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EXHIBIT 1.02
SWAP AGREEMENT
THIS SWAP AGREEMENT is made as of the 12th day of December, 1997, by
and between Crescent Real Estate Equities Company (the "Company") and ▇▇▇▇▇▇▇
▇▇▇▇▇ International ("MLI"), through its agent ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ &
▇▇▇▇▇ Incorporated ("MLPF&S").
The purpose of this Swap Agreement is to confirm the terms and
conditions of the swap transaction (the "Transaction") entered into between MLI
and the Company.
IN CONSIDERATION of the mutual representations, warranties and
covenants herein contained, and on the terms and subject to the conditions
herein set forth, the Company and MLI hereby agree as follows:
Section 1 Definitions.
As used in this Agreement, the following terms shall have the meanings
set forth below:
(a) Ability to Settle in Stock. As of the date hereof, the
Company has not, and after the date hereof, the Company will
not, enter into any obligation that would contractually
prohibit the Company from delivering Common Shares pursuant to
Sections 3.2, 4.2 or 5 of this Agreement.
(b) Certain Adjustments to Reference Price or Number of
Notional Shares. In the event of:
(i) a subdivision, consolidation or reclassification
of the Common Shares, or a free distribution or
dividend of any Common Shares to all existing holders
of Common Shares by way of bonus, capitalization or
similar issue;
(ii) a distribution or dividend to all existing
holders of Common Shares of (A) additional Common
Shares or (B) other share capital or securities
granting right to payment of dividends and/or the
proceeds of liquidation of the Company equally or
proportionally with such payments to holders of
Common Shares or (C) any other type of securities,
warrants or other assets, in any case for payment
(cash or otherwise) at less than the prevailing
market price; or
(iii) any other event that has a diluting or
concentrative effect on the value of the Common
Shares,
an adjustment shall thereupon be effected to the Reference
Price and/or the Notional Shares at the time of such event
with the intent that following such adjustment, the value of
this Transaction is economically equivalent to the value
immediately prior to the occurrence of the event causing the
adjustment.
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(c) Block Sale. Any privately negotiated sales of the
Common Shares involving at least a block of such security (as
defined in Rule 10b-18 under the Exchange Act) that are not
effected to or through a broker or dealer.
(d) Business Day. Any day other than Saturday, Sunday, or
any other day on which banking institutions in the States of
Texas or New York are not open for business.
(e) Calculation Agent. MLI, whose calculations and
determinations shall be made in a reasonable manner.
(f) Closing Price. The last sale price of the Common
Shares on the Relevant Exchange on the relevant date.
(g) Commission. The Securities and Exchange Commission.
(h) Common Shares. The common shares of beneficial
interest, par value $0.01 per share, of the Company.
(i) Company. Crescent Real Estate Equities Company,
a Texas real estate investment trust.
(j) Compounding Period. Means each period commencing on
and including:
(i) in the case of the first Compounding Period, the
Initial Settlement Date and ending on but excluding
the first Reset Date, and
(ii) for each period thereafter, a Reset Date and
ending on (but excluding) the next following Reset
Date.
(k) Distribution Amount. Means, on each Reset Date, an
amount in U.S. Dollars equal to:
(i) the sum of all cash distributions paid on a
single Common Share during the relevant Compounding
Period; plus
(ii) an amount representing interest that could have
been earned on such distributions at the USD LIBOR
rate having a designated maturity of 1 month, plus
Spread, for the period from the date that such
distributions would have been received by a holder of
such number of Common Shares until such Reset Date.
(l) DRIP Distribution. Sales to any Distribution
Reinvestment Plan now or hereafter established by the Company,
or to any agent acting on behalf of such Plan, for sale to
participants in such Plan.
(m) Effective Date. December 12, 1997.
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(n) Exchange Act. The Securities Exchange Act of 1934, as
amended.
(o) Exchange Trading Day. Each day on which the Relevant
Exchange is open for trading.
(p) Execution Price. The Closing Price on the Effective
Date.
