UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-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)
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CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held June 28, 2004
The Annual Meeting of Shareholders (the "Meeting") of Crescent Real Estate
Equities Company, a Texas real estate investment trust (the "Company"), will be
held at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, on June 28,
2004, at 10:00 a.m., Central Daylight Savings Time, for the following purposes:
1. To elect two trust managers of the Company to serve three-year terms,
or until their respective successors are elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2004.
3. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement,
which is attached and made a part of this Notice.
The Board of Trust Managers has fixed the close of business on April 29,
2004, as the record date for determining the shareholders entitled to notice of
and to vote at the Meeting and any adjournment or postponement thereof.
Shareholders are cordially invited to attend the Meeting in person.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION AND THE
PRESENCE OF A QUORUM AT THE MEETING. ALTERNATIVELY, YOU MAY VOTE BY INTERNET.
INSTRUCTIONS REGARDING INTERNET VOTING ARE INCLUDED ON THE ENCLOSED PROXY CARD.
IF YOU SEND IN YOUR PROXY CARD OR VOTE BY INTERNET AND THEN DECIDE TO ATTEND THE
MEETING TO VOTE YOUR SHARES IN PERSON, YOU MAY STILL DO SO. YOUR PROXY IS
REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Trust Managers,
May 28, 2004 David M. Dean
Fort Worth, Texas Secretary
CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
---------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held On June 28, 2004
This Proxy Statement is furnished to shareholders of Crescent Real Estate
Equities Company, a Texas real estate investment trust (the "Company"), in
connection with the solicitation of proxies by its board of trust managers (the
"Board of Trust Managers" or the "Board") on behalf of the Company for use at
the 2004 Annual Meeting of Shareholders of the Company (the "Meeting") to be
held at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, on Monday,
June 28, 2004, at 10:00 a.m., Central Daylight Savings Time, for the purposes
set forth in the Notice of Annual Meeting. This Proxy Statement and the
accompanying form of proxy are first being sent or given to shareholders on or
about June 4, 2004.
The Company owns its assets and conducts its operations through Crescent
Real Estate Equities Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), and its other subsidiaries. The sole general partner
of the Operating Partnership is Crescent Real Estate Equities, Ltd., a Delaware
corporation (the "General Partner"), which is a wholly owned subsidiary of the
Company.
TABLE OF CONTENTS
Information about the 2004 Annual Meeting and Voting......................... 2
Proposal Number 1 - Election of Trust Managers............................... 3
Proposal Number 2 - Ratification of Appointment of Independent Auditors...... 3
Trust Managers and Executive Officers........................................ 5
Share Ownership.............................................................. 11
Executive Compensation....................................................... 13
Report of the Executive Compensation Committee............................... 18
Report of Audit Committee.................................................... 21
Certain Relationships and Related Transactions............................... 23
Other Information............................................................ 26
Appendix A - Audit Committee Charter......................................... A-1
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INFORMATION ABOUT THE 2004 ANNUAL MEETING AND VOTING
RECORD DATE AND OUTSTANDING CAPITAL SHARES
The record date for determination of the shareholders entitled to notice
of and to vote at the Meeting is the close of business on April 29, 2004 (the
"Record Date"). At the close of business on the Record Date, 99,322,151 of the
Company's common shares of beneficial interest, par value $.01 per share (the
"Common Shares"), were issued, outstanding and entitled to vote at the Meeting.
PROCEDURAL MATTERS
Any proxy, if received in time, properly signed and not revoked, will be
voted at the Meeting in accordance with the directions of the shareholder. If no
directions are specified, the proxy will be voted FOR Proposals 1 and 2 (Items 1
and 2 on the proxy card). If any other matter or business is brought before the
Meeting or any adjournment thereof, the proxy holders may vote the proxy in
their discretion. The Board of Trust Managers does not know of any such matter
or business to be presented for consideration.
A proxy may be revoked by (i) delivering a written statement to the
Secretary of the Company stating that the proxy is revoked, (ii) presenting at
the Meeting a subsequent proxy executed by the person executing the prior proxy,
or (iii) attending the Meeting and voting in person.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
Common Shares outstanding and entitled to vote as of the Record Date is
necessary to constitute a quorum for the transaction of business at the Meeting.
In deciding all questions, a holder of Common Shares is entitled to one vote, in
person or by proxy, for each Common Share held in such holder's name on the
Record Date.
REQUIRED AFFIRMATIVE VOTE AND VOTING PROCEDURES
The vote required to elect the nominees as trust managers (Proposal Number
1) and to ratify appointment of independent auditors (Proposal Number 2) is a
majority of the votes cast at the Meeting by the holders of Common Shares
entitled to vote on such matter. 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. Under the Company's Restated Declaration of Trust, as amended (the
"Declaration of Trust"), Second Amended and Restated Bylaws, (the "Bylaws"), and
applicable law, abstentions constitute votes cast but broker non-votes do not.
As a result, ballots marked "withhold authority" with respect to the election of
the trust managers or "abstain" with respect to the ratification of the
appointment of independent auditors effectively constitute votes against those
matters. Broker non-votes will have no effect on the outcome of the vote on
either of the proposals. In the event that you hold your shares through the
Company's 401(k) Plan and you elect not to vote your shares, the 401(k) Plan's
Trustees will vote your undirected shares in the same proportion as those shares
for which the Trustees received proper voting directions from the remaining
401(k) Plan participants.
COSTS OF PROXY SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
proxy material. Upon request, the Company will reimburse brokers, banks,
nominees and other fiduciaries for postage and reasonable clerical expenses of
forwarding the proxy materials to their principals, the beneficial owners of the
Common Shares. In an effort to have as large a representation at the Meeting as
possible, special solicitation of proxies may, in certain instances, be made
personally, or by telephone, facsimile, or mail by one or more employees of the
General Partner, who will not receive any additional compensation in connection
therewith.
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PROPOSAL NUMBER 1
ELECTION OF TRUST MANAGERS
The trust managers of the Company are divided into three classes, with the
shareholders electing a portion of the trust managers annually. The trust
managers whose terms will expire at the Meeting are Dennis H. Alberts and Terry
N. Worrell. Messrs. Alberts and Worrell have been nominated and have agreed to
stand for election at the Meeting as trust managers, to hold office until the
Annual Meeting of Shareholders in 2007, or until their respective successors are
elected and qualified.
The nominees who receive a majority of the votes cast by shareholders who
are present in person or represented by proxy at the Meeting and entitled to
vote on the election of trust managers will be elected as trust managers of the
Company.
THE BOARD OF TRUST MANAGERS RECOMMENDS A VOTE FOR DENNIS H. ALBERTS AND
TERRY N. WORRELL AS TRUST MANAGERS TO HOLD OFFICE UNTIL THE ANNUAL MEETING OF
SHAREHOLDERS IN 2007, OR UNTIL THEIR RESPECTIVE SUCCESSORS ARE ELECTED AND
QUALIFIED.
If either one or both of Mr. Alberts or Mr. Worrell becomes unable to
serve as a trust manager for any reason, the Board of Trust Managers may
designate a substitute nominee or nominees, in which event the persons named in
the enclosed proxy will vote for the election of the substitute nominee or
nominees. Alternatively, the Board may leave unfilled until a later time any
vacant position or may reduce the number of trust managers on the Board of Trust
Managers.
PROPOSAL NUMBER 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On June 24, 2002, the Audit Committee of the Board of Trust Managers of
the Company terminated the engagement of Arthur Andersen LLP as the Company's
independent auditors, and engaged Ernst & Young LLP to serve as the Company's
independent auditors for the fiscal year ended December 31, 2002.
Arthur Andersen LLP's reports on the Company's Consolidated Financial
Statements for each of the fiscal years ended December 31, 2001 and December 31,
2000 did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2001 and December 31, 2000, and
through the date of termination of the engagement of Arthur Andersen LLP as the
Company's independent auditors, there were no disagreements with Arthur Andersen
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen LLP's satisfaction, would have caused Arthur Andersen LLP to make
reference to the subject matter in connection with its report on the Company's
Consolidated Financial Statements for such years. There were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the fiscal years ended December 31, 2001 and December 31, 2000, and
through the date of termination of the engagement of Arthur Andersen LLP as the
Company's independent auditors, the Company did not consult Ernst & Young LLP
with respect to the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's Consolidated Financial Statements, or any
other matters or reportable events as set forth in Items 304 (a) (2) (i) or (ii)
of Regulation S-K.
A copy of Arthur Andersen LLP's letter dated June 25, 2002, stating that
it has found no basis for disagreement with these statements, was filed as an
exhibit to the Company's current report on Form 8-K filed with the Commission on
June 26, 2002.
The Audit Committee of the Board of Trust Managers of the Company believes
that the Company should continue its relationship with Ernst & Young LLP and has
appointed Ernst & Young LLP to continue as the Company's independent auditors
for the fiscal year ending December 31, 2004. In the event that ratification of
this
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appointment of auditors is not approved by the affirmative vote of a majority of
the votes cast on the matter by shareholders present or represented by proxy at
the Meeting and entitled to vote on the matter, then the Audit Committee of the
Board of Trust Managers of the Company will reconsider its appointment of
independent auditors. In this case, the Audit Committee, in its discretion, may
continue the Company's relationship with Ernst & Young LLP. In addition, the
Audit Committee, in its discretion, may direct the appointment of different
independent auditors at any time during the year if the Audit Committee believes
that such an appointment would be in the best interests of the Company's
shareholders.
A representative of Ernst & Young LLP is expected to be present at the
Meeting. The representative will have an opportunity to make a statement and
will be able to respond to appropriate questions.
Fiscal 2003 and 2002 Audit Firm Fee Summary. During fiscal years 2003 and
2002, the Company retained Ernst & Young LLP and Arthur Andersen LLP to provide
services in the following categories and amounts:
FISCAL YEAR 2003 FISCAL YEAR 2002
---------------- ----------------------------
ERNST & YOUNG ERNST & YOUNG ARTHUR
LLP LLP ANDERSON LLP
Audit Fees $1,342,500 $ 868,000 $ 17,000
Audit Related Fees (1) 650,000 424,000 273,611
Tax Fees (2) 858,500 341,000 -
All Other Fees -
2,000(3) 75,000(4)
Total $2,853,000 $1,708,000 $290,611
--------
(1) Audit related fees consist of audit fees for a significant unconsolidated
subsidiary, fees incurred for consultation concerning financial accounting
and reporting standards, comfort letters, and work performed in connection
with SEC offerings and other filings.
(2) Tax fees include tax consultation and federal and state tax compliance.
(3) Represents tax software and stock option software.
(4) Represents financial information systems design and implementation fees.
Since Ernst & Young LLP was retained in 2002, the Audit Committee has
approved in advance all fees paid to and services provided by Ernst & Young LLP.
The Audit Committee of the Board of Trust Managers has considered those services
provided by Ernst & Young LLP for the Company not provided in conjunction with
the audit and review of its financial statements and has determined that such
services are compatible with maintaining the independence of Ernst & Young LLP.
THE BOARD OF TRUST MANAGERS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 2004.
4
TRUST MANAGERS AND EXECUTIVE OFFICERS
The Board of Trust Managers of the Company currently consists of eight
members, divided into three classes serving staggered three-year terms. Set
forth below is information with respect to the current eight trust managers of
the Company, including the nominees, and the executive officers of the Company
and the General Partner.
