings) for those
holdings. This analysis yielded potential discount related to our joint venture holdings of
between $81 and $161 million, or approximately $0.63 and $1.26 per diluted share.
Dividend Discount Analysis. Greenhill calculated illustrative net present value ranges of the
common shares of Crescent by using projected dividend payments for Crescent for the five years from
2007 through 2011 and illustrative residual value indications at the end of the year 2011 based on
multiples ranging from 16.0x to 18.0x forward (2012) estimated funds from operations (FFO) per
diluted common share, assuming full implementation of our strategic plan. The projected dividend
payments and projected FFO per share were based on information provided by our management to our
board of trust managers. The FFO multiple range selected was based on Greenhills professional
judgment, which included an analysis of the FFO trading multiples of other publicly traded
companies which Greenhill considered most relevant to us after implementation of our strategic
plan. The comparable companies selected are identified in the following section entitled Trading
Multiple Analysis. The projected dividend payments and the illustrative residual value
indications derived from this analysis were then discounted to an illustrative present value using
equity discount rates ranging from 8.25% to 8.75%. This range of discount rates was based on
Greenhills professional judgment, including an analysis of the cost of equity and weighted average
cost of capital for comparable companies. The results of this analysis are summarized below:
Net Present Value Per Share
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Equity Discount Rate |
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8.25% |
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8.50% |
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8.75% |
Terminal |
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16.0x |
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$ |
21.41 |
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$ |
21.19 |
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$ |
20.97 |
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Multiple of |
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17.0x |
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$ |
22.61 |
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$ |
22.38 |
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$ |
22.14 |
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2012E FFO |
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18.0x |
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$ |
23.81 |
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$ |
23.56 |
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$ |
23.32 |
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- 33 -
Trading Multiple Analysis. Using publicly available information, Greenhill reviewed and
analyzed certain financial information, ratios and public market multiples, where applicable, for
the following publicly traded companies in the REIT industry:
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Alexandria Real Estate Equities Inc.
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Kilroy Realty Corp. |
BioMed Realty Trust Inc.
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Liberty Property Trust |
Boston Properties Inc.
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Mack-Cali Realty Corp. |
Brandywine Realty Trust
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Maguire Properties Inc. |
Brookfield Properties Corp.
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Parkway Properties Inc. |
Corporate Office Properties Trust Inc.
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PS Business Parks Inc. |
Cousins Properties Inc.
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Republic Property Trust |
Digital Realty Trust Inc.
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SL Green Realty Corp. |
Douglas Emmett Inc.
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Vornado Realty Trust |
Highwoods Properties Inc.
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Washington REIT |
HRPT Properties Trust |
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Using publicly available information, Greenhill then compared certain financial information,
ratios and public market multiples for the following publicly traded companies, which were
selected from the list above:
Brandywine Realty Trust
Highwoods Properties Inc.
Liberty Property Trust
Mack-Cali Realty Corp.
Parkway Properties Inc.
PS Business Parks Inc.
Although none of the selected companies is directly comparable to us, the companies included
were selected because they are publicly traded companies with operations that for purposes of
analysis may be considered similar to certain of our operations based on the industry in which the
companies operate, and the property characteristics and asset quality of the companies.
Accordingly, a complete analysis of the results of the following calculations cannot be limited to
a quantitative review of such results and involves complex considerations and judgments concerning
the differences in the financial and operating characteristics of the comparable companies and
other factors that could affect the public share prices of the comparable companies, as well as the
price of our common shares.
The multiples and ratios for us and each of the selected companies were calculated using their
respective closing prices on May 21, 2007 and were based on the most recent publicly available
information at that time.
Greenhill calculated illustrative implied prices of our common shares by multiplying the SNL
Financial Consensus forward estimated FFO per common share for the year 2007 as of May 21, 2007 by
a range of multiples from 13.0x to 16.5x. This range of multiples was chosen based upon estimated
2007 FFO multiples per diluted share for the selected comparable companies. This analysis yielded
illustrative implied prices for our common shares ranging from $16.77 to $21.29 per diluted share.
In addition, Greenhill calculated illustrative implied prices of our common shares by
multiplying the SNL Financial Consensus forward estimated adjusted funds from operations (AFFO)
per common share for the year 2007 as of May 21, 2007 by a range of multiples from 18.0x to 21.5x.
This range of multiples was chosen based upon estimated 2007 AFFO multiples per diluted share for
the selected comparable companies. This analysis yielded illustrative implied prices for our
common shares ranging from $17.82 to $21.29 per diluted share.
Historical Trading Analysis. Greenhill reviewed the historical trading prices for Crescent
common shares for the five-year period ended May 21, 2007. In addition, Greenhill analyzed the
relationship between the $22.80 per diluted Crescent common share, in cash, to be received by our
common shareholders pursuant to the merger agreement and the prices of Crescent common shares
during certain periods within the one-year period ended May
- 34 -
21, 2007. This analysis indicated that the price per diluted share to be paid to our common
shareholders pursuant to the merger agreement represented:
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Metric |
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Premium |
One Day Prior Price (May 21, 2007) |
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$ |
20.95 |
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8.8 |
% |
30-Day Average Price |
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$ |
20.32 |
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12.2 |
% |
60-Day Average Price |
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$ |
20.32 |
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12.2 |
% |
90-Day Average Price |
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$ |
20.50 |
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11.2 |
% |
Precedent Transactions Analysis. Using publicly available information, Greenhill analyzed
premiums paid in selected announced transactions across all REIT sectors during the period from
2005 through May 21, 2007, based on the closing price one day prior to announcement, 30-days prior
to announcement and 90-days prior to announcement. Additionally, Greenhill reviewed the estimated
FFO multiples paid in transactions within the office REIT sector. Specifically, Greenhill reviewed
the following transactions:
- 35 -
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Date |
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Announced |
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Acquiror |
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Target |
Office |
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Nov-06 |
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The Blackstone Group |
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Equity Office Properties Trust |
Aug-06 |
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Morgan Stanley Real Estate |
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Glenborough Realty Trust |
Aug-06 |
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SL Green Realty |
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Reckson Associates Realty |
Jun-06 |
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Brookfield Properties & Blackstone |
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Trizec Properties |
Mar-06 |
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The Blackstone Group |
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CarrAmerica Realty |
Feb-06 |
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LBA Realty LLC |
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Bedford Property Investors |
Dec-05 |
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GE Real Estate / Trizec Properties |
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Arden Realty Trust |
Oct-05 |
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Brandywine Realty Trust |
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Prentiss Properties Trust |
Jun-05 |
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DRA Advisors LLC |
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CRT Properties |
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Apartments |
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Feb-06 |
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Morgan Stanley Real Estate |
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Town & Country Trust |
Oct-05 |
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Morgan Stanley Real Estate |
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AMLI Residential Properties |
Jun-05 |
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ING Clarion |
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Gables Residential Trust |
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Retail |
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Feb-07 |
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Centro Properties Group |
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New Plan Excel Realty Trust |
Feb-07 |
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Simon Property Group |
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Mills Corporation |
Oct-06 |
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Developers Diversified Realty |
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Inland Retail |
Jul-06 |
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Kimco Realty |
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Pan Pacific Retail |
Jul-06 |
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Centro Properties |
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Heritage Property Investment Trust |
Aug-04 |
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General Growth Properties |
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The Rouse Company |
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Healthcare |
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Jan-07 |
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Ventas |
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Sunrise REIT (Canada) |
Oct-06 |
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Public Sector Pension |
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Retirement Residence (Canada) |
May-06 |
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Health Care Property Investors |
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CNL Retirement Properties |
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Hotels |
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Apr-07 |
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Aimbridge (with Apollo) |
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Eagle Hospitality Properties Trust |
Apr-07 |
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JER Partners |
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Highland Hospitality |
Apr-07 |
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Apollo Investment Corporation |
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Innkeepers USA Trust |
Mar-07 |
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Inland American |
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Winston Hotels |
Jan-07 |
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Morgan Stanley Real Estate |
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CNL Hotels & Resorts |
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Industrial |
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Oct-06 |
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Crown Castle International |
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Global Signal |
Aug-06 |
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ING Real Estate |
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Summit REIT (Canada) |
Dec-05 |
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CalEast Industrial Investors |
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CenterPoint Properties Trust |
Jun-05 |
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ProLogis |
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Catellus Development Corp |
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Storage |
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Mar-06 |
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Public Storage |
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Shurgard Storage Centers |
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Net-Lease |
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Mar-07 |
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Macquarie / Kaupthing Bunadarbanki |
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Spirit Finance |
Oct-06 |
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GE Capital Solutions |
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Trustreet Properties |
Oct-06 |
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Record Realty |
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Government Properties Trust |
Greenhill selected these precedent transactions on the basis of a range of factors, including
the industry in which the target companies operate, and the property characteristics and asset
quality of the target companies. For each of the
- 36 -
selected transactions, Greenhill calculated and
compared the implied forward FFO multiple and the implied
premiums offered relative to historical trading prices. Greenhill then used its professional
judgment, based on its knowledge of the specific transactions, to determine the appropriate forward
FFO multiple range and implied premium range to compare to the proposed acquisition of Crescent.
The results of these analyses are summarized as follows:
($US millions, except per share data)
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Crescent |
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Multiple Range |
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Implied Per Share Value |
Metric |
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Statistic |
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Low |
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High |
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Low |
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High |
Price / 2007E Consensus FFO* |
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$ |
1.29 |
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15.0x |
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18.0x |
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$ |
19.35 |
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$ |
23.22 |
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Premium to Price as of 5/21/07 |
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$ |
20.95 |
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8.0 |
% |
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20.0 |
% |
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$ |
22.63 |
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$ |
25.14 |
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Greenhill prepared these analyses for purposes of providing its opinion to our board of
trust managers as to the fairness from a financial point of view of the $22.80 per diluted common
share, in cash, to be received by our common shareholders pursuant to the merger agreement. These
analyses do not purport to be appraisals nor do they necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be significantly more or less
favorable than suggested by these analyses. Because these analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of the parties or their
respective advisors, none of Crescent, Morgan Stanley or Greenhill or any other person assumes
responsibility if future results are materially different from those forecast.
The common share merger consideration was determined through arms length negotiations between
us and Morgan Stanley and its affiliates and was approved by our board of trust managers.
Greenhill provided advice to us during these negotiations. Greenhill did not, however, recommend
any specific amount of consideration to us or our board of trust managers or that any specific
amount of consideration constituted the only appropriate consideration for the company merger.
Greenhill was not requested by our board of trust managers to address, nor does the opinion
delivered by Greenhill address, the consideration to be received by the holders of the Series A or
Series B preferred shares upon their redemption.
Greenhill, as part of its investment banking business, is continually engaged in performing
financial analyses with respect to businesses and their securities in connection with mergers and
acquisitions and other transactions as well as for corporate and other purposes. Greenhill has
acted as financial advisor to us in connection with, and has participated in certain of the
negotiations leading to, the transactions contemplated by the merger agreement. In addition,
Greenhill has provided certain investment banking services to us from time to time, including
having acted as advisor to a special committee of our board of trust managers in connection with
the evaluation of several potential transactions and other corporate actions. The aggregate fees
received by Greenhill from the investment banking services it rendered to us and our affiliates as
described above were approximately $1.5 million (excluding fees in connection with the mergers and
related transactions).
Our board of trust managers selected Greenhill as our financial advisor because Greenhill is a
recognized investment banking firm whose professionals have substantial experience in transactions
similar to the transactions contemplated by the merger agreement. Pursuant to a letter agreement,
dated March 14, 2007, we engaged Greenhill to act as our financial advisor in connection with the
transactions contemplated by the merger agreement. Pursuant to the terms of this engagement
letter, upon execution of the engagement letter we paid Greenhill an advisory fee of $1.0 million.
Upon announcement of the mergers, we paid Greenhill an opinion fee of $4.0 million. Finally, in
the event of a sale of 50% or more of our outstanding common shares or assets, we have agreed to
pay Greenhill a transaction fee equal to $7.5 million, all of which is payable upon consummation of
the transactions contemplated by the merger agreement. In addition, we have agreed to reimburse
Greenhill for its reasonable expenses, including attorneys fees and disbursements, and to
indemnify Greenhill and related persons against various liabilities, including certain liabilities
under the federal securities laws.
- 37 -
Financing Commitment
Moon Parent is paying an aggregate purchase price of approximately $6.5 billion. This amount,
which we refer to as the aggregate purchase price, is expected to be funded by a combination of
equity contributions by Moon Parent, debt financing and assumption of outstanding debt.
In connection with the execution and delivery of the merger agreement, an affiliate of Moon
Parent obtained a debt commitment letter from Barclays Capital Real Estate Inc., which we refer to
as the lender, providing for debt financing in an aggregate principal amount not to exceed the
lesser of (i) $3.8 billion and (ii) 85% of our total capitalization (including property debt and
corporate debt) excluding property-level debt, existing mezzanine loans and subordinate debt,
corporate debt and cash. The debt commitment letter terminates on October 31, 2007, unless
extended in accordance with its terms and the closing of the loan is conditioned on the
satisfaction of the conditions precedent to Moon Parents obligation to consummate the mergers and
other customary closing conditions. The lender has the right to terminate the debt commitment
letter under certain circumstances, including if the merger agreement has been terminated prior to
the closing of the mergers.
The merger agreement does not contain a financing condition. Moon Parent has agreed to use
its reasonable best efforts to arrange the financing on the terms and conditions described in the
debt commitment letter in the event that the lender terminates or otherwise fails to perform
pursuant to the debt commitment letter. If any portion of Moon Parents debt financing becomes
unavailable on the terms and conditions contemplated in the debt commitment letter, Moon Parent is
obligated to use its reasonable best efforts to arrange to obtain that portion from alternative
sources on comparable or more favorable terms. Moon Parent is obligated to keep us informed of the
status of its efforts to arrange debt financing and to give us prompt notice of any material breach
by any party of the debt commitment letter or of any termination of the debt commitment letter.
Before it permits any material amendment or modification to be made to, or any waiver of any
material provision or remedy under, the debt commitment letter which would or would be reasonably
expected to materially and adversely affect or delay in any material respect Moon Parents ability
to consummate the mergers, Moon Parent must first obtain our written consent (which shall not be
unreasonably withheld or delayed). With certain exceptions, we have agreed to provide, and to
cause our subsidiaries and our and their representatives to provide, all reasonable cooperation in
connection with the arrangement of the debt financing as may be reasonably requested by Moon
Parent.
Guarantees and Remedies
In connection with the merger agreement, affiliates of Morgan Stanley Real Estate have agreed
unconditionally and irrevocably to guarantee the punctual and complete payment when due of the
payment obligations, and the timely performance when required of all other obligations, of Moon
Parent, REIT Merger Sub and Partnership Merger Sub under the merger agreement, up to a maximum
amount, in the aggregate of $300 million. The guarantees will terminate on the final release or
discharge of the guaranteed obligations.
We cannot seek specific performance to require Moon Parent, REIT Merger Sub or Partnership
Merger Sub to complete the mergers, and our exclusive remedy for the failure of Moon Parent, REIT
Merger Sub and Partnership Merger Sub to complete the mergers is to seek damages up to the amount
of the $300 million guarantee from the guarantors, affiliates of Morgan Stanley Real Estate. If
all other closing conditions have been satisfied or waived, but Moon Parent fails to obtain
adequate financing to complete the mergers, such failure will constitute a
breach of Moon Parents covenants under the merger agreement. In that event, so long as we
and the operating partnership are not in material breach of our respective obligations under the
merger agreement, we would be able to (1) terminate the merger agreement, (2) receive from Moon
Parent an amount equal to all our reasonable out-of-pocket costs and expenses incurred by us in
connection with the proposed transaction in an amount not to exceed $10 million and (3) take legal
action against the affiliates of Morgan Stanley Real Estate that provided the guarantees, to seek
damages of up to a maximum of $300 million.
Interests of Our Trust Managers and Executive Officers
Our trust managers and executive officers may have interests in the mergers that are different
from, or in addition to, yours, including the following:
- 38 -
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unvested common share options held by our trust managers and executive officers will
be canceled at the company merger effective time in exchange for the right to receive a
single lump sum cash payment equal to the product of (A) the number of common shares
issuable upon exercise of such options (assuming full vesting) and (B) the excess, if
any, of the common share merger consideration over the exercise price per common share; |
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unvested partnership unit options held by our executive officers will be canceled at
the company merger effective time in exchange for the right to receive a single lump
sum cash payment equal to the product of (A) the number of partnership units issuable
upon exercise of such options (assuming full vesting) and (B) the excess, if any, of
the operating partnership merger consideration over the exercise price per partnership
unit; and |
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|
restricted unit awards owned by our executive officers (whether or not then vested)
will be accelerated in accordance with their terms and canceled at the operating
partnership merger effective time in exchange for the right to receive a single lump
sum cash payment equal to the product of (A) the number of partnership units issuable
upon vesting of such awards (assuming full vesting) and (B) the operating partnership
merger consideration, plus accrued but unpaid dividends. |
Also, John C. Goff, our Chief Executive Officer and Vice Chairman of our board of trust
managers, and Dennis H. Alberts, our President and Chief Operating Officer, had each previously
received restricted unit awards that would have fully vested in connection with the mergers. On
May 21, 2007, Messrs. Goff and Alberts waived the vesting of and agreed to forfeit, for the benefit
of the shareholders, the portions of their respective restricted stock awards that were designated
for vesting when the share price targets of $25.50 and $27.00 were hit and that would have vested
in connection with the mergers. The forfeitures, the value of which totaled approximately $10.3
million, are applicable to the mergers or any transaction our board of trust managers determines to
accept in lieu of the mergers.
In addition, each of our executive officers will be entitled to severance benefits pursuant to
our Change in Control Separation Plan, which became effective as of May 22, 2007, if the mergers
are completed and within the 12-month period thereafter the executive officer (i) terminates his or
her employment for good reason, other than at a time when a basis for termination for cause (as
defined in the Change in Control Separation Plan) exists, or (ii) is terminated without cause.
Good reason for termination means the occurrence, without the executive officers prior written
consent, of one or more of the following events following the completion of the mergers:
|
|
|
the assignment of the executive officer to any employment status or position other
than a position reasonably equivalent to the position or offices that the executive
officer performs (including without limitation a diminution in the nature or scope of
the executive officers authority or responsibilities, a material change to the
executive officers reporting responsibilities or the duties that the executive officer
performs); |
|
|
|
|
a reduction in the executive officers aggregate cash compensation (including base
salary and any bonus potential); or |
|
|
|
|
the relocation of the executive officers office or principal place of work from its
current location to a location more than 50 miles from such current location. |
The severance benefits will be comprised of (a) a lump sum severance payment equal to 12 months of
the executive officers base salary, except that John C. Goff, our Chief Executive Officer, and
Dennis H. Alberts, our President and Chief Operating Officer, will receive 18 months of their
respective base salary and 150% of the average of their respective cash bonuses paid to them in
2004, 2005 and 2006; (b) health care continuation coverage for up to 12 months following
termination of employment; and (c) outplacement assistance.
- 39 -
The following table sets forth an estimate of the potential cash severance payments that could
be payable as described above in the event the executive officer becomes entitled to such severance
amount pursuant to our Change in Control Separation Plan following the mergers (assuming for
illustrative purposes that the executive officers employment is terminated on October 31, 2007 and
utilizing current base salaries). This table does not include an amount attributable to the value
of the health care continuation coverage and outplacement assistance to be received by the
executive officer.
|
|
|
|
|
|
|
Amount of |
|
|
Potential Cash |
|
|
Severance |
Executive Officers |
|
Payment |
John C. Goff |
|
$ |
2,550,000 |
|
Dennis H. Alberts |
|
$ |
1,375,000 |
|
John P. Albright |
|
$ |
325,000 |
|
Jerry R. Crenshaw, Jr.(1) |
|
$ |
425,833 |
|
David M. Dean |
|
$ |
365,000 |
|
Thomas G. Miller |
|
$ |
350,000 |
|
Kenneth S. Moczulski(2) |
|
|
|
|
Jane E. Mody |
|
$ |
385,000 |
|
Jane B. Page |
|
$ |
350,000 |
|
Paul R. Smith |
|
$ |
350,000 |
|
John L. Zogg, Jr. |
|
$ |
350,000 |
|
Christopher T. Porter |
|
$ |
237,600 |
|
Suzanne K. Stevens |
|
$ |
237,600 |
|
|
|
|
(1) |
|
Resigned from his position as Chief Financial Officer effective as of March 29, 2007.
Following Mr. Crenshaws resignation, he continued working as an employee of Crescent. |
|
(2) |
|
Resigned effective as of March 31, 2007. |
- 40 -
The following table summarizes (a) the vested and unvested options to purchase our common
shares with exercise prices of less than $22.80 per common share, (b) the vested and unvested
options to purchase partnership units in the operating partnership with exercise prices of less
than $45.60 per partnership unit and (c) the unvested restricted unit awards in exchange for which
our executive officers and trust managers will receive merger consideration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
Weighted |
|
|
|
|
|
|
Shares |
|
Average |
|
|
|
|
|
|
Underlying |
|
Exercise |
|
Number of |
|
|
|
|
Vested |
|
Price of |
|
Outstanding |
|
|
|
|
And |
|
Vested and |
|
Restricted |
|
Aggregate |
|
|
Unvested |
|
Unvested |
|
Unit |
|
Resulting |
Name |
|
Options(2) |
|
Options |
|
Awards |
|
Consideration(3) |
Executive Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Goff(1) |
|
|
3,600,000 |
|
|
$ |
17.23 |
|
|
|
1,140,000 |
(4) |
|
$ |
47,934,000 |
(4) |
Dennis H. Alberts(1) |
|
|
703,400 |
|
|
$ |
18.12 |
|
|
|
740,000 |
(5) |
|
$ |
21,393,912 |
(5) |
John P. Albright |
|
|
60,465 |
|
|
$ |
17.55 |
|
|
|
152,500 |
|
|
$ |
3,971,441 |
|
Jerry R. Crenshaw, Jr. |
|
|
338,865 |
|
|
$ |
16.68 |
|
|
|
250,000 |
|
|
$ |
8,238,854 |
|
David M. Dean |
|
|
327,819 |
|
|
$ |
16.76 |
|
|
|
250,000 |
|
|
$ |
8,145,027 |
|
Thomas G. Miller |
|
|
97,160 |
|
|
$ |
16.49 |
|
|
|
250,000 |
|
|
$ |
6,778,080 |
|
Kenneth S. Moczulski |
|
|
532,000 |
|
|
$ |
18.40 |
|
|
|
42,000 |
|
|
$ |
3,298,400 |
|
Jane E. Mody |
|
|
300,000 |
|
|
$ |
17.51 |
|
|
|
265,000 |
|
|
$ |
8,116,500 |
|
Jane B. Page |
|
|
202,613 |
|
|
$ |
16.58 |
|
|
|
250,000 |
|
|
$ |
7,425,253 |
|
Paul R. Smith |
|
|
200,000 |
|
|
$ |
17.90 |
|
|
|
250,000 |
|
|
$ |
7,100,000 |
|
John L. Zogg, Jr. |
|
|
205,468 |
|
|
$ |
16.89 |
|
|
|
250,000 |
|
|
$ |
7,379,316 |
|
Christopher T. Porter |
|
|
|
|
|
|
|
|
|
|
90,000 |
|
|
$ |
2,214,000 |
|
Suzanne K. Stevens |
|
|
42,131 |
|
|
$ |
15.81 |
|
|
|
79,500 |
|
|
$ |
2,291,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Managers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard E. Rainwater |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony M. Frank |
|
|
70,000 |
|
|
$ |
18.29 |
|
|
|
|
|
|
$ |
315,700 |
|
William F. Quinn |
|
|
70,000 |
|
|
$ |
18.29 |
|
|
|
|
|
|
$ |
315,700 |
|
Paul E. Rowsey, III |
|
|
70,000 |
|
|
$ |
18.29 |
|
|
|
|
|
|
$ |
315,700 |
|
Robert W. Stallings |
|
|
56,000 |
|
|
$ |
17.67 |
|
|
|
|
|
|
$ |
287,280 |
|
Terry N. Worrell |
|
|
56,000 |
|
|
$ |
17.67 |
|
|
|
|
|
|
$ |
287,280 |
|
|
|
|
(1) |
|
A trust manager of Crescent. |
|
(2) |
|
Includes partnership unit options and common share options. For partnership unit options, the
number of securities shown in the column represents the number of common shares the partnership
units to be received upon exercise of partnership unit options would be exchangeable into (on the
basis of two common shares for each partnership unit). |
|
(3) |
|
Includes accrued dividends on unvested restricted units for ten quarters on the 2004 Plan and
eight quarters on the 2005 Plan totaling $6.876 million. |
|
(4) |
|
Excludes 240,000 units forfeited under the 2005 Plan with a total value of $6.192 million. |
|
(5) |
|
Excludes 160,000 units forfeited under the 2005 Plan with a total value of $4.128 million. |
All of our trust managers were fully aware of the foregoing interests of our executive
officers, trust managers and certain other persons in the mergers and, except for Messrs. Goff and
Alberts who recused themselves, considered them prior to approving the mergers and the merger
agreement.
- 41 -
Morgan Stanley Real Estate is currently assessing its staffing requirements with respect to
the ongoing business operations of the surviving entity. As a result, it is possible that the
surviving entity might offer an employment opportunity to one or more of our executive officers
upon or after the completion of the mergers. However, no determination has been made regarding
which, if any, executive officers may be offered employment or the terms of any such employment
opportunity, including compensation.
Indemnification of Our Trust Managers and Officers
The merger agreement provides that for a period of at least six years after the merger
effective time, the organizational documents of REIT Merger Sub, the partnership agreement of the
operating partnership and the organizational documents of any applicable subsidiary of ours or any
primarily controlled company (as defined in the merger agreement) will contain indemnification
provisions that are no less favorable than the indemnification provisions in our existing charter
and bylaws, the operating partnerships partnership agreement or the applicable organizational
documents of our subsidiaries, and that those provisions will not be amended, repealed or modified
during that period in any manner that would affect adversely the rights of any person who at or
prior to the merger effective time were our, our subsidiaries or any primarily controlled
companys trust managers, officers, directors, employees, agents, or fiduciaries, except as
required by law and then only to the minimum extent required by law.
Moon Parent, REIT Merger Sub and Partnership Merger Sub have agreed to indemnify, to the
fullest extent we or any of our subsidiaries, as the case may be, are authorized or permitted to
indemnify our own managers, directors, trust managers, officers or trustees under Texas law or the
applicable law of the jurisdiction where any such subsidiary was formed (as applicable), persons
who were, at or before the date of the merger agreement or during the period between the signing of
the merger agreement and the merger effective time, our, our subsidiaries or any related
entities (as defined in the merger agreement) managers, directors, trust managers, officers or
trustees with respect to any legal action arising out of or relating to their duties or services as
our, our subsidiaries or any related entities managers, directors, trust managers, officers or
trustees occurring at or prior to the merger effective time and, subject to certain conditions,
shall pay related reasonable legal fees, costs and expenses incurred by them.
The merger agreement permits, with respect to claims arising from facts or events that
occurred on or prior to the merger effective time, us to purchase a tail insurance policy of at
least the same coverage and amounts and containing terms and conditions that are no less favorable
to our, our subsidiaries or any primarily controlled companys managers, directors, trust
managers, officers, employees, agents, partners or fiduciaries as our and our subsidiaries
existing policy or policies, for the benefit of our, our subsidiaries or any primarily controlled
companys current and former managers, directors, trust managers, officers, employees, agents, or
fiduciaries with a claims period of six years from the closing with respect to trust managers and
officers liability insurance for claims arising from facts or events that occurred on or prior to
the closing. The obligations described above must be assumed by any successor entity to the
surviving corporation as a result of any consolidation, merger or transfer of all or substantially
all of its properties and assets.
Regulatory Matters
We currently are unaware of any material federal, state or foreign regulatory requirements or
approvals that are required for the execution of the merger agreement or the completion of either
the company merger or the operating partnership merger other than potential filings and necessary
approvals, if any, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, the acceptance for record of the articles of merger in respect of the company merger by
the country clerk of Tarrant County, Texas, in accordance with the Texas REIT Act, and the filing
of certificates of merger with the Secretary of State of the State of Delaware, in accordance with
the Delaware Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership
Act.
Litigation Relating to the Mergers
On May 24, 2007, a purported shareholder class action lawsuit related to the merger agreement
was filed in the District Court of Tarrant County, Texas, naming us and each of our trust managers
as defendants. The lawsuit, Edward Tansey vs. Crescent Real Estate Equities Company, et al. (Cause
No. 352-225130-07), alleges, among other things, that $22.80 per share in cash to be paid to our
common shareholders in connection with the company merger
- 42 -
is grossly unfair, that the individual
trust manager defendants breached their fiduciary duties to our common shareholders in negotiating
and approving the merger agreement, and that we aided and abetted our trust managers in such
alleged breach. The complaint seeks relief (i) declaring that the action is properly maintainable
as a class action; (ii) declaring that the merger agreement was entered into in breach of the
fiduciary duties of defendants; (iii) enjoining defendants from consummating the company merger;
(iv) directing defendants to exercise their fiduciary duties to obtain a transaction that is in the
best interests of our shareholders; (v) rescinding, to the extent that it has already been
implemented, the merger agreement; (vi) imposing a constructive trust; and (vii) awarding
attorneys and experts fees to the plaintiff.
On May 25, 2007, a shareholder derivative petition for breach of fiduciary duty related to the
merger agreement was filed in the District Court of Tarrant County, Texas, naming each of our trust
managers, as well as Morgan Stanley Real Estate and Morgan Stanley & Co., Inc. (the Morgan Stanley
Defendants) as defendants and naming us as a nominal defendant. The lawsuit, John Gomez vs.
Richard Rainwater, et al. (Cause No. 141-224134-07), alleges, among other things, that $22.80 per
share in cash to be paid to our common shareholders in connection with the company merger
substantially undervalues the Company and is an unfair price, that the individual trust manager
defendants breached their fiduciary duties to our common shareholders in negotiating and approving
the merger agreement, that the Morgan Stanley Defendants aided and abetted our trust managers in
such alleged breach, that our trust managers abused their ability to control and influence us, that
our trust managers committed waste of corporate assets, and that our trust managers usurped a
corporate opportunity (and were aided and abetted by the Morgan Stanley Defendants in that
wrongdoing). The complaint seeks relief (i) enjoining defendants from consummating the company
merger; (ii) directing defendants to exercise their fiduciary duties to obtain a transaction that
is in the best interests of our shareholders; (iii) rescinding, to the extent that it has already
been implemented, the merger agreement; (iv) imposing a constructive trust; and (v) awarding
attorneys and experts fees to the plaintiff.
On May 30, 2007, a shareholder derivative petition for breach of fiduciary duty related to the
merger agreement was filed in the District Court of Tarrant County, Texas, naming each of our trust
managers, as well as the Morgan Stanley
Defendants as defendants and naming us as a nominal defendant. The lawsuit, Willard Nelson vs.
Richard Rainwater, et al. (Cause No. 141-224214-07), alleges, among other things, that $22.80 per
share in cash to be paid to our common shareholders in connection with the company merger
substantially undervalues the Company and is an unfair price, that the individual trust manager
defendants breached their fiduciary duties to our common shareholders in negotiating and approving
the merger agreement, that the Morgan Stanley Defendants aided and abetted our trust managers in
such alleged breach, that our trust managers abused their ability to control and influence us, that
our trust managers committed waste of corporate assets, and that our trust managers usurped a
corporate opportunity (and were aided and abetted by the Morgan Stanley Defendants in that
wrongdoing). The complaint seeks relief (i) enjoining defendants from consummating the company
merger; (ii) directing defendants to exercise their fiduciary duties to obtain a transaction that
is in the best interests of our shareholders; (iii) rescinding, to the extent that it has already
been implemented, the merger agreement; (iv) imposing a constructive trust; and (v) awarding
attorneys and experts fees to the plaintiff.
On June 11, 2007, a purported shareholder class action lawsuit related to the merger agreement
was filed in the District Court of Tarrant County, Texas, naming us and each of our trust managers,
as well as Moon Acquisition Holdings, LLC, Moon Acquisition, LLC and Moon Acquisition Limited
Partnership (the Moon Defendants), as defendants. The lawsuit, Edward Acuff vs. Richard
Rainwater, et al. (Case No. 067-224428-07), alleges, among other things, that $22.80 per share in
cash to be paid to our common shareholders in connection with the company merger is an
insufficient price, that the individual trust manager defendants breached their fiduciary duties
to our common shareholders in negotiating and approving the merger agreement, and that we and the
Moon Defendants aided and abetted the trust managers in such alleged breach. The complaint seeks
relief (i) declaring that the action is properly maintainable as a class action; (ii) enjoining
defendants from consummating the company merger; (iii) declaring that the termination fee
provisions of the merger agreement are unfair and enjoining the payment of such termination fees;
(iv) declaring that the merger agreement was entered into in breach of the fiduciary duties of
defendants and that the Moon Defendants aided and abetted such breach; and (v) awarding
interest, attorneys fees and experts fees to the plaintiff.
- 43 -
We intend to vigorously defend each of these actions. However, even if these lawsuits are
determined to be without merit, they may potentially delay or, if the delay is substantial enough
to prevent the closing of the mergers by October 31, 2007, prevent the closing of the mergers.
Material United States Federal Income Tax Consequences
The following is a summary of the material United States federal income tax consequences of
the merger to holders of our common shares who receive cash for their shares pursuant to the
company merger. This summary is based on current law, is for general information only and is not
tax advice. This summary is based on the Code, applicable Treasury Regulations, and administrative
and judicial interpretations thereof, each as in effect as of the date hereof, all of which are
subject to change or different interpretations, possibly with retroactive effect. This summary
assumes that our common shares are held as capital assets. We have not requested, and do not plan
to request, any rulings from the Internal Revenue Service (IRS) concerning the tax treatment to
our shareholders of the merger, and the statements in this proxy statement are not binding on the
IRS or any court. We can provide no assurance that the tax consequences contained in this
discussion will not be challenged by the IRS, or if challenged, will be sustained by a court.
This summary does not address all of the tax consequences that may be relevant to us or to
particular holders of our common shares in light of their personal circumstances. In particular,
this summary does not address the tax consequences of:
|
|
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banks, insurance companies or other financial institutions; |
|
|
|
|
broker-dealers; |
|
|
|
|
traders; |
|
|
|
|
expatriates and former long-term residents; |
|
|
|
|
tax-exempt organizations; |
|
|
|
|
individual retirement accounts and other tax-deferred accounts; |
|
|
|
|
persons who are subject to alternative minimum tax; |
|
|
|
|
persons who hold their common shares as a position in a straddle or as part of
a hedging, conversion or other risk-reduction transaction; |
|
|
|
|
persons deemed to sell their common shares under the constructive sale provisions of the Code; |
|
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|
United States persons that have a functional currency other than the United States dollar; |
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except to the extent specifically discussed below, non-U.S. Holders (as defined below); |
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non-U.S. Holders who at any time have held, directly and by attribution, more
than 5% of our common shares; |
|
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regulated investment companies; |
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|
real estate investment trusts; |
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mutual funds; |
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subchapter S corporations; |
- 44 -
|
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partnerships or other entities treated as partnerships for United States federal
income tax purposes and partners in such partnerships; or |
|
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|
persons who acquired our common shares upon the exercise of stock options or
otherwise as compensation. |
In addition, this discussion does not address any state, local or foreign tax consequences of
the company merger. You are urged to consult your tax advisors regarding the specific tax
consequences to you of the company merger and our election to be taxed as a REIT.
For purposes of this discussion, a U.S. Holder means a holder of our common shares that is:
|
|
|
a citizen or resident of the United States as determined under the Code; |
|
|
|
|
a corporation or other entity treated as a corporation for United States federal
income tax purposes created or organized in or under the laws of the United States
or any state or the District of Columbia; |
|
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|
|
an estate, the income of which is subject to United States federal income
taxation regardless of its source; or |
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|
a trust (a) the administration of which is subject to the primary supervision of
a United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust, or (b) that was in
existence on August 20, 1996, was treated as a United States person on the previous
day, and elected to continue to be so treated. |
If any entity that is treated as a partnership for United States federal income tax purposes
holds our common shares, the tax treatment of its partners or members generally will depend upon
the status of the partner or member and the activities of the entity. If you are a partner of a
partnership or a member of a limited liability company or other entity classified as a partnership
for United States federal income tax purposes and that entity is holding our common shares, you
should consult your tax advisor.
As used in this section, a non-U.S. Holder means a beneficial owner of our common shares
that is an individual, corporation, estate or trust that is not a U.S. Holder as described above.