(q) Gradual Market Distribution. An offering of the Common
Shares into the existing trading market for outstanding shares
of the same class at other than a fixed price on or through
facilities of a national securities exchange or to or through
a market maker otherwise than on an exchange.
(r) Initial Price. Means,
(i) for the Compounding Period ending on the first
Reset Date, an amount in U.S. Dollars equal to $[ ],
and
(ii) for each subsequent Reset Date, the Reference
Price as calculated on or adjusted as of the prior
Reset Date.
(s) Initial Settlement Date. December 19, 1997.
(t) Interim Settlement Amount. With respect to a given
Reset Date, means the amount by which the Reference Amount
exceeds the product of (x) the Closing Price and (y) the
number of Notional Shares.
(u) Interim Settlement Shares. The Interim Settlement
Amount divided by the Closing Price on such Reset Date.
(v) Maturity Date. December 12, 1998.
(w) Notional Shares. [5,375,000] million Common Shares, as
may be adjusted from time to time pursuant to Section 1(b),
reduced by the number of Settlement Shares that are the
subject of Settlement pursuant to Section 3.1 or Section 4.1.
(x) Relevant Exchange. Means, with respect to any Exchange
Trading Day, the principal Stock Exchange on which the Common
Shares are traded on that day.
(y) Reference Amount. On each Reset Date, the Reference
Price multiplied by the Notional Shares or Settlement Shares,
as applicable.
(z) Reference Price. On each Reset Date, the Reference
Price shall be determined by:
(i) compounding the Initial Price for each
Compounding Period at the USD LIBOR rate plus Spread
for a designated maturity of 1 month (Actual/360 day
count fraction) to such Reset Date and
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(ii) subtracting the Distribution Amount at that
date.
(aa) Reset Date. Means, through the final Settlement Date,
(i) the last day of each one-month period, beginning on
January 12, 1998 (provided, that if such day is not a Business
Day then the Reset Date shall be the next Business Day) and
(ii) as to any Settlement Shares, each Settlement Date.
(ab) Securities Act. The Securities Act of 1933, as
amended.
(ac) Settlement. Has the meaning set forth in Section 3.1
or Section 4.1, as applicable.
(ad) Settlement Amount. The net sales proceeds realized by
or on behalf of MLI for all sales of Common Shares in
connection with any Settlement, calculated as follows:
(i) if the manner of Settlement Sale pursuant to
Section 3.1 or 4.1 is an Underwritten Secondary
Offering, the Settlement Price will equal the gross
proceeds realized, net of a negotiated underwriting
discount;
(ii) if the manner of Settlement Sale pursuant to
Section 3.1 or 4.1 is a Block Sale, the Settlement
Price will equal the gross sales proceeds realized,
net of a negotiated underwriting discount;
(iii) if the manner of Settlement Sale pursuant to
Section 3.1 or 4.1 is a Gradual Market Distribution,
the Settlement Price will equal the gross sales
proceeds realized from sales to the market over the
period of the distribution, net of a resale spread of
50 basis points; or
(iv) if the manner of Settlement Sale pursuant to
Section 3.1 or 4.1 is a DRIP Distribution, the
Settlement Price will equal the gross sales proceeds
realized from sales to any Purchase Agent for a
Company Distribution Reinvestment Plan, net of a
resale spread of 50 basis points.
(ae) Settlement Date. The date on which, in accordance
with standard market practice, the Common Shares are delivered
and the funds received, in respect of any Settlement in
accordance with Section 3.2 or Price Decline Termination Event
in accordance with Section 4.2.
(af) Settlement Shares. The number of Notional Shares
subject to Settlement.
(ag) Spread. 75 basis points, subject to adjustment
pursuant to Section 6.2.
(ah) Stock Exchange. Means the New York Stock Exchange,
the American Stock Exchange or NASDAQ.
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(ai) Underwritten Secondary Offering. An underwritten
fixed price offering of the Common Shares.
(aj) USD LIBOR. The London Inter Bank Offered Rate in
respect of U.S. Dollars for the designated maturity as quoted
on Page 3750 on the Telerate Service (or such other page as
may replace Page 3750 on that service) as of 11:00 a.m.,
London time, on the date on which it is to be determined.
