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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 13, 1997
CRESCENT OPERATING, INC
(Exact name of Registrant as specified in its Charter)
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<S> <C> <C>
Delaware 333-25223 75-2701931
(State of Organization) (Commission File Number) (IRS Employer Identification Number)
</TABLE>
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<S> <C>
777 Main Street
Fort Worth, Texas 76102
(Address of Principal Executive (Zip Code)
Offices)
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(817) 877-0477
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
MAGELLAN TRANSACTION
On June 17, 1997, Crescent Operating, Inc. (the "Company") purchased
for $5.0 million a 50% interest in Charter Behavioral Health Systems, LLC, a
limited liability company ("CBHS") and purchased for $12.5 million certain
warrants to purchase shares of common stock of Magellan Health Services, Inc.
("Magellan"). In connection with the acquisition of its interest in CBHS, the
Company paid an additional $2.5 million to CBHS within 5 days following the
closing. CBHS is owned 50% by the Company and 50% by a wholly owned subsidiary
of Magellan, subject to potential dilution of each by up to 5% in connection
with future incentive compensation of management. The Magellan subsidiary
acquired its interest in CBHS in exchange for the contribution of certain
assets, with an additional $2.5 million paid to CBHS in cash at closing. In
addition, each of the Company and Magellan agreed to lend to CBHS, upon request
by Magellan during the five years following the closing, up to an aggregate of
$17.5 million. Any such loans will bear interest at the rate of 10% per annum
and have a term of five years.
CBHS and its subsidiaries will lease, on a triple-net basis, approximately
90 healthcare facilities (the "Magellan Facilities") which were purchased by
Crescent Real Estate Funding VII, L.P. ("Funding VII"), an indirect subsidiary
of Crescent Real Estate Equities Company ("Crescent") as part of the Magellan
transaction. The lease requires the payment of annual minimum rent in the
amount of $41.7 million, increasing in each subsequent year during the 12-year
term at a 5% compounded annual rate. The lease provides for four, five-year
renewal options. All maintenance and capital improvement costs will be the
responsibility of CBHS during the term of the lease. In addition, CBHS will pay
annually an additional $20 million under the lease, at least $10 million of
which must be used, as directed by CBHS, for capital expenditures each year and
up to $10 million of which may be used, if requested by CBHS, to cover capital
expenditures, property taxes, insurance premiums and franchise fees. CBHS's
failure to pay the additional $20 million is not a default under the lease
unless Crescent has expended funds for capital expenditures, property taxes,
insurance premiums or franchise fees.
CBHS, as lessee of the Magellan Facilities, will be responsible for
operating the Magellan Facilities. CBHS will derive assistance in its role as
operator of the Magellan Facilities through a franchise arrangement with an
initial term of 12 years (and four, five-year renewal options), entered into
between CBHS (and its subsidiaries), as franchisees, and Magellan and a wholly
owned subsidiary of Magellan (collectively, "Franchisor"), as franchisor.
Pursuant to the franchise arrangement, Franchisor will provide to CBHS and its
subsidiaries certain services necessary or desirable for the operation of the
business to be conducted at the Magellan Facilities (including the provision of
policies, procedures and protocols for operation of the Magellan Facilities and
of a toll-free patient referral number) in exchange for an annual franchise fee
of $78.3 million plus the greater of annual cost-of-living adjustments or a
percentage of CBHS's gross revenues, as defined in the franchise agreement. The
payment by CBHS to Franchisor of the annual franchise fee will be subordinated
to the payment by CBHS to Funding VII of annual minimum rent. In addition,
Franchisor will not have the right to terminate the franchise agreement due to
the nonpayment of the franchise fee as a result of the subordination of the
franchise fee to the annual minimum rent.
In connection with the Magellan transaction, the Company, as discussed
above, acquired warrants to purchase 1,283,311 shares of common stock of
Magellan, at an exercise price of $30.00 per share, with such warrants
exercisable, in increments during the period June 17, 1998 through June 17,
2009. In connection with the Magellan transaction, Crescent also acquired
warrants to purchase 1,283,311 shares of common stock of Magellan. These
warrants have the same terms as the warrants purchased by the Company. In
addition, the Company issued to Magellan warrants to purchase up to 282,508
shares of its common stock outstanding (representing approximately 2.5% of its
then-outstanding common stock plus the warrant shares), at an exercise price
calculated by applying a 25% premium to the average trading price of the
Company's common stock on the OTC Bulletin Board during the 30 trading days
immediately following June 17, 1997. Such warrants are exercisable only in the
same proportion as the Company and Crescent, in the aggregate, exercise their
warrants to purchase common stock of Magellan.