Consequences of the Company Merger to Us
We elected to be taxed as a REIT under the Code beginning with our taxable year ended December
31, 1994. We believe that we have been organized and have operated in a manner that will allow us
to qualify for taxation as a REIT under the Code commencing with our taxable year ended December
31, 1994 and continuing through the closing date. Qualification and taxation as a REIT depend upon
our ability to meet, through actual annual (or in some cases quarterly) operating results,
requirements relating to income, asset ownership, income distribution levels and diversity of share
ownership, and the various other REIT qualification requirements imposed under the Code. In any
year in which we qualify as a REIT, in general, we will not be subject to U.S. federal income tax
on that portion of our net taxable income that we timely distribute to shareholders.
Under the merger agreement, we will merge with and into REIT Merger Sub, and REIT Merger Sub
will be the surviving corporation.
For United States federal income tax purposes, we will treat the company merger as if we had
sold all of our assets to REIT Merger Sub and, then, made a liquidating distribution of all of the
common share merger
consideration to our common shareholders in exchange for our common shares. Provided that we
retain our qualification as a REIT through the merger effective time, and certain other conditions
are met, we generally can deduct such deemed liquidating distribution against our net taxable
income for our taxable year which includes the
- 45 -
company merger and, therefore, we would not expect
to be taxed on any of our income and gain realized from the sale of our assets or ordinary income
earned during our taxable year which includes the company merger.
Consequences of the Company Merger to U.S. Holders of Our Common Shares
In general, a U.S. Holders receipt of cash in exchange for common shares pursuant to the
company merger will be a taxable transaction for United States federal income tax purposes. In
general, a U.S. Holder will recognize capital gain or loss as a result of the company merger
measured by the difference, if any, between the common share merger consideration received in
exchange for our common shares and the holders adjusted tax basis in our common shares. Gain or
loss will be calculated separately for each block of common shares, with a block consisting of
common shares acquired at the same cost in a single transaction. Such gain or loss will constitute
long-term capital gain or loss if the U.S. Holder held such shares for more than one year as of the
effective time of the company merger. However, if a U.S. Holder recognizes loss upon the receipt
of cash in the company merger in exchange for common shares that it has held for six months or
less, at the effective time of the company merger, after applying certain holding period rules, the
loss recognized will be treated as a long-term capital loss to the extent such holder received
distributions from us which were required to be treated as long-term capital gains. Long-term
capital gains of noncorporate taxpayers generally are taxable at a maximum federal income tax rate
of 15%. Capital gains of corporate stockholders generally are taxable at the regular tax rates
applicable to corporations. The deductibility of capital losses may be subject to limitations. In
addition, the IRS has the authority to prescribe, but has not yet prescribed, regulations that
would apply a tax rate of 25% to a portion of capital gain realized by a noncorporate shareholder
on the sale of REIT shares that would correspond to the REITs unrecaptured Section 1250 gain.
Consequences of the Company Merger to Non-U.S. Holders of Our Common Shares
Generally, a non-U.S. Holders gain or loss from the company merger will be determined in the
same manner as that of a U.S. Holder. The United States federal income tax consequences of the
company merger to a particular non-U.S. Holder will depend on various factors, including whether the receipt
of the common share merger consideration is taxed under the provisions of Foreign Investment in
Real Property Tax Act of 1980, or FIRPTA, governing sales of REIT shares or whether the receipt of
the common share merger consideration is taxed under the provisions of FIRPTA governing
distributions from REITs. If the FIRPTA provisions governing sales of
REIT shares apply, the non-U.S.
Holder will be taxed as described below under Taxable
Sale of Shares. If the provisions
governing distributions from REITs apply, for United States federal income tax
purposes, the company merger will be treated as a sale of our assets followed by a liquidating
distribution from us to our common shareholders of the net proceeds
from the asset sale, with the tax consequences described below under
Distribution of Gain from the Disposition of U.S. Real
Property Interests by the Company. The IRS has taken a
position in a recent pronouncement that would result in application of the distribution
provisions to the extent the merger consideration is
attributable to gain from our sale of United States real property
interests, and not the taxable sale provisions, unless a special
exception applies (the 5% Exception, discussed below).
Because the question may not be fully settled at this point,
both sets of provisions are discussed below. In general, the
provisions governing the taxation of distributions by REITs can be less favorable to non-U.S.
Holders than the taxation of sales or exchanges of REIT shares by non-U.S. Holders, and non-U.S.
Holders should consult their tax advisors regarding the possible application of those provisions.
Distribution of Gain from the Disposition of U.S. Real
Property Interests. The IRS stated in recently-released Notice
2007-55 that it is taking the position that REIT liquidating
distributions are subject to tax under Section 897(h)(1) of the Code
to the extent attributable to gain from the sale of U.S. real estate
assets. Thus, under Notice 2007-55, the common share merger consideration received by a non-U.S. Holder is
subject to tax under FIRPTA as a distribution to the extent it is attributable
to gain from the deemed sale of our U.S. real estate assets in the merger, and not as a sale of our
common shares, unless the 5% Exception (described below) applies.
If the distribution were taxed under FIRPTA, the gain recognized by a non-U.S. Holder generally
would be subject to United States federal income tax on a net basis to the extent attributable to
gain from the deemed sale of our real estate assets, and a corporate non-U.S. Holder could also be
subject to the branch profits tax on such FIRPTA gain. On the other hand, the 5% Exception would
apply to a non-U.S. Holder of our common shares if the non-U.S. Holder does not own more than 5% of
our common shares at any time during the one-year period ending on the date of the distribution.
In this case, the FIRPTA tax would not apply, and the non-U.S. Holder
may be taxed as described below under Taxable Sale of
Shares. However, there is also a risk that rules applicable to
capital gains distributions made to non-U.S. Holders qualifying for the 5% Exception would apply.
These rules provide that capital gains distributions are treated as ordinary dividends to such
non-U.S. Holders. Accordingly, the common share merger consideration could be treated as an
ordinary dividend distribution from us to the extent attributable to capital gain from the deemed
sale of our assets, in which case that portion of the common share merger consideration you receive
would be subject to United States federal withholding tax at a 30% rate.
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Taxable Sale of Shares. Subject to the discussion of backup withholding and of distribution
of gain from the disposition of U.S. real property interests above,
to the extent the company merger is
treated as a taxable sale of our common shares, the non-U.S. Holder should not be subject to United
States federal income taxation on any gain or loss from the company merger unless: (i) the gain is
effectively connected with the non-U.S. Holders conduct of a trade or business in the United
States; (ii) the non-U.S. Holder is an individual present in the United States for 183 days or more
in the taxable year of the company merger and certain other requirements are met; or (iii) such
common shares constitute a U.S. real property interest under FIRPTA.
A non-U.S. Holder whose gain is effectively connected with the conduct of a trade or business
in the United States will be subject to United States federal income tax on such gain on a net
basis in the same manner as a U.S. Holder. In addition, a non-U.S. Holder that is a corporation
may be subject to the 30% branch profits tax on such effectively connected gain.
A non-U.S. Holder who is an individual present in the United States for 183 days or more in
the taxable year of the company merger and who meets certain other requirements will be subject to
a flat 30% tax on the gain
derived from the merger, which may be offset by United States source
capital losses. In addition, the non-U.S. Holder may be subject to applicable alternative minimum
taxes.
If a non-U.S. Holders common shares constitute a U.S. real property interest under FIRPTA,
such holder will be subject to United States federal income tax on the gain recognized in the
company merger on a net basis in the same manner as a U.S. Holder. A non-U.S. Holders common
shares generally will not constitute a U.S. real property interest if (i) we are a domestically
controlled qualified investment entity at the effective time of the merger, or (ii) the non-U.S.
Holder holds, directly and by attribution, 5% or less of the total fair market value of our common
shares at all times during the shorter of (a) the five-year period ending with the effective date
of the company merger and (b) the non-U.S. Holders holding period for the shares. A qualified
investment entity includes a REIT. Assuming we qualify as a REIT, we will be a domestically
controlled qualified investment entity at the effective time of the company merger if non-U.S.
Holders held directly or indirectly less than 50% in value of our shares (including our Series A
and Series B preferred shares while they are outstanding) at all times during the five-year period
ending with the effective time of the merger. No assurances can be given that the actual ownership
of our shares has been or will be sufficient for us to qualify as a domestically controlled
qualified investment entity at the effective time of the merger.
In addition, our common shares will not constitute a U.S. real property interest if (i) as of
the effective date of the merger, we did not hold any U.S. real property interests, and (ii) all of
the U.S. real property interests held by us during the five-year period ending with the effective
date of the company merger were disposed of in transactions in which the full amount of the gain
(if any) was recognized. The application of this rule in a transaction such as the company merger
is not entirely clear. You should consult your tax advisor regarding the possible FIRPTA tax
consequences to you of the merger.
Income Tax Treaties. If a non-U.S. Holder is eligible for treaty benefits under an income tax
treaty with the United States, the non-U.S. Holder may be able to reduce or eliminate certain of
the United States federal income tax consequences discussed above, such as the branch profits tax.
Non-U.S. Holders should consult their tax advisor regarding possible relief under an applicable
income tax treaty.
U.S.
Withholding Tax Under FIRPTA. As described above, IRS Notice
2007-55 takes the position that the receipt of
the common share merger consideration by a non-U.S. Holder not
qualifying for the 5% Exception will be treated
as a distribution from us to the extent it is attributable to gain from the deemed sale of our U.S. real estate
assets in the merger. Accordingly, we intend to withhold U.S. federal income tax at a rate of 35%
from the portion of the common share merger consideration that is, or is treated as, attributable
to gain from the sale of U.S. real property interests and paid to a non-U.S. Holder unless such
holder qualifies for the 5% Exception.
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A non-U.S. Holder may be entitled to a refund or credit against the holders United States tax
liability, if any, with respect to any amount withheld pursuant to FIRPTA, provided that the
required information is furnished to the IRS on a timely basis. Non-U.S. Holders should consult
their tax advisor regarding withholding tax considerations.
Information Reporting and Backup Withholding
Under the Code, a U.S. Holder of our shares may be subject to information reporting on the
cash received for the shares, unless an exemption applies. Backup withholding, currently at a rate
of 28%, may also apply to payments made in connection with the merger. Backup withholding will not
apply, however, to a holder who (a) in the case of a U.S. Holder, furnishes a correct taxpayer
identification number and certifies that the holder is not subject to backup withholding on the
substitute IRS Form W-9 or successor form, (b) in the case of a non-U.S. Holder, furnishes an
applicable IRS Form W-8 or successor form, or (c) is otherwise exempt from backup withholding and
complies with other applicable rules and certification requirements. Any amounts withheld under
the backup withholding rules may be allowed as a refund or a credit against such holders United
States federal income tax liability provided the required information is timely furnished to the
IRS.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS
RELATING TO THE COMPANY MERGER AND IS NOT TAX ADVICE. THEREFORE, HOLDERS OF OUR COMMON SHARES ARE
URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE COMPANY
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
Delisting and Deregistration of Our Common Shares and Our Series A and Series B Preferred Shares;
Deregistration of Partnership Units
If the company merger is completed, our common shares and our Series A and Series B preferred
shares will no longer be traded on the New York Stock Exchange and will be deregistered under the
Exchange Act. In addition, the operating partnerships partnership units will be deregistered
under the Exchange Act.
THE MERGER AGREEMENT
The summary of the material terms of the merger agreement below and elsewhere in this proxy
statement is qualified in its entirety by reference to the merger agreement, a copy of which is
attached to this proxy statement as Exhibit A and which we incorporate by reference into this
document. This summary may not contain all of the information about the merger agreement that is
important to you.
The merger agreement has been included to provide you with information regarding its terms,
and we recommend that you read carefully the merger agreement in its entirety. The rights and
obligations of the parties are governed by the express terms of the merger agreement and not by
this summary or any other information contained in this proxy statement. Except for its status as
a contractual document that establishes and governs the legal relations among the parties thereto
with respect to the mergers, we do not intend for its text to be a source of factual, business or
operational information about Crescent. The merger agreement contains representations, warranties
and covenants that are qualified and limited, including by information in the schedules referenced
in the merger agreement that the parties delivered in connection with the execution of the merger
agreement. Representations and warranties may be used as a tool to allocate risks between the
respective parties to the merger agreement, including where the parties do not have complete
knowledge of all facts, instead of establishing such matters as facts. Furthermore, the
representations and warranties may be subject to different standards of materiality applicable to
the contracting parties, which may differ from what may be viewed as material to shareholders.
Certain of these representations were accurate as of a specific date and do not purport to be
accurate as of the date of this proxy statement. Moreover, information concerning the subject
matter of the representations and warranties may have changed since the date of the merger
agreement and subsequent developments or new information qualifying a representation or warranty
may have been included in this proxy statement. Except for the
parties themselves, under the terms of the merger agreement only certain other specifically
identified persons are
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third party beneficiaries of the merger agreement who may enforce it and
rely on its terms. As a shareholder, you are not a third party beneficiary of the merger agreement
and therefore may not directly enforce or rely upon its terms and conditions and you should not
rely on its representations, warranties or covenants as characterizations of the actual state of
facts or condition of Crescent or any of its affiliates.
As used in the summary of the material terms of the merger agreement below and elsewhere in
this proxy statement, unless the context requires otherwise, references to our subsidiaries do
not include certain joint venture entities in which we, directly or indirectly, through our
subsidiaries own interests.
Structure
The Company Merger
At the merger effective time, we will merge with and into REIT Merger Sub, our separate
corporate existence will cease, and REIT Merger Sub will survive the merger and continue to exist
as a wholly owned subsidiary of Moon Parent. All of our and REIT Merger Subs properties, assets,
rights, privileges, immunities, powers and purposes, and all of our and REIT Merger Subs
liabilities, will become those of REIT Merger Sub. Following the completion of the company merger,
our common shares will be de-listed from the New York Stock Exchange and deregistered under the
Exchange Act and will no longer be publicly traded.
The Operating Partnership Merger
At the operating partnership merger effective time, Partnership Merger Sub, which was formed
in connection with the mergers and has no assets or liabilities, will merge with and into the
operating partnership, Partnership Merger Subs separate existence will cease, and the operating
partnership will survive the operating partnership merger. At the operating partnership merger
effective time, all of the operating partnerships and Partnership Merger Subs property, whether
real, personal or mixed, will be vested in the surviving partnership and all of the operating
partnerships and Partnership Merger Subs liabilities will attach to the surviving partnership.
Effective Times
The company merger effective time will occur under all applicable laws upon the later of (1)
the acceptance for record of the articles of merger with respect to the company merger by the
county clerk of Tarrant County, Texas, in accordance with the Texas REIT Act, (2) the time the
certificate of merger in respect of the company merger is filed with the Secretary of State of the
State of Delaware and (3) such later time agreed by the parties to the merger agreement and
designated in the articles of merger and certificate of merger.
The operating partnership merger effective time will occur at (1) the time that the operating
partnership files a certificate of merger with respect to the operating partnership merger with the
Secretary of State of the State of Delaware or (2) a later time agreed to by the parties and
designated in such filing in accordance with the Delaware Revised Uniform Limited Partnership Act.
The closing will occur as promptly as practicable, but in no event later than the second
business day after all of the conditions set forth in the merger agreement have been satisfied or
waived (other than those conditions which by their terms are required to be satisfied or waived at
the closing), unless the parties otherwise agree. Moon Parent, REIT Merger Sub and Partnership
Merger Sub may, by giving written notice to us and the operating partnership at least three
business days prior to the date specified by the parties to the merger agreement for the closing of
the mergers, delay the closing to a date no later than the earlier of (x) the last business day of
the month in which all of the conditions set forth in the merger agreement have been satisfied or
waived and (y) October 31, 2007.
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Organizational Documents
The operating agreement of REIT Merger Sub in effect immediately prior to the company merger
effective time will be the operating agreement of the surviving entity until amended after the
merger effective time in accordance with applicable law. The certificate of limited partnership of
the operating partnership will be the certificate of limited partnership of the surviving
partnership until amended following the effective time of the operating partnership merger as
provided in the merger agreement and in accordance with applicable law. The limited partnership
agreement of Partnership Merger Sub, as in effect immediately prior to the effective time of the
operating partnership merger, will be the limited partnership agreement of the surviving
partnership until further amended in accordance with its terms or by applicable law.
Management
The managing member of REIT Merger Sub, if any, immediately prior to the merger effective time
will be the initial managing member of the surviving entity. Moon Parent will be the general
partner of the operating partnership after the operating partnership merger effective time.
Treatment of Shares, Options to Purchase Common Shares, Options to Purchase Partnership Units and
Restricted Unit Awards
Common Shares
At the company merger effective time, each of our common shares issued and outstanding
immediately prior to the merger effective time and not subject to dissenters rights (other than
shares held by us or our subsidiaries or REIT Merger Sub, which will be automatically canceled and
retired and cease to exist with no payment being made) will automatically be canceled and converted
into the right to receive cash, without interest, equal to $22.80 per common share, reduced by the
per share amount, if any, distributed to holders of our common shares relating to distributions we
make that are necessary for us either to maintain our status as a real estate investment trust or
to avoid the imposition of corporate level tax or excise tax under the U.S. Internal Revenue Code
of 1986, as amended.
Preferred Shares
Prior to the company merger effective time, each of the Series A and Series B preferred shares
issued and outstanding will be redeemed by us for cash pursuant to the terms of such securities; to
the extent such redemptions do not occur, the Series A preferred shares issued and outstanding
immediately prior to the company merger effective time will automatically be converted into, and
canceled in exchange for, the right to receive the greater of (A) the redemption price per share
specified in our charter documents and (B) the common share merger consideration on an as-converted
basis pursuant to the terms of our charter documents, and the Series B preferred shares issued and
outstanding immediately prior to the company merger effective time will automatically be converted
into, and canceled in exchange for, the right to receive the redemption price per share specified
in our charter documents.
Options to Purchase Common Shares and Partnership Units; Restricted Unit Awards
In connection with the company merger:
Options to Purchase Common Shares
Any unexercised and unexpired option to purchase common shares issued under our equity
incentive plans held immediately prior to the company merger effective time (regardless of whether
it is vested or exercisable at that time) will, at the company merger effective time, be canceled
upon the surrender and cancellation of the option agreement representing the option, together with
the delivery of a written instrument executed by the holder thereof, and, in exchange therefor,
REIT Merger Sub will pay to the holder thereof cash in an amount equal to the product of
(A) the number of common shares issuable upon exercise of such option (assuming full vesting)
and (B) the excess,
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if any, of the common share merger consideration over the exercise price per common share,
which cash payment will be treated as compensation and will be net of any applicable federal or
state withholding tax.
In connection with the operating partnership merger:
Options to Purchase Partnership Units
Any unexercised and unexpired option to purchase partnership units issued under our equity
incentive plans held immediately prior to the company merger effective time (regardless of whether
it is vested or exercisable at that time) will, at the company merger effective time, be canceled
upon the surrender and cancellation of the option agreement representing the option, together with
the delivery of a written instrument executed by the holder thereof, and, in exchange therefor,
Partnership Merger Sub will pay to the holder thereof cash in an amount equal to the product of (A)
the number of partnership units issuable upon exercise of such option (assuming full vesting) and
(B) the excess, if any, of the operating partnership merger consideration over the exercise price
per partnership unit, which cash payment will be treated as compensation and will be net of any
applicable federal or state withholding tax.
Restricted Unit Awards
Other than certain restricted unit awards forfeited prior to the company merger effective
time, any unpaid and unexpired restricted unit award held immediately prior to the company merger
effective time (regardless of whether it is vested at that time) will, at the operating partnership
merger effective time, be canceled upon the surrender of the agreement representing the restricted
unit award (or a reasonably satisfactory affidavit of lost agreement), together with the delivery
of a written instrument executed by the holder thereof, and, in exchange therefor, Partnership
Merger Sub will pay to the holder thereof cash in an amount, without interest, per restricted unit
equal to the operating partnership merger consideration, plus accrued and unpaid dividends.
Treatment of Partnership Units in Crescent Real Estate Equities Limited Partnership
In connection with the operating partnership merger, at the operating partnership merger
effective time, each limited partnership unit in the operating partnership issued and outstanding
immediately prior to such time (other than units held by us, the general partner of the operating
partnership or any of our subsidiaries, and restricted units) will automatically be canceled and
converted into the right to receive cash, without interest, equal to $45.60 per unit (assuming we
do not make any distributions that are necessary for us either to maintain our status as a real
estate investment trust or to avoid the imposition certain U.S. federal tax), which is the product
of (A) the common share merger consideration multiplied by (B) two.
This proxy statement does not constitute a solicitation of consents in respect of the
operating partnership merger and does not constitute an offer to exchange or convert any
partnership units in the operating partnership that you may own for or into newly issued preferred
units or common units in the surviving operating partnership.
No Further Ownership Rights
At the company merger effective time, holders of our common shares, restricted units, options
to purchase our common shares, partnership units and options to purchase partnership units will
cease to be, and have no rights as, our shareholders or limited partners of the operating
partnership other than the right to receive the applicable merger consideration. Upon the
redemption of our Series A and Series B preferred shares immediately prior to the company merger
effective time, holders will cease to be, and have no rights as, our shareholders other than the
right to receive the redemption price to be paid to the holders of our Series A and Series B
preferred shares. The merger consideration paid to our shareholders and holders of restricted
units, options to purchase our common shares, partnership units and options to purchase
partnership units in accordance with the exchange and payment procedures contained in the merger
agreement will be deemed to have been paid in full satisfaction of all rights and privileges
pertaining to our common shares, our Series A and Series B preferred shares, the restricted units,
the options to purchase our common shares, the partnership units and the options to purchase
partnership units.
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Payment Procedures
On or before the merger effective time, REIT Merger Sub and Partnership Merger Sub will
deposit the merger consideration for the benefit of the holders of our common shares, Series A and
Series B preferred shares, options to purchase common shares, options to purchase operating
partnership units, restricted unit awards, and operating partnership units, respectively, with a
paying agent reasonably satisfactory to us. Promptly after the merger effective time (but in any
event within five business days), the surviving entity will cause the paying agent to mail a letter
of transmittal and, if applicable, instructions for surrendering certificates for our common
shares, Series A and Series B preferred shares, options to purchase common shares, options to
purchase operating partnership units, restricted unit awards, and operating partnership units to
each holder thereof. The letter of transmittal and instructions or notice of redemption will tell
you how to surrender your common share certificates, Series A and Series B preferred share
certificates, options to purchase common shares, options to purchase operating partnership units,
restricted unit awards, and any interest in operating partnership units, as applicable, in exchange
for the applicable merger consideration, cash payment or redemption price.
You should not return your share certificates with the enclosed proxy card, and you should not
forward your share certificates to the paying agent without a letter of transmittal.
You will not be entitled to receive the merger consideration until you surrender your share
certificate or certificates to the paying agent, together with a duly completed and executed letter
of transmittal and any other documents as the paying agent may reasonably require. The merger
consideration may be paid to a person other than the person in whose name the corresponding
certificate is registered if the certificate is properly endorsed or is otherwise in the proper
form for transfer. In addition, the person requesting payment must either pay any applicable stock
transfer taxes or establish to the satisfaction of Moon Parent that such stock transfer taxes have
been paid or are not applicable.
No interest will be paid or will accrue on the cash payable upon surrender of the
certificates. Each of the paying agent, REIT Merger Sub and Moon Parent will be entitled to deduct
and withhold any applicable taxes from the merger consideration. At the merger effective time or
redemption effective time, our share transfer books will be closed, and there will be no further
registration of transfers of our common shares or Series A and Series B preferred shares.
None of the paying agent, Moon Parent, REIT Merger Sub, Partnership Merger Sub, the operating
partnership or any of their respective employees, officers, trust managers, agents or affiliates
will be liable to any person for any (i) common share merger consideration, (ii) operating
partnership merger consideration, (iii) any cash payments in exchange for restricted unit awards,
(iv) any cash payments in exchange for options to purchase common shares or operating partnership
units, or (v) any cash payments to redeem the Series A and Series B preferred shares pursuant to
the terms of such securities delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any portion of (i) common share merger consideration, (ii)
operating partnership merger consideration, (iii) any cash payments in exchange for restricted unit
awards, (iv) any cash payments in exchange for options to purchase common shares or operating
partnership units, or (v) any cash payments to redeem the Series A and Series B preferred shares
pursuant to the terms of such securities deposited with the paying agent that remains undistributed
to the holders of our common shares for 12 months after the merger effective time will be delivered
to REIT Merger Sub. Holders of our common shares prior to the applicable merger who have not
complied with the exchange and payment procedures contained in the merger agreement within twelve
months after the merger effective time may only look to REIT Merger Sub for the payment of the
company share merger consideration or any cash payments to redeem the Series A and Series B
preferred shares pursuant to the terms of such securities.
If you have lost a certificate, or if it has been stolen or destroyed, then before you are
entitled to receive the merger consideration, you will be required to deliver an affidavit stating
that fact and, if required by REIT Merger Sub or paying agent, to post a bond in the form and
amount reasonably required by REIT Merger Sub or the paying agent as indemnity against any claim
that may be made against REIT Merger Sub and the paying agent on account of the alleged loss, theft
or destruction of such certificate.
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Representations and Warranties
We and the operating partnership made customary representations and warranties in the merger
agreement that are subject, in some cases, to specified exceptions and qualifications contained in
the merger agreement or in the disclosure letter delivered in connection therewith. These
representations and warranties relate to, among other things:
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due organization, valid existence, good standing and power and authority to
carry on the businesses of each of us, the operating partnership, our other
subsidiaries and certain other entities in which we own equity interests (which we
refer to as our joint ventures); |
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our charter and bylaws and the similar organizational documents of the operating
partnership, our other subsidiaries and certain of our joint ventures; |
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our capital structure and the capital structure of the operating partnership and
our ownership in our other subsidiaries and joint ventures and the absence of any
encumbrances on our ownership of the equity interests of our subsidiaries and our
joint ventures; |
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our and the operating partnerships power and authority to execute and deliver,
and to perform our and the operating partnerships obligations under, the merger
agreement and to consummate the transactions contemplated by the merger agreement; |
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the enforceability of the merger agreement against us; |
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the vote of our shareholders required in connection with the approval of the
company merger and the merger agreement, the approval of the merger agreement and
the transactions contemplated by the merger agreement by us as a limited partner in
the operating partnership of the operating partnership merger; |
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the absence of conflicts with, or breaches or violations of, our, the operating
partnerships, our other subsidiaries or joint ventures organizational documents,
and laws, permits and certain contracts applicable to us, the operating
partnership, our other subsidiaries and our joint ventures as a result of entering
into the merger agreement or performing our or the operating partnerships
obligations under the merger agreement; |
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consents and approvals of governmental entities required as a result of
executing and delivering the merger agreement and performing our and the operating
partnerships obligations under the merger agreement; |
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our SEC filings since January 1, 2004 and the financial statements contained
therein; |
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the absence of any material adverse effect and certain other changes and events
since December 31, 2006; |
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the accuracy and completeness of information we and the operating partnership,
our other subsidiaries and our joint ventures have supplied for inclusion in this
proxy statement or any other document to be filed with the SEC or provided to
holders of operating partnership units in connection with the transactions
contemplated by the merger agreement; |
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possession of all permits necessary to operate our and our subsidiaries
properties and carry on our and our subsidiaries business and the absence of any
conflict with, or default, breach or violation of, applicable laws or such permits; |
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tax matters affecting us, the operating partnership, our other subsidiaries and our joint ventures; |
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the nature, extent and scope of our and our subsidiaries employee benefit plans; |
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the absence of material litigation or orders against us, the operating
partnership, our other subsidiaries or our joint ventures; |
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actions taken by us and the operating partnership to exempt the merger
agreement, the mergers and the other transactions contemplated thereby from the
requirements of any antitakeover statute or regulation enacted under state or
federal laws in the United States or any takeover provision in our charter and
bylaws and the similar organizational documents of the operating partnership, our
other subsidiaries, our joint ventures and other entities that would otherwise
prohibit, hinder or delay such transactions; |
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intellectual property used by, owned by or licensed by us, our subsidiaries, our
joint ventures and certain affiliated entities; |
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real property owned and leased by us, our subsidiaries and our joint ventures;
our and our subsidiaries and our joint ventures leases, ground leases, loan
documents, franchise and license agreements, title insurance policies, construction
projects, contracts to sell or purchase property and management agreements; |
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personal property owned by us, our subsidiaries and our joint ventures; |
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environmental matters affecting us, our subsidiaries and our joint ventures; |
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labor matters affecting us, our subsidiaries and our joint ventures; |
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our, our subsidiaries and our joint ventures material contracts, the
enforceability of those contracts and the absence of any breach or violation of, or
default under, any material contract; |
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our, our subsidiaries and our joint ventures insurance policies; |
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the absence of any undisclosed material related-party transactions among us, our
subsidiaries or our joint ventures; |
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the receipt by us of a fairness opinion from Greenhill to the effect that, as of
the date of the merger agreement, the common share merger consideration to be
received by holders of our common shares and the operating partnership merger
consideration to be received by the operating partnerships limited partners in the
operating partnership merger is fair from a financial point of view to such
holders; |
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the absence of any undisclosed brokers or finders fees; and |
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our board of trust managers determination that the company merger is fair and
in our and our shareholders best interests, approval of the company merger and
merger agreement and direction that the company merger and merger agreement be
submitted for shareholder approval. |
For the purposes of the merger agreement, material adverse effect means any event,
circumstance, change or effect that, individually or in the aggregate, is materially adverse to
our, our subsidiaries and our joint ventures business, properties, financial condition or results
of operations taken as a whole. Certain of our representations in the merger agreement are
qualified by the failure of any representation to be true to the extent that such failure does not
result in a material adverse effect.
A material adverse effect will not have occurred, however, as a result of any such event,
circumstance, change or effect arising out of or resulting from:
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any change in the market price or trading volume of our common shares or our
Series A and Series B preferred shares; |
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any change in general economic or business conditions except to the extent that
such changes have a materially disproportionate adverse effect on one or more of
our businesses relative to other similarly situated participants in the business or
industry in which our business or businesses operate; |
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any change in financial or securities market conditions generally, except to the
extent that such changes have a materially disproportionate adverse effect on one
or more of our businesses relative to other similarly situated participants in the
business or industry in which our business or businesses operate; |
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any events, circumstances, changes or effects generally affecting the United
States commercial real estate industry except to the extent that such changes have
a materially disproportionate adverse effect on one or more of our businesses
relative to other similarly situated participants in the business or industry and
in the geographic region in which our business or businesses operate; |
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any change in legal, political or regulatory conditions generally or in any
geographic region in which we or any of our subsidiaries or joint ventures operate; |
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the announcement of the execution of the merger agreement or anticipation of the
mergers or the pendency thereof; |
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any events, circumstances, changes or effects arising from the taking of any
action required or expressly contemplated by the merger agreement or the failure to
take any action prohibited by the merger agreement; |
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acts of war, armed hostilities, sabotage or terrorism, or any escalation of any
such acts of war, armed hostilities, sabotage or terrorism threatened or underway
as of the date of the merger agreement, except to the extent that such changes have
a materially disproportionate adverse effect on one or more of our businesses
relative to other similarly situated participants in the business or industry and
in the geographic region in which our business or businesses operate; |
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changes in law or United States generally accepted accounting principles and
practices as in effect from time to time consistently applied; or |
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any failure to meet any internal or published projections, forecasts or revenue
or earnings predictions for any period. |
The merger agreement also contains customary representations and warranties made by Moon
Parent, REIT Merger Sub and Partnership Merger Sub that are subject, in some cases, to specified
exceptions and qualifications. The representations and warranties relate to, among other things:
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their due organization, valid existence, good standing and power and authority
to carry on their businesses; |
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the ownership of REIT Merger Sub and Partnership Merger Sub and absence of prior
conduct of activities or business of REIT Merger Sub and Partnership Merger Sub; |
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their power and authority to execute and deliver, and to perform their
obligations under, the merger agreement and to consummate the transactions
contemplated by the merger agreement; |
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the enforceability of the merger agreement against them; |
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the absence of conflicts with, or breaches or violations of, their
organizational documents, laws, or certain contracts as a result of entering into
the merger agreement or consummating the company merger; |
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consents and approvals of governmental entities required as a result of
executing and delivering the merger agreement and performing their obligations
under the merger agreement; |
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the accuracy and completeness of information they have supplied for inclusion in
this proxy statement or any other document to be filed with the SEC or provided to
holders of operating partnership units in connection with the transactions
contemplated by the merger agreement; |
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the absence of material litigation or orders against them; |
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their capital resources, including in particular the equity funding and the debt
financing which will provide Moon Parent with acquisition financing at the merger
effective time sufficient to consummate the mergers; |
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the guarantees executed by affiliates of Morgan Stanley Real Estate; |
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their ownership of our common shares or any other securities of ours and of our
subsidiaries; and |
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clarification that neither of we nor the operating partnership will pay for any
brokers or finders fees based upon arrangements made by or on behalf of Moon
Parent, REIT Merger Sub or Partnership Merger Sub. |
The representations and warranties of each of the parties to the merger agreement will expire
upon the closing of the company merger.