Section 2 Representations and Warranties.
The representations and warranties of the Company in Section 4 of the
Purchase Agreement, dated as of December 12, 1997 (the "Purchase
Agreement"), among the Company, Crescent Real Estate Equities Limited
Partnership, MLI and ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇ ("▇▇▇▇▇▇▇
▇▇▇▇▇") are hereby incorporated by reference herein, and the Company
hereby so represents and warrants to MLI. The provisions of Section 6
of the Purchase Agreement shall also be applicable to any Common Shares
delivered to MLI under this Agreement.
Section 3 Settlement
On any Reset Date, or on any other Exchange Trading Date agreed by both
parties, up to and including the Maturity Date, the Company may give
telephonic notice to MLI to settle, and MLI shall settle, in a
commercially reasonable manner (which may require sales over a period
of more than 1 day), all or a portion of the Notional Shares
("Settlement"), as specified by the Company, through sale of not less
than the number of Common Shares, the sale of which would result in a
Settlement Amount equal to 100% of the Reference Amount on the
Settlement Date, and not more than the number of Common Shares, the
sale of which would result in a Settlement Amount equal to 105% of the
Reference Amount on the Settlement Date, in any of the manners set
forth below, as selected by the Company:
(i) an Underwritten Secondary Offering (for which
the Company shall provide at least 21 Business Days
prior notice to MLI);
(ii) a Block Sale (for which the Company shall
provide at least 5 Business Days prior notice to
MLI);
(iii)a Gradual Market Distribution (for which the
Company shall provide at least 2 Business Days prior
notice to MLI); or
(iv) a DRIP Distribution (for which the Company shall
provide at least 2 Business Days prior notice to
MLI).
Settlement procedures shall begin on the first Exchange Trading Day
after expiration of the notice period unless otherwise agreed by the
Company and MLI. At such time as the Company delivers notice pursuant
to this Section 3.1, the Company may direct MLI to sell
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not less than the number of Common Shares equal to the number of
Settlement Shares, and MLI shall comply with such direction in a
commerically reasonable manner.
Section 3.2 Settlement.
(a) If, on the Settlement Date, the Settlement Amount is greater
than the Reference Amount, MLI will pay the Company an amount in cash
equal to the difference.
(b) If the number of Common Shares sold by MLI pursuant to Section
3.1 is greater than the number of Settlement Shares, the Company shall
deliver to MLI, on the Settlement Date, a number of Common Shares equal
to the difference. If the number of Common Shares sold by MLI pursuant
to Section 3.1 is less than the number of Settlement Shares, MLI shall
deliver to the Company, on the Settlement Date, a number of Common
Shares equal to the difference.
(c) In all events, MLI will pay to the Company an amount equal to
all cash distributions payable to holders of the Common Shares but not
paid prior to the Settlement Date, on a number of Common Shares equal
to the Settlement Shares, on the Business Day after the relevant
distribution payment date declared by the Company's Board of Trust
Managers.
(d) If MLI, in connection with any Settlement, receives net sales
proceeds, as calculated pursuant to the definition of Settlement
Amount, from the sale of Common Shares prior to the applicable
Settlement Date, MLI, on the Settlement Date, shall pay the Company an
amount in cash representing interest that could have been earned on
such net sales proceeds at the USD LIBOR rate having a designated
maturity of 1 month, plus Spread, for the period from the date that
such net sales proceeds are received by MLI until such Settlement Date.
Section 4 Price Decline Termination Event.
Section 4. Price Decline Termination Event Sale.
If the Closing Price on any Exchange Trading Day falls below any
Termination Price listed in the following schedule (a "Price Decline
Termination Event"), MLI will, at its discretion, following notice to
the Company, settle the percentage of the Notional Shares indicated in
the table below ("Settlement") through sale of not less than the number
of Common Shares, the sale of which would result in a Settlement Amount
equal to 100% of the Reference Amount on the Settlement Date, and not
more than the number of Common Shares, the sale of which would result
in a Settlement Amount equal to 105% of the Reference Amount on the
Settlement Date, in any of the manners specified in Section 3.1:
Percentage of Notional
Shares to be Settled Termination Price
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25% $30.00
50% $28.00
75% $26.00
100% $24.00
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Settlement procedures shall commence on the date specified by MLI..
