<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
REGISTRATION NO. 333-25223
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
CRESCENT OPERATING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6531/9999 PENDING
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
GERALD W. HADDOCK, ESQ.
777 MAIN STREET 777 MAIN STREET
FORT WORTH, TEXAS 76102 FORT WORTH, TEXAS 76102
TELEPHONE: (817) 877-0477 TELEPHONE: (817) 877-0477
(ADDRESS AND TELEPHONE NUMBER (NAME, ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>
------------------
Copies to:
ROBERT B. ROBBINS, ESQ.
SYLVIA M. MAHAFFEY, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, D.C. 20037
TELEPHONE: (202)663-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this registration statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE AS SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION DATED MAY 23, 1997
CRESCENT OPERATING, INC.
[LOGO]
COMMON STOCK
PREFERRED SHARE PURCHASE RIGHTS
This Prospectus is being furnished to both the shareholders of Crescent
Real Estate Equities Company, a Texas real estate investment trust ("Crescent"),
and the limited partners (the "Limited Partners") of Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership ("Crescent
Operating Partnership"), in connection with the distribution (the
"Distribution") by Crescent Operating Partnership and Crescent of all of the
outstanding shares of common stock, par value $.01 per share (the "Crescent
Operating Common Stock"), of Crescent Operating, Inc., a Delaware corporation
("Crescent Operating" or the "Company").
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO THE OWNERSHIP OF CRESCENT OPERATING COMMON STOCK.
It is expected that the Distribution will be made on , 1997
(one business day following effectiveness of the registration statement of which
this prospectus is a part). For Limited Partners, the Distribution will be made
on the basis of one share of Crescent Operating Common Stock for every 5 units
of limited partner interest (the "Units") in Crescent Operating Partnership held
on May 30, 1997 (the "Partnership Record Date"), and for shareholders of
Crescent, the Distribution will be made on the basis of one share of Crescent
Operating Common Stock for every 10 common shares, $.01 par value, of Crescent
(the "Crescent Common Shares") held on May 30, 1997 (the "Crescent Record Date"
and, together with the Partnership Record Date, the "Record Date"). No
certificates representing fractional shares of Crescent will be issued in
connection with the Distribution. In lieu of fractional shares, the distribution
agent will pay to any holder who would be entitled to a fractional share of
Crescent Operating Common Stock an amount of cash (without interest) equal to
$0. per share.
No payment need be made by, or will be accepted from, Crescent shareholders
or Limited Partners for the Crescent Operating Common Stock to be received by
them in the Distribution. Crescent shareholders will not be required to
surrender or exchange Crescent Common Shares, and Limited Partners will not be
required to surrender or exchange Units, in order to receive Crescent Operating
Common Stock. Each share of Crescent Operating Common Stock issued in the
Distribution will be accompanied by one Preferred Share Purchase Right.
There is currently no public market for Crescent Operating Common Stock.
Shares of Crescent Operating Common Stock have not yet been approved for listing
on any national securities exchange, automated quotation system or
over-the-counter market, although Crescent Operating has applied for quotation
of the Crescent Operating Common Stock on the Nasdaq National Market.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY ONLY BE MADE BY MEANS
OF A SEPARATE PROSPECTUS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND
OTHERWISE IN COMPLIANCE WITH APPLICABLE LAW.
The date of this Prospectus is , 1997.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 1
Summary..................................................... 2
The Distribution.......................................... 2
Crescent Operating........................................ 4
Summary Pro Forma Financial Data.......................... 8
Risk Factors................................................ 10
Lack of Operating History................................. 10
Risks Associated with the Carter-Crowley Assets........... 10
Risks Associated with the CBHS Interest................... 11
Restrictions on Crescent Operating's Business and Future
Opportunities.......................................... 12
Dependence upon Crescent; Limited Resources for Growth
through New Opportunities.............................. 12
Potential Conflicts of Interest........................... 13
Risks Associated with Unrelated Investments and Ability to
Manage Unrelated Investments; Competition.............. 13
Limited Financial Resources; Obligations under Financing
Arrangements; Limited Future Funding Commitments; Need
for Future Capital..................................... 14
Absence of a Public Market for Crescent Operating Common
Stock.................................................. 14
Absence of Dividends on Crescent Operating Common Stock... 14
Reliance on Key Personnel................................. 14
Certain Antitakeover Provisions........................... 15
Federal Income Tax Risks.................................. 16
The Distribution............................................ 16
Background of and Reasons for the Distribution............ 16
Manner of Effecting the Distribution...................... 17
Federal Income Tax Consequences........................... 17
Listing and Trading of Crescent Operating Common Stock.... 20
Shares Available for Future Sale.......................... 21
Dividend Policy............................................. 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 21
Business.................................................... 23
Overview.................................................. 23
Strategy.................................................. 24
The Intercompany Agreement................................ 24
The Carter-Crowley Assets................................. 25
The CBHS Interest......................................... 27
Property.................................................. 34
Employees................................................. 34
Management.................................................. 35
Directors and Executive Officers of Crescent Operating.... 35
Committees of the Board of Directors...................... 36
Compensation of Directors................................. 37
Annual Meeting............................................ 37
Security Ownership of Certain Beneficial Owners and
Management After the Distribution...................... 37
Executive Compensation.................................... 38
Crescent Operating Stock Incentive Plan................... 39
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Certain Transactions........................................................................................ 40
Interests Relating to Crescent Operating Partnership...................................................... 40
Crescent.................................................................................................. 40
Interests Relating to Magellan............................................................................ 41
Contract with Affiliate of Director....................................................................... 42
Description of Crescent Operating Capital Stock............................................................. 42
Authorized Capital Stock.................................................................................. 42
Common Stock.............................................................................................. 42
Preferred Stock........................................................................................... 42
Warrants.................................................................................................. 43
Certain Antitakeover Provisions............................................................................. 44
Staggered Board of Directors.............................................................................. 44
Number of Directors; Removal; Filling Vacancies........................................................... 44
No Stockholder Action by Written Consent; Special Meetings................................................ 44
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals........................... 44
Relevant Factors To Be Considered by the Crescent Operating Board......................................... 45
Amendment................................................................................................. 45
Rights Plan............................................................................................... 46
Delaware Business Combination Statute..................................................................... 48
Control Share Acquisitions................................................................................ 48
Liability of Directors and Officers; Indemnification...................................................... 49
Experts..................................................................................................... 50
Legal Matters............................................................................................... 50
Index to Financial Statements............................................................................... F-1
</TABLE>
ii
<PAGE> 5
AVAILABLE INFORMATION
Crescent Operating has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to Crescent Operating Common Stock and Preferred Share Purchase
Rights described herein. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information, reference is made hereby to the Registration Statement,
exhibits and schedules. Statements contained herein concerning any documents are
not necessarily complete and, in each instance, reference is made to the copies
of such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Copies of these
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048, at Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661, and at 5670 Wilshire Boulevard, Suite 1100, Los Angeles,
California 90036, and copies of all or any part thereof may be obtained from the
Commission upon payment of the charges prescribed by the Commission. Copies of
such material may also be obtained from the Commission's Web Site
(http://www.sec.gov).