NAME TERM EXPIRES AGE POSITION
---- ------------ --- --------
Richard E. Rainwater 2006 59 Chairman of the Board of Trust Managers of
the Company
John C. Goff 2005 48 Vice Chairman of the Board of Trust
Managers of the Company, Chief Executive
Officer of the Company and the General
Partner, and Sole Director of the General
Partner
Dennis H. Alberts 2004 55 Trust Manager of the Company and President
and Chief Operating Officer of the Company
and the General Partner
Anthony M. Frank 2006 73 Trust Manager of the Company
William F. Quinn 2006 56 Trust Manager of the Company
Paul E. Rowsey, III 2005 49 Trust Manager of the Company
Robert W. Stallings 2005 55 Trust Manager of the Company
Terry N. Worrell 2004 59 Trust Manager of the Company
Kenneth S. Moczulski N/A 52 President of Investments and Chief Investment
Officer of the Company and the General
Partner
Jane E. Mody N/A 53 Executive Vice President, Capital Markets,
of the Company and the General Partner
Jerry R. Crenshaw, Jr. N/A 40 Executive Vice President and Chief
Financial Officer of the Company and the
General Partner
David M. Dean N/A 43 Executive Vice President, Law and
Administration, and Secretary of the
Company and the General Partner
Jane B. Page N/A 43 Executive Vice President, Asset Management
and Leasing, Houston Region, of the General
Partner
John L. Zogg, Jr. N/A 40 Senior Vice President, Asset Management and
Leasing, Dallas Region, of the General
Partner
Christopher T. Porter N/A 38 Vice President and Treasurer of the Company
and the General Partner
5
The following is a summary of the experience of the current and proposed
trust managers and the current executive officers.
Richard E. Rainwater has been an independent investor since 1986. From
1970 to July 1986, he served as the chief investment advisor to the Bass family,
whose overall wealth increased dramatically during his tenure. During that time,
Mr. Rainwater was principally responsible for numerous major corporate and real
estate acquisitions and dispositions. Upon beginning his independent investment
activities, he founded ENSCO International Incorporated, an oil field service
and offshore drilling company, in December 1986. Additionally, in June 1988, he
co-founded Columbia Hospital Corporation, and in March 1989 he participated in a
management-led buy out of HCA-Hospital Corporation of America. In November 1992,
Mr. Rainwater co-founded Mid Ocean Limited, a provider of casualty re-insurance.
In February 1994, he assisted in the merger of Columbia Hospital Corporation and
HCA-Hospital Corporation of America that created Columbia/HCA Healthcare
Corporation. Mr. Rainwater is a graduate of the University of Texas at Austin
and the Graduate School of Business at Stanford University. Mr. Rainwater has
served as the Chairman of the Board of Trust Managers since the Company's
inception in 1994.
John C. Goff co-founded the Company with Mr. Rainwater while serving as
principal of Rainwater, Inc. Mr. Goff served as Chief Executive Officer and as a
trust manager from the Company's inception in February 1994 through December
1996, when he became Vice Chairman. In June 1999, Mr. Goff returned as Chief
Executive Officer of the Company and remains as Vice Chairman. Mr. Goff has
served as the managing principal of Goff Moore Strategic Partners, L.P., a
private investment partnership, since its formation in February 1998. From June
1987 to May 1994, Mr. Goff was vice president of Rainwater, Inc. Prior to
joining Rainwater, Inc., Mr. Goff was employed by KPMG Peat Marwick, with Mr.
Rainwater as one of his principal clients. Mr. Goff also serves on the boards of
GAINSCO, Inc., OpenConnect Systems, Inc. and The National Association of Real
Estate Investment Trusts. Mr. Goff is a graduate of the University of Texas and
is a Certified Public Accountant.
Dennis H. Alberts, prior to joining the Company, served as President and
Chief Executive Officer of Pacific Retail Trust, a privately held retail
shopping center real estate investment trust ("REIT"), which he founded in 1993.
While at Pacific Retail Trust, Mr. Alberts directed all aspects of the company,
including acquisition, development and operational activities, from 1993 until
1999 when Pacific Retail Trust merged into Regency Realty, Inc., a publicly
traded REIT. In 1999, Mr. Alberts also served as a consultant to Regency Realty,
Inc. Prior to founding Pacific Retail Trust, Mr. Alberts served as President and
Chief Operating Officer of First Union Real Estate Investments, a publicly held
retail, multi-family and office REIT, in 1992. From 1987 to 1991, Mr. Alberts
served as President and Chief Executive Officer of Rosewood Property Company
where he focused on asset management and leasing of Rosewood's office portfolio.
Before joining Rosewood Property Company, he served as President and Managing
Partner of Trammell Crow Residential Companies of Dallas from 1984 to 1987. Mr.
Alberts holds a Bachelor of Science degree and Master of Business Administration
degree from the University of Missouri. Since April 2000, Mr. Alberts has served
as President and Chief Operating Officer of the Company and the General Partner.
Mr. Alberts has served as a trust manager since May 2002.
Anthony M. Frank currently serves as Chairman Emeritus of Belvedere
Capital Partners, general partner of the California Community Financial
Institutions Fund LP, which he co-founded in 1994. From March 1988 to March
1992, he served as Postmaster General of the United States. From April 1992
until June 1993, he served as the founding chairman of Independent Bancorp of
Arizona. Mr. Frank has also served as a Director of: Temple Inland, Inc., a
manufacturer of paper and timber products, from May 1992 to May 2004; Bedford
Property Investors, Inc., an office and commercial property REIT investing
primarily on the West Coast, since May 1992; Charles Schwab & Co., one of the
nation's largest discount brokerages, from July 1993 to May 2004; and
Cotelligent, Inc., a provider of temporary office support services, since May
1995. Mr. Frank received a Bachelor of Arts degree from Dartmouth College and a
Master of Business Administration degree from the Amos Tuck School of Business
at Dartmouth. Mr. Frank has served as a trust manager since the Company's
inception in 1994.
William F. Quinn has served as President of AMR Investment Services, Inc.,
the investment services affiliate of American Airlines, with responsibility for
the management of pension and short-term fixed income assets, since November
1986. Prior to being named to his current position in 1986, Mr. Quinn held
several management positions with American Airlines and its subsidiaries. He has
served as Director of the Board of American Airlines
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Federal Credit Union since July 1979, including serving as Chairman of the Board
from November 1989 to May 2003 and President, Chief Executive Officer and
Trustee of the American AAdvantage Funds since July 1987. Mr. Quinn has served
on the advisory board for Southern Methodist University's Endowment Fund since
September 1996 and has formerly served two terms on the New York Stock Exchange
Pension Management Advisory Committee October 1, 2000 to May 31, 2003 and
October 1, 1996 to April 20, 1999. He holds a Bachelor of Science degree in
accounting from Fordham University and is a Certified Public Accountant. Mr.
Quinn has served as a trust manager since the Company's inception in 1994.
Paul E. Rowsey, III, has served as President of Eiger, Inc., a private
real estate investment management firm, and the manager of Eiger Fund I, L.P., a
real estate equity investment fund, since their formation in January 1999. He
was formerly President and a member of the Board of Directors of Rosewood
Property Company, a real estate investment company, a position he held from
February 1988 until December 1998. Mr. Rowsey has served as a member of the
Board of Directors of ENSCO International Incorporated, an offshore oil field
service and drilling company, since January 2000. Mr. Rowsey began his career in
1980 as an attorney specializing in commercial real estate. Mr. Rowsey holds a
Bachelor of Arts degree from Duke University and a Juris Doctor degree from
Southern Methodist University School of Law. Mr. Rowsey has served as a trust
manager since the Company's inception in 1994.
Robert W. Stallings has served as Chairman and President of Stallings
Capital Group, Inc., a Dallas-based merchant banking firm specializing in the
financial services industry, since February 2001. In addition, he has been
non-executive Chairman of GAINSCO, Inc. since September 2001, and prior to that
time served as non-executive Vice Chairman of GAINSCO, Inc. beginning in March
2001. Mr. Stallings also provides consulting services for GAINSCO, Inc. Mr.
Stallings also serves as a director of Texas Capital Bank. He is the retired
Chairman and founder of ING Pilgrim Capital Corporation, a $20 billion asset
management firm which was acquired by ING Group in September 2000 and with which
he had been associated since 1991. Mr. Stallings received a Bachelor of Arts
degree in Business from Johnson & Wales University. Mr. Stallings has served as
a trust manager since May 2002.
Terry N. Worrell has been a private investor in commercial properties and
other business ventures with Worrell Investments since 1989. From 1974 to 1989,
he served as President and Chief Executive Officer of Sound Warehouse of Dallas,
Inc. prior to its purchase by Shamrock Holdings. Mr. Worrell serves as a
director of Regency Centers Corp., a developer/operator of shopping centers, and
NL Industries, Inc., an international producer of titanium dioxide pigments. Mr.
Worrell received a Master of Business Administration degree from the University
of North Texas. Mr. Worrell has served as a trust manager since May 2002.
Kenneth S. Moczulski, prior to joining the Company, served as President
and founder of Transworld Properties, Inc., a subsidiary of a privately held
international oil company, beginning in January 1992. While at Transworld
Properties, Inc., Mr. Moczulski was responsible for the formation and
implementation of real estate investment strategy, as well as management of
on-going real estate development, asset management, and dispositions. Prior to
founding Transworld Properties, Inc., Mr. Moczulski served as Vice President of
Jaymont Properties in New York from April 1987 to December 1991, where he was
responsible, on a national basis, for all acquisition and disposition
activities. From February 1979 to March 1987, Mr. Moczulski served as
Development Manager for a number of commercial developments for Gerald D. Hines
Interests. Mr. Moczulski holds a Bachelor of Science degree in Civil Engineering
from the University of Cincinnati and a Master of Business Administration degree
from Harvard Graduate School of Business. Mr. Moczulski has served as President
of Investments and Chief Investment Officer of the Company and the General
Partner since November 2000.
Jane E. Mody, prior to joining the Company, served as Vice President of
Goldman, Sachs & Co. from February 2000 to February 2001. While at Goldman,
Sachs & Co., Ms. Mody worked with the real estate merchant banking division and
was responsible for fund reporting for nine real estate opportunity funds. She
served as Managing Director and Chief Financial Officer of Pacific Retail Trust,
a private REIT, which she co-founded, from December 1993 until February 1999
when Pacific Retail Trust merged into Regency Realty, Inc., a publicly traded
REIT. From February 1999 to August 1999 Ms. Mody served as a consultant to
Regency Realty, Inc. Prior to co-founding Pacific Retail Trust, Ms. Mody served
as Executive Vice President of Rosewood Property Company, a real estate
investment company, from April 1988 to December 1993. Ms. Mody graduated from
Austin College with a Bachelor of Arts degree and holds a Master of Business
Administration degree in International Business from the
7
University of Dallas. Ms. Mody has served as Executive Vice President, Capital
Markets of the Company and the General Partner since February 2001.
Jerry R. Crenshaw, Jr., prior to joining the Company, was the Controller
of Carrington Laboratories, Inc., a pharmaceutical and medical device company,
from 1991 until February 1994. From 1986 until 1991, Mr. Crenshaw was an audit
senior in the real estate services group of Arthur Andersen LLP. Mr. Crenshaw
holds a Bachelor of Business Administration degree in accounting from Baylor
University and is a Certified Public Accountant. Mr. Crenshaw served as
Controller from the Company's inception in 1994 to March 1997 when he became
Vice President and served as Vice President, Controller until December 1998 and
Vice President, Finance until September 1999. In addition, Mr. Crenshaw served
as Interim Co-Chief Financial Officer of the Company and the General Partner
from August 1998 until April 1999. From September 1999 to October 2002, Mr.
Crenshaw served as Senior Vice President, Chief Financial Officer of the Company
and the General Partner. Mr. Crenshaw has served as Executive Vice President,
Chief Financial and Accounting Officer of the Company and Executive Vice
President and Chief Financial Officer of the General Partner since October 2002.