Section 4.2 Price Decline Termination Event Settlement.
(a) If, on the Settlement Date, the Settlement Amount is greater
than the Reference Amount, MLI will pay the Company an amount in cash
equal to the difference.
(b) If the number of Common Shares sold by MLI pursuant to Section
4.1 is greater than the number of Settlement Shares, the Company shall
deliver to MLI, on the Settlement Date, a number of Common Shares equal
to the difference. If the number of Common Shares sold by MLI pursuant
to Section 4.1 is less than the number of Settlement Shares, MLI shall
deliver to the Company, on the Settlement Date, a number of Common
Shares equal to the difference.
(c) In all events, MLI will pay to the Company an amount equal to
all cash distributions payable to holders of the Common Shares but not
paid prior to the Settlement Date, on a number of Common Shares equal
to the Settlement Shares, on the Business Day after the relevant
distribution payment date declared by the Company's Board of Trust
Managers.
(d) If MLI, in connection with any Settlement, receives net sales
proceeds, as calculated pursuant to the definition of Settlement
Amount, from the sale of Common Shares prior to the applicable
Settlement Date, MLI, on the Settlement Date, shall pay the Company an
amount in cash representing interest that could have been earned on
such net sales proceeds at the USD LIBOR rate having a designated
maturity of 1 month, plus Spread, for the period from the date that
such net sales proceeds are received by MLI until such Settlement Date.
Section 5 Interim Settlements.
Within 5 Business Days following each Reset Date, the Company shall
deliver the Interim Settlement Amount in Interim Settlement Shares
issued pursuant to an effective registration statement to MLI or its
agent for deposit in a collateral account at MLPF&S or a custodian or
depository designated by MLPF&S. Such shares shall be registered as
instructed by MLI and shall be held by MLPF&S or a custodian or
depository designated by MLPF&S. If the Company is unable to deliver
Interim Settlement Shares in accordance with the preceding sentence,
the Company shall deliver "restricted" Interim Settlement Shares that
are the subject of a resale registration statement that has been
declared effective under the Securities Act by the Commission (an
"Effective Resale Registration Statement") in an amount equal to the
Interim Settlement Amount. If the restricted Interim Settlement Shares
are not the subject of an Effective Resale Registration Statement, the
Company shall deliver additional
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Interim Settlement Shares equal to 50% of the Interim Settlement
Amount. At such time as the Interim Settlement Shares are the subject
of an Effective Resale Registration Statement, the Company may elect to
have returned all additional Interim Settlement Shares delivered
pursuant to the preceding sentence. Distributions on the Interim
Settlement Shares will be deposited in the collateral account at MLPF&S
or a custodian or depository designated by MLPF&S. The cash amounts in
the collateral account will earn interest at the USD LIBOR rate having
a designated maturity of 1 month plus 75 basis points. Upon final
Settlement, MLI shall immediately release all claims to cash and
Interim Settlement Shares held in the collateral account (including
interest earned thereon) and deliver such amounts and all Interim
Settlement Shares to the Company.
Section 6 Certain Covenants and Other Provisions.
Section 6. Par Value.
MLI shall pay to the Company $0.01 par value per share for each Common
Share delivered to MLI pursuant to this Agreement.
Section 6.2 Resale Registration Statement.