Following the Distribution, Crescent Operating will be required to comply
with the reporting requirements of the Securities Exchange Act of 1934 (the
"Exchange Act") and will file annual, quarterly and other reports with the
Commission. The Company will also be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish audited
financial statements to its stockholders in connection with its annual meetings
of stockholders.
NO PERSON IS AUTHORIZED BY CRESCENT OR CRESCENT OPERATING TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
This Prospectus contains trademarks, service marks or registered marks of
Crescent Operating.
<PAGE> 6
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety, including
the discussion of certain factors set forth under "Risk Factors." Unless the
context requires otherwise, reference to "Crescent" herein includes Crescent
Real Estate Equities Company; its predecessor, Crescent Real Estate Equities,
Inc.; and its direct and indirect subsidiaries, including Crescent Real Estate
Equities Limited Partnership (the "Crescent Operating Partnership"), Crescent
Real Estate Equities, Ltd. ("Crescent Ltd."), which is the general partner of
Crescent Operating Partnership, and the other subsidiaries of Crescent.
THE DISTRIBUTION
Distributing Companies Crescent Real Estate Equities Limited Partnership,
a Delaware limited partnership, and Crescent Real
Estate Equities Company, a Texas real estate
investment trust.
Shares to be Distributed Approximately shares of Crescent Operating
Common Stock, representing all of the outstanding
shares of Crescent Operating Common Stock.
Distribution Ratio One share of Crescent Operating Common Stock for
every 10 Crescent Common Shares, and one share of
Crescent Operating Common Stock for every 5 Units.
The difference in the distribution ratios reflects
a two-for-one stock split with respect to Crescent
Common Shares, effective as of March 26, 1997, for
which there was not a corresponding split of Units.
No certificates representing fractional shares of
Crescent will be issued in connection with the
Distribution. In lieu of fractional shares, the
Distribution Agent (as defined below) will pay to
any holder who would be entitled to a fractional
share of Crescent Operating Common Stock an amount
of cash (without interest) equal to $0. per
share. No payment need be made by, or will be
accepted from, Crescent shareholders or Limited
Partners for Crescent Operating Common Stock to be
received by them in the Distribution, nor will
Crescent shareholders be required to surrender or
exchange Crescent Common Shares, or Limited
Partners be required to surrender or exchange
Units, in order to receive Crescent Operating
Common Stock. See "The Distribution -- Manner of
Effecting the Distribution."
Federal Income Tax
Consequences For Crescent shareholders, the Distribution
generally should only result in additional taxable
income to the extent the value of the Crescent
Operating Common Stock distributed by Crescent
exceeds the basis of Crescent's share of the assets
contributed by Crescent Operating Partnership to
Crescent Operating. Management anticipates that the
amount of such income will be nominal. As a result,
management anticipates that, for a typical Crescent
shareholder, the result of the Distribution, as
compared to what would occur in the absence of the
Distribution, will be to increase the shareholder's
tax-free return of capital, but this result cannot
be assured. The Distribution will generally be
taxable to Limited Partners only if and to the
extent the value of the Crescent Operating Common
Stock distributed to them exceeds their respective
bases in their partnership interests. See "The
Distribution -- Federal Income Tax Consequences."
Risk Factors Shareholders and Limited Partners should consider
certain factors discussed under "Risk Factors,"
including risks associated with the assets that
Crescent Operating will acquire and own, Crescent
Operating's lack of operating history, potential
conflicts of interest and Crescent Operating's
dependence on Crescent.
2
<PAGE> 7
Background of and Reasons
for the Distribution Crescent Operating has been formed to become a
lessee and operator of various assets and to
perform an agreement between Crescent Operating and
Crescent Operating Partnership (the "Intercompany
Agreement") pursuant to which Crescent Operating
and Crescent Operating Partnership have agreed to
provide each other with rights to participate in
certain transactions. In particular, Crescent
Operating will have the right to become the lessee
under a "master" lease arrangement of any property
owned or subsequently acquired by Crescent
Operating Partnership if Crescent Operating
Partnership determines that, consistent with the
status of Crescent as a real estate investment
trust for federal income tax purposes (a "REIT"),
Crescent Operating Partnership is required to enter
into such a lease and certain other conditions are
met. For example, Crescent generally would be
required, consistent with its status as a REIT, to
enter into a master lease arrangement as to hotels
and behavioral health care facilities. In general,
a master lease arrangement is an arrangement
pursuant to which an entire property or project (or
a group of related properties or projects) are
lease to a single lessee. The formation of Crescent
Operating and the execution of the Intercompany
Agreement will permit stockholders of Crescent
Operating who also own Crescent Common Shares to
participate in the benefits both of the real estate
operations of Crescent (including ownership of real
property) and of the lease of certain of such
assets and the ownership of other non-real estate
assets. Crescent Operating Partnership has advised
Crescent Operating that it may elect to make
available to Crescent Operating, in addition to
lessee opportunities, investment opportunities
consistent with an alignment of certain businesses
and investments of Crescent. See "Business -- The
Intercompany Agreement."