David M. Dean, prior to joining the Company, was an attorney for
Burlington Northern Railroad Company from 1992 to 1994, and he served as
Assistant General Counsel in 1994. At Burlington Northern, he was responsible
for the majority of that company's transactional and general corporate legal
work. Mr. Dean was previously engaged in the private practice of law from 1986
to 1990 with Kelly, Hart & Hallman, and from 1990 to 1992 with Jackson Walker
L.L.P., where he worked primarily on acquisition, financing and venture capital
transactions for Mr. Rainwater and related investor groups. Mr. Dean graduated
with honors from Texas A&M University with Bachelor of Arts degrees in English
and philosophy in 1983. He also holds a Juris Doctor degree and a Master of Laws
degree in taxation from Southern Methodist University School of Law. Mr. Dean
served as Senior Vice President, Law, and Secretary from the time he joined the
Company in August 1994 to September 1999 when he became Senior Vice President,
Law and Administration and Secretary, a position which he held until January
2001. Since January 2001, Mr. Dean has served as Executive Vice President, Law
and Administration and Secretary of the Company and the General Partner.
Jane B. Page, prior to joining the Company, was employed by Metropolitan
Life Real Estate Investments from July 1984 to January 1998, holding positions
of director of corporate property management and regional asset manager of
Metropolitan's institutional portfolio in Houston, Austin and New Orleans. Ms.
Page's 14-year tenure at Metropolitan also included membership on Metropolitan's
Investment Committee, which reviewed and approved all significant transactions
on a national basis. Ms. Page serves on the Boards of the Greater Houston
Partnership, Central Houston, Inc. and the Downtown Houston Management District.
Ms. Page graduated with a Bachelor of Arts degree from Point Loma College in San
Diego and with a Master of Business Administration degree from the University of
San Francisco. She also holds Certified Commercial Investments Manager and
Certified Property Manager designations. Ms. Page served as Director of Asset
Management, Houston Region from the time she joined the Company in January 1998
to December 1998, when she became Vice President, Houston Region Asset
Management and served in that capacity until September 1999 when she became Vice
President, Asset Management, Houston Region. From May 2000 to March 2004, Ms.
Page served as Senior Vice President, Asset Management and Leasing, Houston
Region. Since March 2004, Ms. Page has served as Executive Vice President, Asset
Management and Leasing, Houston Region.
John L. Zogg, Jr. served as Vice President of the commercial real estate
group of Rosewood Property Company, responsible for marketing and leasing office
space in the Dallas and Denver areas, from January 1989 to May 1994. For three
years prior to joining Rosewood Property Company, Mr. Zogg worked as Marketing
Manager of Gerald D. Hines Interests, where he was responsible for office
leasing in the Dallas metropolitan area from June 1985 to January 1988. He
graduated from the University of Texas at Austin with a Bachelor of Arts degree
in economics and holds a Master of Business Administration degree from the
University of Dallas. Mr. Zogg joined the Company as a Vice President in May
1994 and served as Vice President, Leasing and Marketing, from June 1997 to
September 1999 when he became Vice President, Leasing/Marketing, Southwest
Region. Since May 2000, Mr. Zogg has served as Senior Vice President, Asset
Management and Leasing, Dallas Region.
Christopher T. Porter, prior to joining the Company, held the office of
Senior Vice President, Investor Relations, for Associates First Capital
Corporation, a leading financial services firm, from January 1999 through
8
October 1999. Prior to 1999, Mr. Porter served as Vice President and Assistant
Treasurer in banking relations and cash management at Associates First Capital
Corporation from November 1991 through January 1999. Mr. Porter received a
Bachelor of Science degree in economics from the University of Texas at Austin
and a Master of Business Administration degree in finance from the University of
North Texas and is a certified cash manager. Mr. Porter has served as Vice
President and Treasurer of the Company and the General Partner since December
1999.
TRUST MANAGER COMPENSATION
During 2003, each trust manager who is not also an officer of the Company
("Outside Trust Manager") received an annual fee of $40,000 (payable in cash or,
at the election of the trust manager, in Common Shares in an amount determined
by dividing the fees otherwise payable by 90% of the fair market value of the
Common Shares). In addition, during 2003, each Outside Trust Manager received a
meeting fee of $1,500 for each Board of Trust Managers meeting attended in
person or by telephone, a fee of $2,000 for the Audit Committee Chairman's
participation in each Audit Committee meeting attended in person or by
telephone, a fee of $1,500 for each Audit Committee member's participation in
each Audit Committee meeting attended in person or by telephone, a fee of $1,500
for all other committee chairmen's participation in each committee meeting
attended in person or by telephone, and a fee of $1,000 for all other committee
members' participation in each committee meeting attended in person or by
telephone. In addition, each Outside Trust Manager annually receives a grant of
14,000 stock options under the Company's 1995 Stock Incentive Plan, as amended.
Trust managers who are also officers receive no separate compensation for their
service as trust managers.
BOARD OF TRUST MANAGERS
Corporate Governance. The Company is currently managed by an eight-member
Board of Trust Managers. The Board has adopted a corporate governance policy,
which, along with the written charters for the Board committees described below,
provide the framework for the Board's governance of the Company. The corporate
governance policy is available in the investor relations section of the
Company's website at www.crescent.com.
Meetings and Attendance. During the last fiscal year, the Board of Trust
Managers held four meetings, and no trust manager attended fewer than 75% of the
aggregate of all meetings of the Board of Trust Managers and the committees, if
any, upon which such trust managers served and which were held during the period
of time that such person served on the Board of Trust Managers or such
committee. In addition, all of the Company's trust managers attended the 2003
annual shareholders meeting.
Shareholder Communications. The Board of Trust Managers has adopted a
Shareholder Communications Policy that includes processes for shareholders to
send communications to the Board. The Shareholder Communications Policy is
available in the investor relations section of the Company's website at
www.crescent.com.
COMMITTEES OF THE BOARD OF TRUST MANAGERS
The Board of Trust Managers has three standing committees, which are
described below. The Board of Trust Mangers has determined that all current
members of each committee are "independent" as that term is defined under the
listing standards of the New York Stock Exchange. The charter for each of these
committees is available in the investor relations section of the Company's
website at www.crescent.com
Audit Committee. From January 1, 2003 to February 14, 2003, the Audit
Committee consisted of Anthony M. Frank, Chairman, William F. Quinn and David M.
Sherman. On February 14, 2003, Mr. Sherman resigned from the Board. On April 28,
2003, the Board elected Robert W. Stallings to the committee. The Audit
Committee currently consists of Mr. Frank, Chairman, and Messrs. Quinn and
Stallings. The Board of Trust Managers has determined that Anthony M. Frank is
an "audit committee financial expert," as defined by applicable Securities and
Exchange Commission ("SEC" or "Commission") rules. The Audit Committee, which
held nine meetings in 2003, has sole discretion concerning the engagement of
independent auditors, reviews with the independent auditors the plans and
results of the audit engagement, approves or pre-approves professional services
that the independent
9
auditors provide, reviews the independence of the independent auditors,
considers the range of audit and non-audit fees and reviews the adequacy of the
Company's internal accounting controls.
Executive Compensation Committee. The Executive Compensation Committee
consists of Paul E. Rowsey, III, Chairman, Anthony M. Frank and Terry N.
Worrell. The Executive Compensation Committee, which held three meetings in
2003, determines compensation for the Company's executive officers and
administers the stock incentive and other compensation plans that the Company
adopts.
Governance Committee. The Governance Committee consists of Robert W.
Stallings, Chairman, Paul E. Rowsey, III, and Terry N. Worrell. The Governance
Committee nominates persons to serve as members of the Board of Trust Managers.
The Governance Committee seeks to identify candidates for trust manager who have
the following skills and characteristics: (i) superior leadership abilities;
(ii) independence; (iii) commitment to improving the Company's value for the
benefit of its shareholders; (iv) innovative thought; (v) business and
management experience; and (vi) a working knowledge of basic finance and
accounting principles. The Governance Committee also will consider nominees that
shareholders recommend, and these recommendations may be delivered in writing to
the attention of the Governance Committee in care of the Company Secretary at
the Company's principal executive offices. The procedures and information
required for shareholders to make nominations for trust managers are described
in the section of this proxy statement entitled "Other Information - Shareholder
Proposals for the Company's 2005 Annual Meeting of Shareholders."
In addition, the Governance Committee develops and recommends to the Board
corporate governance policies and procedures applicable to the Company,
particularly as such policies and procedures may be required by federal and
state securities laws, the New York Stock Exchange or any other applicable
regulatory requirements. The Governance Committee held three meetings in 2003.
CODE OF BUSINESS CONDUCT
All trust managers, officers and employees of the Company must act
ethically at all times and in accordance with the policies comprising the
Company's Code of Business Conduct. The Code of Business Conduct is published on
the investor relations section of the Company's website at www.crescent.com, and
the Company intends to post amendments to and waivers from the Code of Business
Conduct on this website.
10
SHARE OWNERSHIP
The following table sets forth the beneficial ownership of Common Shares
for (i) each shareholder of the Company who beneficially owns more than 5% of
the Common Shares, (ii) each trust manager and nominee for trust manager, (iii)
the Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company and the General Partner (collectively, the
"Named Executive Officers"), and (iv) the trust managers and executive officers
of the Company and the General Partner as a group. Unless otherwise indicated in
the footnotes, the listed beneficial owner directly owns all Common Shares. (1)
NUMBER OF
COMMON SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(2) (3)(4)(5)(6) COMMON SHARES (7)
------------------------------------------------- ------------------ -----------------
Richard E. Rainwater............................. 16,126,636(8) 14.6%
John C. Goff..................................... 4,806,889(9) 4.7%
Dennis H. Alberts................................ 565,000 *
Anthony M. Frank................................. 106,000 *
William F. Quinn................................. 119,566 *
Paul E. Rowsey, III.............................. 97,679 *
Robert W. Stallings.............................. 65,700(10) *
Terry N. Worrell................................. 8,400 *
Kenneth S. Moczulski............................. 210,200(11) *
Jane E. Mody..................................... 117,532(12) *
Jerry R. Crenshaw, Jr............................ 389,590 *
Barrow, Hanley, Mewhinney & Strauss............. 6,898,400(13) 7.0%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
Cohen & Steers Capital Management, Inc. 10,867,200(14) 10.8%
757 Third Avenue
New York, New York 10017
Trust Managers and Executive Officers as a
Group (15 persons) ............................ 23,491,657(8)(9) 21.8%
(10)(11)(12)
----------
* Less than 1%
(1) All information is as of April 29, 2004 (the "Record Date"), unless
otherwise indicated. The number of Common Shares beneficially owned
is reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Accordingly,
the number of Common Shares a person beneficially owns includes (i)
the number of Common Shares that such person has the right to
acquire within 60 days of the Record Date upon the exercise of
options (" Stock Options") granted pursuant to the 1994 Crescent
Real Estate Equities, Inc. Stock Incentive Plan (the "1994 Plan") or
the 1995 Crescent Real Estate Equities Company Stock Incentive Plan,
as amended (the "1995 Plan"), (ii) the number of Common Shares that
may be issued within 60 days of the Record Date upon exchange of
partnership units of the Operating Partnership ("Units") that such
person owns for Common Shares, with such exchange made on the basis
of two Common Shares for each Unit exchanged (assuming the Company
elects to issue Common Shares rather than pay cash upon such
exchange), and (iii) the number of Common Shares that may be issued
within 60 days of the Record Date upon exercise of options (the
"Plan Unit Options") granted under the 1996 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan, as amended (the
"Unit Plan"), to purchase Units and the subsequent exchange of such
Units for Common Shares, with such exchange made on the basis of two
Common Shares for each Unit exchanged (assuming the Company elects
to issue Common Shares rather than pay cash upon such exchange). In
addition, the number of Common Shares a person beneficially owns is
deemed to include the number of Common Shares issuable upon
conversion of the Series A Convertible Cumulative Preferred Shares
(the "Series A Preferred Shares"), each of which is currently
convertible into .6119 Common Shares. As of the Record Date, none of
the persons listed in the Beneficial Ownership table, other than
Cohen & Steers Capital Management, Inc., and no executive officer
not listed in the table, beneficially owned any Series A Preferred
Shares.