Covenants Relating to Conduct of Our Business
Under the merger agreement, we have agreed that, subject to certain exceptions in the merger
agreement and the disclosure letter delivered in connection therewith, between May 22, 2007 and the
merger effective time, we, the operating partnership, our other subsidiaries and our joint ventures
will:
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conduct our business only in the ordinary course of business consistent with
past practice; and |
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use commercially reasonable efforts (A) to preserve substantially intact our
business organizations, (B) to keep available the services of our present officers,
managers and employees, and (C) to maintain the current, existing relations and
goodwill with tenants, joint venture partners, management companies, lenders,
franchisors, customers, suppliers and others having business dealings with us. |
We have also agreed that during the same time period, subject to certain exceptions set forth
in the merger agreement or unless Moon Parent gives its prior written consent, we, the operating
partnership, our other subsidiaries and our joint ventures will not, among other things:
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subject to certain exceptions, (i) authorize for issuance, issue or sell, or
agree or commit to issue or sell (A) any shares of any class of our beneficial
interests, capital stock or other equity interests or any of the operating
partnerships, our other subsidiaries and our joint ventures beneficial
interests, capital stock or other equity interests, or (B) any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
beneficial interests, capital stock or other equity interests, or any other
ownership interest, of us, the operating partnership, our other subsidiaries or our
joint ventures or (ii) repurchase, redeem or otherwise acquire any securities or
equity equivalents; |
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reclassify, combine, split or subdivide any of our shares of beneficial
interest, any partnership interests in the operating partnership or other equity
interest of any of our subsidiaries and certain of our joint ventures; |
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declare, set aside, make or pay dividends or other distributions with respect to
our shares of beneficial interest, any partnership interests in the operating
partnership or other equity securities of any of our subsidiaries and certain of
our joint ventures, other than (a) dividends or distributions by any of our
subsidiaries and our joint ventures paid solely to us or any of our subsidiaries or
joint ventures , (b) dividends on our Series A preferred shares declared and paid
in accordance with the terms thereof and corresponding distributions on Series A
preferred partnership units consistent with past practice, (c) dividends on our
Series B preferred shares declared and paid in accordance with the terms thereof
and corresponding distributions on Series B preferred partnership units consistent
with past practice, and (d) dividends on our trust preferred securities declared
and paid in accordance with the terms thereof. and corresponding to payments of
interest on our junior subordinated notes; |
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adopt or propose any amendment to our, the operating partnerships, our other
subsidiaries or certain of our joint ventures organizational documents, other
than amendments to the operating partnerships partnership agreement necessary to
reflect certain transfers or exchanges of partnership interests by limited partners
in the operating partnership; |
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acquire (by merger, consolidation, purchase of stock or assets or otherwise), or
agree or enter into an option to so acquire, in a single transaction or in a series
of related transactions, any person, entity or division thereof, or otherwise
acquire or agree to acquire any real property or material assets or (ii) subject to
certain exceptions, merge, consolidate or enter into any other business combination
transaction with any person; |
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other than pursuant to certain disclosed contracts in effect or previously
disclosed to Moon Parent, make or agree to make any capital expenditure other than
expenditures in the ordinary course of business; |
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subject to certain conditions, transfer, sell, lease, license, mortgage, pledge,
surrender, encumber, divest, cancel, abandon or allow to lapse or expire or
otherwise dispose of (by merger, consolidation, sale of stock or assets or
otherwise), or agree to transfer, sell, lease, license, mortgage, pledge,
surrender, encumber, divest, cancel, abandon or allow to lapse or expire or
otherwise dispose of, any entity, business or assets, except (i) for any such
action by our resort residential business with respect to residential lots and
condominium units and land and retail projects in the ordinary course of business
consistent with past practice or (ii) as reasonably required, in the opinion of our
tax counsel following consultation with Moon Parent and its counsel, to maintain
our status as a REIT; |
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incur any indebtedness at the Crescent-level, any subsidiary-level and, with
respect to certain of our joint ventures, at the joint-venture level for borrowed
money or issue any debt securities or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person for
borrowed money, except for (i) indebtedness for borrowed money incurred in the
ordinary course of business, which shall be deemed to include, without limitation,
draws under the Companys revolving credit facilities in existence as of May 22,
2007 in the ordinary course of business and refinancing of mortgage indebtedness
secured by one or more of certain of our properties as such loans become due and
payable in accordance with their terms or (ii) renewals of maturing indebtedness on
terms disclosed to Moon Parent; |
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make any loans, advances or capital contributions to, or investments in, any
other person (other than us, our subsidiaries and certain of our joint ventures),
except certain loans, advances or investments disclosed to Moon Parent on May 22,
2007 and loans, advances or investments made to certain of our joint ventures in
the resort residential business in the ordinary course of business consistent with past practice and consistent with the budgets provided to Moon
Parent prior to May 22, 2007; |
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increase the salary, wages or other compensation payable or to become payable to
or the fringe benefits of our, the operating partnerships, our other subsidiaries
and our joint ventures trust managers, directors, officers or employees or (ii)
enter into any employment, change in control, consulting or severance agreement
with, or establish, adopt, enter into or amend any benefit plan, incentive plan,
bonus, profit-sharing, thrift, stock option, restricted stock, pension, retirement,
deferred compensation, employment, change in control, termination, or severance
plan, agreement, policy or arrangement for the benefit of, any director, trust
manager, officer or employee of ours, except, in each case, as may be required by
the terms of any such plan, agreement, policy or arrangement existing and disclosed
to Moon Parent on May 22, 2007 or to comply with applicable law, or in accordance
with our Change in Control Separation Plan; |
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subject to certain exceptions, take any material action with respect to our
accounting policies or procedures; |
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subject to certain exceptions, make any material tax election or settle or
compromise any material tax liability; |
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enter into a new lease, sublease or license agreement or terminate, materially
modify or amend any lease that relates to in excess of 25,000 square feet of net
rentable area at any of our, our subsidiaries and our joint ventures properties,
provided that any failure by Moon Parent to object to a new lease, sublease or
license agreement in writing within three business days of being provided with same
shall constitute written consent of such lease, sublease or license agreement; |
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subject to certain exceptions, waive, release, settle or compromise any pending
or threatened material legal actions against us, the operating partnership, any our
other subsidiaries, and certain of our joint ventures; |
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adopt or enter into a plan of complete or partial liquidation, dissolution,
restructuring or recapitalization of us, the operating partnership or any of our
other subsidiaries; |
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subject to certain exceptions, modify, amend or terminate, or grant any material
consent under, any material contract or ground leases, third party franchise
agreement, joint venture agreement or management agreement or enter into any new
contract or enter into any new ground leases, third party franchise agreement, or
management agreement or document pertaining to a management agreement; |
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subject to certain exceptions, prepay any of our long-term indebtedness or pay,
discharge or satisfy any material claims, liabilities or obligations; |
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take any action with respect to certain portfolio sales that is not expressly
required by the related portfolio purchase and sale agreements or take any action
that could reasonably be expected to frustrate or delay the consummation of such
portfolio sales; |
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amend, modify or terminate, or grant any material consent or waiver under, any
agreement or arrangement relating to any proposed disposition disclosed to Moon
Parent other than closing conditions to the buyers obligation to close the
disposition under the related purchase and sale agreement; |
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fail to maintain in full force and effect the existing insurance policies
covering us, our subsidiaries, certain of our joint ventures, and our and their
respective properties, assets and businesses; |
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modify, amend or terminate, or grant any material consent under, any contract
with any of our affiliates or modify any material relationship between us and our
affiliates, including the manner in which we and our affiliates own or hold our
respective assets; |
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enter into, modify, amend or breach any tax protection agreement; |
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subject to certain exceptions, sell, transfer or otherwise dispose of any
ownership interest in any of our subsidiaries or joint ventures, or create,
establish, form or invest in any new subsidiary or acquire any interests in any new
joint venture; |
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grant any consent or waiver to any matter for which consent or waiver is
requested with respect to certain of our affiliates or exercise any rights in
connection with or with respect to our interests in certain of our affiliates; |
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take any action, make any filing or material election with respect to, or appeal
or fail to appeal any real property tax relating to any real property owned by us,
any our subsidiaries or any of our joint ventures; or |
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announce an intention, enter into an agreement or otherwise make a commitment to
do any of the foregoing. |
No Solicitation of Transactions
We have agreed that, from May 22, 2007 to the merger effective time and subject to specified
exceptions described below, neither we, the operating partnership nor any of our other subsidiaries
or our or their officers, managers, directors, employees, agents, investment bankers, financial
advisors, attorneys, accountants or other representatives will, directly or indirectly:
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initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or
offers with respect to, or may reasonably be expected to lead to the submission of,
any acquisition proposal; or |
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participate in any discussions or negotiations regarding, or that reasonably may
be expected to lead to, or furnish to any person any non-public information with
respect to, or otherwise cooperate with respect to, any acquisition proposal. |
For purposes of the merger agreement, acquisition proposal means any proposal or offer
(other than the mergers or any of the other transactions contemplated by the merger agreement) for
any:
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direct or indirect acquisition of more than 25% of our and our subsidiaries
assets, taken as a whole, or more than 25% of our or the operating partnerships
outstanding equity securities; |
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any tender offer or exchange offer that would result in any person or group
beneficially owning 25% or more of our or the operating partnerships outstanding
equity securities; |
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any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving us pursuant to which our shareholders
prior to consummation of such transaction would hold less than 75% of the
outstanding shares or equity interests of the surviving or resulting person or
parent thereof; or |
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any transaction which is similar in form, substance or purpose to any of the
foregoing transactions. |
Prior to the approval of the company merger by our shareholders, following the receipt of an
unsolicited written acquisition proposal, we may contact such person and its advisors, to determine
whether such acquisition proposal is reasonably likely to result in a superior proposal and, if our
board of trust managers determines in good
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faith, after consultation with its legal and financial advisors, that such acquisition
proposal is reasonably likely to result in a superior proposal, our board of trust managers may:
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furnish non-public information with respect to us and our subsidiaries to such
person who made such proposal, provided that we have caused such person to enter
into a confidentiality agreement with us containing terms that are at least as
favorable to us as those contained in the confidentiality agreement we signed with
an affiliate of Moon Parent and we previously disclose the same non-public
information to Moon Parent if not previously disclosed; |
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participate in negotiations regarding such proposal; |
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following receipt of a written acquisition proposal that constitutes a superior
proposal, recommend to our shareholders that they approve such superior proposal
and, in connection therewith, withdraw or modify in a manner adverse to Moon
Parent, or fail to make, our board of trust managers recommendation that our
shareholders approve the merger agreement and the company merger; or |
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other than in connection with an acquisition proposal, if our board of trust
managers determines, in good faith, that the failure to do so would be inconsistent
with its duties under applicable law, withdraw or modify in a manner adverse to
Moon Parent, or fail to make, our board of trust managers recommendation that our
shareholders approve the merger agreement and the company merger. |
For purposes of the merger agreement, superior proposal means a written acquisition proposal
made by a third party:
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that relates to at least 50% of the voting power of our capital stock or all or
at least 50% of our assets; and |
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which our board of trust managers determines in its good faith judgment, after
consultation with its financial advisor and after taking into account all the terms
and conditions of the acquisition proposal, to be more favorable to our
shareholders from a financial point of view than the company merger (including any
alterations to the merger agreement agreed to in writing by Moon Parent in response
to such an acquisition proposal and taking into account any termination fee and
expense reimbursement under the merger agreement). |
We have agreed to promptly notify Moon Parent (but no less than 24 hours after initial
receipt) of our, the operating partnerships, our other subsidiaries or our representatives
receipt of any acquisition proposal, or any material modification or amendment to any acquisition
proposal. In our notice to Moon Parent, we have agreed to provide a copy of any documents or
agreements provided in contemplation of an acquisition proposal, the identity of the Person making
such acquisition proposal and our intentions, if any, to furnish information or enter into
discussions with such Person. We have also agreed to keep Moon Parent reasonably informed on a
prompt basis of the status of and any material developments regarding any such acquisition
proposal.
Employee Benefits
For a period of twelve (12) months following the closing date, Moon Parent has agreed that it
will cause REIT Merger Sub to provide all employees employed by us or our subsidiaries as of the
merger effective time and who continue to be employed by REIT Merger Sub or its successors or
assigns or any of their subsidiaries with cash compensation (including base compensation and annual
bonus) and benefits (including group health, life, disability, and severance and retention plans,
but excluding personal perquisites, equity compensation or profits or promoted interests or
comparable forms of compensation) that are not less favorable in the aggregate to such employee or
employees dependents or beneficiaries as provided prior to the merger effective time.
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Moon Parent has agreed to honor, and to cause REIT Merger Sub to honor, all severance, change
of control and similar plans and agreements in accordance with their terms as in effect immediately
prior to the merger effective time.
In addition, Moon Parent has agreed to:
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provide each of our active employees with credit for service with us and our
subsidiaries for purposes of vesting and eligibility (but not accrual of benefits)
with respect to any employee benefit plans maintained by Moon Parent or its
subsidiaries under which our active employees may be eligible to participate after
the merger effective time, to the same extent as such active employee was entitled
to credit for such service under the respective Crescent benefit plans, provided
that such crediting of service shall not operate to duplicate any benefits; and |
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for purposes of each Moon Parent or subsidiary plan providing health benefits to
any active employee, cause such active employee to receive credit for all amounts
paid by such active employee for purposes of satisfying all deductible, co-payments
and out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of the parallel plan, program or arrangement of Moon
Parent or its subsidiaries. |
Agreement to Take Further Action
Subject to the terms and conditions of the merger agreement and in accordance with applicable
laws, each party to the merger agreement has agreed to use its reasonable efforts to take, or to
cause to be taken, all appropriate actions and to do, or to cause to be done, all things necessary,
proper or advisable under applicable laws to consummate the mergers, including using its
commercially reasonable efforts to obtain all permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts with us, our
subsidiaries and our joint ventures as (i) are necessary, proper or advisable for the consummation
of the mergers and the other transactions contemplated by the merger agreement and to fulfill the
conditions to the mergers (ii) disclosed to Moon Parent on May 22, 2007 or (iii) required to
prevent a material adverse effect on us.
Each party to the merger agreement has agreed to cooperate and use its reasonable best efforts
to defend through litigation on the merits any legal action, including administrative or judicial
action, asserted by any party in order to avoid the entry of, or to have vacated, lifted, reversed,
terminated or overturned any decree, judgment, injunction or other order that in whole or in part
restricts, delays, prevents or prohibits consummation of the mergers and the other transactions
contemplated thereby, including by vigorously pursuing all available avenues of administrative and
judicial appeal.
Furthermore, the parties have agreed to use their respective commercially reasonable efforts
to obtain any third-party consents:
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necessary, proper or advisable to consummate the transactions contemplated by the
merger agreement; |
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disclosed in the disclosure letter delivered in connection with the merger agreement; or |
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required to prevent a material adverse effect on us. |
In addition, we and the operating partnership have agreed that, in the event that we, the
operating partnership, any of our other subsidiaries or our joint ventures fail to obtain any of
the third-party consents mentioned above, we will use our commercially reasonable efforts and take
all such actions reasonably requested by Moon Parent to minimize any adverse effect on us, the
operating partnership, any of our other subsidiaries or our joint ventures, Moon Parent and its
affiliates and their respective businesses as a result of the failure to obtain such consent.
Neither we, the operating partnership, any of our other subsidiaries nor our joint ventures
will be permitted to pay or commit to pay any consideration, make any commitment or incur any
liability or other obligation in
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connection with obtaining any approval or consent from any non-governmental third party unless
Moon Parent has provided its prior written consent, which Moon Parent cannot unreasonably withhold.
In addition, neither Moon Parent nor its affiliates will be required to pay any consideration,
make any commitment or incur any liability or other obligation in connection with obtaining any
approval or consent from any non-governmental third party.
We have agreed to use commercially reasonable efforts to cooperate with Moon Parent in
obtaining estoppel certificates and subordination and nondisturbance agreements from certain
tenants prior to the closing of the mergers.
We have agreed to notify Moon Parent promptly if any of our or our subsidiaries tenants
provide us with notice of their intent to terminate any lease with us in accordance with its terms.
Each party to the merger agreement has agreed to cooperate, promptly following May 22, 2007,
in the preparation and establishment of mutually acceptable guidelines with respect to us or any of
our subsidiaries entering into any new lease, sublease or license agreement (including renewals) at
a Crescent property.
Restructuring Transactions
Subject to certain conditions, we will use commercially reasonable efforts to, and will use
commercially reasonable efforts to cause each of our subsidiaries and our joint ventures to, take
any such actions as are reasonably requested by Moon Parent in connection with structuring the
transactions contemplated by the merger agreement, including, without limitation:
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creating one or more legal entities in the form requested by Moon Parent; |
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converting the legal form or tax classification of one or more of our subsidiaries
or our joint ventures; |
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transferring ownership of one or more properties or entities among us and/or any of
our subsidiaries, joint ventures or affiliates; |
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selling or causing to be sold one or more designated properties or all of the stock,
partnership interests or limited liability interests owned, directly or indirectly, by
us in one or more designated properties, provided that the timing and terms of any such
sale shall be consented to by Moon Parent and us; and |
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reasonably assisting Moon Parent in preparing for the post-closing sale of our
assets by Moon Parent. |
Moon Parent, REIT Merger Sub and Partnership Merger Sub will, on a joint and several basis,
indemnify and hold harmless us, our subsidiaries, our joint ventures and our and their
representatives from and against any and all liabilities, losses, damages, claims, costs, expenses,
interest, awards, judgments and penalties suffered or incurred by us or them in connection with or
as a result of the activities described directly above.
WARN Act Notices
Following such time as Moon Parent, REIT Merger Sub and Partnership Merger Sub have
communicated to any of our current or former employees or any current or former employee of our
subsidiaries or any third party manager of any property owned by us who Moon Parent, in its
discretion, believes should receive a notice pursuant to the Worker Adjustment and Retraining
Notification Act (and any similar state or local mass layoff or plant closing law) (WARN)
their intent to terminate such employees employment after the company merger effective time and
whether such employee will receive severance payments, we have agreed that we will, at the written
request of Moon Parent, cause to be delivered to (i) such employee, and (ii) any governmental
official(s) designated by Moon Parent, a notice pursuant to WARN, including any supplemental
notices thereunder. We will deliver such notice(s) in a form requested by Moon Parent within two
(2) business days of Moon Parents request. We have agreed to reasonably cooperate with Moon
Parent as necessary to ensure compliance with WARN.
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Conditions to the Mergers
The obligations of the parties to complete the mergers are subject to the following mutual
conditions:
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approval of the proposal to approve the merger agreement and the company merger
by the requisite shareholder vote; |
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approval of the proposal to approve the merger agreement and the operating
partnership merger by the requisite affirmative consent of the limited partners of
the operating partnership in accordance with the Delaware Revised Uniform Limited
Partnership Act, as amended, and the operating partnership agreement; |
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expiration or termination of any waiting period relating to and acquisition of
any material governmental approval, authorization and consents applicable to the
consummation of the mergers or the redemptions of our preferred shares; and |
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no governmental authority in the United States shall have enacted, issued,
promulgated, enforced or entered any injunction, order, decree or ruling (whether
temporary, preliminary or permanent) which is then in effect and makes consummation
of the redemptions of our preferred shares or the mergers illegal or prohibits
consummation of the redemptions of our preferred shares or the mergers. |
The obligations of Moon Parent, REIT Merger Sub and Partnership Merger Sub to complete the
mergers are subject to the following additional conditions:
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our and the operating partnerships representations and warranties that (a) are
not made as of a specific date shall be true and correct as of the date of the
merger agreement and as of the closing, as though made on and as of the date of
closing, and (b) are made as of a specific date shall be true and correct as of
such date, except where the failure of our representations and warranties to be
true and correct in all respects without regard to any materiality or material
adverse effect qualifications would not in the aggregate have a material adverse
effect, provided that certain representations and warranties pertaining to our
capitalization and severance arrangements must be true and correct in all material
respects as of the closing |
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the performance, in all material respects, by us and the operating partnership
of all our respective material obligations under the merger agreement and
compliance, in all material respects, with the material agreements and covenants to
be performed or complied with by us and the operating partnership under the merger
agreement; |
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the receipt by Moon Parent of a certificate signed on behalf of each of us and
the operating partnership by one of our officers and an officer of the operating
partnership , as applicable, with respect to the truth and correctness of our
representations and warranties, the performance of our obligations under the merger
agreement and compliance, in all material respects, with the material agreements
and covenants to be performed or complied with under the merger agreement; |
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the receipt of a tax opinion of our counsel, Pillsbury Winthrop Shaw Pittman
LLP, opining that (a) we have been organized and have operated in conformity with
the requirements for qualification as a REIT under the Code, commencing with our
taxable year ended December 31, 1994 and (b) beginning with our first taxable year
ending on December 31, 1994 through the closing date, neither we nor any of our
subsidiaries has held any assets the disposition of which would be subject to rules
similar to Section 1374 of the Code as a result of (A) an election under IRS Notice
88-19 or Treasury Regulations Section 1.337(d)-5 or Section 1.337(d)-6 or (B) the
application of Treasury Regulations Section 1.337(d)-7; |
- 63 -
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|
|
on the closing date, there shall not exist an event, change or occurrence
arising after May 22, 2007 that, individually or in the aggregate, has had, or
could reasonably be expected to have, a material adverse effect on us; |
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|
since May 22, 2007, there shall not have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on the NYSE for a period in
excess of 10 hours, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not mandatory), (iii)
a commencement or escalation of a war, armed hostilities or other international or
national calamity resulting in a major dislocation of financial markets that
materially and adversely affects the ability of financial institutions in the
United States to extend credit or syndicate loans, or (iv) in the case of any of
the foregoing existing as of May 22, 2007, a material acceleration or worsening
thereof; provided, however, that (x) the failure of this condition may be invoked
by Moon Parent, REIT Merger Sub and Partnership Merger Sub only one time, (y) upon
the expiration of 10 business days following the date this condition is invoked by
Moon Parent, REIT Merger Sub and Partnership Merger Sub, this condition shall be
deemed satisfied and (z) all of the mutual conditions to the closing of the mergers
(other than the condition regarding the approval of the operating partnership
merger (but only to the extent the failure to satisfy such condition resulted from
an intentional breach by Moon Parent, REIT Merger Sub and Partnership Merger Sub of
their covenants and agreements required to be performed by them under the merger
agreement at or prior to the effective time of the mergers)) shall from the date
this condition was invoked by Moon Parent, REIT Merger Sub and Partnership Merger
Sub be deemed to have been satisfied or waived by Moon Parent, REIT Merger Sub and
Partnership Merger Sub. We refer to this condition as the market disruption
condition; |
|
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|
the consent regarding the exemption from the share ownership limitations
contained in the AmeriCold Realty Trust Declaration of Trust, dated December 24,
2002, as amended, in form and substance acceptable to Moon Parent shall have been
obtained; |
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|
we and the operating partnership shall have repaid or obtained payoff (or
unwinding or termination) letters in form and substance reasonably satisfactory to
Moon Parent to permit with respect to certain indebtedness the repayment,
defeasance and/or refinancing of such indebtedness, together with any other
consents or approvals required in order to allow Moon Parent to repay all such
indebtedness on the closing date by the delivery of funds to the holders of such
indebtedness; and |
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|
all loans made by us and the operating partnership to our respective employees
shall have been satisfied and paid in full or the respective borrower shall have
delivered such documents and instruments reasonably satisfactory to Moon Parent
evidencing an irrevocable commitment to repay in full such loan as of the closing
date. |
Our obligation to complete the mergers is subject to the following additional conditions:
|
|
|
the representations and warranties of Moon Parent, REIT Merger Sub and
Partnership Merger Sub that (a) are not made as of a specific date shall be true
and correct as of the date of the merger agreement and as of the date of the
closing, as though made on and as of the closing, and (b) are made as of a specific
date shall be true and correct as of such date, except where the failure of their
representations and warranties to be true and correct in all respects without
regard to any materiality or Moon Parent material adverse effect qualifications
would not have a Moon Parent material adverse effect; |
|
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|
|
the performance, in all material respects, by Moon Parent of all its obligations
under the merger agreement and compliance, in all material respects, with the
material agreements and covenants to be performed or complied with under the merger
agreement; and |
- 64 -
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|
the receipt by us of a certificate signed by an officer of Moon Parent with
respect to the truth and correctness of the representations and warranties of Moon
Parent and the performance of its obligations under the merger agreement and
compliance, in all material respects, with the material agreements and covenants to
be performed or complied with under the merger agreement. |
For the purposes of the merger agreement, Moon Parent material adverse effect means any
event, circumstance, change or effect that would reasonably be expected to prevent, hinder or
materially delay Moon Parent, REIT Merger Sub or Partnership Merger Sub from consummating the
mergers or any other transactions contemplated by the merger agreement.
Termination
The merger agreement may be terminated and the company merger may be abandoned at any time
prior to the effective time of the company merger, as follows:
|
|
|
by mutual written consent of Moon Parent and us; |
by either Moon Parent or us if:
|
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|
the company merger has not occurred on or before October 31, 2007, which we
refer to as the drop dead date, provided that (i) this right will not be
available to a party whose failure to fulfill any obligation under the merger
agreement materially contributed to the failure of the company merger to occur on
or before October 31, 2007 and (ii) if Moon Parent, REIT Merger Sub and Partnership
Merger Sub have invoked the market disruption condition and the 10 business-day
period contemplated therein would expire on or after October 31, 2007, then the
drop dead date shall be the date of the third business day following expiration of
such 10 business day period; |
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|
any governmental authority in the United States shall have enacted, issued,
promulgated, enforced or entered any injunction, order, decree or ruling or taken
any other action which makes consummation of the redemptions of the Series A and
Series B preferred shares or the mergers illegal or otherwise prohibits
consummation of such redemptions of the Series A and Series B preferred shares or
mergers and is final and non-appealable; or |
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|
|
the requisite vote of our common shareholders to approve the company merger and
the other transactions contemplated by the merger agreement upon a vote being taken
at a duly convened stockholders meeting is not obtained. |
by Moon Parent if:
|
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|
each of Moon Parent, REIT Merger Sub and Partnership Merger Sub is not in
material breach of its obligations under the merger agreement, and (a) any of our
or the operating partnerships representations and warranties are or become untrue
or incorrect such that the closing condition pertaining to our representations and
warranties would be incapable of being satisfied by October 31, 2007, or (b) there
has been a breach of our or the operating partnerships covenants or agreements
under the merger agreement such that the closing condition pertaining to our
performance and compliance with covenants or agreements would be incapable of being
satisfied by October 31, 2007; |
|
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|
our board of trust managers withdraws, modifies or changes its recommendation
that shareholders vote to approve the merger agreement and the company merger in
any manner adverse to Moon Parent; |
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|
we enter into an agreement with respect to an acquisition proposal (other than a
confidentiality agreement permitted by the merger agreement); |
- 65 -
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|
a tender offer or exchange offer for any of our outstanding stock that
constitutes an acquisition proposal is commenced by a third party before the
requisite shareholder vote is obtained and our board of trust managers does not
recommend against acceptance of such tender offer or exchange offer within 10
business days after it is commenced, or in the event of a change in terms of the
tender offer, within 10 business days after the announcement of such changes; |
|
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|
|
we intentionally breach our obligation to call or hold the shareholders meeting
or cause this proxy statement to be mailed to our shareholders or the operating
partnership intentionally breaches its obligation to cause the partnership
information statement to be mailed to its limited partners; or |
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|
|
we or our board of trust managers publicly announces the intention to do any of
the foregoing. |
by us if:
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|
we are not in material breach of our obligations under the merger agreement, and
(a) any of Moon Parents, REIT Merger Subs or Partnership Merger Subs
representations and warranties are or become untrue or incorrect such that the
closing condition pertaining to their representations and warranties would be
incapable of being satisfied by October 31, 2007, or (b) there has been a breach of
any of Moon Parents, REIT Merger Subs or Partnership Merger Subs covenants and
agreements under the merger agreement such that the closing condition pertaining to
their performance and compliance with covenants and agreements would be incapable
of being satisfied by October 31, 2007; or |
|
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|
|
our board of trust managers approves an acquisition proposal so long as: |
|
o |
|
the requisite shareholder vote for the company merger has not been obtained; |
|
|
o |
|
we are not in or have not been in breach of our
obligations under the merger agreement with regard to prohibitions on
soliciting acquisition proposals or providing information regarding an
acquisition proposal to Moon Parent in any material respects; |
|
|
o |
|
our board of trust managers has determined in good
faith, after consulting with its financial advisor, that such definitive
agreement constitutes a superior proposal and has determined in good faith,
after consulting with its outside legal counsel, that the failure to take
such actions would be inconsistent with trust managers duties to our
shareholders under applicable laws; |
|
|
o |
|
we have notified Moon Parent in writing that we intend
to enter into such agreement; |
|
|
o |
|
during the three business days following the receipt by
Moon Parent of our notice, we have offered to negotiate with, and if
accepted, have negotiated in good faith with, Moon Parent to make
adjustments to the terms and conditions of the merger agreement to enable
us to proceed with the company merger; |
|
|
o |
|
our board of trust managers has determined in good
faith, after the end of such three business day period, after considering
the results of such negotiations and any revised proposals made by Moon
Parent, that the superior proposal giving rise to such notice continues to
be a superior proposal; and |
|
|
o |
|
we pay to Moon Parent the termination fee in accordance
with the merger agreement simultaneously with the termination of the merger
agreement. |
- 66 -
Termination Fee and Expenses
We have agreed to pay to Moon Parent a termination fee of $64.2 million, less any transaction
expenses previously paid by us to Moon Parent in the event that:
|
|
|
we or Moon Parent terminate the merger agreement because the requisite
shareholder approval is not obtained, and |
|
|
|
at or prior to such termination, an acquisition proposal has been publicly
announced that is not subsequently withdrawn prior to such termination, and |
|
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|
|
concurrently with such termination or within twelve (12) months following
the date of such termination, we enter into an agreement with respect to any
acquisition proposal that is ultimately consummated, or any acquisition
proposal is consummated (with references to 25% and 75% in the definition
of acquisition proposal being deemed to be 50%); |
|
|
|
the merger agreement is terminated by Moon Parent because: |
|
|
|
our board of trust managers has withdrawn, or modified or changed in a
manner adverse to Moon Parent, its recommendation that the shareholders approve
the merger agreement and the company merger, |
|
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|
we enter into an agreement with respect to an acquisition proposal (other
than a confidentiality agreement), |
|
|
|
|
a tender offer or exchange offer for any of our outstanding stock that
constitutes an acquisition proposal is commenced by a third party before the
requisite shareholder vote is obtained and our board of trust managers does not
recommend against acceptance of such tender offer or exchange offer within 10
business days after it is commenced, or in the event of a change in terms of
the tender offer, within 10 business days after the announcement of such
changes, or |
|
|
|
|
we intentionally breach our obligation to call or hold the shareholders
meeting or cause this proxy statement to be mailed to our shareholders or the
operating partnership intentionally breaches its obligation to cause the
partnership information statement to be mailed to its limited partners, or |
|
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|
|
we publicly announce our intention to do any of the foregoing; or |
|
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|
the merger agreement is terminated by us because prior to obtaining the
shareholder approval, our board of trust managers has approved an acquisition
proposal. |
The merger agreement also provides that if either party terminates the merger agreement
because of the other partys material breach of the merger agreement which would result in the
failure of a condition being satisfied by October 31, 2007, the breaching party is required to
reimburse the non-breaching party for its reasonable transaction expenses up to a limit of $10
million. If Moon Parent terminates the merger agreement because our common shareholders do not
approve the company merger by the requisite vote, we are required to reimburse Moon Parent for its
reasonable transaction expenses up to a limit of $10 million.
We have agreed that in the event that we fail to pay the termination fee or any termination
expenses when due, or Moon Parent fails to pay any termination expenses when due, we or Moon
Parent, as the case may be, will reimburse the other party for all reasonable costs and expenses
actually incurred or accrued by such party in connection with the collection under and enforcement
of relevant provisions of the merger agreement.
- 67 -
Amendment
The merger agreement may be amended by mutual agreement of the parties in writing, whether
before or after our shareholders have approved the merger agreement, provided that after any such
shareholder approval, no amendment shall be made which, by law or the rules of the New York Stock
Exchange, requires further shareholder approval without first obtaining such shareholder approval.
- 68 -
MARKET PRICE OF OUR COMMON SHARES
Our common shares trade on the New York Stock Exchange under the symbol CEI. As of ,
2007, there were shareholders of record. The following table sets forth the high and low
sale prices of our common shares as reported on the New York Stock Exchange Composite Tape (rounded
to the nearest cent), and the dividends paid per share of our common shares, for each quarterly
period for the past two years and for the first and second quarterly periods (through ,
2007) of the fiscal year ending December 31, 2007.
|
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|
Market Price |
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|
|
|
Range |
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|
|
High |
|
Low |
|
Dividend |
Fiscal Year Ending December 31, 2007: |
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|
|
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|
|
|
|
|
Second Quarter through _______, 2007 |
|
|
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|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
21.22 |
|
|
$ |
18.67 |
|
|
$ |
.375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
22.43 |
|
|
$ |
19.00 |
|
|
$ |
.375 |
|
Third Quarter |
|
$ |
23.92 |
|
|
$ |
18.54 |
|
|
$ |
.375 |
|
Second Quarter |
|
$ |
21.00 |
|
|
$ |
17.54 |
|
|
$ |
.375 |
|
First Quarter |
|
$ |
21.75 |
|
|
$ |
19.83 |
|
|
$ |
.375 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Fiscal Year Ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
21.16 |
|
|
$ |
18.90 |
|
|
$ |
.375 |
|
Third Quarter |
|
$ |
20.77 |
|
|
$ |
17.69 |
|
|
$ |
.375 |
|
Second Quarter |
|
$ |
19.07 |
|
|
$ |
15.97 |
|
|
$ |
.375 |
|
First Quarter |
|
$ |
18.51 |
|
|
$ |
16.00 |
|
|
$ |
.375 |
|
Our common shares traded below managements net asset value estimates until August 2006, when
market rumors of our possible sale apparently began to circulate. On May 22, 2007, the last
trading day prior to the date of the public announcement of the merger agreement, the closing price
of our common shares on the New York Stock Exchange was $21.62 per share. On , 2007, the
last trading day before the date of this proxy statement, the closing price of our common shares on
the New York Stock Exchange was $ per share. You are encouraged to obtain current market
quotations for our common shares.
- 69 -
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, EXECUTIVE OFFICERS AND
TRUST MANAGERS
This table indicates how many Crescent common shares and limited partnership units in the
operating partnership were beneficially owned as of April 25, 2007 by:
|
|
|
each current trust manager; |
|
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|
each executive officer named in the Summary Compensation Table included in the
Crescent Form 10-K/A filed with the SEC on April 30, 2007 not also listed as a
trust manager; and |
|
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|
|
trust managers and executive officers as a group. |
In general, beneficial ownership includes those common shares and partnership units a trust
manager or executive officer has the power to vote or the power to dispose and share options and
partnership unit options that are exercisable currently or become exercisable or redeemable within
60 days. Except as otherwise noted, the persons named in the table below have sole voting and
investment power with respect to all securities shown as beneficially owned by them. As of April
25, 2007, we had 102,826,011 common shares issued and outstanding, and there were 11,151,423
partnership units outstanding.
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|
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|
|
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|
Common |
|
Percentage |
|
|
|
|
|
Partnership |
|
|
|
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|
|
|
|
|
|
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|
Share |
|
of Common |
|
|
|
|
|
Unit |
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Options |
|
Shares |
|
|
|
|
|
Options |
|
Percentage |
|
Common |
|
Percentage of |
Name and Address |
|
Number of |
|
Exercisab |
|
(excluding |
|
|
|
|
|
Exercisable |
|
of All |
|
Shares and |
|
Common |
of Beneficial |
|
Common |
|
le Within |
|
partnership |
|
Partnership |
|
Within 60 |
|
Partnership |
|
Partnership |
|
Shares |
Owner(1) |
|
Shares(2) (3) |
|
60 Days |
|
units)(4) |
|
Units(5) |
|
Days(5) |
|
Units(6) |
|
Units(7) |
|
Outstanding(14) |
John C. Goff |
|
|
1,986,271 |
|
|
|
400,000 |
|
|
|
2.3 |
% |
|
|
1,812,970 |
|
|
|
642,858 |
|
|
|
10.7 |
% |
|
|
4,842,099 |
(8) |
|
|
4.6 |
% |
Jerry R. Crenshaw, Jr. |
|
|
135,166 |
|
|
|
165,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,166 |
(9) |
|
|
* |
|
Dennis H. Alberts |
|
|
146,870 |
|
|
|
203,400 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,270 |
|
|
|
* |
|
Jane E. Mody |
|
|
9,532 |
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,532 |
(10) |
|
|
* |
|
John L. Zogg, Jr. |
|
|
145,635 |
|
|
|
75,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,635 |
|
|
|
* |
|
Richard E. Rainwater |
|
|
5,173,949 |
|
|
|
|
|
|
|
5.0 |
% |
|
|
11,447,334 |
|
|
|
|
|
|
|
51.3 |
% |
|
|
16,621,283 |
(11) |
|
|
14.5 |
% |
Anthony M. Frank |
|
|
39,427 |
|
|
|
106,400 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,827 |
|
|
|
* |
|
William F. Quinn |
|
|
53,819 |
|
|
|
109,200 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,019 |
|
|
|
* |
|
Paul E. Rowsey, III |
|
|
32,227 |
|
|
|
109,200 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,427 |
|
|
|
* |
|
Robert W. Stallings |
|
|
57,300 |
|
|
|
39,200 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,500 |
(12) |
|
|
* |
|
Terry N. Worrell |
|
|
50,000 |
|
|
|
39,200 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,200 |
(13) |
|
|
* |
|
Trust Managers and
Executive Officers as a
Group (19 individuals) |
|
|
8,041,814 |
|
|
|
1,812,490 |
|
|
|
9.4 |
% |
|
|
13,260,304 |
|
|
|
642,858 |
|
|
|
60.6 |
% |
|
|
23,757,466 |
|
|
|
21.2 |
% |
|
|
|
* |
|
Less than 1.0% |
|
1. |
|
The address of each beneficial owner is 777 Main Street, Suite 2100, Fort Worth, Texas 76102. |
- 70 -
|
|
|
2. |
|
The number of common shares the following persons beneficially own includes the number of common
shares owned indirectly through participation in Crescent Real Estate Equities, Ltd.s 401(k) Plan
as of March 31, 2007, as follows: John C. Goff 19,801; Jerry R. Crenshaw, Jr. 7,474; John L.
Zogg 88; and Trust Managers and Executive Officers as a Group
52,638. |
|
3. |
|
The number of common shares the following persons beneficially own includes the number of common
shares owned through participation in Crescent Real Estate Equities, Ltd.s Employee Stock Purchase
Plan as of March 31,2007, as follows: John C. Goff 2,415; John L. Zogg, Jr. 647; and Trust
Managers and Executive Officers as a Group 3,998. |
|
4. |
|
The percentage of common shares (excluding partnership units) of a person listed in the
securities ownership table addresses only that persons ownership of our common shares and does not
give effect to any beneficial ownership of common shares the person may have as a result of such
persons ownership of partnership units. In addition, such percentage assumes that (i) as to that
person, all options to purchase our common shares exercisable within 60 days of April 25, 2007 are
exercised, and (ii) as to all other persons, none of our Series A preferred shares are converted
into common shares and no options to purchase our common shares are exercised. |
|
5. |
|
On a common-share equivalent basis. Each partnership unit generally entitles the holder to
exchange the unit (and the related limited partner interest) for two of our common shares or, at
our option, an equivalent amount of cash. |
|
6. |
|
The percentage of all partnership units of a person listed in the securities ownership table
addresses only that persons ownership of partnership units and assumes that (i) as to that person,
all options to purchase partnership units exercisable within 60 days of April 25, 2007 are
exercised, and (ii) as to all other persons, no options to purchase partnership units are
exercised. We and Crescent Real Estate Equities, Ltd., the general partner of the operating
partnership, collectively own an approximate 82.2% partnership interest in the operating
partnership, which is not reflected in the number of outstanding partnership units. The
partnership units beneficially owned by Mr. Goff and Mr. Rainwater represent a partnership interest
in the operating partnership of approximately 3.8% and 13.3%, respectively. |
|
7. |
|
Includes (i) the number of common shares that such person has the right to acquire within 60
days of April 25, 2007 upon the exercise of options to purchase our common shares granted pursuant
to our equity incentive plans and (ii) the number of partnership units that such person has the
right to acquire within 60 days of the April 25, 2007 upon exercise of options granted under the
operating partnerships partnership unit incentive plan, as amended, on a common share equivalent
basis. |
|
8. |
|
The number of common shares that Mr. Goff beneficially owns includes 152,560 common shares that
may be issued upon exchange of partnership units that Goff Family, L.P., a Delaware limited
partnership, owns. Mr. Goff disclaims beneficial ownership of the common shares that may be issued
upon exchange of partnership units that Goff Family, L.P. owns in excess of his pecuniary interest
in such partnership units. |
|
9. |
|
Resigned from his position as our Chief Financial Officer effective as of March 29, 2007. The
number of common shares that Mr. Crenshaw beneficially owns includes 8,092 common shares in joint
brokerage account of which Mr. Crenshaw and his spouse, Lori Crenshaw, share voting and investment
power. |
|
10. |
|
Served as our Managing Director, Capital Markets in fiscal year 2006 and has, since March 29,
2007, also served as our Chief Financial Officer. The number of common shares that Ms. Mody
beneficially owns includes 9,532 common shares owned by the Mody Family Living Trust, of which Ms.