Crescent Operating is intended to function
principally as an operating company, in contrast to
Crescent's principal focus on investment in real
estate assets. The operating activities and
operating assets made available to Crescent
Operating by Crescent is designed to provide
Crescent's existing shareholders with the long-term
benefits of ownership in an entity devoted to the
conduct of operating business activities in
addition to their principal investment interest in
Crescent itself. A small number of REITs, operating
under tax provisions that no longer are available
to new REITs, have shares that are "paired" or
"stapled" with shares of a related operating
company, and therefore cannot be owned or
transferred independently. Because the shares of
Crescent and Crescent Operating can be owned and
transferred separately and independently of each
other, Crescent and Crescent Operating will not
provide a paired investment on an ongoing basis to
investors who purchase shares of only one Company
or the other. Crescent's existing shareholders who
retain their shares in both Crescent and Crescent
Operating, however, as well as future shareholders
who purchase shares of both companies, will be able
to participate in the benefits of investment in
both companies in a manner similar to holders of
shares in "paired share" REITs.
The Distribution of Crescent Operating Common Stock
will provide Crescent shareholders and the Limited
Partners as of the Record Date with the ability to
benefit from both the real estate operations of
Crescent and the business operations of Crescent
Operating.
Distribution Agent The First National Bank of Boston will be the
Distribution Agent for the Distribution.
Record Date May 30, 1997 (the "Record Date").
3
<PAGE> 8
Distribution Date , 1997 (one business day following
effectiveness of the registration statement of
which this prospectus is a part) (the "Distribution
Date"). Commencing on or about the Distribution
Date, the Distribution Agent will begin mailing
account statements reflecting ownership of Crescent
Operating Common Stock to Limited Partners on the
Record Date and, subsequently, to holders of
Crescent Common Shares. Crescent shareholders and
Limited Partners will not be required to make any
payment or to take any other action to receive the
Crescent Operating Common Stock to which they are
entitled in the Distribution. See "The
Distribution -- Manner of Effecting the
Distribution."
Trading Market There is currently no public market for Crescent
Operating Common Stock. The Crescent Operating
Common Stock has not yet been approved for listing
on any national securities exchange, automated
quotation system or over-the-counter markets,
although Crescent Operating has applied for
quotation of the Crescent Operating Common Stock on
the Nasdaq National Market. There can be no
assurance that such listing application will be
approved or that a market will develop. See "Risk
Factors -- Absence of a Public Market for Crescent
Operating Common Stock" and "The
Distribution -- Listing and Trading of Crescent
Operating Common Stock."
CRESCENT OPERATING
Crescent Operating Crescent Operating has been formed to become a
lessee and operator of various types of assets,
including real property owned by Crescent and
others, and to perform the Intercompany Agreement
between Crescent Operating and Crescent. In
connection with the formation and capitalization of
Crescent Operating, Crescent Operating Partnership
has contributed approximately $12.6 million in cash
and will advance to Crescent Operating an aggregate
of approximately $29.9 million in the form of loans
(approximately $15.3 million of which was funded on
May 8, 1997), totaling, in the aggregate, $42.5
million, which Crescent Operating has used or
expects to use to purchase the following assets
(collectively, the "Assets"):
- various assets acquired from Carter-Crowley
Properties, Inc. ("Carter-Crowley"), including
(i) a construction equipment sales, leasing and
servicing company acquired for approximately $4.1
million; (ii) a direct minority interest of
12.38% in the partnership which holds the
National Basketball Association ("NBA") franchise
for the Dallas Mavericks acquired for
approximately $12.4 million; and (iii) a 1.21%
limited partner interest in a private venture
capital fund investing in companies operating in
a variety of industries, including broadcasting,
consumer product manufacturing and real estate
acquired for approximately $9.5 million
(collectively, the "Carter-Crowley Assets"); and
- a 50% member interest (the "CBHS Interest"), to
be acquired for approximately $7.5 million, in
Charter Behavioral Health Systems, LLC ("CBHS"),
a newly formed limited liability company which
will operate approximately 90 behavioral health
care facilities (the "Facilities") which Magellan
Health Services, Inc. ("Magellan") is expected to
sell to Crescent (the "CBHS Interest") as a part
of a transaction with Magellan Health Services,
Inc., an unaffiliated entity (the "Magellan
Transaction"), and certain warrants to acquire up
to 1,283,311 shares of Magellan common stock
valued by Crescent
4
<PAGE> 9
Operating at approximately $5.0 million. See
"Business -- The CBHS Interest." Richard E.
Rainwater, the Chairman of the Board and a
director of Crescent Operating and Crescent, John
C. Goff, the Vice Chairman of the Board and a
director of Crescent Operating and Crescent, and
Gerald W. Haddock, the President, Chief Executive
Officer, and a director of Crescent Operating and
Crescent, beneficially own shares of common stock
of Magellan. As of December 31, 1996, Mr.
Rainwater beneficially owned, directly (including
shares held directly or indirectly by his spouse
and children) and indirectly through a limited
partnership of which a corporation owned by Mr.
Rainwater is the sole general partner,
approximately 19.1% of the common stock of
Magellan. Each of Messrs. Goff and Haddock
beneficially owned less than one percent of the
common stock of Magellan as of December 31, 1996.
Darla D. Moore, the spouse of Mr. Rainwater, is a
director of Magellan.
On May 9, 1997, Crescent Operating purchased the
Carter-Crowley Assets for approximately $26.0
million with funds contributed to Crescent
Operating by Crescent Operating Partnership. Of the
remaining approximately $16.5 million of funds to
be advanced to Crescent Operating by Crescent
Operating Partnership in the form of loans,
approximately $12.5 million will be used to acquire
the CBHS Interest and the warrants to acquire
Magellan common stock. The remaining approximately
$4.0 million of funds to be advanced to Crescent
Operating (approximately $1.9 million of which was
funded on May 8, 1997) will be used by Crescent
Operating to fund certain obligations to purchase
construction equipment of the construction
equipment sales, leasing and servicing company
acquired from Carter-Crowley.
The purchase price of the 1.42% limited partner
interest in the private venture capital fund
acquired from Carter-Crowley does not include
Crescent Operating's obligation to invest an
additional $2.2 million in the fund.
Crescent Operating's certificate of incorporation,
as amended (the "Charter"), provides that one of
Crescent Operating's corporate purposes is to
perform the Intercompany Agreement, pursuant to
which Crescent Operating and Crescent have agreed
to provide each other with rights to participate in
certain transactions. In addition, the Charter
prohibits Crescent Operating from engaging in
activities or making investments that a REIT could
make, unless Crescent was first given the
opportunity but elected not to pursue such
activities or investments.