(2) Unless otherwise indicated, the address of each beneficial owner is
777 Main Street, Suite 2100, Fort Worth, Texas 76102.
(3) The number of Common Shares the following persons beneficially own
includes the number of Common Shares indicated due to the vesting of
unexercised Stock Options, as follows: John C. Goff -- 200,000;
Dennis H. Alberts -- 420,000; Anthony M. Frank -- 72,800; William F.
Quinn -- 84,000; Paul E. Rowsey, III -- 81,200, Robert W. Stallings
-- 8,400; Terry N. Worrell -- 8,400;
11
Kenneth S. Moczulski -- 210,000; Jane E. Mody -- 108,000; Jerry R.
Crenshaw, Jr. -- 255,800; and Trust Managers and Executive Officers
as a Group -- 2,015,350.
(4) The number of Common Shares the following persons beneficially own
includes the number of Common Shares owned indirectly through
participation in the General Partner's 401(k) Plan as of March 31,
2004, as follows: John C. Goff -- 11,068; Jerry R. Crenshaw, Jr. --
6,932, and Trust Managers and Executive Officers as a Group --
30,334.
(5) The number of Common Shares the following persons beneficially own
includes the number of Common Shares that may be issued upon
exchange of Units that such person owns, as follows: Richard E.
Rainwater -- 11,447,344; John C. Goff -- 1,812,970; and Trust
Managers and Executive Officers as a Group -- 13,260,304.
(6) The number of Common Shares the following persons beneficially own
includes the number of Common Shares owned through participation in
the General Partner's Employee Stock Purchase Plan as of March 31,
2004, as follows: John C. Goff -- 2,415; and Trust Managers and
Executive Officers as a Group -- 2,627.
(7) The percentage of Common Shares that a person listed in the
Beneficial Ownership table beneficially owns assumes that (i) as to
that person, all Units are exchanged for Common Shares, all Series A
Preferred Shares are exchanged for Common Shares, all Stock Options
exercisable within 60 days of the Record Date are exercised and all
Plan Unit Options exercisable within 60 days of the Record Date are
exercised and the Units so acquired are subsequently exchanged for
Common Shares, and (ii) as to all other persons, no Units are
exchanged for Common Shares, no Series A Preferred Shares are
converted into Common Shares, and no Stock Options or Plan Unit
Options are exercised.
(8) The number of Common Shares that Mr. Rainwater beneficially owns
includes 743,920 Common Shares and 519,610 Common Shares that may be
issued upon exchange of Units that Darla Moore, Mr. Rainwater's
spouse, owns. Mr. Rainwater disclaims beneficial ownership of these
Common Shares. In addition, the number of Common Shares that Mr.
Rainwater beneficially owns includes 2,943,744 Common Shares and
6,320,468 Common Shares that may be issued upon exchange of Units
that Mr. Rainwater owns indirectly, including (i) 12,346 Common
Shares and 49,506 Common Shares that may be issued upon exchange of
Units owned by Rainwater, Inc., a Texas corporation, of which Mr.
Rainwater is a director and the sole owner, (ii) 6,270,962 Common
Shares that may be issued upon exchange of Units owned by Office
Towers LLC, a Nevada limited liability company, of which Mr.
Rainwater and Rainwater, Inc. own an aggregate 100% interest, and
(iii) 2,931,398 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.
(9) The number of Common Shares that Mr. Goff beneficially owns includes
(i) 152,560 Common Shares that may be issued upon exchange of Units
that Goff Family, L.P., a Delaware limited partnership, owns, (ii)
1,400,002 Common Shares that may be issued upon exchange of Units
due to the vesting of Plan Unit Options and (iii) 300,000 shares of
restricted stock, which will vest (i.e., the restrictions will
lapse) one-third on February 19, 2005, one-third on February 19,
2006 and one-third on February 19, 2007. Mr. Goff disclaims
beneficial ownership of the Common Shares that may be issued upon
exchange of Units that Goff Family, L.P. owns in excess of his
pecuniary interest in such Units. Mr. Goff has sole voting power
with respect to the shares of restricted stock.
(10) 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.
(11) The number of Common Shares that Mr. Moczulski beneficially owns
includes 200 Common Shares that are owned by The Kenneth and Cara
Moczulski Living Trust, of which Mr. Moczulski and his spouse Cara
A. Moczulski are co-settlors, co-beneficiaries and co-trustees. Mr.
Moczulski disclaims beneficial ownership of all shares held by the
Trust in excess of his pecuniary interest in the Trust.
(12) 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.
(13) Barrow, Hanley, Mewhinney & Strauss ("Barrow") filed a Schedule 13G
("Barrow Schedule 13G"), as of February 11, 2004, reporting that
Barrow beneficially owns 6,898,400 Common Shares. Barrow has sole
voting power as to 3,444,200 of the 6,898,400 Common Shares. Barrow
has sole dispositive power as to 6,898,400 of the 6,898,400 Common
Shares. All information presented above relating to Barrow is based
solely on the Barrow Schedule 13G.
(14) Cohen & Steers Capital Management, Inc. ("Cohen & Steers") filed a
13G/A ("Cohen & Steers Schedule 13G/A") as of February 17, 2004
reporting that Cohen & Steers beneficially owns 9,155,655 Common
Shares. Cohen & Steers has sole voting power as to 8,450,555 of the
9,155,655 Common Shares. Cohen & Steers has sole dispositive power
as to 9,155,655 of the 9,155,655 Common Shares. All information
presented above relating to Cohen & Steers is based solely on the
Cohen & Steers Schedule 13G/A. The number of Common Shares
beneficially owned by Cohen & Steers also includes 1,711,545 Common
Shares issuable upon conversion of 2,797,100 Series A Preferred
Shares owned by Cohen & Steers, with each Series A Preferred Share
convertible into .6119 Common Shares. All information presented
above relating to Cohen & Steers' ownership of Series A Preferred
Shares is based solely on a Form 13F filed by Cohen & Steers as of
December 31, 2003.
12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid
or awarded for the years ended December 31, 2003, 2002, and 2001, to the Named
Executive Officers. As a result of the Company's umbrella partnership REIT
structure, the General Partner, rather than the Company, compensates all
employees. The Company did not grant any stock appreciation rights ("SARs")
during this period.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER RESTRICTED SECURITIES ALL OTHER
ANNUAL STOCK UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS (#) PAYOUTS ($)
---------------------------- ---- ---------- --------- ---------------- ------------ ---------------- ------- -------------
John C. Goff 2003 894,231 1,350,000 660,000(1) - - 72,998(2)(3)
Chief Executive Officer 2002 750,000 900,000 660,000(1) 5,253,000(4) - 100,915
2001 750,000 750,000 - 3,000,000(5)(6)) - 55,171
-
Dennis H. Alberts 2003 494,904 750,000 440,000(1) - - 207,066(2)(3)
President and Chief 2002 367,500 551,250 440,000(1) - - (60,037)
Operating Officer 2001 366,827 353,000 - - 1,000,000(6) - (41,828)
700,000(7)(8)
Kenneth S. Moczulski 2003 349,231 378,000 308,000(1) - - 83,125(2)(3)
President of Investments 2002 328,846 396,000 308,000(1) - 350,000(6) - 3,295
and Chief Investment 2001 300,000 270,000 - - - - 2,520
Officer
Jane E. Mody 2003 328,461 363,000 264,000(1) - - 69,403(2)(3)
Executive Vice President, 2002 290,000 319,000 264,000(1) - 300,000(6) - -
Capital Markets 2001 238,692 207,000 - - 180,000(8) - -
Jerry R. Crenshaw, Jr. 2003 328,461 326,700 264,000(1) - - 80,142(2)(3)
Executive Vice President, 2002 271,779 319,000 231,000(1) - - 4,797
Chief Financial and 2001 262,019 170,000 - - 200,000(6) - 16,002
Accounting Officer -
----------
(1) Amount represents a cash allocation for dividend incentive units ("DIUs")
into a separate interest-bearing account maintained by the Company for Mr.
Goff, Mr. Alberts, Mr. Moczulski, Ms. Mody and Mr. Crenshaw at December
31, 2003 and December 31, 2002, respectively. The amount of the allocation
to any account is based on the number of DIUs allocated to the
participant's account, multiplied by the product of (i) the amount of
dividends paid by the Company with respect to its Common Shares and (ii)
the performance multiples associated with the performance targets that are
achieved or surpassed. The amounts will be paid to the participant on or
about the fifth anniversary of the date the DIUs were granted if the
participant remains an employee of the General Partner.
(2) Amounts include matching contributions that the General Partner made to
Mr. Goff's, Mr. Albert's, Mr. Moczulski's, Ms. Mody's and Mr. Crenshaw's
individual 401(k) Plan accounts in the amount of $12,000, $8,087, $6,795,
$6,000 and $12,000, respectively.
(3) Amounts include dividends allocated to Mr. Goff, Mr. Alberts, Mr.
Moczulski, Ms. Mody and Mr. Crenshaw for DIUs of $60,998, $198,979,
$76,330, $63,403 and $68,142, respectively, that are treated as invested
in the Company or specified public mutual funds made available to the
holders by the General Partner. See Note 1 above for an additional
explanation of DIUs.
(4) The $5,253,000 in the table above represents the value of 300,000
restricted shares issued to Mr. Goff at the date of grant. As of December
31, 2003, such shares had a value of $5,139,000. Distributions are paid on
the restricted shares.
(5) Amount includes 442,858 Common Shares, which represent the number of
Common Shares that may be issued following (i) exercise of options ("Plan
Unit Options") granted under the 1996 Crescent Real Estate Equities
Limited Partnership Unit Incentive Plan, as amended (the "Unit Plan") for
partnership units of the Operating Partnership ("Units") on a one-for-one
basis and (ii) exchange of Units for Common Shares on the basis of two
Common Shares for each Unit (assuming the Company elects to issue Common
Shares rather than pay cash upon such exchange).
(6) Amount includes the number of Common Shares that may be issued following
(i) exercise of options (the "Unit Options") granted pursuant to
individual agreements to purchase Units on a one-for-one basis and the
subsequent exchange of such Units for Common Shares, with
13
such exchange made on the basis of two Common Shares for each Unit
exchanged (assuming the Company elects to issue Common Shares rather than
pay cash upon such exchange), as follows: John C. Goff - 2,557,142; Dennis
H. Alberts - 1,000,000; Kenneth S. Moczulski - 350,000; Jane E. Mody -
300,000; and Jerry R. Crenshaw, Jr. - 200,000.
(7) Amount includes the number of Common Shares that may be issued following
(i) exercise of 150,000 Unit Options for 150,000 Units, and (ii) the
subsequent exchange of such Units for 300,000 Common Shares.
(8) Amount includes Common Shares underlying options ("Stock Options") granted
under the 1995 Crescent Real Estate Equities Company Stock Incentive Plan,
as amended (the "1995 Plan") granted to Mr. Alberts and Ms. Mody in the
amounts of 400,000 and 180,000, respectively.
OPTION GRANTS FOR THE YEAR ENDED DECEMBER 31, 2003
As disclosed in the following table, the Company granted no options to
the Named Executive Officers for the year ended December 31, 2003. In addition,
the Company did not grant any SARs during this period.