Mody and her spouse Haji Mody are the trustees and beneficiaries. |
|
11. |
|
The number of common shares that Mr. Rainwater beneficially owns includes 744,704 common shares
that Darla Moore, Mr. Rainwaters spouse, beneficially owns and 519,610 common shares that may be
issued upon exchange of partnership units that Ms. Moore beneficially owns. Mr. Rainwater
disclaims beneficial ownership of these common shares. In addition, the number of common shares
that Mr. Rainwater beneficially owns includes 3,608,238 common shares that Mr. Rainwater owns
indirectly and 6,320,468 common shares that may be issued upon exchange of partnership units that
Mr. Rainwater owns indirectly, including (i) 12,525 common shares owned by Rainwater, Inc., a Texas
corporation, of which Mr. Rainwater is a director and the sole owner, and 49,506 common shares that
may be issued upon exchange of partnership units owned by Rainwater, Inc., (ii) 10,586 common
shares owned by Office Towers LLC, a Nevada limited liability company, of which Mr. Rainwater and
Rainwater, Inc. own an aggregate 100% interest, and 6,270,962 common shares that may be issued upon
exchange of partnership units owned by Office Towers LLC, (iii) 2,935,127 common shares owned by
the Richard E. Rainwater 1995 Charitable Remainder Unitrust No. 1, of which Mr. Rainwater is the
settlor and has the power to remove the trustee and designate a successor, including himself, and
(iv) 650,000 common shares owned by the Richard E. Rainwater Charitable Remainder Unitrust No. 3,
of which Mr. Rainwater is the settlor and has the power to remove the trustee and designate a
successor, including himself. |
|
12. |
|
The number of common shares that Mr. Stallings beneficially owns includes 13,500 common shares
in an IRA account which is owned by Linda E. Stallings, Mr. Stallings spouse. Mr. Stallings
disclaims beneficial ownership of such common shares. |
|
13. |
|
The number of common shares that Mr. Worrell beneficially owns includes 50,000 common shares in
a joint brokerage account in which Mr. Worrell and his spouse, Sharon Worrell, share voting and
investment power. |
|
14. |
|
The percentage of common shares outstanding that a person listed in the securities ownership table
beneficially owns assumes that (i) as to that person, all partnership units are exchanged for
common shares, all options to purchase common shares exercisable within 60 days of April 25, 2007
are exercised and all options to purchase partnership units exercisable within 60 days of April 25,
2007 are exercised |
- 71 -
|
|
|
|
|
and the partnership units so acquired are subsequently exchanged for common shares, and (ii)
as to all other persons, no partnership units are exchanged for common shares, no Series A
preferred shares are converted into common shares, and no options to purchase common share or
options to purchase partnership units are exercised. |
The following table provides information about the only known beneficial owners of more
than five percent of our outstanding common shares, based solely on our records and the most recent
Schedule 13G filings with the Securities and Exchange Commission. The number of common shares
owned and the percentage of common shares with respect to the number of common shares beneficially
owned are as of April 25, 2007.
|
|
|
|
|
|
|
|
|
Number of |
|
Percentage of |
|
|
Common |
|
Common Shares |
Name and Address of Beneficial Owner |
|
Shares Owned |
|
Outstanding(5) |
Richard E. Rainwater
777 Main Street
Suite 2100
Fort Worth, Texas 76102
|
|
16,621,283(1)
|
|
|
14.5 |
% |
|
|
|
|
|
|
|
BlackRock, Inc.
40 East 52nd Street
New York, NY 10022
|
|
6,324,758(2)
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
|
|
6,320,360(3)
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
The Vanguard Group, Inc.
100 Vanguard Blvd.
Malvern, PA 19355
|
|
5,754,747(4)
|
|
|
5.6 |
% |
|
|
|
(1) |
|
The number of common shares Mr. Rainwater beneficially owns includes the number of common
shares that may be issued upon exchange of 5,723,667 partnership units that he owns. See footnote
11 to the table above. |
|
(2) |
|
BlackRock, Inc. (Black Rock) filed a Schedule 13G, as of February 13, 2007, reporting that
BlackRock beneficially owns and has shared voting and dispositive power over 6,324,758 common
shares. |
|
(3) |
|
Capital Research and Management Company (Capital Research) filed a Schedule 13G/A, as of
February 12, 2007, reporting that Capital Research beneficially owns and has sole voting over
1,450,000 common shares and sole dispositive power over 6,320,360 common shares. |
|
(4) |
|
The Vanguard Group, Inc. (Vanguard) filed a Schedule 13G, as of February 14, 2007, reporting
that Vanguard beneficially owns and has sole voting power over 135,972 common shares and shared
dispositive power over 5,754,747 common shares. |
|
(5) |
|
See footnote 14 to the table above. |
- 72 -
DISSENTERS RIGHTS OF APPRAISAL
The following description of the rights of shareholders who elect to assert their appraisal
rights does not purport to be complete and is qualified in its entirety by, and is subject to,
Section 25.20 of the Texas Real Estate Investment Trust Act, attached as Exhibit C to this proxy
statement, and which you are encouraged to read carefully.
Any of our common shareholders may dissent from the plan of merger to which we are a party
only by complying with the following procedures.
A common shareholder must file with us, before the special meeting of shareholders to be held
on , 2007, a written objection to the approval of the company merger and the merger
agreement at the special meeting (the action). A common shareholders failure to vote against
the action will not constitute a waiver of its right to dissent, and a vote against this action
will not be deemed to satisfy the notice requirements under Texas law with respect the
shareholders right to dissent. The shareholders objection must state that the shareholder will
exercise the shareholders right to dissent if the action is effective and must contain the
shareholders address, to which notice of the action shall be delivered or mailed in that event.
If the action is effected and the shareholder did not vote in favor of the action, the surviving
entity shall deliver or mail to the shareholder written notice that the action has been effected
within 10 days after the action is effected. The shareholder may make a written demand on the
surviving entity for payment of the fair value of the shareholders common shares within 10 days
from the delivery or mailing of the notice. The fair value of the common shares shall be the value
of the common shares on the day before the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class of the shares
owned by the shareholder and the fair value of the shares as estimated by the shareholder. A
shareholder who fails to make a demand within the 10-day period is bound by the action.
Within 20 days after receipt by the surviving entity of a demand for payment made by a
dissenting shareholder, the surviving entity shall deliver or mail to the shareholder a written
notice that shall either set out that the entity accepts the amount claimed in the demand and
agrees to pay that amount within 90 days after the date on which the action was effected, and, in
the case of common shares represented by certificates, on the surrender of the certificates duly
endorsed, or shall contain an estimate by the surviving entity of the fair value of the common
shares and an offer to pay the amount of that estimate within 90 days after the date on which the
action was effected, on receipt of notice within 60 days after that date from the shareholder that
the shareholder agrees to accept that amount and, in the case of shares represented by
certificates, on the surrender of the certificates duly endorsed.
If, within 60 days after the date on which the action was effected, the value of the common
shares is agreed on between the shareholder and the surviving entity, payment for the common shares
shall be made within 90 days after the date on which the action was effected and, in the case of
common shares represented by certificates, on surrender of the certificates duly endorsed. On
payment of the agreed value, the shareholder will cease to have any interest in the common shares
or in us.
If, within 60 days after the date on which the action was effected, the shareholder and the
surviving entity do not agree on the value of the common shares, the shareholder or surviving
entity, within 60 days after the expiration of the 60-day period, may file a petition in any court
of competent jurisdiction in Tarrant County, Texas, which is where our principal office is located,
asking for a finding and determination of the fair value of the shareholders common shares. On
the filing of a petition by the shareholder, service of a copy of the petition must be made on the
surviving entity. The surviving entity, within 10 days after receiving the service, shall file in
the office of the clerk of the court in which the petition was filed a list containing the names
and addresses of all of our shareholders who have demanded payment for their common shares and with
whom agreements as to the value of their common shares have not been reached by the surviving
entity. If the petition is filed by the surviving entity, the list described in the preceding
sentence must be attached to the petition. The clerk of the court shall give notice of the time
and place fixed for the hearing of the petition by registered mail to the surviving entity and to
the shareholders named on the list at the addresses stated in the list. The court shall approve
the forms of notices sent by mail. All shareholders notified in such manner and the surviving
entity are bound by the final judgment of the court.
- 73 -
After the hearing of a petition, the court shall determine which shareholders have complied
with the provisions of Section 25.20 of the Texas Real Estate Investment Trust Act and have become
entitled to the valuation of and payment of their common shares. The court shall appoint one or
more qualified appraisers to determine that value. The appraisers may examine any of our books and
records that relate to the common shares the appraisers are charged with the duty of valuing. The
appraisers shall make a determination of the fair value of the common shares after conducting an
investigation. The appraisers shall also afford a reasonable opportunity to allow interested
parties to submit to the appraisers pertinent evidence relating to the value of the common shares.
The appraisers also have the power and authority that may be conferred on masters in chancery by
the Texas Rules of Civil Procedure.
The appraisers shall determine the fair value of the common shares of the shareholders
adjudged by the court to be entitled to payment for their shares and shall file their report of
that value in the office of the clerk of the court. The clerk shall give notice of the filing of
the appraisers report to interested parties. The appraisers report shall be subject to exceptions
to be heard before the court both on the law and the facts. The court shall determine the fair
value of the common shares of the shareholders entitled to payment for their shares and shall order
the surviving entity to pay that value, together with interest on the value of shares to the
shareholders entitled to payment, beginning 91 days after the date on which the action was effected
to the date of such judgment. The judgment shall be immediately payable to the holders of
uncertificated common shares. The judgment shall be payable to the holders of common shares
represented by certificates only on, and simultaneously with, the surrender to the surviving entity
of duly endorsed certificates for those shares. On payment of the judgment, the dissenting
shareholders cease to have any interest in those shares or in us. The court shall allow the
appraisers a reasonable fee as court costs, and all court costs shall be allocated between the
parties in the manner that the court determines to be fair and equitable.
Common shares acquired by the surviving entity, pursuant to the payment of the agreed value of
the shares or to payment of the judgment entered for the value of the shares, as provided above,
shall be treated as provided in the merger agreement.
In the absence of fraud in the company merger, the remedy provided by Section 25.20 of the
Texas Real Estate Investment Trust Act to a shareholder objecting to the approval of the company
merger and the merger agreement at the special meeting is the exclusive remedy for the recovery of
the value of the shareholders common shares or money damages to the shareholder with respect to
the action. If the surviving entity complies with the requirements of Section 25.20 of the Texas
Real Estate Investment Trust Act, any shareholder who fails to comply with the requirements of that
Section is not entitled to bring suit for the recovery of the value of the shareholders common
shares or money damages to the shareholder with respect to the action.
MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS
We are sending only one proxy statement to shareholders that share a single address unless we
received contrary instructions from any shareholder at that address. This practice, known as
householding, is designed to reduce our printing and postage costs. However, if any shareholder
residing at such an address wishes to receive a separate proxy statement, they may telephone Jeremy
Sweek/Investor Relations at (817) 321-1464 or write to Crescent Real Estate Equities Company at 777
Main Street, Suite 2100, Fort Worth, Texas 76102, Attention: Investor Relations. If you have
received multiple copies of our proxy statement, you can request householding by contacting us in
the same manner, and if you did not receive an individual copy of this proxy statement, you can
obtain a copy by contacting us in the same manner.
SUBMISSION OF SHAREHOLDER PROPOSALS
We intend to hold an annual meeting in 2007 only if the mergers are not completed. If we hold
such an annual meeting, it will be more than 30 days after the anniversary date of the mailing of
the notice for the 2006 annual meeting. To be eligible for inclusion in our proxy materials for
our 2007 annual meeting, if such meeting is held, written notice of any shareholder proposal must
be received by us a reasonable time before we begin to print
and send our proxy materials for such annual meeting. In addition, nominations by
shareholders of candidates for trust manager and proposals by shareholders other than pursuant to
Rule 14a-8 under the Exchange Act process must
- 74 -
be submitted in accordance with our current bylaws.
Our bylaws currently provide that in order for a shareholder to nominate a candidate for election
as a trust manager at an annual meeting of shareholders or propose business for consideration at an
annual meeting that is delayed by more than 60 days from the first anniversary of date of mailing
of the notice for the previous years annual meeting, written notice must be delivered to our
Secretary, at our principal executive offices, no sooner than the 90th day prior to the date of
mailing of the notice for such annual meeting and not later than either (1) the 70th day prior to
the date of mailing of the notice for such annual meeting or (2) the 10th day following the day on
which public announcement of the date of such annual meeting is first made, whichever is later.
Our Secretary will provide a copy of our bylaws upon written request and without charge.
OTHER MATTERS
We currently are not aware of any business or matter other than as indicated above, which may
be properly presented at the special meeting. If, however, any other matter properly comes before
the special meeting, the persons named as proxies in the accompanying proxy will, in their
discretion, vote thereon in accordance with their best judgment.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the
SEC. These reports, proxy statements and other information contain additional information about
the Company. We will make these materials available for inspection and copying by any shareholder,
or representative of a shareholder who is so designated in writing, at our executive offices during
regular business hours.
Our shareholders may read and copy any reports, statements or other information filed by the
Company at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference
room. Our filings with the SEC are also available to the public from commercial document retrieval
services and at the website maintained by the SEC located at: http://www.sec.gov.
The SEC allows the Company to incorporate by reference information into this proxy
statement. This means that we can disclose important information by referring to another document
filed separately with the SEC. The information incorporated by reference is considered to be part
of this proxy statement. If we file with the SEC and incorporate by reference any information so
filed after the date of this proxy statement, then that information may update and supersede the
information in this proxy statement.
The Company incorporates by reference each document it files under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after the date on which we file this proxy
statement and before the special meeting.
This proxy statement does not constitute an offer to sell, or a solicitation of an offer to
buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to
whom it is not lawful to make any offer or solicitation in that jurisdiction. The delivery of this
proxy statement should not create an implication that there has been no change in the affairs of
the Company since the date of this proxy statement or that the information herein is correct as of
any later date.
Shareholders should not rely on information other than that contained in this proxy statement.
We have not authorized anyone to provide information that is different from that contained in this
proxy statement. This proxy statement is dated , 2007. You should not assume that the
information contained in this proxy statement is accurate as of any date other than that date, and
the mailing of this proxy statement will not create any implication to the contrary.
This proxy statement contains a description of representations and warranties made in the
merger agreement. Representations and warranties are also set forth in the merger agreement, which
is attached to this proxy statement as Exhibit A, and in other contracts and documents that are
incorporated by reference into this
- 75 -
proxy statement. The representations and warranties in the
merger agreement and in those other contracts and documents were made only for the purposes of the
merger agreement and those other contracts or documents and solely for the benefit of the parties
to the merger agreement and those other contracts or documents as of specific dates. Those
representations and warranties may be subject to important limitations and qualifications agreed to
by the contracting parties, and may not be complete as of the date of this proxy statement. Some
of those representations and warranties may not be accurate or complete as of any particular date
because they are subject to contractual standards of materiality different from that generally
applicable to public disclosures to shareholders. Furthermore, these representations and
warranties may have been made for the purposes of allocating contractual risk between the parties
to such contract or other document instead of establishing these matters as facts, and they may or
may not have been accurate as of any specific date and do not purport to be accurate as of the date
of this proxy statement. Accordingly, you should not rely upon the descriptions of representations
and warranties in the merger agreement that are contained in this proxy statement or upon the
actual representations and warranties contained in the merger agreement or the other contracts and
documents incorporated by reference into this proxy statement as statements of factual information.
- 76 -
Exhibit A
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
Among
CRESCENT REAL ESTATE EQUITIES COMPANY,
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP,
MOON ACQUISITION HOLDINGS LLC,
MOON ACQUISITION LLC
and
MOON ACQUISITION LIMITED PARTNERSHIP
Dated as of
May 22, 2007
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 22, 2007
(this Agreement), is made and entered into by
and among Crescent Real Estate Equities Company, a Texas real
estate investment trust (the Company),
Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership (the Operating
Partnership and together with the Company, the
Crescent Parties), Moon Acquisition Holdings
LLC, a Delaware limited liability company
(Parent), Moon Acquisition LLC, a Delaware
limited liability company and a wholly-owned subsidiary of
Parent (REIT Merger Sub) and Moon Acquisition
Limited Partnership, a Delaware limited partnership
(Partnership Merger Sub, and together with
Parent and REIT Merger Sub, the Purchaser
Parties).
WHEREAS, the parties wish to effect a business combination
through a merger of the Company with and into REIT Merger Sub
(the REIT Merger) on the terms and subject to
the conditions set forth in this Agreement and in accordance
with the Texas Real Estate Investment Trust Act (the
Texas REIT Law) and the Delaware Limited
Liability Company Act (the DLLCA);
WHEREAS, the parties also wish to effect a merger of the
Partnership Merger Sub with and into the Operating Partnership
(the Partnership Merger and, together with
the REIT Merger, the Mergers), on the terms
and subject to the conditions set forth in this Agreement and in
accordance with
Section 17-211
of the Delaware Revised Uniform Limited Partnership Act, as
amended (DRULPA);
WHEREAS, the Board of Trust Managers of the Company (the
Company Board) has approved this Agreement,
the REIT Merger and the other transactions contemplated by this
Agreement and declared that the REIT Merger and the other
transactions contemplated by this Agreement are advisable and in
the best interests of the Company and its shareholders, on the
terms and subject to the conditions set forth herein;
WHEREAS, Crescent Real Estate Equities, Ltd., a Delaware
corporation (General Partner), as the sole
general partner of the Operating Partnership, has approved this
Agreement, the Partnership Merger, and the other transactions
contemplated by this Agreement and deemed it advisable for the
Operating Partnership and its limited partners to enter into
this Agreement and to consummate the Partnership Merger on the
terms and conditions set forth herein;
WHEREAS, Parent, as the managing member of REIT Merger Sub, has
approved this Agreement, the REIT Merger and the other
transactions contemplated by this Agreement and declared that
this Agreement and the REIT Merger are advisable on the terms
and subject to the conditions set forth herein;
WHEREAS, Parent, as the general partner of Partnership Merger
Sub, has approved this Agreement, the Partnership Merger and the
other transactions contemplated by this Agreement and deemed it
advisable and in the best interests of the limited partners of
the Partnership Merger Sub for the Partnership Merger Sub to
enter into this Agreement and consummate the Partnership Merger
on the terms and subject to the conditions set forth herein; and
WHEREAS, concurrently with the execution of this Agreement,
Parent has delivered to the Company two guarantees of the
obligations arising under this Agreement of the Purchaser
Parties executed by one or more affiliates of Parent (the
Guarantors, and such instruments, the
Guarantees);
WHEREAS, as an inducement to the Purchaser Parties entering into
this Agreement and incurring the obligations set forth herein,
concurrently with the execution of this Agreement, the Company
and the General Partner have entered into a voting agreement
with the Purchaser Parties relating to partnership interests of
the Operating Partnership held by the Company and the General
Partner, respectively (the Voting Agreement);
WHEREAS, the parties intend that for federal, and applicable
state, income tax purposes the REIT Merger will be treated as a
taxable sale by the Company of all of the Companys assets
to REIT Merger Sub in exchange for the consideration provided
for in Article III to be provided to the shareholders of
the Company (the REIT Merger Consideration)
and the assumption of all of the Companys liabilities,
followed by a distribution of such REIT Merger Consideration to
the shareholders of the Company in liquidation pursuant to
Section 331 and Section 562 of the Code, and that this
Agreement shall constitute a plan of liquidation of
the Company for federal income tax purposes;
A-1
WHEREAS, the parties intend that for federal, and applicable
state, income tax purposes the Partnership Merger will be
treated as a taxable sale of interests in the Operating
Partnership to the extent of interests exchanged for
cash; and
WHEREAS, the parties hereto desire to make certain
representations, warranties, covenants and agreements in
connection with the Mergers, and also to prescribe various
conditions to such transactions.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
(a) For purposes of this Agreement:
Acquisition Proposal means: (i) any
proposal or offer received after the date hereof from any person
other than Parent and REIT Merger Sub relating to any direct or
indirect acquisition (in one or a series of related
transactions) of (A) more than 25% of the assets of the
Company and its Subsidiaries, taken as a whole, or (B) more
than 25% of the outstanding equity securities of the Company or
of the Operating Partnership; (ii) any tender offer or
exchange offer, as defined pursuant to the Exchange Act, that,
if consummated, would result in any person or group
(as such term is defined under the Exchange Act) beneficially
owning 25% or more of the outstanding equity securities of the
Company or of the Operating Partnership; (iii) any merger,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the
Company, other than the REIT Merger, pursuant to which the
shareholders of the Company prior to consummation of such
transaction would hold less than 75% of the outstanding shares
or equity interests of the surviving or resulting person or
parent thereof; or (iv) any transaction which is similar in
form, substance or purpose to any of the foregoing transactions
(other than the REIT Merger).
Action means any claim, action, suit,
proceeding, arbitration, mediation, inquiry or other
investigation.
Additional Company means any entity listed on
Exhibit I attached hereto and its Subsidiaries.
Affiliate or affiliate of
a specified person means a person who, directly or indirectly
through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified person.
AmeriCold means AmeriCold Realty Trust, a
Maryland real estate investment trust.
AmeriCold Business means the business of
owning and operating temperature controlled warehouses and
related logistics businesses by AmeriCold.
Benefit Plan means any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, options to acquire
units, phantom stock, deferred stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical,
employee stock purchase, stock appreciation, restricted stock or
units or other employee benefit plan, program, agreement or
arrangement as to which the Company, any of its Subsidiaries,
any Primarily Controlled Company or any ERISA Affiliate
sponsors, maintains, contributes or is obligated to contribute
for the benefit of any current or former employee, officer,
director, consultant or independent contractor of the Company,
any of its Subsidiaries or any Primarily Controlled Company,
including any ERISA Benefit Plan.
Business Day or business
day means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or,
in the case of determining a date when any payment is due, any
day (other than a Saturday or Sunday) other than a day on which
banks are required or authorized to close in the City of New
York.
Canyon Ranch means CR Operating, LLC, CR Spa,
LLC and their respective Subsidiaries.
A-2
Canyon Ranch Business means collectively the
businesses operated by CR Operating, LLC and CR Spa, LLC.
Canyon Ranch Subsidiaries means the
collective Subsidiaries of CR Operating, LLC and CR Spa, LLC.
Certificate or
Certificates means any certificate
evidencing, or any other instrument deemed by the Company or
Operating Partnership, as applicable, to be sufficient evidence
of, Company Common Shares, Company Series A Preferred
Shares, Company Series B Preferred Shares, Restricted
Units, Units or Options.
Change-in-Control
Agreements means the employment and other agreements
set forth in Item 4.11(j) of the Disclosure Letter.
Class of Company means any of Company
Subsidiaries, Primarily Controlled Companies, Partially
Controlled Companies or Additional Companies.
Code means the U.S. Internal Revenue
Code of 1986, as amended.
Company Business means any one of the Office
Business, Hotel Business, Resort Residential Business, Canyon
Ranch Business and AmeriCold Business.
Company Bylaws means the Company Fourth
Amended and Restated Bylaws adopted on December 15, 2005,
as amended.
Company Charter means the Restated
Declaration of Trust of the Company dated September 28,
1997, as amended.
Company Common Shares means common shares of
beneficial interest, par value $0.01 per share, of the
Company.
Company Material Adverse Effect means any
event, circumstance, change or effect that, individually or in
the aggregate, is materially adverse to the business,
properties, financial condition or results of operations of the
Company, its Subsidiaries and the Related Entities, taken as a
whole, provided, however, that in no event shall
any of the following, to the extent occurring after the date
hereof, alone or in combination with each other, be deemed to
constitute, nor shall any of the following be taken into account
in determining whether there has been, a Company Material
Adverse Effect: (A) any change in the market price or
trading volume of the Company Common Shares, the Series A
Preferred Shares or the Series B Preferred Shares of the
Company, (B) any change in general economic or business
conditions except to the extent that such changes have a
materially disproportionate adverse effect on one or more
Company Businesses relative to other similarly situated
participants in the business or industry in which such Company
Business or Businesses operates, (C) any change in
financial or securities market conditions generally, except to
the extent that such changes have a materially disproportionate
adverse effect on one or more Company Businesses relative to
other similarly situated participants in the business or
industry in which such Company Business or Businesses operate,
(D) any events, circumstances, changes or effects generally
affecting the United States commercial real estate industry
except to the extent that such changes have a materially
disproportionate adverse effect on one or more Company
Businesses relative to other similarly situated participants in
the business or industry and in any geographic region in which
such Company Business or Businesses operates, (E) any
change in legal, political or regulatory conditions generally or
in any geographic region in which the Company or any of its
Subsidiaries or Related Entities operates, (F) the
announcement of the execution of this Agreement or anticipation
of the Mergers or the pendency thereof, (G) any events,
circumstances, changes or effects arising from the taking of any
action required or expressly contemplated by this Agreement or
the failure to take any action prohibited by this Agreement,
(H) acts of war, armed hostilities, sabotage or terrorism,
or any escalation of any such acts of war, armed hostilities,
sabotage or terrorism threatened or underway as of the date of
this Agreement, except to the extent that such changes have a
materially disproportionate adverse effect on one or more
Company Businesses relative to other similarly situated
participants in the business or industry and in any geographic
region in which such Company Business or Businesses operates,
(I) changes in Law or GAAP or (J) any failure to meet
any internal or published projections, forecasts or revenue or
earnings predictions for any period. References in this
Agreement to dollar amount thresholds shall not be deemed to be
evidence of materiality or of a Company Material Adverse Effect.
Notwithstanding the foregoing, for purposes of
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Section 4.07, the proviso to the preceding sentence shall
be read without giving effect to the words to the extent
occurring after the date hereof.
Company Properties means, collectively, the
Leased Real Property and the Owned Real Property.
Company Series A Preferred Shares means
shares of
63/4%
Series A Convertible Cumulative Preferred Shares of the
Company, par value $0.01 per share.
Company Series B Preferred Shares means
shares of 9.50% Series B Cumulative Redeemable Preferred
Shares of the Company, par value $0.01 per share.
Contract means any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit,
franchise or other binding commitment, instrument or obligation.
control (including the terms
controlled by and under common
control with) means the possession, directly or
indirectly of the power to direct or cause the direction of the
management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise.
Designated Employee means any current or
former employee of the Company, and of its subsidiaries or any
third party manager of any property owned by the Company who
Parent, in its discretion, believes should receive a notice
pursuant to WARN or any similar mass layoff or
plant closing law.
Disclosure Letter means the disclosure letter
delivered by the Company to Parent concurrently with the
execution of this Agreement for which the disclosure of any fact
or item in any Section of such disclosure letter shall, should
the existence of such fact or item be relevant to any other
section, be deemed to be disclosed with respect to that other
Section so long as the relevance of such disclosure to such
other Section is reasonably apparent from the nature of such
disclosure. Nothing in the Disclosure Letter is intended to
broaden the scope of any representation or warranty of the
Company made herein.
Environmental Law means the applicable Law of
any Governmental Entity relating to the prevention of pollution,
regulating discharge or emission of Hazardous Substances,
remediation of contamination, protection of natural resources or
the environment, preservation of environmental quality or the
protection of human health from exposure to Hazardous Substances.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended, together with the rules and
regulations promulgated thereunder.
ERISA Affiliate means any entity that would
be considered a single employer with the Company under
Section 4001(b) of ERISA or part of the same controlled
group as the Company for purposes of Section 302(d)(8)(c)
of ERISA.
Exchange Act means the Securities Exchange
Act of 1934, as amended, together with the rules and regulations
promulgated thereunder.
ERISA Benefit Plan means a Benefit Plan that
is also an employee pension benefit plan (as defined
in Section 3(2) of ERISA) or that is also an employee
welfare benefit plan (as defined in Section 3(1) of
ERISA).
GAAP means United States generally accepted
accounting principles and practices as in effect from time to
time consistently applied.
Governmental Authority means any United
States national, state, provincial, municipal or local
government, governmental, regulatory or administrative
authority, agency, instrumentality or commission or any court,
tribunal, or judicial or arbitral body.
Hazardous Substances means each substance
designated as a hazardous waste, hazardous substance, hazardous
material, pollutant, contaminant or toxic substance under any
Environmental Law including, without limitation, any asbestos,
mold, lead based paint, polychlorinated biphenyls, urea
formaldehyde foam insulation, and petroleum or any fraction of
petroleum.
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Hotel Business means the business of owning
and/or
operating hotel properties directly or through joint ventures.
HSR Act means the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Incentive Plans means, collectively, the 1994
Crescent Real Estate Equities Company Stock Incentive Plan, the
Third Amended and Restated 1995 Crescent Real Estate Equities
Company Stock Incentive Plan, the 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan, the 1996
Crescent Real Estate Equities Limited Partnership Unit Incentive
Plan, the Crescent Real Estate Equities, Ltd. Dividend Incentive
Unit Plan, the 2004 Crescent Real Estate Equities Limited
Partnership Long-Term Incentive Plan, the 2005 Crescent Real
Estate Equities Limited Partnership Long-Term Incentive Plan
(each as amended, modified or amended and restated, as the case
may be) and each other employee or officer unit option or
compensation plan or arrangement of the Operating Partnership,
the General Partner or the Company not pursuant to one of the
foregoing plans and that is listed as an Incentive
Plan on Item 4.11(a) of the Disclosure Letter.
Intellectual Property means (i) United
States and international patents, patent applications and
invention registrations of any type, (ii) United States and
international trademarks, service marks, trade dress, logos,
trade names, Internet domain names, corporate names and other
source identifiers, and registrations and applications for
registration thereof, (iii) United States and international
copyrightable works, copyrights, and registrations and
applications for registration thereof, and
(iv) confidential and proprietary information, including
trade secrets and know-how.
Junior Subordinated Notes means
(i) certain unsecured junior subordinated notes issued to
evidence loans made to the Operating Partnership, maturing on
June 30, 2035, of the proceeds from the issuance by
Crescent Real Estate Statutory Trust I of beneficial
interests in its assets; and (ii) certain unsecured junior
subordinated notes issued to evidence loans made to the
Operating Partnership, maturing on July 30, 2035, of the
proceeds from the issuance by Crescent Real Estate Statutory
Trust II of beneficial interests in its assets.
Knowledge of the Company means the actual
knowledge of those individuals listed on Exhibit A.
Knowledge of Parent means the actual
knowledge of those individuals listed on Exhibit B.
Law means any United States national, state,
provincial, municipal or local statute, law, ordinance,
regulation, rule, code, executive order, injunction, judgment,
decree or other order.
Leased Real Property means all material real
property leased (including Ground Leases) or otherwise occupied
(as lessee, sublessee, assignee or otherwise) as of the date
hereof by the Company, any of its Subsidiaries, any Primarily
Controlled Company or any Partially Controlled Company, as
applicable, from a third party other than the Company or any of
its Subsidiaries or any of its Primarily Controlled Companies,
including the improvements thereon.
Liens means with respect to any asset
(including any security), any mortgage, claim, lien, pledge,
charge, security interest or encumbrance of any kind in respect
to such asset.
Merger Consideration means the Company Common
Share Merger Consideration, Partnership Merger Consideration,
Restricted Unit Consideration, Option Consideration, Preferred
Redemption Amount, Series A Consideration, and
Series B Consideration.
Office Business means the business of owning
and/or
operating office properties directly or through joint ventures.
Operating Partnership Agreement means that
certain Fourth Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of
April 30, 2006, as amended.
Owned Real Property means all real property
owned by the Company, any of its Subsidiaries, any Primarily
Controlled Company or any Partially Controlled Company as of the
date hereof, together with all buildings, structures, other
improvements and fixtures located on or under such real property
and all easements, rights, and other appurtenances thereto.
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Parent Material Adverse Effect means any
event, circumstance, change or effect that would reasonably be
expected to prevent, hinder or materially delay Parent, REIT
Merger Sub or Partnership Merger Sub from consummating the
Mergers or any other transactions contemplated by this Agreement.
Partially Controlled Company means any
company listed on Exhibit H attached hereto.
Permitted Liens means (i) Liens for
Taxes not yet delinquent and Liens for Taxes being contested in
good faith and for which there are adequate reserves on the
financial statements of the Company if such reserves are
required pursuant to GAAP; (ii) inchoate mechanics
and materialmens Liens for construction in progress;
(iii) inchoate workmens, repairmens,
warehousemens and carriers Liens arising in the
ordinary course of business of the Company, any of its
Subsidiaries, any Primarily Controlled Company or any Partially
Controlled Company; (iv) zoning restrictions, survey
exceptions, utility easements, rights of way and similar Liens
that are imposed by any Governmental Authority having
jurisdiction thereon or otherwise are typical for the applicable
property type and locality; (v) with respect to real
property, any title exception, easement agreements and all other
matters disclosed in any Company title insurance policy provided
or made available to Parent, Liens and obligations arising under
the Material Contracts (including but not limited to any Lien
securing mortgage debt disclosed in the Disclosure Letter), the
Company Leases and any other Lien or exception to title that
does not interfere materially with the current use of such
property (assuming its continued use in the manner in which it
is currently used) or materially adversely affect the value or
marketability of such property; (vi) matters that would be
disclosed on current title reports or surveys that arise or have
arisen in the ordinary course of business, that do not
materially adversely affect the marketability of the applicable
property
and/or
(vii) other Liens being contested in good faith in the
ordinary course of business, that do not materially adversely
affect the marketability of the applicable property and for
which there are adequate reserves on the financial statements of
the Company if such reserves are required pursuant to GAAP.
person or Person means an
individual, corporation, partnership, limited partnership,
limited liability company, syndicate, person (including a
person as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government,
political subdivision, agency or instrumentality of a government.
Portfolio Purchase and Sale Agreements means
the Walton Portfolio Purchase and Sale Agreement, and the
purchase and sale agreements with respect to any other Portfolio
Sales.
Portfolio Sales means the Walton Portfolio
Sale, the sales contemplated in Item 6.01(f) of the
Disclosure Letter, and other sales under contracts approved in
writing by the Purchaser Parties.
Primarily Controlled Company means any entity
listed on Exhibit G attached hereto.
Related Entity means any of a Primarily
Controlled Company, a Partially Controlled Company or an
Additional Company.
Release means any spilling, leaking, pumping,
pouring, emitting, discharging, injecting, escaping, leaching,
dumping or disposing of a Hazardous Substance into the
environment.
Resort Residential Business means the
business of owning, developing, selling and operating resort
residential properties directly or through joint ventures,
including developing the Crescent Plaza and Ritz-Carlton Dallas
property.
Securities Act means the Securities Act of
1933, as amended, together with the rules and regulations
promulgated thereunder.
Strategic Plan means the Companys
strategic business plan publicly announced on March 1, 2007.
Subsidiary of any Person means any
corporation, partnership, limited partnership, limited liability
company, joint venture or other legal entity of which
(i) the Person, or its direct or indirect Subsidiary, is a
general partner, managing partner, managing member, or manager,
(ii) the Person, or its direct or indirect Subsidiary, has
the right to designate one or more representatives to its
governing board or committee, or (iii) such Person (either
directly or through or together with another Subsidiary of such
Person) owns at least 50% of the voting stock or common equity
interest of such corporation, partnership, limited partnership,
A-6
limited liability company, joint venture or other legal entity,
in each case other than a Related Entity that is not in the same
Class of Company as such Person .
Superior Proposal means an Acquisition
Proposal (on its most recently amended and modified terms, if
amended and modified) made by a third party with respect to at
least 50% of the outstanding Company Common Shares or at least
50% of the Companys assets, which the Company Board
determines in its good faith judgment (after receiving the
advice of an independent financial advisor of nationally
recognized reputation) is more favorable from a financial point
of view to the holders of the Company Common Shares than the
REIT Merger, after taking into account all of the terms and
conditions of such Acquisition Proposal and such other factors
as the Company Board deems relevant (including, without
limitation, financing terms, any termination fee or expense
reimbursement payable under this Agreement, any conditions to
the consummation thereof, the likelihood of the Acquisition
Proposal being consummated and the likely timing of consummating
the Acquisition Proposal).