The principal executive offices of Crescent
Operating are located at 777 Main Street, Forth
Worth, Texas 76102, and its telephone number at
that location is (817) 877-0477. Crescent Operating
was incorporated in Delaware in April 1997.
Business Strategy Crescent Operating intends to manage the Assets,
enter into certain of the businesses to which the
Assets relate and pursue additional opportunities.
Crescent Operating believes that it has, or will
have access to, sufficient liquidity and management
expertise to manage the Assets successfully.
Crescent Operating's investment and operating
strategies are to acquire and operate a
complementary group of businesses which are aligned
with
5
<PAGE> 10
certain of the investments and businesses of
Crescent. To pursue additional opportunities,
Crescent Operating plans to capitalize on its
relationship with Crescent and Crescent's ability
to structure transactions creatively. Crescent
Operating also plans to explore the possibility of
providing to Crescent certain lessee and
operational services currently provided by others
to Crescent. In this regard, Crescent Operating
plans to enter into negotiations to acquire or
replace the current tenants of certain hotels and
resorts owned by Crescent and leased to third
parties. No such negotiations are currently
ongoing, however, and there is no assurance that
any such agreements will be reached. The additional
opportunities Crescent Operating may pursue are
expected to be varied and may be unrelated to any
business in which Crescent Operating will be
engaged initially. Accordingly, Crescent Operating
expects that, in the future, it may sell existing
assets that are inconsistent with its long-term
strategies.
Management of Crescent
Operating Richard E. Rainwater, John C. Goff and Gerald W.
Haddock are Chairman of the Board of Directors,
Vice Chairman and the President and Chief Executive
Officer, respectively, of Crescent Operating. Each
currently serves in the same capacity at Crescent.
See "Management."
Preferred Share Purchase
Rights Crescent Operating expects to adopt a Preferred
Share Purchase Rights Plan (the "Rights Plan") on
or prior to the Distribution Date. If so adopted,
certificates issued in the Distribution
representing Crescent Operating Common Stock will
also initially represent an equivalent number of
associated Preferred Share Purchase Rights of
Crescent Operating (the "Rights"). See "Certain
Antitakeover Provisions -- Rights Plan."
Certain Antitakeover
Provisions Certain provisions of Crescent Operating's Charter
and Crescent Operating's Bylaws (the "Bylaws"), as
each will be in effect as of the Distribution, and
of applicable Delaware state corporation law, have
the effect of making more difficult an acquisition
of control of Crescent Operating in a transaction
not approved by the Crescent Operating Board of
Directors (the "Board"). These provisions include
(i) a provision for a classified Board of
Directors, with only approximately one-third of the
Board to be elected in any year, to serve for
three-year terms, (ii) a requirement that directors
be removed only for cause upon the affirmative vote
of holders of at least 80% of the total voting
power, (iii) a requirement that actions of
stockholders be taken at a meeting of stockholders,
rather than by written consent, (iv) a prohibition
on the stockholders' ability to call a special
meeting, (v) an advance notice requirement for
stockholders to make nominations of candidates for
directors or to bring other business before an
annual meeting of stockholders, and (vi) a
requirement that certain amendments to the Charter
be approved by the affirmative vote of 80% of the
total voting power. See "Description of Crescent
Operating Capital Stock" and "Certain Antitakeover
Provisions." The Rights Plan will also make more
difficult an acquisition of control of Crescent
Operating in a transaction not approved by the
Crescent Operating Board. The Rights Plan and
certain provisions of the Charter do not apply to
Crescent and its affiliates. See "Certain
Antitakeover Provisions -- Rights Plan."
Post-Distribution Dividend
Policy Crescent Operating intends to use its available
funds to pursue investment and business
opportunities and, therefore, does not anticipate
the
6
<PAGE> 11
payment of any cash dividends on Crescent Operating
Common Stock in the foreseeable future. Payment of
dividends on Crescent Operating Common Stock is
prohibited under loans from Crescent Operating
Partnership until all amounts outstanding
thereunder are paid in full and will also be
subject to such limitations as may be imposed by
any other credit facilities that Crescent Operating
may obtain from time to time. The declaration of
dividends will be subject to the discretion of the
Crescent Operating Board. See "Dividend Policy."
Interests of Richard E.
Rainwater and Affiliates Richard E. Rainwater, John C. Goff and Gerald W.
Haddock are Chairman of the Board of Directors,
Vice Chairman and the President and Chief Executive
Officer, respectively, of Crescent Operating and
Crescent. Each is also a director of Crescent
Operating and Crescent. Mr. Rainwater has a
significant interest in Crescent, Crescent
Operating and Magellan through Mr. Rainwater's
positions as an officer or director of each of
these entities and through his direct and indirect
ownership of Crescent Common Shares and units of
ownership in Crescent Operating Partnership. Mr.
Haddock is the sole director of the sole general
partner of Crescent Operating Partnership. The
general partner is a wholly owned subsidiary of
Crescent. As of May 9, 1997, Messrs. Rainwater,
Goff and Haddock beneficially owned approximately
12.5%, 2.0%, and 1.5% of Crescent, respectively,
which interests consist of Crescent Common Shares
and Units of ownership in Crescent Operating
Partnership, a portion of which may be held by
partnerships or trusts as to which Messrs.
Rainwater, Goff and Haddock have voting control.
Following the Distribution, each of Messrs.
Rainwater, Goff and Haddock is expected to
beneficially own approximately 12.5%, 2.0%, and
1.5% of the then-outstanding shares of Crescent
Operating Common Stock. See "Management -- Security
Ownership of Certain Beneficial Owners and
Management." In addition, Mr. Rainwater
beneficially owns approximately 19.1% of the
Magellan common stock, the substantial portion of
which is attributable to his ownership of 100% of
the stock of the sole general partner of
Rainwater-Magellan Holdings, L.P., a limited
partnership that owns 3,885,832 shares of Magellan
common stock. See "Risk Factors -- Potential
Conflicts of Interest" and "Certain Transactions."
Transfer Agent and
Registrar The First National Bank of Boston will be the
Transfer Agent and Registrar for Crescent Operating
after the Distribution.