INDIVIDUAL GRANTS POTENTIAL
---------------------------------------------------- REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM ($)
OPTIONS EMPLOYEES IN OF BASE EXPIRATION -------------------
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH.) DATE 5% 10%
---- ----------- ----------- ------------- ---------- -- ---
(IN THOUSANDS)
John C. Goff............. - - - - - -
Dennis H. Alberts........ - - - - - -
Kenneth S. Moczulski..... - - - - - -
Jane E. Mody............. - - - - - -
Jerry R. Crenshaw, Jr.... - - - - - -
----------
AGGREGATED OPTION EXERCISES DURING 2003 AND OPTION VALUES AT DECEMBER 31, 2003
The following table provides information about options that the Named
Executive Officers exercised during the year ended December 31, 2003 and options
that each of them held at December 31, 2003. The Company did not grant any SARs
during this period.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
SHARES -------------------------------- ---------------------------
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- --------------- --------------- ----------- -------------
(IN THOUSANDS)
John C. Goff............. - - 1,757,144(2)(4) 2,700,000(3)(5) 395 395
Dennis H. Alberts........ - - 600,000(4) 1,340,000(5) - -
Kenneth S. Moczulski..... - - 280,000(4) 420,000(5) - -
Jane E. Mody............. - - 132,000(4) 348,000(5) - -
Jerry R. Crenshaw, Jr.... - - 325,800(4) 215,000(5) 148 72
---------
(1) Market value of securities underlying in-the-money options is based on the
closing price of the Common Shares on December 31, 2003 (the last trading
day of the fiscal year) on the New York Stock Exchange of $17.13, minus
the exercise price.
(2) The number of securities underlying exercisable but unexercised options
includes 1,400,002 Common Shares that may be issued following (i) vesting
of Plan Unit Options, (ii) exercise of Plan Unit Options for Units on a
one-for-one basis, and (iii) exchange of Units for
14
Common Shares on the basis of two Common Shares for each Unit (assuming
the Company elects to issue Common Shares rather than pay cash upon such
exchange).
(3) The number of securities underlying unexercisable and unexercised options
includes 100,000 Common Shares that may be issued following (i) vesting of
Plan Unit Options, (ii) exercise of Plan Unit Options for Units on a
one-for-one basis, and (iii) exchange of Units for Common Shares on the
basis of two Common Shares for each Unit (assuming the Company elects to
issue Common Shares rather than pay cash upon such exchange).
(4) The number of securities underlying exercisable but unexercised options
for Mr. Goff, Mr. Alberts, Mr. Moczulski, Ms. Mody, and Mr. Crenshaw
includes 157,142, 320,000, 70,000, 60,000 and 70,000 Common Shares,
respectively, that may be issued following (i) vesting of Unit Options
granted pursuant to individual agreements to purchase Units on a
one-for-one basis, (ii) exercise of Unit Options for Units on a
one-for-one basis, and (iii) the subsequent exchange of such Units for
Common Shares, with such exchange made on the basis of two Common Shares
for each Unit exchanged (assuming the Company elects to issue Common
Shares rather than pay cash upon such exchange). The number of securities
underlying exercisable but unexercised options for Mr. Goff, Mr. Alberts,
Mr. Moczulski, Ms. Mody and Mr. Crenshaw includes 200,000, 280,000,
210,000,72,000 and 255,800 Common Shares, respectively, that may be issued
following exercise of Stock Options for Common Shares on a one-for-one
basis.
(5) The number of securities underlying unexercisable and unexercised options
for Mr. Goff, Mr. Alberts, Mr. Moczulski, Ms. Mody, and Mr. Crenshaw
includes 2,400,000, 980,000, 280,000, 240,000 and 160,000 Common Shares,
respectively, that may be issued following (i) vesting of Unit Options
granted pursuant to individual agreements to purchase Units on a
one-for-one basis, (ii) exercise of Unit Options for Units on a
one-for-one basis, and (iii) the subsequent exchange of such Units for
Common Shares, with such exchange made on the basis of two Common Shares
for each Unit exchanged (assuming the Company elects to issue Common
Shares rather than pay cash upon such exchange). The number of securities
underlying unexercisable and unexercised options for Mr. Goff, Mr.
Alberts, Mr. Moczulski, Ms. Mody and Mr. Crenshaw includes 200,000,
360,000, 140,000, 108,000 and 55,000 Common Shares, respectively, that may
be issued following exercise of Stock Options for Common Shares on a
one-for-one basis.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 regarding
equity compensation plans approved by the shareholders and equity compensation
plans that were not approved by the shareholders.
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE EXERCISE NUMBER OF SECURITIES REMAINING
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING AVAILABLE FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS (2)(a) RIGHTS (2) (b) COLUMN (a) AND FOOTNOTE (2) (c)
------------- -------------------------- ------------------------- ----------------------------------
Equity compensation plans
approved by security
holders(1) 9,963,888 $19.98 191,170
Equity compensation plans
not approved by security
holders(3) 6,003,842 $18.16 49,276
Total
(1) Amount includes 7,126,744 Common Shares that may be issued following the
exercise of Stock Options granted under the 1994 Plan and the 1995 Plan.
Amount also includes 2,837,144 Common Shares that may be issued following
(i) exercise of Plan Unit Options granted under the Unit Plan to purchase
Units on a one-for-one basis and (ii) the subsequent exchange of such
Units for Common Shares on the basis of two Common Shares for each Unit
(assuming the Company elects to issue Common Shares rather than pay cash
upon such exchange).
(2) Excludes restricted Common Share grants and Common Shares issued to trust
managers in lieu of board fees. No exercise price is required to be paid
upon vesting of restricted shares.
(3) Amount represents the number of Common Shares that may be issued following
(i) exercise of options granted pursuant to the 1995 Crescent Real Estate
Equities Limited Partnership Unit Incentive Plan and individual agreements
to purchase Units and (ii) the subsequent exchange of such Units for
Common Shares on the basis of two Common Shares for each Unit (assuming
the Company elects to issue Common Shares rather than pay cash upon such
exchange). The options have exercise prices equal to the fair market value
of the Units on the date of grant, vest over five years and expire ten
years from the date of grant.
EMPLOYMENT AGREEMENT
As part of the transactions in connection with formation of the Company,
the Operating Partnership assumed an employment agreement between Rainwater,
Inc. and John C. Goff. The Operating Partnership takes
15
action through the General Partner. Mr. Goff serves as the sole member of the
board of directors of the General Partner. On February 19, 2002, the Company,
the Operating Partnership and Mr. Goff entered into a new employment agreement,
which will terminate on February 19, 2007, pursuant to which Mr. Goff is
entitled to an annual salary of $900,000 for 2003 and a bonus as determined in
the discretion of the Compensation Committee of the General Partner. In
addition, pursuant to the employment agreement, Mr. Goff was provided the right
to earn (i) 300,000 shares of restricted stock, one-third of which will be
earned on each of February 19, 2005, 2006 and 2007 and (ii) 1,500,000 Unit
Options, one-fifth of which will be earned on each of February 19, 2003 through
2007. The Units underlying such Unit Options are exchangeable into two Common
Shares of the Company upon the satisfaction of certain conditions, including
shareholder approval of the exchange right.
The salary under the employment agreement, which is not subject to a cap,
may be increased at the discretion of the Operating Partnership or, upon the
Operating Partnership's request, the Executive Compensation Committee of the
Company may review and ratify all such increases in salary. The Operating
Partnership similarly determines any bonus to be paid under the employment
agreement, unless it requests the Executive Compensation Committee to review and
ratify any such bonuses granted to Mr. Goff.
AGREEMENTS NOT TO COMPETE
The Company and the Operating Partnership are dependent on the services of
Richard E. Rainwater and John C. Goff. Mr. Rainwater serves as Chairman of the
Board of Trust Managers but has no employment agreement with the Company and,
therefore, is not obligated to remain with the Company for any specified term.
In connection with the initial public offering of the Common Shares in May 1994,
each of Messrs. Rainwater and Goff entered into a Noncompetition Agreement with
the Company that restricts him from engaging in certain real estate-related
activities during specified periods of time.
The restrictions that Mr. Rainwater's Noncompetition Agreement imposes
will terminate one year after the later to occur of (i) the date on which Mr.
Rainwater ceases to serve as a trust manager of the Company, and (ii) the date
on which Mr. Rainwater's beneficial ownership of the Company (including Common
Shares and Units) first represents less than a 2.5% ownership interest in the
Company. The restrictions that Mr. Goff's Noncompetition Agreement imposes will
terminate one year after Mr. Goff first ceases to be a trust manager or an
executive officer of the Company. The Noncompetition Agreements do not, among
other things, prohibit Messrs. Rainwater and Goff from engaging in certain
activities in which they were engaged at the time of formation of the Company in
1994 or from making certain passive real estate investments.
16
PERFORMANCE GRAPH
The following line graph sets forth a comparison of the percentage
change in the cumulative total shareholder return on the Common Shares compared
to the cumulative total return of the NAREIT All Equity REIT Return Index, the
S&P 500 Index and SNL Securities LP Office REITs Index
for the period December 31, 1998, through December 31, 2003. The graph depicts
the actual increase in the market value of the Common Shares relative to an
initial investment of $100 on December 31, 1998, assuming a reinvestment of cash
distributions.
TOTAL RETURN PERFORMANCE
(PERFORMANCE GRAPH)
PERIOD ENDING
INDEX 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
Crescent Real Estate Equities Company 100.00 88.69 120.19 107.12 107.42 121.84
S&P 500 100.00 121.11 110.34 97.32 75.75 97.51
SNL Office REITs 100.00 100.51 136.69 143.57 137.60 183.57
NAREIT All Equity REIT Index 100.00 95.38 120.53 137.32 142.57 195.51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Frank, Rowsey and Worrell, all of whom are members of the Board
of Trust Managers of the Company, served as members of the Executive
Compensation Committee during 2003. Mr. Frank has borrowed certain funds from
the Operating Partnership in connection with the exercise of Options, as
described in "Certain Relationships and Related Transactions" below.
17
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee is composed of Messrs. Rowsey
(Chairman), Frank and Worrell. Mr. Rowsey serves as Chairman. A majority of the
full Board of Trust Managers selects members of the Executive Compensation
Committee and its Chairman.
Compensation Philosophy and Objectives. The Executive Compensation
Committee determines the compensation for the Company's executive officers and
administers the stock incentive and other compensation plans that the Company
adopts. In addition, the Executive Compensation Committee makes recommendations
to the Board of Trust Managers, acting for the Company in its capacity as the
sole stockholder of the General Partner regarding certain compensation decisions
of the sole director of the General Partner with respect to the compensation of
the executive officers of the General Partner. For purposes of the following
discussion, the term "Company" includes, unless the context otherwise requires,
the Operating Partnership and the other subsidiaries of the Company and the
Operating Partnership, in addition to the Company.
The philosophy of the Company's compensation program is to employ, retain
and reward executives capable of leading the Company in achieving its business
objectives. These objectives include enhancing shareholder value, maximizing
financial performance, preserving a strong financial posture, increasing the
value of the Company's assets and positioning its assets and business in
geographic markets offering long-term growth opportunities. The accomplishment
of these objectives is measured against the conditions characterizing the
industry within which the Company operates. In implementing the Company's
compensation program, it generally is the policy of the Executive Compensation
Committee to seek to qualify executive compensation for deductibility by the
Company for purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended, to the extent that such policy is consistent with the Company's overall
objectives and executive compensation policy.
Executive Officer Compensation. The compensation of the executive officers
of the Company consists of a current component and a long term incentive. The
executive officers, in addition to their regular salaries, may be compensated
for the current performance of the Company in the form of (i) cash bonus awards,
generally pursuant to the Annual Incentive Plan ("Bonus Plan"), and (ii) awards
under the Dividend Incentive Unit Plan ("DIU Plan"). The Bonus Plan and the DIU
Plan were adopted by the General Partner in March 2000 in order to provide
appropriate incentives and rewards for services rendered by officers to the
Company. The General Partner adopted the plans with the approval of the
Executive Compensation Committee and the Board of Trust Managers. The Bonus Plan
and the DIU Plan, together with recommendations by the management of the
Company, were used by the General Partner and its Compensation Committee in
determining the executive compensation for 2003 and will be used in the future
for determining the current component of executive compensation. The
Compensation Committee of the General Partner (the "Committee") is also composed
of Messrs. Rowsey, Frank and Worrell. Mr. Rowsey also serves as the Chairman of
the Committee. The Committee is appointed by the Board of Directors of the
General Partner.