Tax or Taxes means any and
all taxes, charges, fees, levies and other assessments,
including income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, license,
payroll, franchise, employment, severance, stamp, premium,
windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock,
profits, unemployment, disability, value added, alternative or
add-on minimum, registration, transfer and recording taxes, fees
and charges, including estimated taxes, imposed by the United
States or any taxing authority (domestic or foreign), whether
computed on a separate, consolidated, unitary, combined or any
other basis (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect
thereto) imposed by any government or taxing authority.
Tax Returns means all reports, returns,
declarations, claims for refund, information returns,
statements, or other information required to be supplied in
writing to a taxing authority in connection with Taxes.
Trust Preferred Securities means
(i) certain beneficial interests in the assets of Crescent
Real Estate Statutory Trust I issued in connection with the
Junior Subordinated Notes; and (ii) certain beneficial
interests in the assets of Crescent Real Estate Statutory
Trust II issued in connection with the Junior Subordinated
Notes.
Units means units of common and preferred
limited partnership interest in the Operating Partnership.
Walton Portfolio Sale means, whether effected
directly or indirectly or in one transaction or a series of
related transactions, any sale, transfer or other business
combination involving the six (6) hotel and office
properties owned by the Company and under contract for sale on
the date hereof pursuant to the Walton Portfolio Purchase and
Sale Agreement, as well as the Sonoma Golf property.
Walton Portfolio Purchase and Sale Agreement
means those certain Purchase and Sale Agreements made and
entered into on March 5, 2007, as amended and reinstated,
between Walton TCC Hotel Investors V, L.L.C. and the
Sellers identified therein.
The following terms have the meaning set forth in the sections
set forth below:
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Location of
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Defined Term
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Definition
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71/8% Notes
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§4.03(a)
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9.25% Senior Notes
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§4.03(a)
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Agreement
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Preamble
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Capitalization Date
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§4.03(a)
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CERCLA
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§4.16(e)
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Change in Recommendation
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§7.04(c)
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Claim
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§7.06(a)
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Closing
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§2.04
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Closing Date
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§2.04
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Location of
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Defined Term
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Definition
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Commitment Letters
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§5.07
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Commitments
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§5.07
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Company
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Preamble
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Company Board
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Recitals
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Company Board Recommendation
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§4.23(c)
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Company Common Share Merger
Consideration
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§3.01(c)
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Company Expenses
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§9.03(e)
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Company Leases
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§4.15(o)
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Company Preferred Shares
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§4.03(a)
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Company Shareholders Meeting
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§7.02
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Company Shareholder Approval
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§7.02
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Company Termination Fee
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§9.03(d)
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Confidentiality Agreement
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§7.03(b)
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Construction Project
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§4.15(n)
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Continuing Employees
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§7.05(b)
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Counterproposal
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§7.04(c)
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Crescent Intellectual Property
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§4.14
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Crescent Parties
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Preamble
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Delaware Merger Certificate
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§2.03(a)
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Delayed Closing
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§2.04(b)
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Dissenters Rights Provisions
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§3.04(a)
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Dissenting Shareholders
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§3.04(a)
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Dissenting Shares
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§3.04(a)
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DLLCA
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Recitals
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Drop Dead Date
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§9.01(b)
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DRULPA
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Recitals
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DSOS
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§2.03(a)
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Effective Time
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§2.03(a)
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Employee Loans
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§4.24
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ESPP
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§3.08
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ESPP Date
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§3.08
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Excess Shares
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§4.03(a)
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Exchange Fund
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§3.05(a)
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Existing Units
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§3.02(a)
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Expenses
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§7.06(a)
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Financing
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§5.07
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General Partner
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Recitals
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Governmental Order
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§9.01(c)
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Ground Lease
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§4.15(c)
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Guarantees
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Recitals
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Guarantors
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Recitals
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Indemnified Parties
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§7.06(a)
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Lease Documents
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§4.15(b)
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Loan Documents
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§4.15(d)
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A-8
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Location of
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Defined Term
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Definition
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Management Agreement Documents
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§4.15(j)
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Material Contract
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§4.18(a)
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Maximum Premium
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§7.06(c)
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Merger Consideration
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Recitals
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Mergers
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Recitals
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NYSE
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§7.02
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Operating Partnership
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Preamble
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Option Consideration
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§3.03(a)
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Options
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§3.03(a)
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Other Filings
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§4.08
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Parent
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Preamble
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Parent Expenses
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§9.03(e)
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Parent Plan
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§7.05(b)
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Participation Agreements
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§4.15(r)
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Participation Interest
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§4.15(r)
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Participation Party
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§4.15(r)
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Partnership Information
Statement
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§7.01
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Partnership Merger
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Recitals
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Partnership Merger Certificate
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§2.03(b)
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Partnership Merger Consideration
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§3.02(a)
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Partnership Merger Effective Time
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§2.03(b)
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Partnership Merger Sub
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Preamble
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Paying Agent
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§3.05(a)
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Permits
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§4.09
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Permitted Activities
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§7.16
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Permitted Properties
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§7.16
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Post-Signing Returns
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§7.11(b)
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Preferred Redemption Amount
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§2.07
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Proxy Statement
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§4.08
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Purchaser Parties
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Preamble
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Qualifying Income
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§9.04(a)
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Redemption
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§2.07
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REIT
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§4.10(c)
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REIT Certificate
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§8.02(d)
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REIT Merger
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Recitals
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REIT Merger Consideration
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Recitals
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REIT Merger Sub
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Preamble
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Representatives
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§7.04(a)
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Required Shareholder Vote
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§4.04(a)
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Restricted Units
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§3.03(b)
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Restricted Unit Consideration
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§3.03(b)
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Sarbanes-Oxley Act
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§4.06(e)
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SEC Documents
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§4.06(a)
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Location of
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Defined Term
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Definition
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Section 16
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§7.05(d)
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Series A Consideration
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§7.13
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Series B Consideration
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§7.13
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Surviving Entity
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§2.01(a)
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Surviving Entity Operating
Agreement
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§2.02(a)
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Surviving Partnership
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§2.01(b)
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Surviving Partnership Partnership
Agreement
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§2.02(b)
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Tax Protection Agreement
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§4.10(o)
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Termination Date
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§9.01
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Texas Clerk
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§2.03(a)
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Texas Merger Certificate
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§2.03(a)
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Texas REIT Law
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Recitals
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Third Party Franchise Agreements
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§4.15(i)
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Transfer Taxes
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§7.08
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Unitholders
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§4.03(b)
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Voting Agreement
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Recitals
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WARN
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§4.17(d)
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(a) when a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference is to an
Article or Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated;
(b) the table of contents and headings for this Agreement
are for reference purposes only and do not affect in any way the
meaning or interpretation of this Agreement;
(c) whenever the words include,
includes or including are used in this
Agreement, they are deemed to be followed by the words
without limitation;
(d) the words hereof, herein and
hereunder and words of similar import, when used in
this Agreement, refer to this Agreement as a whole and not to
any particular provision of this Agreement, except to the extent
otherwise specified;
(e) references to any statute, rule or regulation are to
the statute, rule or regulation as amended, modified,
supplemented or replaced from time to time (and, in the case of
statutes, include any rules and regulations promulgated under
the statute) and to any Section of any statute, rule or
regulation include any successor to the section;
(f) all terms defined in this Agreement have the defined
meanings when used in any certificate or other document made or
delivered pursuant hereto, unless otherwise defined therein;
(g) the definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such
terms;
(h) references to a person are also to its successors and
permitted assigns; and
(i) the use of or is not intended to be
exclusive unless expressly indicated otherwise.
A-10
(a) Subject to Section 2.04(b), the closing of the
Mergers (the Closing) shall occur as promptly
as practicable (but in no event later than the second (2nd)
Business Day) after all of the conditions set forth in
Article VIII (other than conditions which by their terms
are required to be satisfied or waived at the Closing) shall
have been satisfied or waived by the party entitled to the
benefit of the same, and, subject to the foregoing, shall take
place at such time and on a date to be specified by the parties
(the Closing Date). The Closing shall take
place at the offices of Goodwin Procter LLP, 599 Lexington
Avenue, New York, New York 10022, or at such other place as
agreed to by the parties hereto.
(b) The Purchaser Parties may, by giving written notice to
the Company and the Operating Partnership at least three
(3) Business Days prior to the Closing Date, delay the
Closing to a date no later than the earlier of (x) the last
Business Day of the month in which the conditions set forth in
Article VIII have been satisfied or waived and (y) the
Drop Dead Date (as defined hereinafter) (a Delayed
Closing); provided, however, that if the
Purchaser Parties elect that the Closing shall be a Delayed
Closing, then, notwithstanding anything to the contrary in this
Agreement but subject to Section 8.04, all conditions to
Closing set forth in Section 8.02 (including those
conditions that by their nature can be satisfied only at the
Closing) shall be deemed to have been satisfied or (to the
extent permitted by applicable Law) waived by the Purchaser
Parties on and as of the Delayed Closing (other than the
condition set forth in Section 8.02(b) (but only to the
extent the failure to satisfy such condition resulted from an
intentional breach by the Company or the Operating Partnership
of the covenants and agreements required to be performed by them
under this Agreement during the period between the original
Closing Date and the date to which Closing is delayed pursuant
to the Delayed Closing)). In the event that the Purchaser
Parties cause a Delayed Closing as contemplated by this
Section 2.04(b), all references in this Agreement to the
Closing shall be deemed to be references to the Delayed Closing
and the Closing Date shall be deemed to occur on the date on
which the Delayed Closing occurs.
Section 2.07 Redemption of
Preferred Shares. Prior to the Effective
Time, the Company shall redeem all of the Company Series A
Preferred Shares and Company Series B Preferred Shares for
cash pursuant to the terms of such securities (such cash, the
Preferred Redemption Amount, and each, a
Redemption). The Companys obligation to
effect the Redemptions may be conditioned upon the satisfaction
or waiver of the conditions to the Mergers set forth in
Article VIII.
ARTICLE III
EFFECTS
OF THE MERGERS
(a) Each membership interest of REIT Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain
as an issued and outstanding membership interest of the
Surviving Entity.
(b) Each Company Common Share that is owned by the Company
or any of its Subsidiaries immediately prior to the Effective
Time shall automatically be canceled and retired and shall cease
to exist, and no payment shall be made with respect thereto.
(c) Each Company Common Share issued and outstanding
immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 3.01(b) or Dissenting
Shares) shall automatically be converted into, and canceled in
exchange for, the right to receive an amount in cash, without
interest, to be paid by Parent equal to $22.80, reduced by the
per share amount, if any, distributed to holders of Company
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Common Shares pursuant to the final sentence of
Section 6.01(b). (the Company Common Share Merger
Consideration).
Section 3.02 Effect on
Partnership Interests. As of the
Partnership Merger Effective Time, by virtue of the Partnership
Merger and without any action on the part of the holder of any
partnership interests of the Operating Partnership or of
Partnership Merger Sub:
(a) Each outstanding Unit other than any Restricted Unit
(the Existing Units) (other than Existing
Units held by the Company, General Partner or any of the
Companys Subsidiaries), subject to the terms and
conditions set forth herein, shall be converted into, and shall
be cancelled in exchange for, the right to receive cash in an
amount, without interest, per Existing Unit equal to the product
of (A) the Company Common Share Merger Consideration
multiplied by (B) two (2) (the Partnership Merger
Consideration).
(b) Each Existing Unit held by the Company, General Partner
or any of the Companys Subsidiaries immediately prior to
the Partnership Merger Effective Time shall automatically be
cancelled and cease to exist, the holders thereof shall cease to
have any rights with respect thereto and no payment shall be
made with respect thereto.
(c) The general partner interests of the Operating
Partnership shall remain outstanding as general partner
interests in the Surviving Partnership, entitling the holder
thereof to such rights, duties and obligations as are more fully
set forth in the Surviving Partnership Partnership Agreement.
(d) Each limited partnership interest in the Partnership
Merger Sub shall remain outstanding as a limited partner
interest in the Surviving Partnership, entitling the holder
thereof to such rights, duties and obligations as are more fully
set forth in the Surviving Partnership Agreement.
(e) The general partner interests of the Merger Partnership
shall automatically be cancelled and cease to exist, the holders
thereof shall cease to have any rights with respect thereto and
no payment shall be made with respect thereto.
(a) Each option to purchase Company Common Shares or Units
(collectively, the Options) granted under the
Incentive Plans, which is outstanding immediately prior to the
Effective Time (whether or not then vested or exercisable) and
which has not been exercised or canceled prior thereto shall, at
the Effective Time, be canceled upon the surrender and
cancellation of the option agreement representing such Option,
together with the delivery of a written instrument executed by
the holder thereof in the form attached hereto as
Exhibit C, and, in exchange therefor, REIT Merger
Sub or Partnership Merger Sub, as applicable, shall pay to the
holder thereof cash in an amount equal to the product of
(A) the number of Company Common Shares or Units, as
applicable, issuable upon exercise of such Option (assuming full
vesting) and (B) the excess, if any, of the Company Common
Share Merger Consideration or the Partnership Merger
Consideration, as applicable, over the exercise price per
Company Common Share or Unit, as applicable, which cash payment
shall be treated as compensation and shall be net of any
applicable federal or state withholding tax (the Option
Consideration).
(b) Each Unit that was issued pursuant to an award granted
under the 2004 Crescent Real Estate Equities Limited Partnership
Long-Term Incentive Plan or the 2005 Crescent Real Estate
Equities Limited Partnership Long-Term Incentive Plan
(collectively, the Restricted Units), which
is outstanding immediately prior to the Effective Time (whether
or not then vested) and which has not been paid out or cancelled
prior thereto, shall, at the Partnership Merger Effective Time,
be cancelled upon the surrender of the agreement representing
such Restricted Unit by the Company or the holder thereof (or a
reasonably satisfactory affidavit of lost agreement), together
with the delivery of a written instrument executed by the holder
thereof in the form attached hereto as Exhibit C.
Partnership Merger Sub shall pay to the holder thereof cash in
an amount, without interest, per Restricted Unit equal to
the Partnership Merger Consideration plus accrued but unpaid
dividends (the Restricted Unit Consideration)
other than Restricted Units listed on Item 3.03(b)
of the Disclosure Letter, which shall be forfeited prior to the
Effective Time. Parent, the Company and the Operating
Partnership agree
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that the payments made to holders of Restricted Units pursuant
to this Section 3.03(b) shall be treated as consideration
for partnership interests and not reported as payments for
services.
(c) The Crescent Parties shall take all actions necessary
to ensure that the Options, Restricted Units and the Incentive
Plans shall be terminated and the provisions in any other plan,
program, arrangement or agreement providing for the issuance or
grant of any other interest in respect of equity interests in
the Company or any of the Company Subsidiaries or any Primarily
Controlled Company shall be deemed to be terminated and of no
further force and effect as of the Effective Time and no holder
of any Option or Restricted Unit or any participant in any
Incentive Plan shall, thereafter, have any right thereunder to
(i) acquire any securities of the Company, Operating
Partnership, the Surviving Entity or any Subsidiary thereof or
any Primarily Controlled Company, or (ii) receive any
payment or benefit with respect to any award previously granted
under the Incentive Plans except as provided in
Section 3.02(a) or Section 3.03(b).
(a) Notwithstanding anything in this Agreement to the
contrary, any Company Common Shares that are issued and
outstanding immediately prior to the Effective Time and that are
held by Company shareholders who, in accordance with
Section 25.20 of the Texas REIT Law (the
Dissenters Rights Provisions),
(i) properly filed a written objection prior to the Company
Shareholders Meeting, (ii) have not voted in favor of
approving this Agreement and the REIT Merger, (iii) shall
have demanded properly in writing fair value for such shares,
and (iv) have not effectively withdrawn, lost or failed to
perfect their rights under the Dissenters Rights
Provisions (collectively, the Dissenting
Shares), will not be converted as described in
Section 3.01(c) but at the Effective Time, by virtue of the
REIT Merger and without any action on the part of the holder
thereof, shall be cancelled and shall cease to exist and shall
represent the right to receive only those rights provided under
the Dissenters Rights Provisions; provided,
however, that all Company Common Shares held by Company
shareholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to demand fair value
of such Company Common Shares under the Dissenters Rights
Provisions shall thereupon be deemed to have been canceled and
to have been converted, as of the Effective Time, into the right
to receive the Company Common Share Merger Consideration
relating thereto, without interest, in the manner provided in
Section 3.01(c). Persons who have perfected statutory
rights with respect to Dissenting Shares (the
Dissenting Shareholders) as described above
will not be paid as provided in this Agreement and will have
only such rights as are provided by the Dissenters Rights
Provisions with respect to such Dissenting Shares.
(b) The Company shall give Parent prompt (and in any event
within two (2) Business Days of receipt) notice of any
written objections received by the Company indicating an intent
to exercise Dissenters Rights with respect to Company
Common Shares and Parent shall have the right to direct all
negotiations and proceedings with respect to such demands,
subject, prior to the Effective Time, to consultation with the
Company, provided that the Company shall not, prior to the
Effective Time, be obligated by such direction to make a payment
with respect to or settle or offer to settle any such demands
without its consent. The Company shall not, except with the
prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands.
(c) Each Dissenting Shareholder who becomes entitled under
the Dissenters Rights Provisions to payment for Dissenting
Shares shall receive payment therefor after the Effective Time
from the Surviving Entity (but only after the amount thereof
shall have been agreed upon or finally determined pursuant to
the Dissenters Rights Provisions).
(d) No dissenters or appraisal or similar rights
shall be available with respect to the Partnership Merger or any
transaction contemplated hereby other than the REIT Merger.
(a) Paying Agent. Prior to the Effective Time,
Parent shall appoint a bank or trust company reasonably
satisfactory to the Company to act as Paying Agent (the
Paying Agent) for the payment in accordance
with this Agreement of the Company Common Share Merger
Consideration, the Preferred Redemption Amount, the
Partnership Merger Consideration, the Restricted Unit
Consideration, the Option Consideration, the
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Series A Consideration and the Series B Consideration,
as applicable (such cash being referred to as the
Exchange Fund). On or before the Effective
Time, REIT Merger Sub and Partnership Merger Sub shall deposit
the Company Common Share Merger Consideration, the Preferred
Redemption Amount, the Partnership Merger Consideration,
the Restricted Unit Consideration, the Option Consideration, the
Series A Consideration and the Series B Consideration
with the Paying Agent for the benefit of the holders of Company
Common Shares, Company Series A Preferred Shares, Company
Series B Preferred Shares, Existing Units, Restricted Units
and Options, as applicable. Parent shall cause the Paying Agent
to make, and the Paying Agent shall make, payments of the
Company Common Share Merger Consideration, the Preferred
Redemption Amount, the Partnership Merger Consideration,
the Restricted Unit Consideration, the Option Consideration, the
Series A Consideration and the Series B Consideration
out of the Exchange Fund in accordance with this Agreement. The
Exchange Fund shall not be used for any other purpose. Any and
all interest earned on cash deposited in the Exchange Fund shall
be paid to the Surviving Entity.
(b) Share Transfer Books. At the Effective Time, the
share transfer books of the Company and the Operating
Partnership shall be closed and thereafter there shall be no
further registration of transfers of the Company Common Shares,
the Company Series A Preferred Shares, the Company
Series B Preferred Shares, the Restricted Units, the
Existing Units or the Options. From and after the Effective
Time, persons who held Company Common Shares, Company
Series A Preferred Shares, Company Series B Preferred
Shares, Restricted Units, Existing Units or Options immediately
prior to the Effective Time shall cease to have rights with
respect to such shares, except as otherwise provided for herein.
On or after the Effective Time, any Certificates of the Company
presented to the Paying Agent, the Surviving Entity or the
transfer agent for any reason shall be exchanged for the Company
Common Share Merger Consideration, the Preferred
Redemption Amount, the Partnership Merger Consideration,
the Restricted Unit Consideration, the Option Consideration, the
Series A Consideration or the Series B Consideration,
as applicable, with respect to the Company Common Shares, the
Company Series A Preferred Shares, the Company
Series B Preferred Shares, the Existing Units, the
Restricted Units or the Options formerly represented thereby.
(c) Exchange Procedures for Certificates. Promptly
after the Effective Time (but in any event within five
(5) Business Days), the Surviving Entity shall cause the
Paying Agent to mail to each person who immediately prior to the
Effective Time held Company Common Shares, Company Series A
Preferred Shares, Company Series B Preferred Shares,
Restricted Units, Existing Units or Options that were exchanged
for the right to receive the Company Common Share Merger
Consideration, the Preferred Redemption Amount, the
Partnership Merger Consideration, the Restricted Unit
Consideration, the Option Consideration, the Series A
Consideration or the Series B Consideration, as applicable
pursuant to this Agreement: (i) a letter of transmittal
(which shall specify that delivery of Certificates shall be
effected, and risk of loss and title to the Certificates shall
pass to the Paying Agent, only upon delivery of the Certificates
to the Paying Agent, and which letter shall be in such form and
have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
holders Certificates in exchange for the Company Common
Share Merger Consideration, the Preferred
Redemption Amount, the Partnership Merger Consideration,
the Restricted Unit Consideration, the Option Consideration, the
Series A Consideration or the Series B Consideration,
as applicable, to which the holder thereof is entitled. Upon
surrender of a Certificate for cancellation to the Paying Agent
or to such other agent or agents reasonably satisfactory to the
Company as may be appointed by Parent, together with such letter
of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may
reasonably be required by the Paying Agent, the holder of such
Certificate shall receive in exchange therefor the Company
Common Share Merger Consideration, the Preferred
Redemption Amount, the Partnership Merger Consideration,
the Restricted Unit Consideration, the Option Consideration, the
Series A Consideration or the Series B Consideration,
as applicable, payable in respect of the securities previously
represented by such Certificate pursuant to the provisions of
this Agreement, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership
of Company Common Shares, Company Common Shares, Company
Series A Preferred Shares, Company Series B Preferred
Shares, Restricted Units, Existing Units or Options that is not
registered in the transfer records of the Company, payment may
be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any
transfer or other Taxes required by
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reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of
Parent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.05, each
Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive, upon such surrender, the
appropriate form of consideration as contemplated by this
Agreement. No interest shall be paid or accrue on the Merger
Consideration.
(d) No Further Ownership Rights in Company Common
Shares, Company Series A Preferred Shares, Company
Series B Preferred Shares, Units, Options. As of the
Effective Time, holders of Company Common Shares, Company
Series A Preferred Shares, Company Series B Preferred
Shares, Restricted Units, Existing Units and Options shall cease
to be, and shall have no rights as, shareholders of the Company
or partners in the Operating Partnership, other than the right
to receive the Merger Consideration , as applicable, provided
under this Agreement. The Merger Consideration paid in
accordance with this Agreement shall be deemed to have been paid
in full satisfaction of all rights and privileges pertaining to
the Company Common Shares, Company Series A Preferred
Shares, the Company Series B Preferred Shares, the
Restricted Units, the Existing Units or the Options exchanged or
redeemed theretofore and represented by such Certificates.
(e) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of
Company Common Shares for twelve (12) months after the
Effective Time shall be delivered to the Surviving Entity and
any holders of shares of Company Common Shares prior to the REIT
Merger who have not theretofore complied with this
Article III shall thereafter look only to the Surviving
Entity for payment of the Company Common Share Merger
Consideration or Preferred Redemption Amount.
(f) No Liability. None of Parent, REIT Merger Sub,
Partnership Merger Sub, the Surviving Entity, the Company, the
Operating Partnership or the Paying Agent, or any employee,
officer, director, agent or Affiliate thereof, shall be liable
to any person in respect of the Merger Consideration if the
Exchange Fund has been delivered to a public official pursuant
to any applicable abandoned property, escheat or similar Law.
(g) Investment of Exchange Fund. The Paying Agent
shall invest the cash included in the Exchange Fund, as directed
by the Surviving Entity, on a daily basis. Any net profit
resulting from, or interest or income produced by, such
investments, shall be placed in the Exchange Fund. To the extent
that there are losses with respect to such investments, or the
Exchange Fund diminishes for other reasons below the level
required to make prompt payments of the Merger Consideration as
contemplated hereby, Parent shall promptly replace or restore
the portion of the Exchange Fund lost through investments or
other events so as to ensure that the Exchange Fund is, at all
times, maintained at a level sufficient to make such payment.
(h) Lost Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Entity or
the Paying Agent, the posting by such person of a bond in such
amount as the Surviving Entity or the Paying Agent reasonably
may direct, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the appropriate form of
Merger Consideration payable in respect thereof pursuant to this
Agreement.
Section 3.06 Withholding
Rights. The Surviving Entity, Operating
Partnership, Parent or the Paying Agent, as applicable, shall be
entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of
Company Common Shares, Company Series A Preferred Shares,
Company Series B Preferred Shares, Units or Options, as
applicable, such amounts as it is required to deduct and
withhold with respect to the making of such payment under the
Code, and the rules and regulations promulgated thereunder, or
any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Entity, Operating
Partnership, Parent or the Paying Agent, as applicable, such
withheld amounts shall be treated for all purposes of this
Agreement as having been paid to such holder in respect of which
such deduction and withholding was made by the Surviving Entity,
Operating Partnership, Parent or the Paying Agent, as applicable.
Section 3.07 Redemption of
Notes. Upon the request of Parent, the Crescent
Parties shall deliver a notice of redemption calling the
7
1/
8% Notes
due September 15, 2007, to the extent they are then
outstanding, for redemption as of the Effective Time and the
9.25% Senior Notes due April 15, 2009, to the extent
they are still outstanding, for redemption pursuant to their
terms and shall cooperate with Parent in effecting the
satisfaction and
A-16
discharge of such notes and related indentures concurrent with
the Closing; provided, however, that if the
Crescent Parties determine in their discretion that as of the
date any such notices of redemption would be required pursuant
to this Section 3.07 that the Crescent Parties may not as
of the Closing Date have adequate funds to effect the
redemptions (without considering any financing that may be
arranged by Parent but considering the Crescent Parties
cash flow and capital expenditure requirements under their
business plan assuming the Mergers do not close), the Crescent
Parties shall not be required by this Agreement to redeem such
notes concurrent with the Closing but shall instead be required
to cooperate with Parent to effect the defeasance of such notes
concurrent with the Closing.
Section 3.08 Employee Stock
Purchase Plan. The Crescent Parties shall
take all actions necessary to terminate the Crescent Real Estate
Equities Company Employee Stock Purchase Plan, as amended
and/or
modified (the
ESPP) at the end of the current
Offering Period (as such term is defined in the
ESPP), which is scheduled to end on June 30, 2007 (the
ESPP Date). As of the ESPP Date, no new
offering or purchasing periods shall be commenced. In addition,
the Crescent Parties shall take all actions as may be necessary
in order to freeze the rights of the participants in the ESPP,
effective as of the date of this Agreement, to existing
participants and (to the extent possible under the ESPP)
existing participation levels.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
OPERATING PARTNERSHIP
Except as set forth in the Disclosure Letter the Company and the
Operating Partnership hereby jointly and severally represent and
warrant to the Purchaser Parties as follows:
(a) The Company, each of its Subsidiaries, any Primarily
Controlled Company, any Partially Controlled Company other than
the Canyon Ranch Subsidiaries, and to the Knowledge of the
Company, each of the Canyon Ranch Subsidiaries, are duly
organized, validly existing and in good standing under the Laws
of the jurisdiction of its organization and have the requisite
corporate or similar power and authority to own, lease and
operate their properties and to carry on their business as now
being conducted. The Company, each of its Subsidiaries, any
Primarily Controlled Company, any Partially Controlled Company
other than the Canyon Ranch Subsidiaries, and to the Knowledge
of the Company, each of the Canyon Ranch Subsidiaries, are duly
qualified or licensed to do business and in good standing in
each jurisdiction in which the nature of their business or the
ownership or leasing of their properties makes such
qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed and in good standing has not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(b) The Company has made available to the Purchaser Parties
complete and correct copies of the Company Charter and Company
Bylaws and has made available to the Purchaser Parties the
charter and bylaws (or similar organizational documents) of each
of its Subsidiaries, any Primarily Controlled Company and any
Partially Controlled Company other than Canyon Ranch, except as
noted on Item 4.01(b) of the Disclosure Letter. The
Operating Partnership has made available to the Purchaser
Parties complete and correct copies of the Operating Partnership
Agreement. The charter and bylaws (or similar organizational
documents) of the Company, each of its Subsidiaries, any
Primarily Controlled Company, any Partially Controlled Company
other than the Canyon Ranch Subsidiaries, and to the Knowledge
of the Company, the Canyon Ranch Subsidiaries, are in full force
and effect and no dissolution, revocation or forfeiture
proceeding regarding the Company, any of its Subsidiaries, any
Primarily Controlled Company or any Partially Controlled Company
other than the Canyon Ranch Subsidiaries, and to the Knowledge
of the Company, the Canyon Ranch Subsidiaries, shall have been
commenced. None of the Company, its Subsidiaries, any Primarily
Controlled Company or any Partially Controlled Company other
than the Canyon Ranch Subsidiaries, and to the Knowledge of the
Company, none of the Canyon Ranch Subsidiaries, is in violation
of any of the provisions of its charter or bylaws (or similar
organizational documents), except, in each case, for such
violations that would not have a Company Material Adverse Effect.
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(c) The Company has made available to the Purchaser Parties
correct and complete copies of the minute books of the Company
of meetings of the Company Board and committees of the Company
Board held since January 1, 2004, except as set forth on
Item 4.01(c) of the Disclosure Letter.
(a) A correct and complete list of all of the Subsidiaries
of the Company and Related Entities, together with the
jurisdiction of organization of each such entity and the
percentage of the outstanding equity of each such entity owned
by the Company and each Subsidiary of the Company, is set forth
in Item 4.02 of the Disclosure Letter. All of the
outstanding shares of stock of each Subsidiary of the Company,
any Primarily Controlled Company, any Partially Controlled
Company other than the Canyon Ranch Subsidiaries, and to the
Knowledge of the Company, the Canyon Ranch Subsidiaries and any
Additional Company, that is a corporation have been duly
authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Item 4.02 of
the Disclosure Letter, all of the outstanding shares of stock or
equity interests and other ownership interests of each
Subsidiary of the Company and any Related Entity that are owned
by the Company, by one or more Subsidiaries of the Company, by
one or more Primarily Controlled Companies, or by one or more
Partially Controlled Companies, or by any combination thereof,
are owned by such entities free and clear of all Liens. The
Company does not own, directly or indirectly, any stock or other
voting or equity securities or interests (or any interests
convertible into or exchangeable or exercisable for any equity
or similar interests) in any other Person other than the
ownership interests reflected in Item 4.02 of the
Disclosure Letter.
(b) Each Company Subsidiary (as Subsidiary is
defined without giving effect to the last clause of such
definition), is listed on Exhibits F, G, H or I
hereto. Each reference in Exhibits F, G, H and I
hereto providing that one Related Entity is the Subsidiary of
another Related Entity is true and correct. Each
characterization in Exhibits F, G, H and Ihereto of
Unconsolidated Entities is true and correct.
(a) The authorized stock of the Company consists of
250,000,000 shares of Company Common Shares,
100,000,000 shares of preferred stock, $0.01 par value
per share (the Company Preferred Shares), and
350,000,000 excess shares, $0.01 par value per share (the
Excess Shares). At the close of business on
May 18, 2007 (the Capitalization Date),
(i) 128,013,928 shares of Company Common Shares were
issued, 102,893,011 of which were outstanding, all of which were
duly authorized, validly issued, fully paid and nonassessable
and free of preemptive rights, and none of which is subject to
risks of forfeiture granted under the Incentive Plans,
(ii) 14,200,000 shares of Company Series A
Preferred Shares were issued and outstanding,
(iii) 3,400,000 shares of Company Series B
Preferred Shares were issued and outstanding, and (iv) no
Excess Shares were issued and outstanding. As of the date of
this Agreement, except as set forth above and in
Item 4.03(a) of the Disclosure Letter, no shares of
stock of the Company or options, warrants, convertible or
exchangeable securities or other rights to purchase stock of the
Company are issued, reserved for issuance or outstanding. Except
as set forth in Item 4.03(a) of the Disclosure
Letter, there are no outstanding bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the
right to vote) on any matter on which the Companys
shareholders may vote. There are also outstanding 2,406,750
Restricted Units issued under the Incentive Plans that are each
exchangeable for cash equal to the value of two shares of
Company Common Shares (as of May 18, 2007, adjusted for a
200,000 reduction in Restricted Units occurring as of the date
hereof). As of the date of this Agreement, except as set forth
above, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of
any kind to which the Company, any of its Subsidiaries, any
Primarily Controlled Company or any Partially Controlled Company
other than Canyon Ranch, is a party or by which any of them is
bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell or create, or cause to be issued,
delivered or sold or created, additional shares of stock or
other voting or equity securities or interests of the Company,
any of its Subsidiaries, any Primarily Controlled Company, or
any Partially Controlled Company other than Canyon Ranch, or
obligating the Company, any of its Subsidiaries, any Primarily
Controlled Company or any Partially Controlled Company other
than Canyon Ranch, to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking or relating to the voting
of stock or equity securities or interests of the Company, or
any Partially Controlled Company other than Canyon Ranch. As of
the date of this Agreement and as set forth in
Item 4.03(a) of the Disclosure Letter, other than
A-18
pursuant to this Agreement, there are no outstanding contractual
obligations or rights of the Company, any of its Subsidiaries,
any Primarily Controlled Company or any Partially Controlled
Company other than Canyon Ranch, to register or repurchase,
redeem (except for (w) the exchange of Units for Company
Common Shares in accordance with the Operating Partnership
Agreement, (x) the conversion of Company Series A
Preferred Shares in accordance with the Company Charter,
(y) the purchase of the notes, due September 15, 2007
(the
71/8% Notes)
pursuant to that certain related indenture, dated
September 22, 1997, as amended and supplemented, and
(z) the purchase of the notes due April 15, 2009 (the
9.25% Senior Notes) pursuant to that
certain related indenture, dated April 15, 2002, as amended
and supplemented) or otherwise acquire, vote, dispose of or
otherwise transfer or register pursuant to any securities Laws
any shares of stock or equity interests of the Company, any of
its Subsidiaries, any Primarily Controlled Company or any
Partially Controlled Company other than Canyon Ranch.
(b) As of May 18, 2007 (adjusted for a 200,000
reduction in Restricted Units occurring as of the date hereof),
with respect to the Operating Partnership, (1) the
Companys 81.5% limited partner interest in the Partnership
is equivalent to 50,822,861.50 Units, (2) the remaining
17.5% limited partner interest in the Partnership held by
persons other than the Company (the
Unitholders) is equivalent to 10,917,923
Units, (3) the Companys 1% general partner interest
in the Partnership is equivalent to 623,644 Units, (4) the
Company held 14,200,000 Series A Preferred Partnership
Units, and (5) the Company held 3,400,000 Series B
Redeemable Preferred Partnership Units.
(c) There are no agreements or understandings to which the
Company is a party with respect to the voting of any shares of
Company Common Shares and, to the Knowledge of the Company as of
the date of this Agreement, there are no third party agreements
or understandings with respect to the voting of shares of
Company Common Shares.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to
approval by the Companys shareholders of the REIT Merger,
to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the REIT Merger
and the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Company and each applicable Company Subsidiary and Primarily
Controlled Company, subject, solely with respect to the
consummation of the REIT Merger, to receipt of approval of the
REIT Merger by the holders of two-thirds of the outstanding
Common Shares (the Required Shareholder
Vote). This Agreement has been duly executed and
delivered by the Company and (assuming the valid authorization,
execution and delivery of this Agreement by the Purchaser
Parties) constitutes the legal, valid and binding obligation of
the Company enforceable against the Company in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar Laws of general applicability relating to
or affecting creditors rights or by general equity
principles.
(b) The Operating Partnership has all requisite partnership
power and authority to execute and deliver this Agreement and,
subject to approval of the Company in its capacity as limited
partner, to consummate the transactions contemplated hereby,
subject, solely with respect to the consummation of the
Partnership Merger, to the acceptance for record of the
Partnership Merger Certificate by the DSOS.
(c) The Company Board, at a meeting duly called and held
has unanimously (i) approved and declared advisable and in
the best interests of the Company and its shareholders this
Agreement, the Mergers, and the transactions contemplated hereby
and (ii) resolved to recommend approval by the shareholders
of the Company of the REIT Merger, which resolutions, subject to
Section 7.04, have not been subsequently rescinded,
modified or withdrawn in any way. The consent of the
shareholders of the Company by the Required Shareholder Vote,
the consent of the General Partner as general partner of the
Partnership and the consent of the Company as limited partner,
which have been delivered pursuant to the Voting Agreement
subject to Section 7.04 hereof, are the only votes or
consents required of the holders of any class or series of the
Company Common Shares or other securities of or equity interests
in the Company or the Operating Partnership required to approve
this Agreement and to approve and consummate the Mergers.