7
<PAGE> 12
SUMMARY PRO FORMA FINANCIAL DATA
The following tables set forth certain unaudited summary financial
information for the Company on a combined pro forma basis. This summary
information is qualified by, and should be read in conjunction with, the
financial statements and notes thereto included elsewhere in this Prospectus.
The pro forma information for the year ended December 31, 1996, assumes
completion, in each case as of January 1, 1996 in determining operating data,
and, in each case as of December 31, 1996, in determining balance sheet data, of
(i) the formation and capitalization of Crescent Operating, (b) the acquisition
of the Carter-Crowley Assets and the recording of the transaction under the
purchase method of accounting, and (c) the acquisition of a 50% interest in CBHS
and the related acquisition of warrants to purchase 1,283,311 shares of
Magellan's common stock.
<TABLE>
<CAPTION>
CRESCENT
OPERATING, INC.
AS ADJUSTED FOR
ACQUISITION OF ACQUISITION OF
CRESCENT CARTER- CARTER- ACQUISITION OF
OPERATING, INC. CROWLEY CROWLEY 50% INTEREST PRO FORMA
HISTORICAL ASSET GROUP ASSET GROUP IN CBHS(1) CONSOLIDATED
--------------- -------------- --------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues................................. $ -- $10,394 $10,394 -- $ 10,394
Gross Profit............................. -- 1,857 1,857 -- 1,857
Equity in loss of CBHS................... -- -- -- (7,659) (7,659)
Income (loss) from Operations............ -- 869 2,448 (7,659) (5,211)
---- ------- ------- ------- --------
Net income (loss)........................ $ -- $ 383 $(3,754) $(7,659) $(11,413)
Balance Sheet Data:
Total assets............................. $ 1 NA $43,757 -- $ 43,757
Total debt............................... -- NA 29,867 -- 29,867
Total stockholder equity................. 1 NA 12,601 -- 12,601
</TABLE>
- ---------------
(1) Represents Crescent Operating's share of the pro forma loss of CBHS
primarily as a result of the anticipated $81.0 million franchise fee and the
$63.0 million payable under lease arrangements with Crescent, reduced by
depreciation relating to the Facilities. See "Business -- The CBHS
Interest."
The pro forma information for the three months in the period ended March
31, 1997, assumes completion, in each case as of January 1, 1997 in determining
operating data, and, in each case as of December 31, 1996, in determining
balance sheet data, of (i) the formation and capitalization of Crescent
Operating, (b) the acquisition of the Carter-Crowley Assets and the recording of
the transaction under the purchase method of accounting, and (c) the acquisition
of a 50% interest in CBHS and the related acquisition of warrants to purchase
1,283,311 shares of Magellan's common stock.
<TABLE>
<CAPTION>
CRESCENT
OPERATING, INC.
AS ADJUSTED FOR
ACQUISITION OF ACQUISITION OF
CRESCENT CARTER- CARTER- ACQUISITION OF
OPERATING, INC. CROWLEY CROWLEY 50% INTEREST PRO FORMA
HISTORICAL ASSET GROUP ASSET GROUP IN CBHS(1) CONSOLIDATED
--------------- -------------- --------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues................................. $ -- $ 3,039 $ 3,039 -- $ 3,039
Gross Profit............................. -- 577 577 -- 577
Equity in loss of CBHS................... -- -- -- 2,416 2,416
Income (loss) from Operations............ -- 139 (36) (2,416) (2,452)
---- ------- ------- ------- -------
Net income (loss)........................ $ -- $ 24 $(1,083) $(2,416) $(3,499)
Balance Sheet Data:
Total assets............................. $ 1 NA 43,757 -- 43,757
Total debt............................... -- NA 29,867 -- 29,867
Total stockholder equity................. 1 NA 12,601 -- 12,601
</TABLE>
8
<PAGE> 13
- ---------------
(1) Represents Crescent Operating's share of the pro forma loss of CBHS
primarily as a result of the anticipated $81.0 million franchise fee and the
$63.0 million payable under lease arrangements with Crescent, reduced by
depreciation relating to the Facilities. See "Business -- The CBHS
Interest."
The following table sets forth certain summary historical financial
information for Carter-Crowley Asset Group. This summary information is
qualified by and should be used in conjunction with the Carter-Crowley Asset
Group financial statements and notes thereto included elsewhere in this
Prospectus.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues.............................................. $ 3,039 $ 2,743 $10,394 $ 9,147 $ 7,871 $ 6,979 $ 5,831
Gross Profit.......................................... 577 458 1,857 1,808 1,957 1,303 1,206
Income (loss) from Operations......................... 139 68 569 89 83 89 (49)
Net income (loss)..................................... 24 13 303 79 49 37 (90)
Balance Sheet Data:
Total assets.......................................... $18,465 $14,475 $17,385 $13,489 $ 5,705 $ 5,101 $ 4,936
Total debt............................................ 4,863 3,127 5,405 3,121 1,375 850 466
Total stockholder equity.............................. 12,130 10,479 10,559 9,621 3,695 3,709 4,580
</TABLE>
9
<PAGE> 14
RISK FACTORS
Shareholders and Limited Partners should carefully consider and evaluate
all of the information set forth in this Prospectus, including the risk factors
listed below. Crescent Operating also cautions readers that, in addition to the
historical information included herein, this Prospectus includes certain
forward-looking statements and information that are based on management's
beliefs as well as on assumptions made by and information currently available to
management. When used in this Prospectus, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and similar expressions are
intended to identify such forward-looking statements. Such statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, including but not limited to the following factors, which could
cause the Company's future results and stockholder values to differ materially
from those expressed in any forward-looking statements made by or on behalf of
Crescent Operating. Many of such factors are beyond the Company's ability to
control or predict. Readers are cautioned not to put undue reliance on
forward-looking statements.
LACK OF OPERATING HISTORY
The Company is newly formed and has no operating history. The financial
information relating to the Assets that is presented elsewhere in this
Prospectus is not necessarily indicative of future operations of Crescent
Operating.