ITEM 5. OTHER EVENTS
TRADING AND DISTRIBUTION OF COMMON STOCK
The Company's common stock was accepted for quotation on the OTC Bulletin
Board, a real-time over-the-counter-market, and began trading on a when-issued
basis on June 13, 1997. The Company's common stock trades under the symbol
COPI.
On June 12, 1997, the distribution through a spin-off of all of the
outstanding common stock of the Company became effective. The distribution was
made to those persons who were limited partners of Crescent Real Estate
Equities Limited Partnership, the operating partnership of Crescent (the
"Operating Partnership"), or shareholders of Crescent on May 30, 1997, on the
basis of one share of common stock of the Company for every five units of
limited partner interest in the Operating Partnership held on that date and one
share of common stock of the Company for every ten common shares of beneficial
interest of Crescent held on that date. The mailing of the shares and account
statements representing the ownership of common stock of the Company occurred
on June 26, 1997. The distribution of the Company's common stock will provide
the shareholders of Crescent and the limited partners of the Operating
Partnership who retain both their interest in Crescent or the Operating
Partnership and their interest in the Company with the ability to benefit from
both the real estate operations of Crescent and its subsidiaries and the
business operations of the Company.
INTERCOMPANY AGREEMENT WITH CRESCENT
The Company's certificate of incorporation, as amended and restated,
provides that the Company was formed to become a lessee and operator of various
assets and to perform an agreement (the "Intercompany Agreement") between the
Company and the Operating Partnership, pursuant to which each has agreed to
provide the other with rights to participate in certain transactions.
Intercompany Agreement. Under the Intercompany Agreement entered into by
the Company and the Operating Partnership, the Company has agreed not to
acquire or make (i) investments in real estate which, for purposes of the
Intercompany Agreement, includes the provision of services related to real
estate and investment in hotel properties, real estate mortgages, real estate
derivatives or entities that invest in real estate assets or (ii) any other
investments that may be structured in a manner that qualifies under the federal
income tax requirements applicable to REITs unless it has provided written
notice to the Operating Partnership of the material terms and conditions of the
acquisition or investment opportunity, and the Operating Partnership has
determined not to pursue such acquisitions or investments. In addition, the
Company has agreed to assist the Operating Partnership in structuring and
consummating any such acquisition or investment which the Operating Partnership
elects to pursue, on terms determined by the Operating Partnership. Further,
the Company has agreed to notify the Operating Partnership of, and make
available to the Operating Partnership, investment opportunities developed by
the Company or of which the Company becomes aware but is unable or unwilling
to pursue.
The Intercompany Agreement also provides, subject to certain terms, that the
Operating Partnership will provide the Company with a right of first refusal to
become the lessee of any real property acquired by the Operating Partnership if
the Operating Partnership determines that, consistent with Crescent's status as
a REIT, it is required to enter into a "master" lease arrangement, provided
that the Company and the Operating Partnership negotiate a mutually
satisfactory lease arrangement and the Operating Partnership determines, in its
sole discretion, that the Company is qualified to be the lessee. It is also
anticipated that the Company will enter into negotiations with the lessees of
certain hotel properties to acquire the rights of such lessees. No such
negotiations are currently ongoing, however, and there is no assurance that any
such agreements will be reached.
The financial statements required to be filed with this Form 8-K, pursuant
to Item 7 of Form 8-K, will be filed by the Company in a Form 8-K/A within 60
days after the filing of this Form 8-K, in accordance with Item 7(a)(4) and
Item 7(b)(2) of Form 8-K.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 2, 1997 CRESCENT OPERATING, INC.
By: /s/ JEFFREY L. STEVENS
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Jeffrey L. Stevens
Treasurer, Chief Financial
Officer and Secretary
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