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Section 4.05 Consents and
Approvals; No Violations. Except (a) for
filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, the
Securities Act, Exchange Act, the HSR Act, the DRULPA, the
DLLCA, the Texas REIT Law and state securities Laws or as
described on
Item 4.05 of the Disclosure Letter and
(b) as may be required in connection with the Taxes
described in Section 7.08, neither the execution, delivery
or performance of this Agreement by the Company and the
Operating Partnership nor the consummation by the Company and
the Operating Partnership of the transactions contemplated
hereby will (i) except as set forth in
Item 4.05 of the Disclosure Letter, conflict with or
result in any breach of any provision of the Company Charter or
Company Bylaws or of the similar organizational documents of any
of its Subsidiaries, or any Related Entity (for the sake of
clarity organizational documents as used in this
sentence shall include any shareholder agreement to which the
Company or any Primarily Controlled Company is a party),
(ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity,
(iii) except as set forth in
Item 4.05 of the
Disclosure Letter, conflict with or result in a breach of, or
constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in a loss of
benefit under, or give rise to a right of purchase, first offer
or forced sale under, any of the terms, conditions or provisions
of any Contract to which the Company, any of its Subsidiaries,
any Primarily Controlled Company, any Partially Controlled
Company other than the Canyon Ranch Subsidiaries, and to the
Knowledge of the Company, the Canyon Ranch Subsidiaries, is a
party or by which any of them or any of their properties or
assets may be bound, (iv) violate any Law, order, writ,
injunction, judgment, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries, any
Primarily Controlled Company, any Partially Controlled Company
other than the Canyon Ranch Subsidiaries, and to the Knowledge
of the Company, the Canyon Ranch Subsidiaries, or any of their
properties or assets, (v) result in the creation of any
Lien on any properties or assets of the Company, any of its
Subsidiaries, any Primarily Controlled Company, any Partially
Controlled Company other than the Canyon Ranch Subsidiaries, and
to the Knowledge of the Company, the Canyon Ranch Subsidiaries,
except for Permitted Liens or (vi) require the Company, any
of its Subsidiaries or any Primarily Controlled Company to make
any payment to any third Person, except in the case of
clause
(ii) where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings
or, in the case of
clauses (iii),
(iv),
(v)
or
(vi), for breaches, defaults, terminations,
amendments, cancellations, accelerations, losses of benefits,
violations, Liens or payments that have not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(a) The Company and the Operating Partnership have filed
with the SEC all forms, reports, statements, schedules,
certifications, exhibits thereto and other documents required to
be filed by them since January 1, 2004 under the Securities
Act or the Exchange Act (collectively, including any amendments
thereto, the SEC Documents). As of their
respective filing dates, the SEC Documents (including any
documents or information incorporated by reference therein)
complied, and all documents filed by the Company and the
Operating Partnership with the SEC under the Securities Act or
the Exchange Act between the date of this Agreement and the date
of Closing will comply, in each case subject to the accuracy of
the representations and warranties set forth in
Sections 4.08 and 5.05, in all material respects
with the requirements of the Securities Act and the Exchange
Act, as the case may be, each as in effect on the date so filed.
At the time filed with the SEC, none of the SEC Documents
(including any documents or information incorporated by
reference therein) contained, or, in the case of documents filed
on or after the date hereof will contain, in each case subject
to the accuracy of the representations and warranties set forth
in Sections 4.08 and 5.05, any untrue statement of a
material fact or omitted, or, in the case of documents filed on
or after the date hereof will omit, in each case subject to the
accuracy of the representations and warranties set forth in
Sections 4.08 and 5.05, to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading, except to the extent such
statements have been modified or superseded by later filings.
Except to the extent disclosed in SEC Documents, the
consolidated financial statements of the Company included in the
SEC Documents (including the related notes and schedules
thereto) complied as of their respective dates in all material
respects with the then applicable accounting requirements and
the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except in
the case of the unaudited statements, as permitted by
Form 10-Q
under the Exchange Act) during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly
present in all material respects the consolidated financial
position of the Company, as the case may be, and
A-20
those of its Subsidiaries, the Primarily Controlled Companies,
the Partially Controlled Companies, and the Additional Companies
that are consolidated, as applicable, as of the dates thereof
and the consolidated results of their operations and their
consolidated cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
(b) The Company has made available to the Purchaser Parties
correct and complete copies of all material written
correspondence between the SEC, on the one hand, and the
Company, any of its Subsidiaries, or any Primarily Controlled
Company, on the other hand, occurring since January 1, 2004
and prior to the date hereof and will promptly following the
receipt thereof, make available to the Purchaser Parties any
such material correspondence sent or received after the date
hereof. To the Knowledge of the Company, none of the SEC
Documents is the subject of ongoing SEC review or outstanding
SEC comment.
(c) None of the Company, its Subsidiaries, any Primarily
Controlled Company, any Partially Controlled Company or any
Additional Company has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would
be required to be reflected, reserved for or disclosed in a
consolidated balance sheet of the Company and those of its
Subsidiaries, the Primarily Controlled Companies, the Partially
Controlled Companies, and the Additional Companies that are
consolidated, including the notes thereto, prepared in
accordance with GAAP except (i) as reflected, reserved for
or disclosed in the consolidated balance sheet of the Company
and such entities as of December 31, 2006, including the
notes thereto, (ii) as incurred since December 31,
2006 in the ordinary course of business consistent with past
practice, (iii) as incurred or to be incurred by the
Company or any such entity pursuant to, in connection with, or
as a result of, the Mergers, the Portfolio Sales, the other
disposition transactions the Company has been engaged in since
December 31, 2006 and the other transactions contemplated
by this Agreement, (iv) as would not, or would not
reasonably be expected to, have a Company Material Adverse
Effect, or (v) as set forth in Item 4.06(c) of
the Disclosure Letter.
(d) The management of the Company has (i) implemented
and maintains disclosure controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act) to ensure that material information
relating to the Company, including those of its Subsidiaries,
the Primarily Controlled Companies, the Partially Controlled
Companies, and the Additional Companies that are consolidated,
is made known to the management of the Company, and
(ii) has disclosed, based on its most recent evaluation, to
the Companys outside auditors and the audit committee of
the Company Board (A) all significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect the Companys ability to record, process, summarize
and report financial data and (B) any fraud or allegation
of fraud whether or not material, that involves management or
other employees who have a significant role in the internal
controls over financial reporting of the Company, or any of its
Subsidiaries or any Primarily Controlled Company.
(e) Except as set forth on Item 4.06(e) of the
Disclosure Letter, the Company has not identified any material
weaknesses in the design or operation of internal controls over
financial reporting. Each SEC Document filed since July 31,
2002, was accompanied by the certification required to be filed
or submitted by the Companys chief executive officer and
chief financial officer pursuant to the Sarbanes-Oxley Act of
2002 (the Sarbanes-Oxley Act) and, at
the time of filing or submission of each such certification,
such certification was true and accurate and complied with the
Sarbanes-Oxley Act except to the extent disclosed on
Item 4.06(e) of the Disclosure Letter. To the
Knowledge of the Company, there is no reason to believe that its
auditors and its chief executive officer and chief financial
officer will not be able to give the certifications and
attestations required pursuant to the rules and regulations
adopted pursuant to Section 404 of the Sarbanes-Oxley Act
when next due.
Section 4.07 Absence of
Material Adverse Effect. Since
December 31, 2006 and prior to the date hereof, and except
(i) for the Portfolio Sales or (ii) as set forth on
Item 4.07 of the Disclosure Letter, the Company, its
Subsidiaries, the Primarily Controlled Companies and the
Partially Controlled Companies have conducted their respective
businesses in all material respects in the ordinary course
consistent with past practice, and, other than in connection
with the Portfolio Sales, there has not been (a) any
effect, event, development, change or circumstance that,
individually or in the aggregate, with all other effects,
events, developments and changes, has resulted or would
reasonably be expected to result in a Company Material Adverse
Effect, (b) except for regular quarterly distributions to
the Companys shareholders with customary record and
payment dates, any declaration, setting
A-21
aside or payment of any dividend or other distribution with
respect to its stock or equity interests or, any redemption,
purchase or other acquisition of any of its stock or equity
interests, (c) any change in accounting methods, principles
or practices used by the Company, its Subsidiaries, the
Primarily Controlled Companies or the Partially Controlled
Companies materially affecting its assets, liabilities or
business, except insofar as may have been required by a change
in GAAP, (d) any material damage, destruction or loss not
covered by insurance to the Owned Real Property, (e) any
amendment of any term of any material outstanding debt or equity
security of the Company, its Subsidiaries, the Primarily
Controlled Companies or the Partially Controlled Companies other
than Canyon Ranch, in each case other than in the ordinary
course of business, (f) any split, combination or
reclassification of any Company Common Shares or Company
Preferred Shares or the stock of any Primarily Controlled
Company or any Partially Controlled Company, or any issuance or
the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for, or giving the
right to acquire by exchange or exercise, shares of stock or any
ownership interest in, the Company, any of its Subsidiaries, any
Primarily Controlled Company or any Partially Controlled
Company, (g) any amendment of any employment, consulting,
severance, incentive stock, stock option, deferred compensation,
bonus, retirement, retention or any other agreement, or the
adoption of any new such agreement, between (i) the Company
or any Company Subsidiary or any Primarily Controlled Company or
any Partially Controlled Company, on the one hand and
(ii) any officer, trustee or director of the Company or any
Company Subsidiary or any Primarily Controlled Company or any
Partially Controlled Company, on the other hand, earning more
than $150,000 per year; other than as required by any
contract, agreement or Benefit Plan, (h) any direct or
indirect acquisition (whether through merger or consolidation
with, the purchase of a substantial equity interest in, the
purchase of a substantial portion of the assets of, or
otherwise) of any business or any corporation, partnership,
association or other business organization or a division thereof
or any significant assets other than in the ordinary course of
business or in an amount not involving more than $1,000,000
individually or $5,000,000 in the aggregate, (i) any
incurrence of indebtedness for borrowed money or guarantee for
such indebtedness, in each case by the Company or any Company
Subsidiary or any Primarily Controlled Company or any Partially
Controlled Company, other than (i) as in the ordinary
course of business, including construction loans and guarantees
on residential developments, and (ii) projects currently
under construction in amounts disclosed on Item 4.07 of the
Disclosure Letter, or (j) any agreement by such entity
involving any of the foregoing since December 31, 2006 and
prior to the date hereof, in each case except as disclosed on
Item 4.07 of the Disclosure Letter.
Section 4.08 Information
Supplied. None of the information supplied or
to be supplied by the Company, its Subsidiaries, the Primarily
Controlled Companies or the Partially Controlled Companies, or
representatives for inclusion or incorporation by reference in
the proxy statement relating to the Shareholders Meeting
(together with any amendments or supplements thereto and
including any related filings required pursuant to the Exchange
Act, the
Proxy Statement) or any other
document to be filed with the SEC in connection herewith,
including, but not limited to, the Partnership Information
Statement (collectively, the
Other Filings)
will, in the case of the Proxy Statement, at the date it is
first mailed to the Companys shareholders or at the time
of the Shareholders Meeting or at the time of any
amendment or supplement thereof, or, in the case of any Other
Filing, at the date it is first mailed to the Companys
shareholders, if applicable, or at the date it is first filed
with the SEC, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading,
except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference
therein based on information about the Purchaser Parties that is
supplied by the Purchaser Parties or any of their
representatives specifically for inclusion or incorporation by
reference therein.
Section 4.09 Compliance with
Laws. The businesses and assets of the
Company, its Subsidiaries, the Primarily Controlled Companies,
the Partially Controlled Companies other than the Canyon Ranch
Subsidiaries, and to the Knowledge of the Company, the Canyon
Ranch Subsidiaries, are not and have not been in violation of or
subject to liability under any Law, order, writ, injunction,
judgment, decree, statute, rule, ordinance or regulation of any
Governmental Entity, except for any violations or liability that
have not had and would not reasonably be expected to have a
Company Material Adverse Effect. Each of the Company, its
Subsidiaries, the Primarily Controlled Companies, the Partially
Controlled Companies other than the Canyon Ranch Subsidiaries,
and to the Knowledge of the Company, the Canyon Ranch
Subsidiaries, has in effect all federal, state, local and
provincial governmental licenses, authorizations, consents,
permits and approvals (collectively,
Permits)
necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and no
violation or
A-22
default has occurred under any such Permit, except for the
absence of Permits and for violations or defaults under Permits
that have not had and would not reasonably be expected to have a
Company Material Adverse Effect.
(a) The Company and each of its Subsidiaries, the Primarily
Controlled Companies, the Partially Controlled Companies other
than the Canyon Ranch Subsidiaries, and to the Knowledge of the
Company, the Canyon Ranch Subsidiaries, has timely filed or
caused to be filed (after taking into account all applicable
extensions) all federal and state returns which are based on
income or profits, and other material Tax Returns required to be
filed by them, and all such Tax Returns are true, correct and
complete in all material respects. True, correct and complete
copies of all federal Tax Returns for the Company and the
Operating Partnership and of the consolidated return of Crescent
TRS Holdings Corp. with respect to the taxable years commencing
on or after January 1, 1994, have been made available to
representatives of Parent.
(b) Each of the Company, its Subsidiaries, the Primarily
Controlled Companies, the Partially Controlled Companies other
than the Canyon Ranch Subsidiaries, and to the Knowledge of the
Company, the Canyon Ranch Subsidiaries, has paid or caused to be
paid or, if not yet due, will timely pay or cause to be paid all
material Taxes required to be paid by them (whether or not shown
as due on any Tax Returns), other than such payments as are
being contested in good faith by appropriate proceedings. The
most recent financial statements contained in the SEC Documents
reflect an adequate reserve (excluding any reserve for deferred
Taxes established to reflect timing differences between book and
Tax income) for all material Taxes payable by the Company and
its Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements.
(c) The Company, (i) for all taxable years commencing
with the Companys taxable year ended December 31,
1994 through December 31, 2006, has qualified and been
subject to taxation as a REIT and (ii) has operated from
December 31, 2006 to the date of this Agreement, and
intends to continue to operate until the Effective Time, in such
a manner as would permit it to continue to qualify as a REIT,
for the period beginning January 1, 2007 through the
Effective Time. The Company has no Subsidiary or Related Entity
that is a REIT other than AmeriCold. To the Knowledge of the
Company, AmeriCold (i) for all taxable years commencing
with the taxable year ended December 31, 1999 through
December 31, 2006, has qualified and been subject to
taxation as a REIT and (ii) has operated from
December 31, 2006 to the date of this Agreement, and
intends to continue to operate until the Effective Time, in such
a manner as would permit it to continue to qualify as a REIT,
for the period beginning January 1, 2007 through the
Effective Time. To the Companys Knowledge, no challenge to
the Companys or AmeriColds status as a REIT is
pending or threatened. Each Subsidiary of the Company or Related
Entity that is a corporation for federal income tax purposes is
a qualified REIT subsidiary pursuant to
Section 856(i) of the Code or a taxable REIT
subsidiary pursuant to Section 856(l) of the Code.
Neither the Company nor any of its Subsidiaries holds any assets
the disposition of which would be subject to rules similar to
Section 1374 of the Code as a result of (A) an
election under IRS Notice
88-19 or
Treasury Regulations
Section 1.337(d)-5
or
Section 1.337(d)-6
or (B) the application of Treasury Regulations
Section 1.337(d)-7.
(d) No requests for waivers of the time to assess any Taxes
of the Company, its Subsidiaries, the Primarily Controlled
Companies, the Partially Controlled Companies other than the
Canyon Ranch Subsidiaries, or to the Knowledge of the Company,
the Canyon Ranch Subsidiaries are pending.
(e) Except as set forth on Item 4.10(e) of the
Disclosure Letter, there have not been and are no pending
audits, examinations, investigations or other proceedings in
respect of material Taxes of the Company or the Operating
Partnership and, since January 1, 2003, to the Knowledge of
the Company, there have not been and are no pending audits,
examinations, investigations or other proceedings in respect of
material Taxes of any of the Companys Subsidiaries (other
than the Operating Partnership), the Primarily Controlled
Companies, the Partially Controlled Companies other than the
Canyon Ranch Subsidiaries, or to the Knowledge of the Company,
the Canyon Ranch Subsidiaries.
(f) There are no Liens for a material amount of Taxes
(other than Permitted Liens) upon any of the assets of the
Company, any Subsidiary of the Company, the Primarily Controlled
Companies, the Partially Controlled Companies other than the
Canyon Ranch Subsidiaries, or to the Knowledge of the Company,
the Canyon Ranch Subsidiaries.
A-23
(g) No claim has been made in writing by a taxing authority
in a jurisdiction where the Company, any Subsidiary of the
Company, the Primarily Controlled Companies, the Partially
Controlled Companies other than the Canyon Ranch Subsidiaries,
or to the Knowledge of the Company, the Canyon Ranch
Subsidiaries does not file Tax Returns that the Company or any
such entity is or may be subject to taxation by that
jurisdiction.
(h) Except as set forth on Item 4.10(h) of the
Disclosure Letter, neither the Company nor Operating Partnership
has requested a private letter ruling from the IRS or comparable
rulings from other taxing authorities and, since January 1,
2003, no Subsidiary of the Company (other than the Operating
Partnership), the Primarily Controlled Companies, the Partially
Controlled Companies other than the Canyon Ranch Subsidiaries,
or to the Knowledge of the Company, the Canyon Ranch
Subsidiaries has requested a private letter ruling from the IRS
or comparable rulings from other taxing authorities. No Tax
Returns have been filed that are inconsistent with any private
letter rulings received by the Company or any of its
Subsidiaries.
(i) Neither the Company nor any Subsidiary of the Company
nor the Primarily Controlled Companies, the Partially Controlled
Companies other than the Canyon Ranch Subsidiaries, nor to the
Knowledge of the Company, the Canyon Ranch Subsidiaries, is a
party to any understanding or arrangement described in Treasury
Regulations
Section 1.6011-4(b).
(j) Neither the Company nor the Operating Partnership has
entered into any closing agreement as described in
Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) and, since
January 1, 2003, no Subsidiary of the Company (other than
the Operating Partnership) has entered into any closing
agreement as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or
foreign income Tax law).
(k) The Company expects that the Companys dividends
paid deduction for the taxable year ending on the Closing Date
will equal or exceed the sum of (i) the amount determined
under Code Section 857(a)(1), but computed with the
modifications described in the next sentence, and (ii) the
Companys net capital gain for such taxable year. The
amount described under clause (i) shall be computed by
substituting 100% for 90% in each place
it appears in Code Section 857(a)(1).
(l) With respect to any taxable years that are open for
examination by taxing authorities, neither the Company nor any
of its Subsidiaries nor the Primarily Controlled Companies, the
Partially Controlled Companies other than the Canyon Ranch
Subsidiaries, nor to the Knowledge of the Company, the Canyon
Ranch Subsidiaries, (i) has incurred any material liability
for Taxes under Sections 857(b), 857(f), 860(c) or 4981 of
the Code which have not been previously paid, or (ii) has
engaged in any transaction that would give rise to
redetermined rents, redetermined deductions and excess
interest described in Section 857(b)(7) of the Code.
(m) For any taxable years that are open for examination by
taxing authorities, neither the Company nor any Subsidiary of
the Company nor the Primarily Controlled Companies, the
Partially Controlled Companies other than the Canyon Ranch
Subsidiaries, nor to the Knowledge of the Company, the Canyon
Ranch Subsidiaries, (other than a taxable REIT
subsidiary or a subsidiary of a taxable REIT
subsidiary) has engaged in any prohibited
transactions within the meaning of Section 857(b)(6)
of the Code.
(n) The Company, its Subsidiaries, the Primarily Controlled
Companies, the Partially Controlled Companies other than the
Canyon Ranch Subsidiaries, and to the Knowledge of the Company,
the Canyon Ranch Subsidiaries, have complied, in all material
respects, with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to
Sections 1441, 1442, 1445, 1446, 3121 and 3402 of the Code)
and have duly and timely withheld and have paid over to the
appropriate taxing authorities all material amounts required to
be so withheld and paid over on or prior to the due date thereof
under all applicable laws.
(o) Neither the Company nor any of its Subsidiaries nor the
Primarily Controlled Companies, the Partially Controlled
Companies other than the Canyon Ranch Subsidiaries, nor to the
Knowledge of the Company, the Canyon Ranch Subsidiaries, has
entered into or is subject, directly or indirectly, to any Tax
Protection Agreements that have not expired and no person has
raised, or has threatened to raise, in writing a material claim
against the Company or any Company Subsidiary for any breach of
any Tax Protection Agreement. As used herein, a Tax
Protection Agreement is a written agreement,
(A) that, as one of its purposes, permits a person or
entity to take the
A-24
position that such person or entity could defer federal taxable
income that otherwise might have been recognized, and
(B) that (i) prohibits or restricts in any manner the
disposition of any assets of the Company or any Subsidiary, the
Primarily Controlled Companies, the Partially Controlled
Companies other than the Canyon Ranch Subsidiaries, or to the
Knowledge of the Company, the Canyon Ranch Subsidiaries,
(ii) requires that the Company or any Subsidiary maintain,
or put in place, or replace indebtedness, whether or not secured
by one or more of the assets owned by the Company or any
Subsidiary, (iii) requires that the Company or any Company
Subsidiary offer to any Person at any time the opportunity to
guarantee or otherwise assume, directly or indirectly, the risk
of loss for federal income tax purposes for indebtedness or
other liabilities of the Company or any Company Subsidiary, or
(iv) requires that the Company or any Company Subsidiary
make or refrain from making any Tax election.
(p) Neither the Company nor any of its Subsidiaries nor the
Primarily Controlled Companies, the Partially Controlled
Companies other than the Canyon Ranch Subsidiaries, nor to the
Knowledge of the Company, the Canyon Ranch Subsidiaries, has any
liability for the material Taxes of another person other than
the Company and its Subsidiaries under Treasury Regulations
Section 1.1502-1.1502§66 (or any similar provision of
state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(q) The Companys aggregate tax basis in its assets as
determined for U.S. federal income tax purposes is and will
be immediately before the Closing Date, in excess of the
Companys aggregate liabilities as determined for
U.S. federal income tax purposes, including the
Companys allocable share of liabilities of any entities in
which it owns an equity interest where that entity is treated as
other than a corporation for U.S. federal income tax
purposes, as such allocable shares are determined for
U.S. federal income tax purposes.
(r) Except as set forth on Item 4.10(r) of the
Disclosure Letter, there are no outstanding agreements, waivers,
or arrangements extending the statutory period of limitations
applicable to any claim for or the period for the collection or
assessment of Taxes due and payable by the Company or any
Subsidiary of the Company, the Primarily Controlled Companies,
the Partially Controlled Companies other than the Canyon Ranch
Subsidiaries, or to the Knowledge of the Company, the Canyon
Ranch Subsidiaries, for any taxable period.
(s) Except as set forth on Item 4.10(s) of the
Disclosure Letter, no power of attorney that is currently in
force has been granted by the Company or any Company Subsidiary,
the Primarily Controlled Companies, the Partially Controlled
Companies other than the Canyon Ranch Subsidiaries, or to the
Knowledge of the Company, the Canyon Ranch Subsidiaries, with
respect to any matter relating to Taxes that could affect the
Company or any Subsidiary of the Company.
(t) Except as set forth on Item 4.10(t) of the
Disclosure Letter, none of the Company, the Operating
Partnership, the General Partner or any of the Unitholders is a
foreign person within the meaning of Section 1445(b)(2) of
the Code.
(u) The liability for income Taxes of the Company and its
Subsidiaries in connection with the Walton Portfolio Sale and
the sale of C-C Parkway Austin, L.P. will not exceed the amounts
shown on Item 4.10(u) of the Disclosure Letter.
(v) Except as set forth on Item 4.10(v) of the
Disclosure Letter, neither the Company nor any Company
Subsidiary nor the Primarily Controlled Companies, the Partially
Controlled Companies other than the Canyon Ranch Subsidiaries,
nor to the Knowledge of the Company, the Canyon Ranch
Subsidiaries, is obligated to make any payment that would not be
deductible pursuant to Section 162(m) of the Code.
(w) The Operating Partnership is treated as a partnership
for federal income tax purposes and not as a publicly
traded partnership within the meaning of Section 7704
of the Code and no election has been made with respect to the OP
under Treasury
Regulation Section 301.7701-3.
(x) The Company does not own, directly or indirectly
through entities other than entities treated as
U.S. corporations for U.S. federal income tax purposes
(i.e., without an entity treated as a U.S. corporation in
the chain of ownership), any equity interest in a company,
trust, partnership, or other entity formed under the laws of a
country or jurisdiction outside the United States.
A-25
(y) With respect to the Companys taxable year which
ends on the Closing Date, the Company will satisfy the gross
income tests specified in Sections 856(c)(2) and
(3) of the Code for such taxable year, taking into account
for this purpose the gains arising from the REIT Merger.
(z) Except as set forth on Item 4.10(z) of the
Disclosure Letter, for taxable years that are open for
examination by taxing authorities, neither the Company nor any
Subsidiary of the Company is a party to any agreement, contract,
arrangement or plan that has resulted or would result,
separately or in the aggregate, in connection with this
Agreement or any change in control, in the payment of any amount
that would not be deductible by the entity paying such amount by
operation of Section 280G of the Code.
(a) Item 4.11(a) of the Disclosure Letter lists
all Benefit Plans. With respect to each Benefit Plan, the
Company has made available to the Purchaser Parties a true and
correct copy of (i) each such Benefit Plan that has been
reduced to writing and all amendments thereto and a summary of
any unwritten Benefit Plan; (ii) each trust, insurance or
administrative agreement or insurance policy or other funding
medium relating to each such Benefit Plan; (iii) the most
recent written explanation of each Benefit Plan provided to
participants, and, if applicable, the most recent summary plan
description provided to participants; (iv) if applicable,
the three most recent annual reports (Form 5500) filed
with the IRS, including all financial statements, schedules and
accountants opinions; (v) the most recent
determination letter
and/or
application thereof, if any, issued by the IRS with respect to
any Benefit Plan intended to be qualified under
Section 401(a) of the Code, and (vi) all
correspondence to and from any state or federal agency within
the last six years with respect to any Benefit Plan. Except as
required or deemed advisable by law, neither the Company nor any
of its Subsidiaries has adopted or amended in any material
respect any Benefit Plan since December 31, 2006 and copies
of any such amendments or Benefit Plans have been provided to
Parent.
(b) Except as would not reasonably be expected to have a
Company Material Adverse Effect, (i) each Benefit Plan has
been maintained in material compliance with its terms and, both
as to form and in operation, with the requirements of applicable
law and (ii) all employer or employee contributions,
premiums and expenses to or in respect of each Benefit Plan have
been paid in full or, to the extent not yet due, have been
adequately accrued on the applicable financial statements of the
Crescent Parties included in the SEC Documents in accordance
with GAAP. Each asset held under any such Benefit Plan may be
liquidated or terminated without the imposition of any
redemption fee, surrender charge or comparable liability.
Neither the Company nor any of its Subsidiaries or ERISA
Affiliates have at any time during the six-year period preceding
the date hereof maintained, contributed to or incurred any
liability under any multiemployer plan (as defined
in Section 3(37) of ERISA) or any ERISA Benefit Plan that
is subject to Title IV of ERISA or Section 412 of the
Code.
(c) As of the date of this Agreement there are no pending
or, to the Knowledge of the Company, threatened disputes,
arbitrations, claims, suits, governmental administrative
proceedings or investigations or grievances involving a Benefit
Plan (other than routine claims for benefits payable under any
such Benefit Plan) that would reasonably be expected to have a
Company Material Adverse Effect.
(d) All Benefit Plans that are intended by their terms to
be qualified under Section 401(a) of the Code have been
determined by the IRS to be so qualified, or a timely
application for such determination is now pending and, except as
would not reasonably be expected to have a Company Material
Adverse Effect, the Company has no Knowledge of any reason why
any such Benefit Plan is not so qualified in operation. Neither
the Company nor any of its Subsidiaries or ERISA Affiliates have
any liability or obligation under any welfare plan or agreement
to provide benefits after termination of employment or service
to any employee, director, consultant or dependent other than as
required by Section 4980B of the Code. Each Benefit Plan
may be amended, terminated, or otherwise modified by the Company
to the greatest extent permitted by applicable Law, including
the elimination of any and all future benefit accruals and no
employee communications or provision of any relevant document
has failed to effectively reserve the right of the Company to so
amend, terminate or otherwise modify such Benefit Plan.
(e) Except as set forth on Item 4.11(e) of the
Disclosure Letter, neither the execution and delivery of this
Agreement by the Crescent Parties nor the consummation of the
transactions contemplated hereby will or may (either alone or in
connection with the occurrence of any additional or subsequent
events) (i) result in the
A-26
acceleration or creation of any rights of any Person to
compensation or benefits under any Benefit Plan or other
compensatory arrangement, or loan forgiveness, (ii) or
result in an obligation to fund benefits with respect to any
Benefit Plan or other compensatory arrangement, including any
amounts that are not deductible on account of Section 280G
of the Code; or (iii) constitute an event under any Benefit
Plan or other arrangement that will or may result in any payment
of deferred compensation subject to Section 409A of the
Code. None of the Company, any Company Subsidiary or any
Primarily Controlled Company has any obligation to pay or
otherwise reimburse any Person for any tax imposed under
Section 4999 of the Code.
(f) Each Benefit Plan that is a nonqualified deferred
compensation plan (as defined in Section 409A of the
Code) has been operating since January 1, 2005 in good
faith compliance with Section 409A of the Code and the IRS
guidance promulgated thereunder. Except as described on
Item 4.11(f) of the Disclosure Letter, no stock
option to acquire shares of the Company Common Shares granted
under any Benefit Plan has (i) to the Knowledge of the
Company, an exercise price that is less than the fair market
value of the Company Common Shares as of the date such stock
option was granted or (ii) any feature for the deferral of
income other than the deferral of recognition of income until
the exercise of such option.
(g) Neither the Company, any Company Subsidiary, an ERISA
Affiliate or to the Knowledge of the Company any person
appointed or otherwise designated to act on behalf of the
Company, or an ERISA Affiliate, any ERISA Benefit Plan nor any
other disqualified person or party in
interest (as defined in Section 4975(e)(2) of the
Code and Section 3(14) of ERISA, respectively) has engaged
in any transactions, individually or in the aggregate, in
connection with any ERISA Benefit Plan that is reasonably
expected to result in the imposition of a material penalty
pursuant to Section 502(i) of ERISA, material damages
pursuant to Section 409 of ERISA or a material tax pursuant
to Section 4975(a) of the Code.
(h) To the Knowledge of the Company, no event has occurred
and no condition exists with respect to any Benefit Plan that
would subject the Company, any ERISA Affiliate or any Company
Subsidiary to any material Tax, fine, lien, penalty or other
liability imposed by ERISA, the Code or other applicable Laws.
(i) To the Knowledge of the Company, each individual who
renders services to the Company, ERISA Affiliate or any Company
Subsidiary who is classified by the Company, any ERISA Affiliate
or any Company Subsidiary, as applicable, as having the status
of an independent contractor or other non-employee status for
any purpose (including for purposes of taxation and tax
reporting and under the Benefit Plans) is properly so
characterized.
(j) Set forth in Item 4.11(j) of the Disclosure
Letter are all employment, severance and termination plans and
agreements (including
change-in-control
provisions) of employees, officers, directors or trust managers
of the Company, its Subsidiaries, and the Primarily Controlled
Companies payable upon their terms upon or following the
consummation of the Mergers, copies of which have been provided
to the Purchaser Parties, and all amounts payable under any such
arrangement are also set forth on Item 4.11(j) of
the Disclosure Letter on an
individual-by-individual
basis.
Section 4.12 Litigation. As
of the date hereof, except as set forth in
Item 4.12
of the Disclosure Letter, there is no outstanding judgment,
order, writ, injunction or decree and no suit, claim, audit,
action, proceeding, arbitration or investigation pending or, to
the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries or any Primarily Controlled Company or
any Partially Controlled Company that could reasonably be
expected to have a Company Material Adverse Effect or that seeks
to materially delay or prevent the consummation of the
transactions contemplated hereby. Except as set forth in
Item 4.12 of the Disclosure Letter, none of the
Company or any of its Subsidiaries or any Primarily Controlled
Company or any Partially Controlled Company is subject to any
order, judgment, writ, injunction or decree, except as would not
give a Company Material Adverse Effect.
Section 4.13 State Takeover
Statutes. The Crescent Parties have taken all
action required to be taken by them in order to exempt this
Agreement, the Mergers and the other transactions contemplated
hereby from, and this Agreement, the Mergers and the other
transactions contemplated hereby are exempt from, the
requirements of any fair price,
moratorium, control share acquisition or
other similar antitakeover statute or regulation enacted under
state or federal Laws in the United States of America, including
the Texas REIT Law, or any takeover provision in the Company
Charter, Company Bylaws or in the comparable organizational
documents of any
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Company Subsidiary or Related Entity that would otherwise
prohibit, hinder or delay such transactions, except as set forth
in Item 4.13 of the Disclosure Letter.
Section 4.14 Intellectual
Property. Item 4.14 of the
Disclosure Letter contains a complete and accurate list of all
trademarks and patents owned or purported to be owned by the
Company
and/or used
in the conduct of the business of the Company. The Company, its
Subsidiaries, the Primarily Controlled Companies,
CR Operating, LLC and CR Spa, LLC, and, to the
Companys Knowledge, CR License, LLC and Canyon Ranch,
Inc. exclusively own, or are validly licensed or otherwise have
the right to use, in each case without payment to a third party
and free and clear of all Liens, except for Permitted Liens, all
Intellectual Property purported to be owned by the Company
and/or used
in the conduct of the business of the Company, its Subsidiaries,
the Primarily Controlled Companies, CR Operating, LLC and
CR Spa, LLC, and, to the Companys Knowledge,
CR License, LLC and Canyon Ranch, Inc. as currently
conducted, except for such Intellectual Property where the
failure to so own, be validly licensed or have the right to use
would not reasonably be expected to have a Company Material
Adverse Effect (the
Crescent Intellectual
Property). Except as would not reasonably be expected
to have a Company Material Adverse Effect, all registrations and
applications filed by the Company or its Subsidiaries with
respect to Intellectual Property owned or purported to be owned
by the Company, any Company Subsidiary, any Primarily Controlled
Company, CR Operating, LLC and CR Spa, LLC, and, to
the Companys Knowledge, CR License, LLC and Canyon
Ranch, Inc. have been duly maintained (including payment of
maintenance fees) and are valid, enforceable, subsisting and
unexpired. No claims are pending or, to the Knowledge of the
Company, threatened, (a) challenging the ownership,
enforceability, validity, or use by the Company, any Company
Subsidiary, any Primarily Controlled Company, CR Operating,
LLC and CR Spa, LLC, and, to the Companys Knowledge,
CR License, LLC and Canyon Ranch, Inc. of any Crescent
Intellectual Property, or (b) alleging that the Company or
any of its Subsidiaries, any Primarily Controlled Company,
CR Operating, LLC and CR Spa, LLC, and, to the
Companys Knowledge, CR License, LLC and Canyon Ranch,
Inc. is violating, misappropriating or infringing or otherwise
adversely affecting the rights of any Person with regard to any
Crescent Intellectual Property, other than claims that would not
reasonably be expected to have a Company Material Adverse
Effect. Except as would not reasonably be expected to have a
Company Material Adverse Effect and except as set forth on
Item 4.14 of the Disclosure Letter, (i) to the
Knowledge of the Company, no Person is violating,
misappropriating or infringing the rights of the Company or any
of its Subsidiaries, any Primarily Controlled Company,
CR Operating, LLC, CR Spa, LLC, CR License, LLC
and Canyon Ranch, Inc. with respect to any Crescent Intellectual
Property and (ii) the operation of the business of the
Company and its Subsidiaries and the Primarily Controlled
Companies as currently conducted does not violate,
misappropriate or infringe (or in the past violated,
misappropriated or infringed) the Intellectual Property of any
other Person, other than the rights of any other Person under
any Patent, and to the Knowledge of the Company, the operation
of the business of the Company and its Subsidiaries, the
Primarily Controlled Companies, CR Operating, LLC and
CR Spa, LLC as currently conducted does not violate,
misappropriate or infringe (or in the past violated,
misappropriated or infringed) the Intellectual Property of any
other Person under any Patent. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and
value of all Trade Secrets owned by the Company
and/or used
in the conduct of the business of the Company.