Under the Bonus Plan, at the beginning of the year, the Committee
designates (i) the positions covered by the Bonus Plan, (ii) the minimum and
maximum annual incentive opportunity or bonus that the individual holding each
position is eligible to earn for the year, and (iii) the performance necessary
to earn each level of bonus in three components. One of these components, the
Corporate component, provides for a certain portion of the bonus to be paid
based upon the Company's achievement of the thresholds relating to total return
to shareholders and Funds from Operations ("FFO") for the year. FFO, based on
the definition adopted by the Board of Governors of the National Association of
Real Estate Investment Trusts, and as used in this document, means net income
(loss) (determined in accordance with generally accepted accounting principles
("GAAP")) (i) excluding gains (or losses) from sales of depreciable operating
property, (ii) excluding extraordinary items (as defined by GAAP), (iii) plus
depreciation and amortization of real estate assets, and (iv) after adjustments
for unconsolidated partnerships and joint ventures. Most positions also are
assigned a second component, the Functional Unit component, which provides for a
certain portion of the bonus to be earned upon the achievement of individualized
measures of functional unit performance. For each officer, a third component,
the Individual component, provides for a certain portion of the officer's bonus
to be earned based upon an evaluation of the officer's individual performance
for the year.
18
Under the DIU Plan, dividend incentive units ("DIUs") were granted to
certain executive officers in 2000. At the beginning of the year, the Committee
adopts performance targets for the Company for the year based upon total return
to shareholders and FFO for the year, as well as a performance multiple for each
target. Pursuant to the DIU Plan, the Committee is required to determine the
extent to which those targets were achieved or surpassed and, in the event that
targets are achieved, the amount to be credited to the account of each
participant who was employed by the Company on the last day of the year; this
amount is equal to the annual dividends that the participant would have received
if he held one share of stock in the Company for each DIU held in his account,
multiplied by the number of DIUs the participant held throughout the year,
multiplied by the performance multiple associated with the targets achieved for
the year.
Executive officers of the General Partner also are eligible to
participate, on the same basis as other employees, in the employer matching
provision of the profit sharing plan that the General Partner established. This
allows employees to save for their future retirement on a tax-deferred basis
through the Section 401(k) savings feature of the plan, with the General Partner
contributing an additional percentage of the amount each employee saves. Such
executive officers are also eligible to participate in the other employee
benefit and welfare plans that the General Partner maintains on the same terms
as non-executive personnel who meet applicable eligibility criteria, subject to
any legal limitations on the amounts that may be contributed or the benefits
that may be payable under such plans.
The long term incentives for executive officers currently available for
use by the Company consist of (i) restricted stock grants under the 1995 Plan,
(ii) Option grants under the 1995 Plan, (iii) Unit Option grants under the 1996
Unit Plan and (iv) restricted Units and Unit options under no plan but pursuant
to an agreement and the provisions of the partnership agreement for the
Operating Partnership.
The Board of Trust Managers has adopted a resolution that directs the
Executive Compensation Committee to adopt a policy that a significant portion of
annual compensation to senior executives of the Company be performance-based.
Compensation Awards for 2003. The performance thresholds established by
the Committee for 2003 under the Bonus Plan were a key consideration in the
deliberations of the Committee regarding the bonuses awarded in 2003. The
Committee, in establishing such thresholds, considered the budget of the Company
and the expected overall economic performance of the Company for 2003 in light
of conditions in the Company's markets and characterizing the REIT industry
generally in 2003. The Committee also considered other factors, including peer
group comparisons of the ratio of general and administrative expense to revenue,
peer group comparisons of short-term and long-term common stock yields,
comparisons of the Company's stock performance to major indices, peer group
comparisons of salary and bonus levels, other industry business conditions, the
economic slowdown which began in 2001, and the Company's success in achieving
short-term and long-term goals and objectives. The Committee also considered the
General Partner's determinations regarding each officer's achievement of the
Functional Unit goals set for such officers, as well as each officer's
Individual performance for the year. Bonuses aggregating $2,844,375 were paid to
executive officers other than the Chief Executive Officer of the Company, who
does not participate in the Bonus Plan.
Based upon the foregoing deliberations, the Committee also determined that
executive officers would receive annual salaries for 2004 equal to their annual
salaries for 2003.
The Committee also determined that the 2003 targets under the DIU Plan had
been achieved and, thus, that payments would be made to plan participants with
respect to 2003 under the DIU Plan. Payments aggregating $2,722,500 were made to
the accounts of the executive officers under the DIU Plan with respect to 2003.
Long-Term Incentives. No additional Options, Unit Options or shares of
restricted stock were awarded to executive officers in 2003.
CEO Base Salary and Bonus for 2003. Mr. Goff serves as the Chief Executive
Officer of the Company and as the Vice Chairman of the Board of Trust Managers
for the Company. Mr. Goff's 2003 base annual salary was $900,000 and the
Committee determined that Mr. Goff's base salary for 2004 would remain at that
level. The Committee also approved a bonus of $1,350,000 for Mr. Goff with
respect to 2003 based upon the Committee's
19
evaluation of a number of factors, including evaluations of Mr. Goff's
performance in 2003 by each independent director, peer group comparisons of the
ratio of general and administrative expense to revenue, peer group comparisons
of short-term and long-term common stock yields, comparisons of the Company's
stock performance to major indices, peer group comparisons of salary and bonus
levels, other industry business conditions, the economic slowdown which began in
2001, and the Company's success in achieving short-term and long-term goals and
objectives.
The Committee also made their determinations based, in part, upon their
subjective evaluation of Mr. Goff's ability in the future to lead the Company in
achieving long-term growth and profitability. The Executive Compensation
Committee and the Board of Trust Managers each has considered and ratified the
foregoing determinations relating to Mr. Goff's compensation.
EXECUTIVE COMPENSATION COMMITTEE
Paul E. Rowsey, III
Anthony M. Frank
Terry N. Worrell
20
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of Messrs. Frank (Chairman), Quinn and
Stallings. A majority of the full Board of Trust Managers selects members of the
Audit Committee.
Statement of Policy. The Audit Committee shall provide assistance to the
Board of Trust Managers in fulfilling its oversight responsibility to the
shareholders, potential shareholders, the investment community, and others
relating to the Company's financial statements and the financial reporting
process, the systems of internal accounting and financial controls, the internal
audit function, the annual independent audit of the Company's financial
statements, and the legal compliance and ethics programs as established by
management and the Board of Trust Managers. In so doing, it is the
responsibility of the Audit Committee to maintain free and open communication
between the Audit Committee and the independent auditors, the internal auditors
and management of the Company. In discharging its oversight role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Company and
the power to retain outside counsel, or other experts for this purpose.
Responsibility - Accounting, Auditing, and Financial Reporting Practices
of the Company. In accordance with the written Audit Committee Charter adopted
by the Board of Trust Managers of the Company, the Audit Committee assists the
Board of Trust Managers in fulfilling its responsibility for oversight of the
quality and integrity of the accounting, auditing, and financial reporting
practices of the Company. During fiscal year 2003, the Audit Committee met nine
times, during which the Committee discussed with Jerry R. Crenshaw, Jr.,
Executive Vice President and Chief Financial Officer of the Company, and Ernst &
Young LLP, the Company's independent auditors (the "Independent Auditors") the
interim financial information contained in each quarterly earnings announcement
and the Company's annual audit, in addition to receiving periodic updates from
the Independent Auditors and Deloitte & Touche LLP, which serves as the
Company's internal auditors (the "Internal Auditors"), regarding compliance with
the Sarbanes-Oxley Act of 2002.
Responsibility - Audit Process. In discharging its oversight
responsibility as to the audit process, the Audit Committee obtained from the
Independent Auditors a formal written statement describing all relationships
between the Independent Auditors and the Company that might bear on the
Independent Auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees" and discussed
with the Independent Auditors any relationships that may impact their
objectivity and independence. The Audit Committee has satisfied itself that such
relationships and the provision of non-audit services to the Company is
compatible with the Independent Auditors' independence. The Audit Committee also
discussed with management, the Internal Auditors, and the Independent Auditors
the quality and adequacy of the Company's internal controls and the internal
audit function's organization, responsibilities, budget, and staffing. The Audit
Committee reviewed with each of the Independent Auditors and the Internal
Auditors its audit plans, audit scope, and identification of audit risks.
Independent Auditors/Internal Audit. The Audit Committee discussed and
reviewed with the Independent Auditors all communications required by generally
accepted auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended by SAS 90, "Communication with Audit Committees"
and, with and without management present, discussed and reviewed the results of
the Independent Auditors' examination of the financial statements. The Audit
Committee also discussed the results of the internal audit examinations with the
Internal Auditors.
Review of Financial Statements. The Audit Committee reviewed and discussed
the audited financial statements of the Company as of and for the fiscal year
ended December 31, 2003, with management and the Independent Auditors.
Management has the responsibility for the preparation of the Company's financial
statements and the Independent Auditors have the responsibility for the
examination of those statements.
Further Action Taken by Audit Committee. The Audit Committee has discussed
and reviewed with outside counsel the procedures and practices that it should
utilize in order to effectively fulfill its oversight responsibility. It has
reviewed the required documentation relating to its oversight of the audit
process, including the audited financial statements of the Company, the
committee's Charter and any relevant analysts' reports. In addition, the Audit
21
Committee has inquired of management and the Independent Auditors as to any
significant risks or exposures for the Company, assessed the steps taken by
management to minimize these risks and exposures, reviewed with management and
the Independent Auditors the adequacy and effectiveness of the accounting and
financial controls of the Company and elicited any recommendations for the
improvement of such internal control procedures.
Recommendation. Based on the above-mentioned review and discussions with
management and the Independent Auditors, the Audit Committee recommended to the
Board that the Company's audited financial statements be included in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2003, for filing with
the Commission.
AUDIT COMMITTEE
Anthony M. Frank
William F. Quinn
Robert W. Stallings
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For purposes of the following discussion, the term "Company" includes,
unless the context otherwise requires, the Operating Partnership and the other
subsidiaries of the Company and the Operating Partnership, in addition to the
Company.
LOANS TO TRUST MANAGERS AND OFFICERS FOR EXERCISE OF OPTIONS AND PLAN UNIT
OPTIONS
The following discussion describes outstanding loans from the Company to
certain of its trust managers and officers. Effective July 29, 2002, the Company
ceased offering to its employees and trust managers the option to obtain loans
pursuant to the Company's stock and unit incentive plans.
Loans to Trust Manager for Exercise of Options. As of November 26, 1999,
the Company had loaned to Mr. Frank, an independent trust manager of the
Company, an aggregate of $398,889.40, on a recourse basis, pursuant to the 1994
Plan and the 1995 Plan. Mr. Frank used the proceeds of the loans, together with
an aggregate of $187.00 in cash, to acquire an aggregate of 26,200 Common Shares
pursuant to the exercise of 26,200 Stock Options that were granted to him under
the 1994 Plan and the 1995 Plan. Mr. Frank's loans are secured by an aggregate
of 26,200 Common Shares that Mr. Frank owns. The loans to Mr. Frank are due and
payable in one installment on July 28, 2012. From January 1, 2003 through July
28, 2003, the interest rate on Mr. Frank's loans was 2.81% per year. On July 29,
2003, Mr. Frank elected, pursuant to the terms of the loans, to fix the interest
rate for each of the loans at the Applicable Federal Rate ("AFR") published by
the Internal Revenue Service and applicable for a loan with a term equal to the
remaining term of the loan, or 2.52% per year. As of April 28, 2004, no accrued
interest due and payable was outstanding on Mr. Frank's loans.