RISKS ASSOCIATED WITH THE CARTER-CROWLEY ASSETS
The Carter-Crowley Assets consist of a variety of assets purchased from
Carter-Crowley, including a direct minority (12.38%) limited partner interest in
Dallas Basketball Ltd., the entity that holds the NBA franchise for the Dallas
Mavericks, a construction equipment sales, leasing and service company and a
1.21% limited partner interest in a private venture capital fund. The
Carter-Crowley Assets are varied, unrelated to one another, and possibly
unrelated to any future business in which Crescent Operating will invest.
Certain of the Carter-Crowley Assets are relatively illiquid. See
"Business -- The Carter-Crowley Assets."
Interest in Dallas Basketball Ltd. The transfer of Crescent Operating's
direct minority limited partnership interest in Dallas Basketball Ltd. is
restricted by the terms of the Dallas Basketball Ltd. partnership agreement and
by the NBA. The Dallas Basketball Ltd. partnership agreement provides that the
other limited partners have a right of first refusal to acquire any interests
sought to be transferred, and that the general partner must approve all
transfers. Additionally, all transfers are subject to certain restrictions
contained in the Constitution and Bylaws of the NBA. Consequently, the limited
partnership interest in Dallas Basketball Ltd. is relatively illiquid and its
value may be adversely affected by the win-loss record of the Dallas Mavericks
during a particular season.
Construction Equipment Sales, Leasing and Service Company. Moody-Day, Inc.
("Moody-Day") sells, leases and services construction equipment primarily to the
construction and utility industries in Texas. An economic downturn or recession
in these industries may adversely affect Moody-Day's operating results.
Moody-Day has several competitors, some of which are larger or better
capitalized and may be better-positioned to acquire a larger share of the
market. Moreover, equipment shortages have and may continue to have a negative
impact on operations. Moody-Day also faces exposure for claims of injury
incurred in connection with the use of the equipment it sells, leases and
services.
Limited Partner Interest in Private Venture Capital Fund. Hicks Muse Tate &
Furst Equity Fund II, LP ("Hicks-Muse") is a private venture capital fund in
which Crescent Operating owns a 1.21% limited partner interest. The unpaid
principal balance due on the original commitment by Carter-Crowley to invest $10
million in Hicks-Muse was $2.2 million as of December 31, 1996, and Crescent
Operating has assumed this obligation in connection with the acquisition of its
interest in Hicks Muse. Investments of Crescent Operating thru Hicks-Muse
consist of, among other things, investments of manufacurers of wire and cable.
Volatility in the securities markets, interest rate increases and unfavorable
conditions in the economy generally, and in the wire and cable industries in
particular, may have a negative impact on Hicks-Muse's performance.
10
<PAGE> 15
RISKS ASSOCIATED WITH THE CBHS INTEREST
The Magellan Transaction cannot be consummated, and therefore the CBHS
Interest cannot be acquired, until the Distribution is effective and several
other conditions have been satisfied. See "Business -- The CBHS Interest." Among
these conditions is the approval of the requisite percentage of the Magellan
stockholders. There is no assurance that such approval will be obtained. In
addition, the Magellan Transaction is conditioned upon the closing of each
component transaction, including the purchase of the Facilities by Crescent.
If acquired, the CBHS Interest presents the following risks to stockholders
of Crescent Operating.
Franchise Agreement Risks. The Master Franchise Agreement is for an initial
term of 12 years, and CBHS will have the right to renew the Master Franchise
Agreement for four additional five-year terms, for a maximum of 32 years. At the
end of the initial term and each renewal term the franchise fees will be
adjusted to reflect the fair market value of the franchise. Notwithstanding that
the Master Franchise Agreement provides for an appraisal mechanism for
determining the fair market value of the franchise fees, Magellan will have the
right not to consent to the fee adjustment, and can terminate the Master
Franchise Agreement, at the end of the initial or any renewal term. If Magellan
terminates the Master Franchise Agreement prior to the full 32-year term, CBHS
will be subject to a three-year covenant not to engage in the hospital-based
behavioral healthcare business except pursuant to a written agreement with
Magellan. Accordingly, Magellan could extract franchise fees in excess of the
fair market value of the franchise, or CBHS could be precluded from being in the
hospital-based behavioral healthcare business for a significant period of time.
Either result could materially adversely affect the value of Crescent
Operating's investment in CBHS.
CBHS Reliance on Magellan and Crescent Operating. CBHS will rely on
Magellan to extend a line of credit in the principal amount of up to $55 million
secured by CBHS's receivables, for up to one year after the closing of the
Magellan Transaction (the "Magellan Closing") or, under certain circumstances,
provide a guarantee not to exceed $65 million for a CBHS bank line of credit
secured by receivables of CBHS. Each of Crescent Operating and Magellan also
will be required to contribute an additional $2.5 million to CBHS in cash five
days after the Magellan Closing, and to lend CBHS up to $17.5 million upon
Magellan's request during the five years following the closing of the Magellan
Transaction. In addition, Magellan will be required to provide various assets
and services to CBHS under the Master Franchise Agreement and to CBHS
subsidiaries under Subsidiary Franchise Agreements. Accordingly, CBHS' ability
to operate the Facilities as contemplated by the Magellan Transaction will
depend in part upon Magellan's and Crescent Operating's financial status.
Lack of Control of CBHS; Management Deadlock. CBHS will be governed by a
four-member board (the "CBHS Board"), two of which will be appointed by each of
Crescent Operating and Magellan. A significant number of decisions require 80%
CBHS Board approval (the approval of all four directors). Accordingly, the
directors appointed by Crescent Operating will be unable to exercise control of
CBHS without the concurrence of the directors appointed by Magellan. The CBHS
Operating Agreement provides that a deadlock of the CBHS Board will be deemed to
exist if the CBHS Board is unable to reach agreement by the required vote at two
successive meetings on (i) a decision requiring 80% CBHS Board approval; (ii) a
decision involving the expenditure of more than a specified amount; or (iii) a
decision relating to the executive officers. Further, an unresolved deadlock
could lead either to the forced sale of Crescent Operating's interest in CBHS,
or the required purchase by Crescent Operating of Magellan's interest in CBHS.
In the latter case, Crescent Operating would be faced with funding the purchase
of Magellan's interest and subsequently operating the Facilities, through CBHS,
without Magellan's healthcare experience.