Any Common Shares delivered by the Company to MLI pursuant to this
Agreement shall be the subject of an Effective Resale Registration
Statement. In addition, if the Common Shares delivered to MLI pursuant
to the Purchase Agreement (the "Purchase Shares") are not the subject
of an Effective Resale Registration Statement by December 24, 1997, the
Spread shall increase, retroactively effective commencing on the
Initial Settlement Date, to 200 basis points. At such time as the
Purchase Shares are the subject of an Effective Resale Registration
Statement, the Spread shall be reduced, from and after such time, to 75
basis points. The Company further agrees that it will cause any resale
registration statement to remain in effect until the earliest of the
date on which (i) the Notional Share Amount plus all of the Interim
Settlement Shares have been sold by or on behalf of MLI, or (ii) MLI
has advised the Company that it no longer requires that such
registration be effective.
Section 6.3 Delivery of Common Shares.
The Company covenants and agrees with MLI that Common Shares delivered
by the Company pursuant to settlement events in accordance herewith
will be duly authorized, validly issued, fully paid and nonassessable.
The issuance of such Common Shares will not require the consent,
approval, authorization, registration, or qualification of any
government authority, except such as shall have been obtained on or
before the delivery date to MLI in connection with any registration
statement filed with respect to any Common Shares.
Section 6.4 Securities Law Compliance.
Each party agrees that it will comply, in connection with this
Transaction and all related or contemporaneous sales and purchases of
the Company's Common Shares, with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations
thereunder.
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Section 6.5 Regulatory Compliance.
Each party agrees that if the delivery of Common Shares upon settlement
is subject to any restriction imposed by a regulatory authority, it
shall not be an event of default, and the parties will negotiate in
good faith a procedure to effect settlement of such shares in a manner
which complies with any relevant rules of such regulatory authority and
which is satisfactory in form and substance to their respective
counsel, subject to Section 6.2 of this Agreement and Section 7 of the
Purchase Agreement.
Section 6.6 Stock Settlement Transfer.
All settlements shall occur through DTC or any other mutually
acceptable depository.
Section 6.7 Trading Authorization.
The following individuals and/or any individual authorized in writing
by the Treasurer of the Company are authorized by the Company to
provide trading instructions to MLI with regard to this transaction.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Section 6.8 Guarantee.
Simultaneously herewith, Crescent Real Estate Equities Limited
Partnership has entered into a Guarantee in connection with the
Transaction, which Guarantee shall remain in effect until otherwise
provided in the Guarantee or until the obligations of the Company under
this Agreement have been satisfied.
Section 6.9 Specific Performance.
The parties acknowledge and agree that the failure of the Company or
MLI to deliver Common Shares in accordance with the provisions hereof
would result in damage to the other party that could not be adequately
compensated by a monetary award. The parties therefore agree that, if
either party fails to deliver Common Shares in accordance with the
provisions hereof, the other party may, in addition to all other
remedies, seek an order of specific performance from a court of
appropriate jurisdiction.
Section 6.10 Certain Tax Provisions.
(a) MLI shall, on or before the Initial Settlement Date, provide the
Company with an accurate, complete and duly executed original of U.S.
Internal Revenue Service Form 1001, certifying that MLI is entitled to
receive any payments under this Agreement that may be viewed as
interest for U.S. federal income tax purposes without deduction or
withholding of U.S. federal income taxes.
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(b) MLI represents and warrants that it is a "corporation" for U.S.
federal income tax purposes and for purposes of any exemptions from
information reporting and backup withholding requirements that may
apply to payments by the Company to MLI under this Agreement. This
representation and warranty will be deemed to be repeated by MLI on the
due date for payment of any amount, in cash or in Common Shares, by the
Company under this Agreement. MLI agrees to indemnify the Company for
any taxes, interest and other losses incurred by the Company as a
result of a failure by the Company to file any information report or
withhold any tax with respect to any payment by the Company to MLI
under this Agreement in reliance on this representation and warranty.
Section 6.11 Governing Law.
The Agreement will be governed by and construed in accordance with the
laws of the State of New York without reference to choice of law
doctrine.
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SIGNATURE PAGE FOR SWAP AGREEMENT
▇▇▇▇▇▇▇ ▇▇▇▇▇ INTERNATIONAL
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ INTERNATIONAL
CRESCENT REAL ESTATE EQUITIES COMPANY
/s/ CRESCENT REAL ESTATE EQUITIES
COMPANY