(a) Item 4.15(a) of the Disclosure Letter sets
forth a correct and complete list and address of all the Owned
Real Properties owned or held by the Company and its
Subsidiaries, the Primarily Controlled Companies and the
Partially Controlled Companies as of the date of this Agreement,
and such Owned Real Properties are owned or held as indicated
thereon. Except for Permitted Liens or as set forth on
Item 4.15(a) of the Disclosure Letter, no other
Person has any ownership interest in any of the Owned Real
Properties.
(b) Item 4.15(b) of the Disclosure Letter sets
forth a correct and complete list as of the date of the
Agreement of all the Leased Real Property (other than the Ground
Leases) leased by a Company Subsidiary or Primarily Controlled
Company, the Subsidiary of the Company or the Primarily
Controlled Company holding the leasehold interest, the date of
the lease and each material amendment, guaranty or other
agreement relating thereto (collectively, the Lease
Documents). Correct and complete copies of all Lease
Documents have been made available to the Purchaser Parties.
Each of the Lease Documents is valid, binding and in full force
and effect as against the Company or its applicable Subsidiary
or the applicable Primarily Controlled Company and, to the
Companys Knowledge, as against the other party thereto. As
of the date hereof, none of the Company, its
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Subsidiaries, the Primarily Controlled Companies or, to the
Companys Knowledge, other party is in breach or violation
of, or default (in each case, with or without notice or lapse of
time or both) under, any of the Lease Documents and none of the
Company or any of its Subsidiaries or any Primarily Controlled
Company has received or given any notice of default under any
such agreement which remains uncured, except to the extent such
breach, violation or notice is not reasonably expected to have a
Company Material Adverse Effect.
(c) Except as set forth therein, Item 4.15(c)
of the Disclosure Letter sets forth a correct and complete list
as of the date of this Agreement of each ground lease with a
third party pursuant to which the Company, any of its
Subsidiaries, any Primarily Controlled Company, or any Partially
Controlled Company other than Canyon Ranch is a lessee
(individually, a Ground Lease and
collectively, Ground Leases). As of the date
of this Agreement, none of the Company, any of its Subsidiaries,
any Primarily Controlled Company, or any Partially Controlled
Company other than Canyon Ranch has received a written notice
that it is in default under any Ground Lease which remains
uncured. The Company has made available to the Purchaser Parties
correct and complete copies of each Ground Lease and all
amendments or other modifications thereto. Except as would not
reasonably be expected to have a Company Material Adverse
Effect, (i) none of the Company, any of its Subsidiaries,
any Primarily Controlled Company, or any Partially Controlled
Company other than Canyon Ranch is, and, to the Knowledge of the
Company, no other party is, in breach or violation of, or
default under, any Ground Lease, (ii) no event has occurred
which would result in a breach or violation of, or a default
under, any Ground Lease by the Company or any of its
Subsidiaries, any Primarily Controlled Company, or any Partially
Controlled Company other than Canyon Ranch or, to the Knowledge
of the Company, any other party thereto (in each case, with or
without notice or lapse of time or both) and (iii) each
Ground Lease is valid, binding and enforceable in accordance
with its terms and is in full force and effect with respect to
the Company or its Subsidiaries, any Primarily Controlled
Company, or any Partially Controlled Company other than Canyon
Ranch and with respect to the other parties thereto, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting
creditors rights or by general equity principles.
(d) Item 4.15(d)(i) of the Disclosure Letter
sets forth a correct and complete list as of the date of this
Agreement of all loans held by the Company, its Subsidiaries,
the Primarily Controlled Companies and the Partially Controlled
Companies that are consolidated as lender. Correct and complete
copies of all promissory notes, loan agreements, mortgages,
deeds of trust, security agreements and other loan documents
(collectively, the Loan Documents) evidencing
and securing such loans have been made available to the
Purchaser Parties. Each of the Loan Documents is valid, binding
and in full force and effect as against the Company or its
applicable Subsidiary, applicable Primarily Controlled Company,
or applicable Partially Controlled Company and, to the
Companys Knowledge, as against the other parties thereto.
Except as set forth in Item 4.15(d)(ii) of the
Disclosure Letter, as of the date hereof, neither the Company
nor any of its Subsidiaries or, to the Companys Knowledge,
other party is in breach or violation of, or default (in each
case, with or without notice or lapse of time or both) under,
any of the Loan Documents and none of the Company, any of its
Subsidiaries, any Primarily Controlled Company or any Partially
Controlled Company that is consolidated has received or given
any notice of default under any such agreement which remains
uncured.
(e) The Company, one of its Subsidiaries, a Primarily
Controlled Company, a Partially Controlled Company that is
consolidated, or to the Knowledge of the Company, a Partially
Controlled Company that is nonconsolidated, has good fee simple
marketable title to all Owned Real Property and valid leasehold
estates in all Leased Real Property, and except for Permitted
Liens, such properties are free and clear of all Liens, title
defects, covenants or reservations of interests in title. Except
as set forth in Item 4.15(e) of the Disclosure
Letter or as would not reasonably be expected to have a Company
Material Adverse Effect, there are no pending or, to the
Knowledge of the Company, threatened condemnation, eminent
domain or similar proceedings or actions affecting any portion
of the Company Properties, and none of the Company, any of its
Subsidiaries, any Primarily Controlled Company, any Partially
Controlled Company that is consolidated, or to the Knowledge of
the Company, a Partially Controlled Company that is
nonconsolidated, have received any written notice of the
intention of any Governmental Entity or other Person to take or
use any of the Company Properties. Notwithstanding the
foregoing, the representations contained in this
clause (e), to the extent they relate to Company Properties
of a Partially Controlled Company that is nonconsolidated, are
made to the Knowledge of the Company.
A-29
(f) Company title insurance policies have been issued
insuring, as of the effective date of each such Company title
insurance policy, the Companys, the applicable Company
Subsidiarys, the applicable Primarily Controlled
Companys, the applicable Partially Controlled
Companys that is consolidated, or to the Knowledge of the
Company, the applicable Partially Controlled Companys that
is nonconsolidated (or the applicable predecessors or
acquirers) fee simple or leasehold title to the Company
Properties, subject only to Permitted Liens, and such policies
are, at the date hereof, valid and in full force and effect and
no material written claim has been made against any such policy.
A true, accurate, and complete copy of each Company title
insurance policy and each existing survey in the possession of
the Company, its Subsidiaries, and the Primarily Controlled
Companies has been made available to the Purchaser Parties.
Notwithstanding the foregoing, the representations contained in
this clause (f), to the extent they relate to Company
Properties of a Partially Controlled Company that is
nonconsolidated, are made to the Knowledge of the Company
(g) Except as set forth in Item 4.15(g) of the
Disclosure Letter, since January 1, 2005, none of the
Company, any of its Subsidiaries, any Primarily Controlled
Company, any Partially Controlled Company that is consolidated,
or to the Knowledge of the Company, any Partially Controlled
Company that is nonconsolidated, has received any written notice
to the effect that (i) any rezoning proceedings adversely
affecting the current use of any of the Company Properties are
pending or, to the Knowledge of the Company, threatened with
respect to any of the Company Properties, or (ii) any laws
including any zoning regulation or ordinance (including with
respect to parking), board of fire underwriters rules, building
or similar law, code, ordinance, order or regulation have been
violated for any Company Property, or will be violated by the
continued maintenance, operation or use of any buildings or
other improvements on any of the Company Properties, that, in
the case of clauses (i) and (ii) above, would
reasonably be expected to have a Company Material Adverse
Effect. Notwithstanding the foregoing, the representations
contained in this clause (g), to the extent they relate to
Company Properties of a Partially Controlled Company that is
nonconsolidated, are made to the Knowledge of the Company.
(h) Except as disclosed in Item 4.15(h) of the
Disclosure Letter, there are no unexpired option agreements or
rights of first offer or first refusal or first negotiation with
respect to the purchase of a Company Property or any portion
thereof or any other unexpired rights in favor of any party
other than the Company or any of its Subsidiaries, any Primarily
Controlled Company, or to the Knowledge of the Company, any
Partially Controlled Company, to purchase or otherwise acquire a
Company Property or any portion thereof and none of the Company,
any Company Subsidiary, any Primarily Controlled Company, or to
the Knowledge of the Company, any Partially Controlled Company,
has entered into any contract for sale, ground lease or letter
of intent to sell or ground lease any Company Property or any
portion thereof that is owned by the Company, its Subsidiaries,
any Primarily Controlled Company, or to the Knowledge of the
Company, any Partially Controlled Company, other than in the
ordinary course of the Resort Residential Business with respect
to residential lots, condominium units and land and retail
projects. Notwithstanding the foregoing, the representations
contained in this clause (h), to the extent they relate to
Company Properties of a Partially Controlled Company that is
nonconsolidated, are made to the Knowledge of the Company.
(i) Item 4.15(i) of the Disclosure Letter lists
each franchise, license or other similar agreement providing the
right to utilize a brand name or other rights of a hotel chain
or system at any Company Property (and any agreements to enter
into any such agreements) and sets forth the Company or any of
its Subsidiary or any Primarily Controlled Company party to such
agreement, the date of such agreement and each amendment,
guaranty, or other agreement binding on the Company or any of
its Subsidiary or any Primarily Controlled Company and relating
thereto (collectively, the Third Party Franchise
Agreements). True, correct and complete copies of each
Third Party Franchise Agreement, including so-called property
improvement plans required to be completed by the franchisor or
any property improvement plans proposed by the franchisor, have
been made available to the Purchaser Parties. Each Third Party
Franchise Agreement is valid, binding and in full force and
effect as against the Company or any of its applicable
Subsidiaries or the applicable Primarily Controlled Companies,
and as against the other party thereto. Neither the Company nor
any of its Subsidiaries nor any Primarily Controlled Company is
liable for any termination, cancellation or other similar fees
or any liquidated damages under any franchise, license or
similar agreements providing the right to utilize a brand name
or other rights of a hotel chain or system in connection with or
relating to any hotel previously owned or leased by the Company
or any of its Subsidiaries or any Primarily Controlled Company.
Notwithstanding the foregoing, the representations contained in
this clause (i), to the extent they relate to Company
Properties, do not apply to Company Properties of Partially
Controlled Companies.
A-30
(j) Item 4.15(j) of the Disclosure Letter lists
each management agreement pursuant to which any third party
manages or operates any Company Property or material portion
thereof on behalf of the Company or any of its Subsidiaries or
any Primarily Controlled Company (other than parking management
agreements that are terminable with 30 days notice), and
describes the property that is subject to such management
agreement, the Company or its Subsidiary that is a party, the
date of such management agreement and each material amendment,
guaranty or other agreement binding on the Company or any of its
Subsidiaries or any Primarily Controlled Company and relating
thereto (collectively, the Management Agreement
Documents). True, correct and complete copies of all
Management Agreement Documents have been made available to the
Purchaser Parties. Each of the Management Agreement Documents is
valid, binding and in full force and effect as against the
Company or its applicable Subsidiary or the applicable Primarily
Controlled Company and, to the Companys Knowledge, as
against the other party thereto. Notwithstanding the foregoing,
the representations contained in this clause (j), to the
extent they relate to Company Properties, do not apply to
Company Properties of Partially Controlled Companies.
(k) Except as set forth on Item 4.15(k) of the
Disclosure Letter, there are no latent or structural defects or
adverse physical conditions affecting any Company Property or
the improvements thereon or any physical damage for which there
is no insurance in effect and all building systems are in good
working condition, other than those defects or conditions that
would not have a Company Material Adverse Effect.
(l) No Permit from any Governmental Entity having
jurisdiction over any of the Company Properties or any
agreement, easement or other right that is necessary to permit
the lawful use and operation of the buildings and improvements
on any of the Company Properties or that is necessary to permit
the lawful use and operation of all utilities, parking areas,
detention ponds, driveways, roads and other means of egress and
ingress to and from any of the Company Properties has not been
obtained and is not in full force and effect, except as would
not reasonably be expected to have a Company Material Adverse
Effect, and none of the Company, any Company Subsidiary, any
Primarily Controlled Company, or to the Knowledge of the
Company, any Partially Controlled Company, has received written
notice of any pending written threat of modification or
cancellation of any Permit that would reasonably be expected to
have a Company Material Adverse Effect, or of any violation of
any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any of the Company
Properties issued by any Governmental Entity which has not been
cured, contested in good faith or which violations would not
reasonably be expected to have a Company Material Adverse
Effect. Notwithstanding the foregoing, the representations
contained in this clause (e), to the extent they relate to
Company Properties of a Partially Controlled Company, are made
to the Knowledge of the Company.
(m) All work required to be performed, payments required to
be made and actions required to be taken prior to the date
hereof pursuant to any agreement entered into with a
Governmental Entity in connection with a site approval, zoning
reclassification or similar action relating to any Company
Properties (e.g., local improvement district, road improvement
district, environmental mitigation) have been performed, paid or
taken, as the case may be, other than as would not reasonably be
expected to have a Company Material Adverse Effect.
(n) There is no material renovation or construction project
with aggregate projected costs in excess of $5,000,000 currently
being performed at any Company Property except
(i) construction projects in the ordinary course of
business in the Resort Residential Business,
(ii) construction projects at properties subject to
Portfolio Sales, or (iii) as disclosed in
Item 4.15(n) of the Disclosure Letter
(Construction Project).
Item 4.15(n) of the Disclosure Letter sets forth the
budgeted costs, the cost to complete and each Material Contract
for each Construction Project disclosed therein. Neither the
Company nor any Company Subsidiary nor any Primarily Controlled
Company nor the Resort Residential Business nor projects at
properties subject to Portfolio Sales is in material default of
any material obligations with respect to the Construction
Projects, and to the Knowledge of the Company, the contractors
obligated to complete any of the Construction Projects are not
in material default with respect to such obligations as of the
date of this Agreement.
(o) Except as provided in Item 4.15(o) of the
Disclosure Letter, the rent rolls for the Company Properties
dated as of March 15, 2007 which have previously been
provided to the Purchaser Parties list each lease, sublease, or
other right of occupancy that the Company and its Subsidiaries
and the Primarily Controlled Companies are a party to as
landlord with respect to each of the Company Properties
including all amendments, modifications, supplements, renewals,
extensions and guarantees related thereto (except for
discrepancies as would not reasonably
A-31
be expected to have a Company Material Adverse Effect) (the
Company Leases), and are correct and complete
in all respects as of the date thereof (except for immaterial
discrepancies). The Company has provided to the Purchaser
Parties correct and complete copies of all Company Leases in
effect as of February 28, 2007, and since then has
conducted its leasing operations consistent with past practice.
Each Company Lease is in full force and effect and is valid,
binding and enforceable in accordance with its terms against the
Company and its Subsidiaries and the Primarily Controlled
Companies and to the Knowledge of the Company the other parties
thereto, except as would not reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in
Item 4.15(o) of the Disclosure Letter neither the
Company nor its Subsidiaries nor any Primarily Controlled
Company has received written notice that it is in default of any
Company Lease except for violations or defaults that have been
cured or are disclosed in the rent rolls or would not reasonably
be expected to have a Company Material Adverse Effect. Except as
set forth in Item 4.15(o) of the Disclosure Letter,
no tenant under any Company Lease is in monetary or to the
Knowledge of the Company, material non-monetary default under
such Company Leases, except for defaults that have been cured or
are disclosed in the rent rolls or that would not reasonably be
expected to have a Company Material Adverse Effect. All rent has
been properly calculated and billed to tenants pursuant to the
Company Leases, except as would not reasonably be expected to
have a Company Material Adverse Effect. Notwithstanding the
foregoing, the representations contained in this clause (o)
do not apply to Company Properties of Partially Controlled
Companies, or to Crescent Resort Development, Inc. and its
Subsidiaries.
(p) Item 4.15(p) of the Disclosure Letter sets
forth a correct and complete list, as of the date hereof, of all
agreements of the Company and each of its Subsidiaries for the
pending acquisition, sale, option to sell, right of first
refusal, right of first offer or any other contractual right to
sell, dispose of, or lease (by merger, purchase or sale of
assets or stock or otherwise) any personal property valued at
$500,000 or more. The Company and its Subsidiaries and the
Primarily Controlled Companies have good and sufficient title to
all the material personal and non-real properties and assets
reflected in their books and records as being owned by them,
free and clear of all Liens, except for Permitted Liens and
other matters that do not interfere materially with the current
use of such property.
(q) Except as set forth on Item 4.15(q) of the
Disclosure Letter, or as would not reasonably be expected to
have a Company Material Adverse Effect, neither the Company nor
any of its Subsidiaries nor any Primarily Controlled Company has
received any notice of any audit of any Taxes payable or tax
delinquency with respect to the Company Properties which has not
been resolved or completed, and neither the Company nor any of
its Subsidiaries nor any Primarily Controlled Company is
currently contesting any such Taxes. Notwithstanding the
foregoing, the representations contained in this clause (q), to
the extent they relate to Company Properties of Partially
Controlled Companies, are made to the Knowledge of the Company.
(r) Except as set forth on Item 4.15(r) of the
Disclosure Letter, neither the Company nor any of its
Subsidiaries has entered into any contract or agreement that is
currently in effect (collectively, the Participation
Agreements) with any third party or any employee,
consultant, Affiliate or other person (the
Participation Party) that provides for a
right of such Participation Party to participate, invest, join,
partner, or have any interest in whatsoever (whether
characterized as a contingent fee, profits interest, equity
interest or otherwise) or have the right to any of the foregoing
in any proposed or anticipated investment opportunity, joint
venture, partnership or any other current or future transaction
or property in which the Company or any Company Subsidiary or
any Primarily Controlled Company has or will have an interest,
including but not limited to those transactions or properties
identified, sourced, produced or developed by such Participation
Party (a Participation Interest).
Section 4.16 Environmental
Laws. Except as set forth in any
environmental report previously provided to Parent and
identified on
Item 4.16 of the Disclosure Letter or
as would not, individually or in the aggregate, have a Company
Material Adverse Effect:
(a) each of the Company, its Subsidiaries, the Primarily
Controlled Companies, and to the Knowledge of the Company, the
Partially Controlled Companies, and the Company Properties is
and has been, in compliance with Environmental Law;
(b) to the Knowledge of the Company, all Permits required
by Environmental Laws in connection with the development,
ownership and operation of the Company Properties have been
obtained or timely applied for and have been complied with;
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(c) there are no wetlands (as that term is defined in
Section 404 of the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1254, and applicable state
laws) at any of the Company Properties, that would reasonably be
expected to adversely affect any ongoing or currently planned
development;
(d) all asbestos or asbestos-containing materials and
lead-based paint at any Company Property have been and are
managed in accordance with Environmental Law;
(e) neither the Company nor any of its Subsidiaries nor any
Primarily Controlled Company, and to the Knowledge of the
Company, no Partially Controlled Company has received any
written notice alleging that the Company, any of its
Subsidiaries, any Primarily Controlled Company or any Partially
Controlled Company may be in violation of, or liable under, or a
potentially responsible party pursuant to any Environmental Law,
including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
(CERCLA) that has not been resolved without
further liability to the Company or any of its Subsidiaries, and
to the Knowledge of the Company, there is no basis for any such
notice or claim;
(f) neither the Company nor any of its Subsidiaries nor any
Primarily Controlled Company, and to the Knowledge of the
Company, no Partially Controlled Company has Released any
Hazardous Substances and no other Person has Released Hazardous
Substances on or from any of the Company Properties;
(g) neither the Company nor any of its Subsidiaries nor any
Primarily Controlled Company, and to the Knowledge of the
Company, no Partially Controlled Company has entered into or
agreed to any consent decree or order or is a party to, and none
of the Company Properties are subject to, any judgment, decree
or judicial or administrative order relating to compliance with
Environmental Laws, Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of
Hazardous Substances and no investigation, litigation or other
proceeding is pending or threatened in writing with respect
thereto;
(h) except as set forth in Item 4.16(h) of the
Disclosure Letter, neither the Company nor any of its
Subsidiaries nor any Primarily Controlled Company, and to the
Knowledge of the Company, no Partially Controlled Company has
assumed, by contract or operation of law, any liability under
any Environmental Law or relating to any Hazardous Substances or
is an indemnitor in connection with any threatened or asserted
claim by any third- party indemnitee for any liability under any
Environmental Law or relating to any Hazardous Substances;
(i) no liens have been imposed or are in effect on any of
the Company Properties pursuant to any Environmental Law;
(j) except as listed on Item 4.16(j) of the
Disclosure Letter, there are no underground storage tanks on any
Company Property, and the underground storage tanks listed
thereon are in compliance with applicable Environmental
Laws; and
(k) Item 4.16(k) of the Disclosure Letter lists
all the reports of environmental investigations, including, but
not limited to, Phase I and Phase II environmental
site assessments, conducted on any portion of the Company
Property that are in the possession of the Company or any of its
Subsidiaries other than Desert Mountain Properties Limited
Partnership, and true and complete copies of all such
environmental reports have been delivered or made available to
the Purchaser Parties and, to the Knowledge of the Company,
there are no violations of Environmental Law relating to Company
Properties of Desert Mountain Properties Limited Partnership;
provided that, notwithstanding the foregoing, the
representations contained in clauses (a), (d) and (g),
to the extent they relate to Company Properties of a Partially
Controlled Company, are made to the Knowledge of the Company.
Section 4.17 Employment and Labor Matters.
(a) (i) No employees of the Company, any of its
Subsidiaries, any Primarily Controlled Company or any Partially
Controlled Company other than Canyon Ranch or to the Knowledge
of the Company any third party manager of any property owned by
such entities are represented by any labor organization and none
of the Company, its Subsidiaries, the Primarily Controlled
Companies or the Partially Controlled Companies other than
Canyon Ranch is a party to any collective bargaining agreement;
(ii) no labor organization or group of employees of the
Company, any of its Subsidiaries, any Primarily Controlled
Company or any Partially Controlled Company other than Canyon
Ranch or to the Knowledge of the Company any third party manager
of any property owned by
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such entities has made a written demand for recognition or
certification; (iii) to the Knowledge of the Company, there
are no representation or certification proceedings or petitions
seeking a representation proceeding presently filed, or to the
Knowledge of the Company, threatened in writing to be brought or
filed with the National Labor Relations Board or any other labor
relations tribunal or authority concerning any employee of the
Company, any of its Subsidiaries, any Primarily Controlled
Company, any Partially Controlled Company other than Canyon
Ranch, or any third party manager of any property owned by the
Company or such entities; (iv) to the Knowledge of the
Company, there are no organizing activities involving the
employees of the Company, any of its Subsidiaries, any Primarily
Controlled Company, any Partially Controlled Company other than
Canyon Ranch, or any third party manager of any property owned
by such entities pending with any labor organization or group of
employees of such entities; and (v) there is no actual or,
to the Companys Knowledge, threatened work stoppage strike
or other labor disturbance involving employees of the Company,
any of its Subsidiaries, any Primarily Controlled Company, any
Partially Controlled Company other than Canyon Ranch, or any
third party manager of any property owned by such entities.
(b) There are no unfair labor practice charges, grievances
or complaints filed or, to the Companys Knowledge,
threatened in writing by or on behalf of any employee or group
of employees of the Company, any of its Subsidiaries, any
Primarily Controlled Company, any Partially Controlled Company
other than Canyon Ranch, or any third party manager of any
property owned by such entities that have not been settled or
remedied that would reasonably be expected to have a Company
Material Adverse Effect.
(c) There are no complaints, charges or claims against the
Company, any of its Subsidiaries, any Primarily Controlled
Company, any Partially Controlled Company other than Canyon
Ranch, or any third party manager of any property owned by such
entities filed or, to the Knowledge of the Company, threatened
in writing to be brought or filed, with any federal, state or
local Governmental Entity or arbitrator based on, arising out
of, in connection with, or otherwise relating to the employment
or termination of employment of any individual by the Company,
any of its Subsidiaries, any Primarily Controlled Company, any
Partially Controlled Company other than Canyon Ranch, or any
third party manager of any property owned by such entities that
have not been settled or remedied that would reasonably be
expected to have a Company Material Adverse Effect.
(d) With respect to employees of the Company, its
Subsidiaries and the Primarily Controlled Companies, the
Company, each of its Subsidiaries and the Primarily Controlled
Companies are in compliance with all laws relating to the
employment of labor, including all such laws relating to wages,
hours, the Worker Adjustment and Retraining Notification Act and
any similar state or local mass layoff or
plant closing law (as amended,
WARN), collective bargaining, discrimination,
civil rights, safety and health, workers compensation and
the collection and payment of withholding
and/or
social security Taxes and any similar Tax, except for any
non-compliance that would not reasonably be expected to have a
Company Material Adverse Effect; and there has been no
mass layoff or plant closing as defined
by WARN with respect to the Company, any of its Subsidiaries or
any Primarily Controlled Company within the last six
(6) months. Moreover, to the Knowledge of the Company, with
respect to the employees of any third party manager of any
property owned by the Company or any of its Subsidiaries or any
Primarily Controlled Company, any such third party managers are
in compliance with all laws relating to the employment of labor,
including all such laws relating to wages, hours, WARN and any
similar state or local mass layoff or plant
closing law, collective bargaining, discrimination, civil
rights, safety and health, workers compensation and the
collection and payment of withholding
and/or
social security Taxes and any similar Tax, except for any
non-compliance that would not reasonably be expected to have a
Company Material Adverse Effect; and there has been no
mass layoff or plant closing as defined
by WARN with respect to any third party manager of any property
owned by the Company or any of its Subsidiaries or any Primarily
Controlled Company within the last six (6) months.
Section 4.18 Material Contracts.
(a) Except as filed as exhibits to the SEC Documents filed
prior to the date of this Agreement or as referenced on
Item 4.18(a) of the Disclosure Letter, none of the
Company or any of its Subsidiaries or any Primarily Controlled
Company is a party to or bound by any contract that, as of the
date hereof:
(i) is a material contract of the Company (as
such term is defined in Item 601(b)(10) of
Regulation S-K
under the Securities Act);
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(ii) calls for aggregate payments by the Company or any of
its Subsidiaries or any Primarily Controlled Company under such
contract of more than $2,500,000 over the remaining term of such
contract;
(iii) calls for annual aggregate payments by the Company or
any of its Subsidiaries or any Primarily Controlled Company
under such contract of more than $500,000 over the remaining
term of such contract;
(iv) contains any non-compete or exclusivity provisions
with respect to any line of business or geographic area with
respect to the Company or any of its Subsidiaries or any
Primarily Controlled Company, or that restricts the conduct of
any line of business by the Company or any of its Subsidiaries
or any Primarily Controlled Company or any geographic area in
which the Company or any of its Subsidiaries or any Primarily
Controlled Company may conduct business;
(v) creates any (x) material partnership, limited
liability company agreement, joint venture or other similar
agreement entered into with any third party or
(y) management, operating, franchise, license or other
similar agreement entered into with any third party;
(vi) provides for the purchase, sale or exchange of, or
option to purchase, sell or exchange any property of the Company
or any of its Subsidiaries or any Primarily Controlled Company;
(vii) is a contract or agreement pursuant to which the
Company or any of its Subsidiaries agrees to indemnify or hold
harmless any director or executive officer of the Company or any
of its Subsidiaries or any Primarily Controlled Company (other
than the organizational documents for the Company or its
Subsidiaries or any Primarily Controlled Company);
(viii) is a loan agreement, guaranty, letter of credit,
indenture, note, bond, debenture, mortgage or any other
document, agreement or instrument evidencing a capitalized
leased obligation or other indebtedness of, for the benefit of,
or payable to the Company or any Company Subsidiary or any
Primarily Controlled Company or any guaranty thereof; or
(ix) is an interest rate cap, interest rate collar,
interest rate swap, currency hedging transaction or any other
similar agreement to which the Company or any of its
Subsidiaries or any Primarily Controlled Company is a party.
Each contract of the type described in this
Section 4.18(a), whether or not set forth in
Item 4.18(a) of the Disclosure Letter, is referred
to herein as a Material Contract.
Notwithstanding anything to the contrary contained in this
Section 4.18(a), Material Contract shall not
include any contract that is terminable on not more than
30 days notice without penalty after giving effect
the transactions contemplated herein.
(b) Each Material Contract is valid and binding on the
Company
and/or each
of its Subsidiaries party thereto, and, to the Knowledge of the
Company, each other party thereto.
(c) Neither the Company nor any of its Subsidiaries nor any
Primarily Controlled Company is in default under any Material
Contact and no event or circumstance, with or without notice or
the passage of time, has occurred pursuant to any Material
Contract which would result in a default or acceleration of
payment, or forfeiture of any rights, except as would not
(i) prevent or materially delay the consummation of the
Mergers and the other transactions contemplated by this
Agreement or (ii) result in a Company Material Adverse
Effect. To the Knowledge of the Company, no counterparty of the
Company or any of its Subsidiaries or any Primarily Controlled
Company, as applicable, under any Material Contract has failed
to perform its obligations thereunder when required to be so
performed and each is current in its obligations to the Company
or its Subsidiaries or any Primarily Controlled Company, as
applicable, thereunder.
(d) Prior to the date hereof, the Company has made
available to the Purchaser Parties (including by filing with the
SEC) true, correct and complete copies of all Material Contracts.
(e) Prior to the date hereof, the Company has made
available to the Purchaser Parties true, correct and complete
copies of all agreements imposing standstill obligations on any
Person with respect to the Company and the Operating Partnership.
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Section 4.19 Insurance
Policies. Item 4.19 of the
Disclosure Letter sets forth as of the date hereof, a correct
and complete list of the insurance policies, other than the
Company title insurance policies, held by, or for the benefit
of, the Company, its Subsidiaries, any Primarily Controlled
Company or any Partially Controlled Company other than Canyon
Ranch and Crescent Resort Development, Inc. and its
Subsidiaries, including the underwriter of such policies and the
amount of coverage thereunder. Except as would not reasonably be
expected to have a Company Material Adverse Effect, (a) all
insurance policies maintained by the Company, its Subsidiaries,
the Primarily Controlled Companies and the Partially Controlled
Companies other than Canyon Ranch and Crescent Resort
Development, Inc. and its Subsidiaries, are in full force and
effect and provide insurance in such amounts and against such
risks as the management of the Company reasonably has determined
to be prudent in accordance with industry practices and
commercially available or as is required by Law, and all
premiums due and payable thereon have been paid and
(b) none of the Company, its Subsidiaries, the Primarily
Controlled Companies or the Partially Controlled Companies other
than Canyon Ranch and Crescent Resort Development, Inc. and its
Subsidiaries, is in material breach or default of any of the
insurance policies, and none of such entities has taken any
action or failed to take any action which, with notice or the
lapse of time, would constitute such a breach or default or
permit termination or material modification of any of the
insurance policies currently in effect. The Company has not
received any notice of termination or cancellation or denial of
coverage with respect to any material insurance policy currently
in effect. Except as set forth in
Item 4.19 of the
Disclosure Letter, such policies will not terminate as a result
of the consummation of the transactions covered by this
Agreement.
Section 4.20 Affiliate
Transactions. There are no material
transactions, agreements, arrangements or understandings between
(a) the Company, any of its Subsidiaries, or any Related
Entity, on the one hand, and (b) any officer, trustee,
director or Affiliate of the Company, any of its Subsidiaries,
any Primarily Controlled Company or any Partially Controlled
Company, any relative of the foregoing or an entity of which any
of the foregoing is an Affiliate, on the other hand, of the type
that are required to be disclosed under Item 404 of
Regulation S-K
under the Securities Act which have not been so disclosed. True
and complete copies of all such documents have been made
available to Parent prior to the date hereof.
Section 4.21 Opinion of the
Companys Financial Advisor. The Company
has received an opinion from Greenhill & Co., LLC to
the effect that, as of the date of such opinion, the Company
Common Share Merger Consideration to be received by holder of
the Common Shares (other than Parent, REIT Merger Sub and their
respective affiliates) is fair, from a financial point of view,
to such holders and the Partnership Merger Consideration to be
received by the holders of Units in the Partnership Merger is
fair to such Unitholders, considered as if such units were
converted into or redeemed for Shares in accordance with their
terms prior to the Effective Time, from a financial point of
view. The Company has made available to the Purchaser Parties a
complete and correct copy of such opinion (or if not delivered
in writing to the Company prior to the date hereof, the Company
will promptly make such opinion available to the Purchaser
Parties upon receipt).
Section 4.22 Brokers. No
broker, investment banker, financial advisor or other Person,
other than Greenhill & Co., LLC, JP Morgan, as to the
residential sale process, Lehman Bros., as to the hotel and
Austin Centre sale process, and C.B. Richard Ellis and Holliday
Fegnolio in connection with the Portfolio Sales, is entitled to
any brokers, finders, financial advisors or
other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company, any of its
Subsidiaries, any Primarily Controlled Company, any Partially
Controlled Company, or to the Knowledge of the Company, any
Additional Company. The Company has made available to the
Purchaser Parties a correct and complete copy of all agreements
between the Company and Greenhill & Co., LLC.
Section 4.23 Board
Approval. The Company Board, by resolutions
duly adopted at meetings duly called and held, have duly
(a) determined that the Mergers are fair to and in the best
interests of the Company and its shareholders and the Operating
Partnership and its Limited Partners, (b) approved this
Agreement and the Mergers and declared that the Mergers are
advisable, and (c) recommended that the shareholders of the
Company approve this Agreement and the Mergers and directed that
this Agreement and the Mergers be submitted for consideration by
the Companys shareholders at the Company
Shareholders Meeting (collectively, the
Company
Board Recommendation).
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Section 4.24 Employee
Loans. Except as set forth in
Item 4.24 of the Disclosure Letter (the
Employee Loans), there are no outstanding
loans made by the Company, the Operating Partnership, any of
their Subsidiaries or any Primarily Controlled Company to any of
their respective employees, officers, trust managers or
directors.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, REIT MERGER SUB
AND
PARTNERSHIP MERGER SUB
Parent, REIT Merger Sub and Partnership Merger Sub, hereby
jointly and severally represent and warrant to the Company as
follows:
(a) Parent is a limited liability company duly organized,
validly existing and in good standing under the Laws of the
State of Delaware. The certificate of formation of Parent is in
effect and no dissolution, revocation or forfeiture proceedings
regarding Parent have been commenced. Parent is in good standing
under the Laws of any other jurisdiction in which the character
of the properties owned, leased or operated by it therein or in
which the transaction of its business makes such qualification
or licensing necessary. Parent has all requisite power and
authority to own, lease and operate its properties and to carry
on its businesses as now conducted and proposed by Parent to be
conducted.
(b) REIT Merger Sub is a limited liability company duly
organized, validly existing and in good standing under the Laws
of the State of Delaware. The certificate of formation and the
operating agreement of REIT Merger Sub are in effect and no
dissolution, revocation or forfeiture proceedings regarding REIT
Merger Sub have been commenced. REIT Merger Sub is in good
standing under the Laws of any other jurisdiction in which the
character of the properties owned, leased or operated by it
therein or in which the transaction of its business makes such
qualification or licensing necessary. REIT Merger Sub has all
requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted and
proposed by it to be conducted. All the issued and outstanding
membership interests of REIT Merger Sub are owned of record and
beneficially by Parent.
(c) Partnership Merger Sub is a limited partnership duly
organized, validly existing and in good standing under the Laws
of the State of Delaware. The certificate of limited partnership
and the partnership agreement of Partnership Merger Sub are in
effect and no dissolution, revocation or forfeiture proceedings
regarding Partnership Merger Sub have been commenced.
Partnership Merger Sub is in good standing under the Laws of any
other jurisdiction in which the character of the properties
owned, leased or operated by it therein or in which the
transaction of its business makes such qualification or
licensing necessary. Partnership Merger Sub has all requisite
power and authority to own, lease and operate its properties and
to carry on its businesses as now conducted and proposed by it
to be conducted. All the issued and outstanding partnership
interests of Partnership Merger Sub are owned of record and
beneficially by Parent
Section 5.02 No Prior
Activities. Each of REIT Merger Sub and
Partnership Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and
has not conducted any activities other than in connection with
its organization, the negotiation and execution of this
Agreement and the consummation of the transactions contemplated
hereby and thereby. Partnership Merger Sub has no subsidiaries
and the only subsidiary of REIT Merger Sub is Partnership Merger
Sub.
(a) Each of Parent, REIT Merger Sub and Partnership Merger
Sub has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement. No
other proceedings on the part of Parent, REIT Merger Sub, or
Partnership Merger Sub, are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered
by each of Parent, REIT Merger Sub and Partnership Merger Sub
and assuming due authorization, execution and delivery hereof by
each of the Company and the Operating Partnership, constitutes a
legal, valid and binding obligation of each of Parent, REIT
Merger Sub and Partnership Merger Sub, enforceable against each
of Parent, REIT Merger Sub and Partnership Merger Sub, in
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accordance with and subject to its terms and conditions, except
as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting
creditors rights or by general equity principles.
Section 5.04 No Conflict; Required Filings
and Consents.