CBHS Conflicts of Interest. With the exception of John C. Goff, who will
become Chairman of the CBHS Board, all of the executive officers of CBHS upon
formation of CBHS will be former employees of Magellan, and therefore may be
subject to conflicts of interests in matters in which Crescent Operating and
Magellan have conflicting interests.
Possible Violation of Government Regulations. The operation of healthcare
facilities such as the Facilities is subject to substantial federal, state and
local regulation, including federal Medicare law. In addition to other laws and
regulations with which CBHS will be required to comply, CBHS will be subject to
federal and state
11
<PAGE> 16
laws that govern financial arrangements between healthcare providers. Any
failure to comply with these laws or regulations could have an adverse effect on
the operations of CBHS.
The laws governing financial arrangements between healthcare providers
generally prohibit certain direct and indirect payments and/or fee-splitting
arrangements between health-care providers that are designed to induce, are in
exchange for, or encourage patient referrals. The Medicare Law Amendments, which
are among the most prominent of laws of this type, prohibit the offering,
paying, soliciting or receiving any form of remuneration in return for referring
federal healthcare patients, or in return for purchasing, leasing, ordering or
arranging for, or recommending purchasing, leasing or ordering any good,
facility, service or item for which payment may be made under federal healthcare
programs. Violations of the Medicare Law Amendments may result in criminal and
civil sanctions, including exclusion from the Medicare and/or Medicaid programs.
Following the consummation of the Magellan Transaction, CBHS will pay fixed
franchise fees to Magellan, subject to increase in certain circumstances. See
"Business -- The CBHS Interest -- Master Franchise Agreement." CBHS will receive
from Magellan an array of services, including advertising and marketing
assistance, risk management services, outcomes monitoring, consultation with
respect to matters relating to CBHS' business in which Magellan has expertise
and Magellan's operation of a telephone call center utilizing an "800" telephone
number. Magellan has advised Crescent Operating that it believes that the
franchise fee arrangements described herein are consistent with the Medicare Law
Amendments because such arrangements do not involve CBHS's receipt of referrals
of patients from Magellan. There can be no assurance, however, that regulatory
agencies or private parties will not challenge the arrangement and Crescent
Operating based on alleged violations of the Medicare Law Amendments.
RESTRICTIONS ON CRESCENT OPERATING'S BUSINESS AND FUTURE OPPORTUNITIES
Crescent Operating's Charter provides that Crescent Operating is prohibited
from engaging in activities or making investments that a REIT could make unless
Crescent was first given the opportunity but elected not to pursue such
activities or investments. Crescent Operating's Charter also provides that a
corporate purpose of Crescent Operating is to perform its obligations under the
Intercompany Agreement. The formation of Crescent Operating and the execution of
the Intercompany Agreement will permit stockholders of Crescent Operating who
also own Crescent Common Shares to participate in the benefits both of the real
estate operations of Crescent (including ownership of real property) and of the
lease of certain of such assets and the ownership of other non-real estate
assets. Under the Intercompany Agreement, Crescent Operating 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 notified Crescent
Operating Partnership of the acquisition or investment opportunity, and Crescent
Operating Partnership has determined not to pursue such acquisition or
investment. Crescent Operating also has agreed to assist Crescent Operating
Partnership in structuring and consummating any such acquisition or investment
which Crescent Operating Partnership elects to pursue, on terms determined by
Crescent Operating Partnership. Further, Crescent Operating Partnership is not
required to offer Crescent Operating the opportunity to participate in
transactions or make investments other than pursuant to Crescent Operating's
right of first refusal to become the lessee of any real property acquired by
Crescent Operating Partnership as to which Crescent Operating Partnership
determines that, consistent with Crescent's status as a REIT, it is required to
enter into a master lease arrangement. This lessee opportunity will be available
to Crescent Operating only if Crescent Operating Partnership determines, in its
sole discretion, that Crescent Operating is qualified to be the lessee. Because
of the provisions of the Intercompany Agreement and Crescent Operating's
Charter, the nature of Crescent Operating's business and the opportunities it
may pursue are restricted.
DEPENDENCE UPON CRESCENT; LIMITED RESOURCES FOR GROWTH THROUGH NEW OPPORTUNITIES
Due to Crescent Operating's restricted corporate purpose and the
Intercompany Agreement, Crescent Operating will rely significantly on Crescent
to identify business opportunities for Crescent Operating. There is
12
<PAGE> 17
no assurance that Crescent Operating Partnership will identify opportunities for
Crescent Operating or that any opportunities that Crescent identifies will be
within Crescent Operating's financial, operational or management parameters. In
addition, Crescent Operating Partnership will provide the lessee opportunities
described in the Intercompany Agreement only if it is necessary for Crescent,
consistent with its status as a REIT, to enter into a master lease arrangement.
If Crescent in the future should fail to qualify as a REIT, such failure could
have a substantial adverse effect on those aspects of Crescent Operating's
business operations and business opportunities that are dependent upon Crescent.
See "Federal Income Tax Considerations -- Taxation of Crescent in General" for a
discussion of Crescent's status as a REIT. For example, the Intercompany
Agreement remains effective even if Crescent ceases to qualify as a REIT, with
Crescent Operating's rights relating to lessee opportunities under the
Intercompany Agreement continuing to be based on Crescent's need to create a
master lease structure due to its status as a REIT. Accordingly, if Crescent
failed to qualify as a REIT and thereafter acquired a property, Crescent would
have the right under the Intercompany Agreement to lease the property to any
person or entity pursuant to any type of lease (including a master lease
arrangement) or to operate the property itself. Crescent Operating, however,
would remain subject to all of the limitations on its operations contained in
the Charter and the Intercompany Agreement. In addition, although it is
anticipated that any master lease arrangement involving Crescent Operating
generally will provide that Crescent Operating's rights will continue following
a sale of the property or an assignment of the lease (with the likelihood of a
sale or assignment of lease possibly increasing if Crescent fails to qualify as
a REIT), Crescent Operating could lose its rights under any such master lease
arrangement upon the expiration of the lease.
POTENTIAL CONFLICTS OF INTEREST
Richard E. Rainwater is Chairman of the Boards of Crescent and Crescent
Operating. John C. Goff is Vice Chairman of Crescent and of Crescent Operating.