Loans to Officers for Exercise of Options and Plan Unit Options. Effective
November 4, 1999, the Company loaned $26,272,631.46 to John C. Goff, on a
recourse basis, pursuant to the 1994 Plan, the 1995 Plan and the Unit Plan. Mr.
Goff used the proceeds of the loan, together with $4,452.04 in cash, to acquire
an aggregate of 445,204 Common Shares pursuant to the exercise of 445,204 Stock
Options that were granted to him under the 1995 Plan and 571,428 Operating
Partnership Units pursuant to the exercise of 571,428 Plan Unit Options that
were granted to him pursuant to the Unit Plan. Mr. Goff's loan is secured by
400,000 Common Shares, 300,000 shares of restricted stock and 1,500,000 Unit
Options that Mr. Goff owns. Mr. Goff has assigned the dividends that he will
receive on the 300,000 shares of restricted stock to payment of future interest
due on his loan. In addition, Mr. Goff is required to use the net proceeds from
the sale of any of the 300,000 shares of restricted stock or the 1,500,000 Units
underlying the 1,500,000 Unit Options to pay down the amount of his loan.
As of January 31, 2002, the Company had loaned to David M. Dean an
aggregate of $2,538,777.00, on a recourse basis, pursuant to the 1994 Plan and
the 1995 Plan. Mr. Dean used the proceeds of the loans, together with $1,473.00
in cash, to acquire an aggregate of 147,300 Common Shares pursuant to the
exercise of 147,300 Stock Options that were granted to him under the 1994 Plan
and the 1995 Plan. Mr. Dean's loans are secured by an aggregate of 147,300
Common Shares that Mr. Dean owns.
As of January 31, 2002, the Company had loaned to Theresa E. Black, Mr.
Dean's spouse and Vice President, Tax, of the General Partner, an aggregate of
$524,857.50, on a recourse basis, pursuant to the 1995 Plan. Ms. Black used the
proceeds of the loans, together with $330.00 in cash, to acquire an aggregate of
33,000 Common Shares pursuant to the exercise of 33,000 Stock Options that were
granted to her under the 1995 Plan. Ms. Black's loans are secured by an
aggregate of 33,000 Common Shares that Ms. Black owns.
As of July 24, 2002, the Company had loaned to Jerry R. Crenshaw, Jr. an
aggregate of $1,875,237.00, on a recourse basis, pursuant to the 1994 Plan and
the 1995 Plan. Mr. Crenshaw used the proceeds of the loans, together with
$1,188.00 in cash, to acquire an aggregate of 118,800 Common Shares pursuant to
the exercise of 118,800 Stock Options that were granted to him on under the 1994
Plan and the 1995 Plan. Mr. Crenshaw's loans are secured by an aggregate of
118,800 Common Shares that Mr. Crenshaw owns.
As of July 23, 2002, the Company had loaned to John L. Zogg, Jr. an
aggregate of $2,779,043.00, on a recourse basis, pursuant to the 1994 Plan and
the 1995 Plan. Mr. Zogg used the proceeds of the loans, together with $1,582.00
in cash, to acquire an aggregate of 158,200 Common Shares pursuant to the
exercise of 133,200 Stock
23
Options that were granted to him under the 1994 Plan, and the 1995 Plan. On June
7, 2001, Mr. Zogg sold 100 of the Common Shares and used the proceeds (in the
amount of $1,618.75) to reduce the principal amount of one of the loans to
$635,471.25, reducing the aggregate amount outstanding on such date to
$2,777,424.25. On July 1, 2001, Mr. Zogg paid the Company in full for the
principal balance and interest due on a second loan (an aggregate of
$215,711.70), reducing the aggregate amount outstanding as of July 23, 2002 to
$2,570,431.25. Mr. Zogg's loans are secured by an aggregate of 144,900 Common
Shares that Mr. Zogg owns.
As of April 17, 2001, the Company had loaned to Dennis H. Alberts
$1,083,150.00, on a recourse basis, pursuant to the 1995 Plan. Mr. Alberts used
the proceeds of the loan, together with $600.00 in cash, to acquire 60,000
Common Shares pursuant to the exercise of 60,000 Stock Options under the 1995
Plan. Mr. Albert's loan is secured by 60,000 Common Shares that Mr. Alberts
owns.
Each of the loans to Mr. Goff, Mr. Dean, Ms. Black, Mr. Crenshaw, Mr. Zogg
and Mr. Alberts are due and payable in one installment on July 28, 2012. From
January 1, 2003 through July 28, 2003, the interest rate on each of the loans
was 2.81% per year. On July 29, 2003, each of the executive officers elected,
pursuant to the terms of the loans, to fix the interest rate for each of the
loans at the AFR applicable for a loan with a term equal to the remaining term
of the loan, or 2.52% per year. As of April 28, 2004, no accrued interest due
and payable was outstanding on any of these loans.
TRANSACTIONS WITH COPI
Management and General Business Relationships. In April 1997, the Company
established Crescent Operating, Inc. ("COPI") to be the lessee and operator of
certain assets to be acquired by the Company. Subsidiaries of COPI became
lessees of eight of the Company's hotel and resort properties and acquired the
voting interests in three of the Company's residential development corporations.
In addition, the Company made loans to COPI under a line of credit and various
term loans.
Messrs. Rainwater and Goff are, respectively, the Chairman of the Board
and the Vice Chairman of the Board of the Company and, until February 14, 2002,
were also, respectively, the Chairman of the Board and the Vice Chairman of the
Board of COPI. In addition, Mr. Goff serves as the Chief Executive Officer of
the Company and the General Partner and as the sole director of the General
Partner and, until February 14, 2002, also served as Chief Executive Officer of
COPI. Messrs. Frank and Rowsey are members of the Board of the Company and,
until their resignations on February 14, 2002, were members of the board of
directors of COPI. As of March 31, 2004, Messrs. Rainwater and Goff beneficially
owned an aggregate of approximately 12.3% of the outstanding common stock of
COPI through their aggregate ownership of 1,331,105 shares of COPI common stock,
excluding shares underlying vested options.
Reorganization Transactions. On February 14, 2002, pursuant to an
agreement (the "Agreement") with COPI, the Company acquired COPI's lessee
interests in the eight hotel and resort properties and the voting interests in
three residential development corporations and other assets. In consideration of
these transfers, COPI's rent and debt obligations to the Company were reduced.
Pursuant to the terms of the Agreement, the Company and COPI are jointly
seeking to have a pre-packaged bankruptcy plan for COPI, reflecting the terms of
the Agreement, approved by the bankruptcy court. Under the Agreement, the
Company has agreed to provide approximately $14.0 million to COPI in the form of
cash and Common Shares of the Company to fund costs, claims and expenses
relating to the bankruptcy and related transactions, and to provide for the
distribution of the Company's Common Shares to the COPI stockholders. The
Company has also agreed, however, that it will issue Common Shares with a
minimum dollar value of approximately $2.2 million to the COPI stockholders,
even if it would cause the total costs, claims and expenses that it pays to
exceed $14.0 million. Since February 15, 2002, the Company has loaned to COPI,
or paid directly on COPI's behalf, approximately $13.0 million to fund costs,
claims and expenses through March 31, 2004 relating to the bankruptcy and
related transactions.
In addition, the Company has agreed to use commercially reasonable efforts
to assist COPI in arranging COPI's repayment of its $15.0 million obligation to
Bank of America, together with any accrued interest. The
24
Company expects to form and capitalize a new entity ("Crescent Spinco") to be
owned by the shareholders of the Company. Crescent Spinco then would purchase
COPI's interest in AmeriCold Logistics, LLC ("AmeriCold Logistics") for between
$15.0 million and $15.5 million. COPI has agreed that it will use the proceeds
of the sale of the AmeriCold Logistics interest to repay Bank of America in
full.
COPI obtained the loan from Bank of America primarily to participate in
investments with the Company. At the time COPI obtained the loan, Bank of
America required, as a condition to making the loan, that Messrs. Rainwater, and
Goff, enter into a support agreement with COPI and Bank of America. Pursuant to
the support agreement, Messrs. Rainwater and Goff agreed to make additional
equity investments in COPI if COPI defaulted on payment obligations under its
line of credit with Bank of America and if the net proceeds of an offering of
COPI securities were insufficient to allow COPI to repay Bank of America in
full.
Previously, the Company held a first lien security interest in COPI's
entire membership interest in AmeriCold Logistics. REIT rules prohibit the
Company from acquiring or owning the membership interest that COPI owns in
AmeriCold Logistics. Under the Agreement, the Company agreed to allow COPI to
grant Bank of America a first priority security interest in the membership
interest and to subordinate its own security interest to that of Bank of
America.
On March 6, 2003, the COPI stockholders voted to approve the COPI
bankruptcy plan. On March 10, 2003, COPI filed the plan under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas. If the plan is approved by the bankruptcy court, the
holders of COPI's common stock will receive Common Shares of the Company. As
stockholders of COPI, Mr. Rainwater and Mr. Goff will also receive Common Shares
of the Company. Pursuant to the COPI bankruptcy plan, the current and former
directors and officers of COPI and the current and former trust managers and
officers of the Company also have received a release from COPI of liability for
any actions taken prior to February 14, 2002, and, depending on various factors,
will receive certain liability releases from COPI and its stockholders.
Completion and effectiveness of the pre-packaged bankruptcy plan for COPI
is contingent upon a number of conditions, including the approval of the plan by
certain of COPI's creditors and the confirmation of the plan by the bankruptcy
court.
Other
Since June 1999, the Company has contributed approximately $23.8 million
to DBL Holdings, Inc. ("DBL"). The contribution was used by DBL to make an
equity contribution to DBL-ABC, Inc., a wholly owned subsidiary of DBL, which
committed to purchase an affiliated partnership interest representing a 12.5%
interest in G2 Opportunity Fund, LP ("G2"). G2 was formed for the purpose of
investing in commercial mortgage backed securities and other commercial real
estate investments and is managed and controlled by an entity (the "G2 General
Partner") that is owned equally by Goff-Moore Strategic Partners, L.P. ("GMSP")
and GMAC Commercial Mortgage Corporation. The G2 General Partner is entitled to
an annual asset management fee. Additionally, the G2 General Partner has a 1%
interest in profits and losses of G2 and, after payment of specified amounts to
partners, a promoted interest based on payments to unaffiliated limited
partners. As an affiliated limited partner, DBL-ABC, Inc.'s returns are not
impacted by the G2 General Partner's promoted interest. As of December 31, 2003,
DBL-ABC, Inc. has received approximately $20.9 million cumulative distributions
and recognized approximately $10.0 million cumulative net income bringing the
investment balance to approximately $13.3 million.
The ownership structure of GMSP consists of an approximately 86% limited
partnership interest owned directly and indirectly by Richard E. Rainwater,
Chairman of the Board of Trust Managers of the Company, and an approximately 14%
general partnership interest, of which approximately 6% is owned by Darla Moore,
who is married to Mr. Rainwater, and approximately 6% is owned by John C. Goff,
Vice-Chairman of the Company's Board of Trust Managers and Chief Executive
Officer of the Company. The remaining approximately 2% general partnership
interest is owned by unrelated parties. The Company reimbursed GMSP for the
part-time services of an accountant in the amount of $128,353 for 2003.
On January 2, 2003, the Company purchased the remaining 2.56% economic
interest, representing 100% of the voting stock, in DBL from Mr. Goff. Total
consideration paid for Mr. Goff's interest was $0.4 million. The
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Board of Trust Managers of the Company, including all the independent trust
managers, approved the transaction based in part on an appraisal of the assets
of DBL by an independent appraisal firm. As a result of this transaction, DBL is
wholly-owned by the Company.