(a) The execution and delivery of this Agreement by Parent,
REIT Merger Sub and Partnership Merger Sub do not, and the
performance of Parent, Merger Sub and Partnership Merger
Subs obligations hereunder will not, (i) conflict
with or violate the certificate of formation, operating
agreement, certificate of limited partnership or partnership
agreement of any of Parent, REIT Merger Sub or Partnership
Merger Sub, (ii) assuming that all consents, approvals,
authorizations and other actions described in
subsection (b) have been obtained and all filings and
obligations described in subsection (b) have been
made, conflict with or violate any Law applicable to Parent,
REIT Merger Sub or Partnership Merger Sub, or by which any of
its properties or assets is bound, or (iii) result in any
breach of, or constitute a default (or an event which, with
notice or lapse of time or both, would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a
Lien or other encumbrance on any of its properties or assets
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which it is a party or by which it or any of
its properties or assets is bound, except, with respect to
clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences that would not prevent
consummation of the Mergers or otherwise prevent it from
performing its obligations under this Agreement.
(b) The execution and delivery of this Agreement by Parent,
REIT Merger Sub or Partnership Merger Sub do not, and the
performance of Parent, REIT Merger Sub or Partnership Merger
Subs obligations hereunder and thereunder will not,
require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Authority,
except (i) for (A) applicable requirements, if any, of
the Exchange Act, Blue Sky Laws and state takeover Laws,
(B) the pre-merger notification requirements of the HSR
Act, and (C) the filing with the SEC of the Proxy Statement
and the Information Statement, and (ii) where the failure
to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or
delay consummation of the Mergers, or otherwise prevent Parent,
REIT Merger Sub or Partnership Merger Sub from performing its
obligations under this Agreement.
Section 5.05 Information
Supplied. None of the information supplied by
Parent, REIT Merger Sub or Partnership Merger Sub for inclusion
or incorporation by reference in the Proxy Statement or any
other document to be filed with the SEC in connection herewith,
including the Other Filings, will, in the case of the Proxy
Statement, at the date it is first mailed to the Companys
shareholders or at the time of the Company Shareholders
Meeting or at the time of any amendment or supplement thereof,
or, in the case of any Other Filing, at the date it is first
mailed to the Companys shareholders or, at the date it is
first filed with the SEC, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading. No representation is made by Parent with
respect to statements made or incorporated by reference therein
based on information supplied by the Company in connection with
the preparation of the Proxy Statement or the Other Filings for
inclusion or incorporation by reference therein. All Other
Filings that are filed by Parent or Merger Sub will comply as to
form in all material respects with the requirements of the
Exchange Act.
Section 5.06 Absence of
Litigation. As of the date of this Agreement,
there is no Action pending or, to the Knowledge of Parent,
threatened, against Parent or any of its Subsidiaries before any
Governmental Authority that would or seeks a result that could
have a Parent Material Adverse Effect. As of the date of this
Agreement, none of Partnership Merger Sub, REIT Merger Sub or
Parent, or any of their affiliates is subject to any continuing
order of, consent decree, settlement agreement or other similar
written agreement with, or, to the Knowledge of Parent,
continuing investigation by, any Governmental Authority, or any
order, writ, judgment, injunction, decree, determination or
award of any Governmental Authority that would or seeks a result
that could have a Parent Material Adverse Effect.
Section 5.07 Financing. Parent
has binding commitments (the
Commitments), correct and complete
copies of which have been furnished to the Company (the
Commitment Letters), from Barclays Capital
Real Estate Inc. agreeing to provide up to $3,800,000,000 in
funds (the
Financing). On the Closing
Date, Parent will
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have available to it sufficient funds to permit Parent, REIT
Merger Sub and Partnership Merger Sub to pay the Merger
Consideration and to consummate all the transactions
contemplated by this Agreement, including the payment of all
related fees and expenses. As of the date hereof, each of the
Commitments, in the form so delivered, is a legal, valid and
binding obligation of Parent and, to the Knowledge of Parent,
the other parties thereto and is in full force and effect. There
are no conditions precedent or other contingencies related to
the funding of the full amount of the Financing, other than as
set forth in the Commitment Letters. As of the date hereof, no
event has occurred which, with or without notice, lapse of time
or both, would constitute a default or breach on the part of
Parent, REIT Merger Sub or Partnership Merger Sub under any term
or condition of any of the Commitments. As of the date hereof,
neither Parent, REIT Merger Sub or Partnership Merger Sub has
(x) any reason to believe that Parent, REIT Merger Sub or
Partnership Merger Sub will be unable to satisfy on a timely
basis any term or condition of closing to be satisfied by it
contained in any of the Commitments or (y) any knowledge of
any facts or circumstances that are reasonably likely to result
in the funding contemplated by the Commitments not being made
available to Parent on a timely basis in order to consummate the
Merger and the other transactions contemplated by this
Agreement. Parent, REIT Merger Sub or Partnership Merger Sub
have fully paid any and all commitment fees or other fees
required by the Commitments to be paid on or before the date of
this Agreement.
Section 5.08 Guarantees. Concurrently
with the execution of this Agreement, Parent has delivered to
the Company the Guarantees in the forms agreed to with the
Company.
Section 5.10 Brokers. No
broker, finder or investment banker (other than Morgan
Stanley & Co. Incorporated) is entitled to any
brokerage, finders or other fee or commission in
connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent, REIT
Merger Sub or Partnership Merger Sub.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.01 Conduct of
Business by the Company, the Operating Partnership and the
Companys Other Subsidiaries and Related Entities Pending
the Merger. Except as (x) expressly
required or expressly contemplated by this Agreement or
(y) otherwise set forth in
Item 6.01 of the
Disclosure Letter, during the period from the date of this
Agreement until the Effective Time (or such earlier date on
which this Agreement may be terminated in accordance with its
terms), unless otherwise consented to in writing by Parent, the
Company shall, and shall cause the Operating Partnership, each
of its other Subsidiaries, and to the extent permissible under
the contractual obligations of the Company and its Subsidiaries,
shall cause or encourage the Primarily Controlled Companies and
the Partially Controlled Companies to, in all material respects,
carry on its business in the ordinary course consistent with
past practice, and to use their respective commercially
reasonable efforts (A) to preserve substantially intact
their business organizations, (B) to keep available the
services of their present officers, managers and employees, and
(C) to maintain the current, existing relations and
goodwill with tenants, joint venture partners, management
companies, lenders, franchisors, customers, suppliers and others
having business dealings with them. Without limiting the
generality of the foregoing, during such period, the Company
shall not, and shall not permit the Operating Partnership, any
of the Companys other Subsidiaries, and to the extent
permissible under the contractual obligations of the Company and
its Subsidiaries, shall cause or encourage the Primarily
Controlled Companies and the Partially Controlled Companies not
to, without the prior written consent of Parent, except to the
extent required or expressly contemplated by this Agreement:
(a) (i) authorize for issuance, issue or sell or agree
or commit to issue or sell any shares of any class of beneficial
interest, capital stock or other equity interests of the
Company, the Operating Partnership, any of the Companys
other Subsidiaries, any Primarily Controlled Company or any
Partially Controlled Company other than Canyon Ranch, or any
options, warrants, convertible securities or other rights of any
kind to acquire any shares of such beneficial interest, capital
stock or other equity interests, or any other ownership
interest, of the Company, the Operating Partnership, any of the
Companys other Subsidiaries, any Primarily Controlled
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Company or any Partially Controlled Company other than Canyon
Ranch other than (x) the issuance of Company Common Shares
in exchange for Units pursuant to the Operating Partnership
Agreement, (y) the issuance of Company Common Shares upon
conversion of any Company Series A Preferred Shares in
accordance with their terms, or (z) the issuance of Company
Common Shares or Units pursuant to the exercise of Options in
existence on the date hereof in accordance with their terms; or
(ii) repurchase, redeem or otherwise acquire any securities
or equity equivalents except in connection with the redemption
or conversion of Units pursuant to Operating Partnership
Agreement or the redemption of the Series A Preferred
Shares and Series B Preferred Shares and associated
preferred Units as contemplated by this Agreement;
(b) (i) reclassify, combine, split, or subdivide any
of Companys shares of beneficial interest or any
partnership interests of the Operating Partnership or other
equity securities of any Company Subsidiary, any Primarily
Controlled Company or any Partially Controlled Company other
than Canyon Ranch, or (ii) declare, set aside, make or pay
any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of the Companys
shares of beneficial interest or any partnership interests of
the Operating Partnership or other equity securities of any
Company Subsidiary, any Primarily Controlled Company or any
Partially Controlled Company other than Canyon Ranch, except for
(A) dividends or distributions by any Subsidiary of the
Company, any Primarily Controlled Company or any Partially
Controlled Company paid solely to the Company
and/or any
other Subsidiary of the Company
and/or any
Primarily Controlled Company
and/or any
Partially Controlled Company (for the sake of clarity, no
dividends or distributions may be paid to third parties without
Parents consent except as required in accordance with
contractual obligations contained in the organizational
documents of the joint ventures listed on Item 4.02
of the Disclosure Letter), (B) dividends on the Company
Series A Preferred Shares declared and paid in accordance
with the terms thereof and corresponding distributions on
Series A Preferred Partnership Units consistent with past
practice, (C) dividends on the Company Series B
Preferred Shares declared and paid in accordance with the terms
thereof and corresponding distributions on Series B
Preferred Partnership Units consistent with past practice, and
(D) dividends on the Trust Preferred Securities
declared and paid in accordance with the terms thereof and
corresponding to payments of interest on the Junior Subordinated
Notes. Notwithstanding the foregoing, the Company shall be
permitted to make distributions necessary for the Company to
maintain its status as a REIT under the Code and avoid the
imposition of corporate level Tax or excise Tax under
Section 4981 of the Code;
(c) adopt or propose any amendment to the Company Charter,
the Company Bylaws, the Operating Partnership Agreement or the
certificate of limited partnership of the Operating Partnership
or the organizational documents of any Company Subsidiary, any
Primarily Controlled Company or any Partially Controlled Company
other than Canyon Ranch, other than amendments to the Operating
Partnership Agreement necessary to reflect transfers or
exchanges of partnership interests by limited partners in the
Operating Partnership that are permitted by
Section 6.01(a)(x) or (z) of this Agreement;
(d) (i) acquire (by merger, consolidation, purchase of
stock or assets or otherwise), or agree or enter into an option
to so acquire, in a single transaction or in a series of related
transactions, any Person, entity or division thereof, or
otherwise acquire or agree to acquire any real property or
material assets or (ii) merge, consolidate or enter into
any other business combination transaction with any Person,
except as provided in Section 7.04;
(e) other than pursuant to Contracts in effect and set
forth in Item 6.01(e) of the Disclosure Letter,
copies of which have been provided or made available to Parent
prior to the date of this Agreement, or as otherwise described
in Item 6.01(e) of the Disclosure Letter make or
agree to make any capital expenditure other than expenditures in
the ordinary course of business;
(f) other than as set forth in Item 6.01(f) of
the Disclosure Letter or as contemplated by Section 6.01(l)
or pursuant to Contracts or terms listed in
Item 6.01(f) of the Disclosure Letter, transfer,
sell, lease, license, mortgage, pledge, surrender, encumber,
divest, cancel, abandon or allow to lapse or expire or otherwise
dispose of (by merger, consolidation, sale of stock or assets or
otherwise), or agree to transfer, sell, lease, license,
mortgage, pledge, surrender, encumber, divest, cancel, abandon
or allow to lapse or expire or otherwise dispose of, any entity,
business or assets, except (i) for any such action by the
Resort Residential
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Business with respect to residential lots and condominium units
and land and retail projects in the ordinary course of business
consistent with past practice or (ii) as reasonably
required, in the opinion of the Companys tax counsel
following consultation with Parents and Parents
counsel, to maintain the Companys status as a REIT;
(g) incur any indebtedness at the Company-level, any
Company Subsidiary-level and Primarily Controlled Company-level
or any Partially Controlled Company-level (other than Canyon
Ranch) for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person for
borrowed money, except for (i) indebtedness for borrowed
money incurred in the ordinary course of business, which shall
be deemed to include, without limitation, draws under the
Companys revolving credit facilities in existence as of
the date hereof in the ordinary course of business and
refinancing of mortgage indebtedness secured by one or more
Company Properties, other than the Company Properties of Canyon
Ranch, as such loans become due and payable in accordance with
their terms; or (ii) as contemplated by
Item 6.01(g) of the Disclosure Letter;
(h) make any loans, advances or capital contributions to,
or investments in, any other Person (other than the Company, any
Subsidiary of the Company, or any Primarily Controlled Company),
except any loans, advances or investments set forth on
Item 6.01(h) of the Disclosure Letter or made to
Partially Controlled Companies in the Resort Residential
Business in the ordinary course of business consistent with past
practice and consistent with the budgets provided to Parent
prior to the date hereof;
(i) increase the salary, wages or other compensation
payable or to become payable to or the fringe benefits of its
trust managers, directors, officers or employees; or
(ii) enter into any employment, change in control,
consulting or severance agreement with, or establish, adopt,
enter into or amend any Benefit Plan, Incentive Plan, bonus,
profit sharing, thrift, stock option, restricted stock, pension,
retirement, deferred compensation, employment, change in
control, termination or severance plan, agreement, policy or
arrangement for the benefit of, any director, trust manager,
officer or employee of the Company, except, in each case, as may
be required by the terms of any such plan, agreement, policy or
arrangement existing on the date hereof and disclosed in
Item 6.01(i) of the Disclosure Letter or to comply
with applicable Law or as otherwise disclosed in
Item 6.01(i) of the Disclosure Letter, or in
accordance with a severance plan consistent with the material
terms set forth on Exhibit J hereto;
(j) except as may be required by GAAP, as a result of a
change in Law or SEC rule, regulation or interpretation, make
any material change in its method of accounting;
(k) other than in the ordinary course of business or to the
extent necessary to maintain the Companys status as a
REIT, (i) make, change or revoke any material Tax election
or (ii) settle or compromise any material federal, state,
local or foreign Tax liabilities; provided,
however, that in the event the Company takes any such
action with respect to Taxes that is permitted under this
Section 6.01(k), the Company shall notify promptly Parent
of such action;
(l) (i) except in connection with a right being
exercised by a tenant under an existing Company Lease, enter
into any new lease, sublease or license agreement (including
renewals) for in excess of 25,000 square feet of net
rentable area at a Company Property, provided that any failure
by Parent to object to a new lease, sublease or license
agreement in writing within three (3) Business Days of
being provided with same shall constitute written consent of
such lease, sublease or license agreement, or (ii) other
than in the ordinary course of business, and except in
connection with a right being exercised by a tenant under an
existing Company Lease, terminate or materially modify or amend
any Company Lease that relates to in excess of
25,000 square feet of net rentable area;
(m) except as set forth in Item 6.01(m) of the
Disclosure Letter, waive, release, settle or compromise any
pending or threatened suit, action, claim, arbitration,
mediation, inquiry, proceeding or investigation against the
Company, the Operating Partnership, any of the Companys
other Subsidiaries, any Primarily Controlled Company or any
Partially Controlled Company other than Canyon Ranch unless the
amounts paid or to be paid either (A) do not exceed
$1,000,000 for all such waivers, releases, settlements or
compromises in the aggregate or (B) are fully covered by
insurance coverage maintained by the Company, its Subsidiaries,
the Primarily
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Controlled Companies or the Partially Controlled Companies other
than Canyon Ranch; provided, however, that in each
case that any such waiver, release, settlement or compromise
includes a full release of the Company, the Operating
Partnership, any of the Companys applicable Subsidiaries,
any Primarily Controlled Company or any Partially Controlled
Company with respect to the matters covered by the subject
litigation; provided further, however, that no
pending or threatened claim brought by or on behalf of the
Companys shareholders or the Operating Partnerships
limited partners may be settled without the prior written
consent of Parent;
(n) adopt or enter into a plan of complete or partial
liquidation, dissolution, restructuring or recapitalization of
the Company, the Operating Partnership or any of the
Companys other Subsidiaries;
(o) modify, amend or terminate, or grant any material
consent under, any Material Contract or Ground Leases, Third
Party Franchise Agreement, joint venture agreement or Management
Agreement or enter into any new contract or agreement that, if
entered into prior to the date of this Agreement, would have
been required to be listed in Item 4.18(a) of the
Disclosure Letter as a Material Contract or enter into any new
Ground Leases, Third Party Franchise Agreement, or Management
Agreement Document; provided, however, that this
Section 6.01(o) shall not apply to Canyon Ranch;
(p) except as set forth in Item 6.01(p) of the
Disclosure Letter, pre-pay any long-term debt (which shall be
deemed to include, without limitation, payments made in respect
of any termination or settlement of any interest rate swap or
other similar hedging instrument relating thereto, or repayments
of mortgage indebtedness, or pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued,
contingent or otherwise)), except: (i) pre-payments or
repayments of revolving credit facilities or other similar lines
of credit or any payment of debt upon maturity, (ii) any
debt scheduled to mature on or before October 31, 2007 and
the Operating Partnerships 9.25% Senior Notes due
2009 or
71/8% Notes
due 2007, or (iii) debt associated with properties to be
sold pursuant to contracts listed on Item 6.01(f) of
the Disclosure Letter;
(q) take any action with respect to the Portfolio Sales
that is not expressly required by the Portfolio Purchase and
Sale Agreements or take any action that could reasonably be
expected to frustrate or delay the consummation of the Portfolio
Sales;
(r) amend, modify or terminate, or grant any material
consent or waiver under, any agreement or arrangement relating
to any proposed disposition disclosed on
Item 4.15(p) of the Disclosure Letter other than
closing conditions to the buyers obligation to close the
disposition under such Portfolio Purchase and Sale Agreement;
(s) fail to maintain in full force and effect the existing
insurance policies covering the Company, its Subsidiaries, the
Primarily Controlled Companies, the Partially Controlled
Companies other than Canyon Ranch and Crescent Irvine, LLC, and
their respective properties, assets and businesses;
(t) modify, amend or terminate, or grant any material
consent under, any Contract with an Affiliate of the Company or
modify any material relationship between the Company and its
Affiliates, including the manner in which the Company and its
Affiliates own or holds their respective assets;
(u) enter into, modify, amend or breach any Tax Protection
Agreement;
(v) sell, transfer or otherwise dispose of any ownership
interest in any of the Companys Subsidiaries, or any
Related Entity or create, establish, form or invest in any new
Company Subsidiary or acquire any interests in any new Related
Entity, except in connection with properties to be sold pursuant
to contracts listed in Item 6.01(d) or
Item 6.01(f) of the Disclosure Letter;
(w) grant any consent or waiver to any matter for which
consent or waiver is requested with respect to Canyon Ranch or
any Additional Company or exercise any rights in connection with
or with respect to the Companys interests in Canyon Ranch
or any Additional Company, including, but not limited to, any
consents, votes, waivers or actions taken (directly or
indirectly) by any trust manager, director or officer of Canyon
Ranch or any Additional Company serving at the designation of
the Crescent Parties (and the Crescent Parties shall promptly
notify Parent of any request to take an act covered by this
Section 6.01(w));
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(x) take any action, make any filing or material election
with respect to, or appeal or fail to appeal any real property
tax relating to any real property owned by the Company or any of
its Subsidiaries or any of the Primarily Controlled Companies or
Partially Controlled Companies; or
(y) announce an intention, enter into any contract or
agreement or otherwise make a commitment, to do any of the
foregoing.
ARTICLE VII
ADDITIONAL
AGREEMENTS
Section 7.01 Proxy Statement;
Partnership Information Statement; Other
Filings. As promptly as practicable following
the date of this Agreement, the Company shall prepare and file
with the SEC the preliminary Proxy Statement and the Operating
Partnership shall prepare and file with the SEC an information
statement on the appropriate form (the
Partnership Information Statement), and
each of the Company, the Operating Partnership and Parent shall,
or shall cause their respective Affiliates to, prepare and file
with the SEC all Other Filings that are required to be filed by
such party in connection with the transactions contemplated
hereby. Each of the Company, the Operating Partnership and
Parent shall furnish all information concerning itself and its
affiliates that is required to be included in the Proxy
Statement and the Partnership Information Statement or, to
the extent applicable, the Other Filings, or that is customarily
included in proxy statements or information statements, as
applicable, prepared in connection with transactions of the type
contemplated by this Agreement. Each of the Company, the
Operating Partnership and Parent shall use its reasonable
efforts to respond as promptly as practicable to any comments of
the SEC with respect to the Proxy Statement, the
Partnership Information Statement or the Other Filings, and
the Company shall use commercially reasonable efforts to cause
the definitive Proxy Statement to be cleared by the SEC and
mailed to the Companys shareholders as promptly as
reasonably practicable. The Company shall use commercially
reasonable efforts to cause the Partnership Information
Statement to be mailed to the holders of Units at the earliest
practicable date following the mailing of the Proxy Statement to
Company shareholders. The Company shall promptly (and in no
event later than one (1) Business Day after receipt) notify
Parent upon the receipt of any comments from the SEC or its
staff or any request from the SEC or its staff for amendments or
supplements to the Proxy Statement, the Partnership Information
Statement or the Other Filings and shall provide Parent with
copies of all correspondence between the Company, the Operating
Partnership and their representatives, on the one hand, and the
SEC and its staff, on the other hand, relating to the Proxy
Statement, the Partnership Information Statement or the
Other Filings. If at any time prior to the Company
Shareholders Meeting, any information relating to the
Company, the Operating Partnership, Parent, REIT Merger Sub or
any of their respective Affiliates, officers, managers or
directors, shall be discovered by the Company, the Operating
Partnership or Parent which should be set forth in an amendment
or supplement to the Proxy Statement, the
Partnership Information Statement or the Other Filings, so
that the Proxy Statement, the Partnership Information
Statement or the Other Filings shall not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they are made, not misleading, the party that discovers such
information shall promptly notify the other parties, and an
appropriate amendment or supplement describing such information
shall be filed with the SEC and, to the extent required by
applicable Law, disseminated to the shareholders of the Company
or the limited partners of the Operating Partnership, as
applicable. Notwithstanding anything to the contrary stated
above, prior to the filing of the preliminary Proxy Statement,
the filing and mailing of the final Proxy Statement, the filing
and mailing of the Partnership Information Statement or the
filing of the Other Filings (or any amendment or supplement
thereto) or responding to any comments of the SEC with respect
thereto, the Company and the Operating Partnership shall provide
Parent a reasonable opportunity to review and comment on such
document or response and will consider in good faith including
in such documents or responses all comments reasonably proposed
by Parent, and to the extent practicable, the Company and the
Operating Partnership will provide Parent with the opportunity
to participate in any substantive calls between the Company, the
Operating Partnership or any of their representatives, and the
SEC concerning the Proxy Statement, the
Partnership Information Statement or the Other Filings.
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shareholders (including any adjournments or postponements
thereof, the Company Shareholders
Meeting), as promptly as practicable after the date
that the Proxy Statement is cleared by the SEC, for the purpose
of voting upon the approval of this Agreement and the REIT
Merger (the Company Shareholder Approval).
Except as may be permitted by Section 7.04(c), the Company
Board shall recommend to holders of the Company Common Shares
that they approve this Agreement and approve the Merger and the
other transactions contemplated hereby and shall include such
recommendations in the Proxy Statement. Except as may be
permitted by Section 7.04(c) and subject to
Section 7.04(d), the Company will use reasonable best
efforts to solicit from its shareholders proxies in favor of the
approval of this Agreement, the REIT Merger and the other
transactions contemplated hereby and will take all other action
reasonably necessary or advisable to secure the vote or consent
of its shareholders required by the rules of the New York Stock
Exchange (NYSE) or applicable Law to obtain
such approvals. Except to the extent required by Law or with
Parents written consent, the Company shall not
(i) change the date specified in the Proxy Statement for
the Company Shareholders Meeting or (ii) postpone or
delay the Company Shareholders Meeting, except (x) to
the extent necessary to ensure that any amendment or supplement
to the Proxy Statement required by applicable Law is provided to
the shareholders of the Company sufficiently in advance of the
Company Shareholders Meeting or (y) if there are an
insufficient number of Company Common Shares represented in
person or by proxy at the Company Shareholders Meeting to
constitute a quorum or to approve this Agreement, the Merger and
the other transactions contemplated hereby, in which case the
Company may, and, at Parents request, shall, adjourn the
Company Shareholders Meeting and use its reasonable best
efforts to obtain a quorum and the requisite vote to approve
this Agreement, the Merger and the transactions contemplated
hereby as promptly as practicable. Approval of this Agreement,
the Merger and the other transactions contemplated hereby are
the only matters (other than adjournment as contemplated by the
preceding sentence) which the Company will propose to be acted
on by the shareholders of the Company at the Company
Shareholders Meeting.
(a) Subject to applicable Law, from the date hereof until
the Effective Time, the Company shall, and shall cause its
Subsidiaries and the officers, managers, directors, employees,
auditors and agents of the Company and the Operating Partnership
and the Companys other Subsidiaries to, and to the extent
permissible under the contractual obligations of the Company and
its Subsidiaries to each Primarily Controlled Company and
Partially Controlled Company shall cause or encourage each
Primarily Controlled Company and Partially Controlled Company
to, afford Parent, following notice from Parent to the Company
in accordance with this Section 7.03, reasonable access
during normal business hours to the officers, employees, agents,
properties, offices, plants and other facilities, books and
records of the Company and each of its Subsidiaries and the
Primarily Controlled Companies and the Partially Controlled
Companies, and all other financial, operating and other data and
information as Parent may reasonably request. Notwithstanding
the foregoing, neither Parent nor any of its representatives
shall (i) contact or have any discussions with any of the
employees, agents, or representatives of the Company, its
Subsidiaries or the Primarily Controlled Companies and the
Partially Controlled Companies (other than the Companys
executive officers, investment bankers or counsel), unless in
each case Parent obtains the prior written consent of the
Company, which shall not be unreasonably withheld, conditioned
or delayed, (ii) contact or have any discussions with any
of the landlords/sublandlords, tenants/subtenants, or licensors
or franchisors of the Company or its Subsidiaries or the Related
Entities, unless in each case Parent obtains the prior written
consent of the Company, which shall not be unreasonably
withheld, conditioned or delayed, or (iii) damage any
property or any portion thereof. Notwithstanding anything to the
contrary in the foregoing, subject to the rights of any property
manager, landlord/sublandlord or tenant/subtenant of any Company
Property, so long as they do not unreasonably disrupt the
operations of the Company or any of the Companys
Subsidiaries, Parent and its representatives (including its
financing sources) shall have the right to conduct, at
Parents expense, appraisal and environmental and
engineering inspections of each of the Company Properties;
provided, however, that neither Parent nor its
representatives shall have the right to conduct Phase I
testing of the Company Properties without the Companys
consent unless so directed by prior written direction of
Parents financing sources, and that none of Parent, its
representatives or its financing sources shall have the right to
sample any environmental media (including soil, groundwater,
surface water, air or sediment) or any building material or
perform any invasive testing procedure on any building or
property unless such sample or testing procedure is recommended
by virtue of the results of the Phase I testing referred to
above. Parent shall indemnify and hold the Company harmless from
and against any and all losses or damages incurred by the
Company as a result of the Parents or the Parent
representatives inspection of the
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Company Properties, provided, however, that the
Parents indemnification obligations hereunder shall not
include any obligation whatsoever with respect to any such
losses or damages (including claims that any Company Property
has declined in value) arising out of or resulting from the
discovery of any existing condition at a Company Property.
Subject to the foregoing, Parent shall schedule and coordinate
all inspections with the Company and shall give the Company at
least three (3) Business Days prior written notice thereof,
setting forth the inspection that Parent or its representatives
intend to conduct. The Company shall be entitled to have
representatives present at all times during any such inspection.
Notwithstanding the foregoing, none of the Company, any of its
Subsidiaries, any Primarily Controlled Company or any Partially
Controlled Company shall be required to provide access to or to
disclose information where such access or disclosure would
jeopardize the attorney-client privilege of the Company or its
Subsidiaries or any Related Entity or contravene any Law or
binding agreement entered into prior to the date of this
Agreement (provided, however, that the Company and
its Subsidiaries shall use commercially reasonable efforts to
obtain consent from the applicable third party or enter into a
customary joint defense agreement to enable the disclosure of
such information).
(b) Notwithstanding anything to the contrary contained in
this Agreement, Parent (i) may contact and have discussions
with any joint venture partner or other equity co-investor of
the Company, the Operating Partnership or any of the
Companys other Subsidiaries without the prior written
consent of the Company and (ii) may disclose only such
information obtained from the Company, the Operating Partnership
or any of the Companys other Subsidiaries or their
respective representatives to any such joint venture partner or
other equity co-investor that Parent reasonably believes is
necessary to discuss any strategic alternatives with respect to
any joint venture, its properties or business. The Company shall
have the right to have a representative present at any such
meetings or on any telephone calls and shall cooperate with any
reasonable requests of Parent in connection with such
discussions.
(c) All information obtained by Parent pursuant to this
Section 7.03 and pursuant to the confidentiality agreement,
dated March 24, 2007 (the Confidentiality
Agreement), between an affiliate of Parent and the
Company, shall be kept confidential in accordance with the
Confidentiality Agreement.
(d) No investigation pursuant to this Section 7.03 or
otherwise, or information obtained as a result thereof, shall
affect any representation or warranty in this Agreement of any
party hereto or any condition to the obligations of the parties
hereto.
(a) None of the Company, the Operating Partnership and the
Companys other Subsidiaries shall, nor shall they
authorize or permit any officer, manager, director, employee, or
agent or any investment banker, financial advisor, attorney,
accountant or other representative (collectively, the
Representatives) to, directly or
indirectly, (i) solicit, or initiate or knowingly encourage
or knowingly facilitate any inquiries or offers with respect to,
or that reasonably may be expected to lead to the submission of,
any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or that reasonably may be
expected to lead to, or furnish to any Person any non-public
information with respect to, or otherwise cooperate with respect
to, any Acquisition Proposal. Without limiting the foregoing,
the Company shall be responsible for any failure on the part of
its Representatives to comply with this Section 7.04.
Notwithstanding anything to the contrary in this
Section 7.04, nothing contained in this Agreement shall
prohibit the Company from, at any time prior to receipt of the
Company Shareholder Approval, furnishing any information to, or
entering into or participating in discussions or negotiations
with, or releasing from any standstill agreement or similar
obligation to the Company or any Company Subsidiary, any Person
that makes an unsolicited bona fide Acquisition Proposal in
writing that did not otherwise result from a breach of this
Section 7.04, if (i) the Company Board determines in
good faith after consulting with its legal counsel and financial
advisors that such Acquisition Proposal constitutes or is
reasonably likely to result in a Superior Proposal,
(ii) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such Person, the
Company notifies Parent that it is furnishing information to, or
entering into discussions or negotiations with, such Person, and
(iv) prior to furnishing such non-public information to
such Person, the Company (A) provides Parent with the
information to be provided to such Person which Parent has not
previously been provided, and (B) receives from such Person
an executed confidentiality and standstill agreement no less
favorable to the Company than the Confidentiality Agreement.
Without the prior written consent of Parent, the Company will
not release any Person
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from any standstill agreement or similar obligation to the
Company or any Company Subsidiary which is set forth on
Item 7.04(a) of the Disclosure Letter.
(b) The Company shall provide prompt (but in no event more
than twenty-four (24) hours following receipt thereof) oral
and written notice to Parent of (i) the receipt of any
Acquisition Proposal, or any material modification or amendment
to any Acquisition Proposal, by the Company, the Operating
Partnership, any other Subsidiary of the Company or any
Representative, (ii) a copy of any documents or agreements
provided in contemplation of such Acquisition Proposal
(including any amendments, supplements or modifications
thereto), (iii) the identity of such Person making any such
Acquisition Proposal and (iv) the Companys intention,
if any, to furnish information to, or enter into discussions or
negotiations with, such Person. The Company shall keep Parent
reasonably informed in all material respects of the status and
details (including any change to the material terms and
conditions) of any such Acquisition Proposal. The Company shall
not, and shall cause each of its Subsidiaries not to, enter into
any confidentiality agreement with any Person subsequent to the
date hereof which prohibits the Company from providing such
information to Parent.
(c) Except as set forth in this Section 7.04(c), the
Company Board shall not (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent, the
Company Board Recommendation, (ii) approve or recommend, or
publicly propose to approve or recommend, any Acquisition
Proposal or (iii) enter into any agreement with respect to
any Acquisition Proposal (other than a confidentiality agreement
referred to in Section 7.04(a)). Notwithstanding the
foregoing, at any time prior to receipt of the Company
Shareholder Approval, (x) if the Company Board determines
in good faith after consulting with its outside legal counsel
that the failure to do so would be inconsistent with its duties
to the Companys shareholders under applicable Law, then
the Company Board may withdraw, or modify or change in a manner
adverse to Parent, the Company Board Recommendation
(Change in Recommendation) and (y) in
the case of any Change in Recommendation being made in response
to an unsolicited bona fide written Acquisition Proposal (that
did not otherwise result from a breach of this
Section 7.04) that the Company Board has determined in good
faith, after consultation with its independent financial
advisor, is a Superior Proposal, the Company Board may approve
and recommend such Superior Proposal concurrently with
terminating this Agreement pursuant to Section 9.01(h);
provided, however, that such actions may only be
taken at a time that is after (I) the third (3rd) Business
Day following Parents receipt of written notice from the
Company that the Company Board is prepared to take such action,
and (II) at the end of such period, the Company Board
determines in good faith, after taking into account all
amendments or revisions committed to by Parent and after
consultation with its independent financial advisors, that such
Acquisition Proposal remains a Superior Proposal relative to the
REIT Merger and the other transactions contemplated hereby, as
supplemented by any Counterproposal to which the Purchaser
Parties have irrevocably committed. Any such written notice
shall specify the material terms and conditions of such
Acquisition Proposal, include the most current version of any
agreement relating to such Acquisition Proposal (including any
amendments, supplements or modifications thereto), identify the
person making such Acquisition Proposal and state that the
Company Board otherwise intends to make a Change in
Recommendation (subject to compliance with this
subsection (c)). During any such three (3) Business
Day period, Parent shall be entitled to deliver to the Company a
counterproposal to such Acquisition Proposal (a
Counterproposal) and Parent and the
Company shall negotiate in good faith in respect of any such
Counterproposal with the objective of reaching an agreement such
that the relevant Acquisition Proposal is not a Superior
Proposal. For the avoidance of doubt, the parties hereto
acknowledge and agree that any amendment to the financial terms
or any other material amendment to any material term of an
Acquisition Proposal which amendment affects the determination
of whether the Acquisition Proposal is a Superior Proposal to
any Counterproposal shall be treated as a new Acquisition
Proposal for the purposes of this Section 7.04(c)
(requiring a new written notice by the Company and a new three
(3) Business Day period).
(d) Nothing contained in this Agreement shall prevent the
Company or the Company Board from taking and disclosing to its
shareholders a position contemplated by
Rule 14d-9
and
Rule 14e-2(a)
promulgated under the Exchange Act (or any similar communication
to shareholders) or from making any legally required disclosure
to shareholders; provided, however, that, for the
avoidance of doubt, any action in violation of
Section 7.04(c) shall be a breach of such Section. Further,
any stop-look-and-listen communication by the
Company or the Company Board to the shareholders of the Company
pursuant to
Rule 14d-9(f)
promulgated under the Exchange Act (or any similar communication
to the shareholders of the Company) shall not be considered a
failure to make, or a
A-46
withdrawal, modification or change in any manner adverse to
Parent of, all or a portion of the Company Board Recommendation.
(e) Upon execution of this Agreement, the Company, the
Operating Partnership and the Companys other Subsidiaries
shall cease immediately and cause to be terminated any and all
existing activities, discussions or negotiations with any
parties conducted heretofore with respect to an Acquisition
Proposal by or on behalf of the Company or any of the
Representatives and shall inform each of the Representatives of
its obligations under this Section 7.04 and instruct each
of them to act in a manner consistent with such obligations;
provided, however, that the Company shall comply
with the next sentence. The Company shall promptly request each
Person with whom it has executed a confidentiality agreement
within the twelve (12) months prior to the date hereof in
connection with its consideration of any Acquisition Proposal to
return or, if permitted by such confidentiality agreement,
destroy all confidential or other non-public information
heretofore furnished to such Person by or on behalf of the
Company or any of the Representatives.
(a) From and after the Effective Time, Parent shall cause
the Surviving Entity to assume and honor in accordance with
their terms the Companys obligations under the agreements
set forth in Item 4.11(j) of the Disclosure Letter.
(b) For a period of not less than twelve (12) months
after the Closing Date, for each employee of the Company or any
of its Subsidiaries who remains an employee of the Surviving
Entity or its successors or assigns or any of their subsidiaries
(collectively, the Continuing Employees),
Parent shall or shall cause the Surviving Entity to provide cash
compensation (including base compensation and annual bonus) and
benefits (including group health, life, disability and severance
and retention plans, but excluding pe