----------------------
Management believes that the foregoing transactions are on terms no less
favorable than those that could have been obtained in comparable transactions
with unaffiliated parties.
OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires the Company's officers, trust managers and persons who
own more than 10% of the Company's Common Shares or the Company's Series A
Preferred Shares to file reports of ownership on Form 3 and changes in ownership
on Forms 4 and 5 with the SEC and the New York Stock Exchange. The SEC rules
also require such officers, trust managers and 10% holders to furnish the
Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that all
Section 16(a) filing requirements applicable to its officers, trust managers and
10% shareholders were complied with for the fiscal year ended December 31, 2003,
except that (i) each of Messrs. Frank, Quinn, Rowsey, Stallings and Worrell
filed on an untimely basis one Statement of Changes in Beneficial Ownership on
Form 4 ("Form 4") reporting an annual grant of stock options for service as
trust managers who are not also officers of the Company, (ii) Jane B. Page
failed to report on a timely basis one Annual Statement of Changes in Beneficial
Ownership on Form 5 ("Form 5") reporting a disposition of shares by gift in 2002
but such transaction was subsequently reported on a Form 5 for the fiscal year
ended December 31, 2003, and (iii) each of Jerry R. Crenshaw, Jr., and David M.
Dean filed on an untimely basis one Form 4 reporting one transaction.
SHAREHOLDER PROPOSALS FOR THE COMPANY'S 2005 ANNUAL MEETING OF SHAREHOLDERS
Shareholders who intend to submit proposals for consideration at the
Company's 2005 annual meeting of shareholders must submit such proposals to the
Company no later than January 28, 2005, in order to be considered for inclusion
in the proxy statement and form of proxy that the Board of Trust Managers will
distribute in connection with that meeting. Shareholder proposals should be
submitted to David M. Dean, Executive Vice President, Law and Administration,
and Secretary, at 777 Main Street, Suite 2100, Fort Worth, Texas 76102.
Under the Bylaws, a shareholder must comply with certain procedures to
nominate persons for election to the Board of Trust Managers or to propose other
business to be considered at an annual meeting of shareholders. These procedures
provide that shareholders desiring to make nominations for trust managers and/or
to bring a proper subject before a meeting must do so by notice timely delivered
to the Secretary of the Company. The Secretary of the Company generally must
receive notice of any such proposal not less than 70 days nor more than 90 days
prior to the anniversary of the preceding year's annual meeting of shareholders.
In the case of proposals for the 2005 annual meeting of shareholders, the
Secretary of the Company must receive notice of any such proposal no earlier
than March 30, 2005, and no later than April 19, 2005 (other than proposals
intended to be included in the proxy statement and form of proxy, which, as
noted above, the Company must receive by January 28, 2005). Generally, such
shareholder notice must set forth (i) as to each nominee for trust manager, all
information relating to such nominee that is required to be disclosed in
solicitations of proxies for election of trust managers under the proxy rules of
the Commission; (ii) as to any other business, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in that business of such
shareholder; and (iii) as to the shareholder, (a) the name and address of the
shareholder, (b) the class or series and number of shares of beneficial interest
of the Company that the shareholder owns beneficially and of record, and (c) the
date(s) upon which the shareholder acquired ownership of such shares. The
chairman of the annual meeting shall have the power to declare that any proposal
not meeting these and any other applicable requirements that the Bylaws impose
shall be disregarded. A copy of the Bylaws may be obtained, without charge, upon
written request to David
26
M. Dean, Executive Vice President, Law and Administration, and Secretary, at 777
Main Street, Suite 2100, Fort Worth, Texas 76102.
In addition, the form of proxy that the Board of Trust Managers will
solicit in connection with the Company's 2005 annual meeting of shareholders
will confer discretionary authority to vote on any proposal, unless the
Secretary of the Company receives notice of that proposal no earlier than March
30, 2005, and no later than April 19, 2005, and the notice complies with the
other requirements described in the preceding paragraph.
27
APPENDIX A
AUDIT COMMITTEE OF THE BOARD OF TRUST MANAGERS
CHARTER
I. PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to assist
the Board of Trust Managers (the "Board") in fulfilling its oversight
responsibilities relating to: (a) the integrity of the financial reports
and other financial information provided by Crescent Real Estate Equities
Company (the "Company") to the public; (b) the Company's compliance with
legal and regulatory requirements; (c) the systems of internal controls
which management has established; (d) the performance of the Company's
internal audit function; (e) the independence, qualifications and
performance of the Company's independent auditor; (f) the Company's
auditing, accounting and financial reporting processes generally; and (g)
the other duties set forth in this Charter and such other responsibilities
as may be delegated to the Committee by the Board from time to time. The
Committee is responsible for appointment, retention or dismissal,
compensation and oversight of the Company's independent auditors and
internal auditors who shall report directly to the Committee and are
ultimately accountable to the Board and the Committee. Consistent with
this function, the Committee should encourage continuous improvement of,
and should foster adherence to, the Company's policies, procedures and
practices at all levels.
II. COMPOSITION
The Committee shall be composed of three or more trust managers as
determined by the Board, each of whom shall be "independent," as such term
is defined or construed from time to time in the Securities Exchange Act
of 1934 and the rules and regulations promulgated thereunder (the
"Exchange Act"), the New York Stock Exchange's Listed Company Manual (the
"NYSE Manual") and other laws and regulations applicable to the Company
and the Committee. In addition, all members of the Committee must possess
the requisite financial knowledge and accounting or related financial
management experience to fulfill their duties, and the Committee shall
endeavor to include in its membership at least one member that qualifies
as an "audit committee financial expert" as that term is defined or
construed from time to time in the Exchange Act, the NYSE Manual and other
laws and regulations applicable to the Company and the Committee.
Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the
Company or an outside consultant.
Prior to approving a trust manager's appointment to the Committee, the
Board shall have determined, upon the advice of the Governance Committee
of the Company ("Governance Committee"): (a) that such trust manager
satisfies the foregoing independence requirements as well as any
additional independence requirements established from time to time by the
Governance Committee in the Company's Corporate Governance Policy; (b) in
the exercise of its business judgment, that such trust manager has the
requisite financial and accounting knowledge to serve on the Committee;
and (c) whether such trust manager qualifies as an "audit committee
financial expert."
No member of the Committee shall simultaneously serve on the audit
committee of more than three public companies (including service on the
Audit Committee of the Company) unless the Board has made a determination
that such simultaneous service would not impair the ability of such member
to effectively serve on the Committee.
The Board, after consultation with the Chief Executive Office of the
Company ("CEO") and upon the recommendation of the Governance Committee,
shall determine which trust managers should serve on the Committee and who
shall serve as chairman of the Committee. In addition, from time
A-1
to time as it sees fit, the Board, after consultation with the CEO and
upon the recommendation of the Governance Committee, shall remove trust
managers from the Committee or appoint additional trust managers to the
Committee. If a chairman is not elected by the Board, the members of the
Committee may designate a chairman by majority vote of the full Committee.
III. COMPENSATION
The chairman of the Committee and each member of the Committee shall be
entitled to compensation for being the chairman or member of the
Committee, as applicable, and for meeting attendance as such fees are
established from time to time by the Board. Each member of the Committee
shall be entitled to be reimbursed for reasonable out-of-pocket expenses
incurred by such member in attending meetings of the Committee and in
performing his/her duties as a member of the Committee. No member of the
Committee shall receive from the Company any compensation other than his
or her fees for serving as a trust manager and a member of the Committee
or any other committee of the Board.
IV. MEETINGS
The Committee shall meet at least quarterly, or more frequently as
circumstances dictate. As part of its job to foster open communication,
the Committee should meet at least annually with management and the
independent accountants in separate sessions to discuss any matters that
the Committee or either of these groups believe should be discussed
privately.
Meetings of the Committee shall be called by the Secretary of the Company
in accordance with the schedule of meetings established by the Committee
for a particular year. In addition, meetings of the Committee shall be
called by the Secretary of the Company upon the request of the chairman of
the Committee, the CEO, the Company's President or the Company's Chief
Financial Officer or a majority of the members of the Committee. Notice of
any meeting of Committee shall be given in accordance with the notice
periods set forth in the Bylaws of the Company for meetings of the Board
and its committees.
The provisions set forth in the Company's Bylaws for meetings of the Board
and its committees shall govern the quorum and voting requirements for all
meetings of the Committee.
The Committee shall be required to keep a record of its actions and
proceedings and shall report to the Board at the next meeting of the Board
following the Committee meeting with such report to include
recommendations for Board actions when appropriate.
As necessary or desirable, the chairman of the Committee may request that
members of management, independent consultants, and representatives of the
independent auditors be present at meetings of the Committee.
V. RESPONSIBILITIES AND DUTIES
The Committee's specific powers and responsibilities in carrying out its
oversight role are delineated in the Audit Committee Powers and
Responsibilities Checklist. The checklist will be updated annually to
reflect changes in regulatory requirements, authoritative guidance, and
evolving oversight practices. As the compendium of Committee powers and
responsibilities, the most recently updated checklist will be considered
to be an addendum to this charter.
This charter, including the most recently updated Audit Committee Powers and
Responsibilities Checklist, shall be made available on the Company's website at
www.crescent.com
Last revised: June 2, 2003
A-2
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PROXY
CRESCENT REAL ESTATE EQUITIES COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
June 28, 2004
THIS PROXY IS SOLICITED BY THE BOARD OF TRUST MANAGERS
The undersigned hereby appoints John C. Goff and David M. Dean, and each of
them, as proxies, with full power of substitution in each, to vote all common
shares of beneficial interest of Crescent Real Estate Equities Company (the
"Company") which the undersigned is entitled to vote, at the Annual Meeting of
Shareholders of the Company to be held on June 28, 2004, at 10:00 a.m., Central
Daylight Saving Time, and any adjournment thereof, on all matters set forth on
the Notice of Annual Meeting and Proxy Statement, dated May 28, 2004, a copy of
which has been received by the undersigned, as follows on the reverse side.
Address Changes/Comments:
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(If you noted any Address Changes/Comments above, please mark corresponding box
on the reverse side.)
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
(CRESCENT LOGO) VOTE BY INTERNET - www.proxyvote.com
777 MAIN STREET Use the Internet to transmit your voting
SUITE 2100 instructions and for electronic delivery of
FORT WORTH, TX 76102 information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site and follow the
instructions to obtain your records and to
create an electronic voting instruction
form.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the postage-paid envelope we've
provided or return to Crescent Real Estate
Equities Company, c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CRESCENT REAL ESTATE EQUITIES COMPANY
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED "FOR" ITEMS
1 AND 2.
FOR WITHHOLD FOR ALL TO WITHHOLD AUTHORITY TO VOTE
Vote On Directors ALL ALL EXCEPT FOR ANY INDIVIDUAL NOMINEE,
MARK "FOR ALL EXCEPT" AND
WRITE THE NOMINEE'S NAME ON
1. To elect Dennis H. Alberts and Terry N. Worrell as Trust Managers [ ] [ ] [ ] THE LINE BELOW.
to serve three-year terms
-----------------------------
Vote On Proposal For Against Abstain
2. To approve the appointment of Ernst & Young LLP as the independent auditors of the Company for the
fiscal year ending December 31, 2004. [ ] [ ] [ ]
Other Matters: The proxies will have discretion to vote upon such other matters as may come before the Meeting in such manner as
they determine to be in the best interest of the Company.
For address changes and/or comments, please check this box
and write them on the back where indicated [ ]
IMPORTANT: Please mark the Proxy, date it, sign it exactly as
your name(s) appear(s) and return it in the enclosed postage
paid envelope. Joint owners should each sign personally.
Trustees and others signing in a representative or fiduciary
capacity should indicate their full titles in such capacity:
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date