Gerald W. Haddock is President, Chief Executive Officer and a director of
Crescent and of Crescent Operating. Although each of them is committed to the
success of Crescent Operating, they are also committed to the success of
Crescent. None of Messrs. Rainwater, Goff or Haddock is committed to spending a
particular amount of time on Crescent Operating's affairs, nor will any of them
devote his full time to Crescent Operating. Five of the members of the Crescent
Board will also be members of the Crescent Operating Board. In addition, it is
anticipated that the Crescent Operating Board will include two members who are
unaffiliated with Crescent.
In addition to his positions with Crescent Operating and Crescent Operating
Partnership, Mr. Rainwater is the beneficial owner of 19.1% of the outstanding
common stock of Magellan. Mr. Rainwater's spouse serves as a director of
Magellan. Through these relationships, Mr. Rainwater may have the ability to
influence decisions of Magellan in a manner that may benefit Magellan to the
detriment of Crescent Operating or vice versa.
Officers and directors of a corporation owe fiduciary duties to the
stockholders of that corporation. There is a risk that the common membership of
management and members of the Boards of Crescent Operating and Crescent will
lead to conflicts of interest in connection with transactions between the two
companies. Crescent Operating was formed with specific purpose clauses in its
Charter in an effort to avoid conflicts of interest issues by identifying at the
outset which types of opportunities will be pursued by each company. These
clauses provide that Crescent Operating's purposes include performing the
Intercompany Agreement and refraining from engaging in activities or making
investments that a REIT could make until Crescent has been offered the
opportunity and has declined to pursue such activities or investments.
RISKS ASSOCIATED WITH UNRELATED INVESTMENTS AND ABILITY TO MANAGE UNRELATED
INVESTMENTS; COMPETITION
Either through management of the Assets or through implementing its
strategy and corporate purpose of carrying out the Intercompany Agreement,
Crescent Operating will pursue a variety of opportunities. Although Crescent
Operating intends to acquire and operate a complementary group of businesses,
there may be differences among the businesses in which it engages that may
require a wide range of skills and qualifications, and there is no assurance
that Crescent Operating management or employees will have, or that Crescent
Operating will be able to hire and retain employees with, such skills and
qualifications. There also is no assurance that the opportunities Crescent
Operating pursues will be integrated, perform as expected or
13
<PAGE> 18
contribute significant revenues or profits to Crescent Operating. The industries
in which Crescent Operating will compete may be subject to government regulation
and restrictions, some of which may be significant and burdensome. The
businesses with which it will compete may be better capitalized or have other
features that will make it difficult for Crescent Operating to compete
effectively.
LIMITED FINANCIAL RESOURCES; OBLIGATIONS UNDER FINANCING ARRANGEMENTS; LIMITED
FUTURE FUNDING COMMITMENTS; NEED FOR FUTURE CAPITAL
Crescent Operating will be in a position to manage the Carter-Crowley
Assets and acquire the CBHS Interest because of funds, including loans and a
line of credit, provided to it by Crescent Operating Partnership in connection
with the formation and capitalization of Crescent Operating. In connection with
the formation and capitalization of Crescent Operating, Crescent Operating
obtained a five-year term loan pursuant to which it expects to borrow from
Crescent Operating Partnership an aggregate of approximately $29.9 million
(approximately $15.3 million of which was funded on May 8, 1997) and a line of
credit for up to $20.0 million from Crescent Operating Partnership. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity." Prior to maturity the loan and line of credit will be
payable only to the extent of net cash flow, with the line of credit payable on
and interest-only basis during its term. There can be no assurance that the
Company will be able to satisfy all of its obligations under the loan and credit
facility at the time that they mature.
Crescent Operating intends to utilize any funds it may borrow under the
$20.0 million line of credit primarily to meet its requirements under the CBHS
Operating Agreement. Crescent Operating has not received any commitment with
respect to any additional borrowing. There is no assurance that Crescent
Operating will have sufficient working capital to finance future acquisitions or
pursue additional opportunities. Crescent Operating expects to be able to access
capital markets or to seek other financing, including financing from Crescent or
with Crescent's assistance, but there is no assurance that it will be able to do
so at all or in amounts or on terms acceptable to the Company, and currently the
$20.0 million line of credit is the Company's only external source of financing.
Crescent currently is not obligated to provide any additional funds to Crescent
Operating or to assist it in obtaining additional financing.
ABSENCE OF A PUBLIC MARKET FOR CRESCENT OPERATING COMMON STOCK
There is currently no public market for Crescent Operating Common Stock.
Although Crescent Operating has applied for quotation of the Cresent Operating
Common Stock on the Nasdaq National Market, it has not yet been approved for
listing, there can be no assurance that it will be approved for quotation, and
there can be no assurance as to the prices at which trading in Crescent
Operating Common Stock will occur after the Distribution. Until the Crescent
Operating Common Stock is fully distributed and an orderly trading market
develops, the prices at which trading in the Common Stock occurs may fluctuate
significantly. In the event no regular trading market develops for Crescent
Common Stock, holders of shares of Crescent Common Stock may not be able to sell
their shares promptly at a desired price. Accordingly, holders of Crescent
Operating Common Stock should consider the Common Stock a long-term investment.
ABSENCE OF DIVIDENDS ON CRESCENT OPERATING COMMON STOCK
Crescent Operating intends to use its available funds to pursue investment
and business opportunities and, therefore, does not anticipate the payment of
any cash dividends on Crescent Operating Common Stock in the foreseeable future.
Payment of dividends on Crescent Operating Common Stock is prohibited under the
loan and line of credit from Crescent Operating Partnership until all amounts
outstanding thereunder have been paid in full, and will also be subject to such
limitations as may be imposed by any other credit facilities that Crescent
Operating may obtain from time to time. See "Dividend Policy."
RELIANCE ON KEY PERSONNEL
The success of Crescent Operating depends to a significant degree upon the
contribution of its executive officers and other key personnel. None of the
Crescent Operating executive officers has an employment
14
<PAGE> 19
agreement with Crescent Operating. There can be no assurance that the Company
will be able to retain its key managerial and other key personnel or to attract
suitable replacements or additional personnel if required. Crescent Operating
has not obtained key-man insurance for any of its executive officers and other
key personnel.
CERTAIN ANTITAKEOVER PROVISIONS
The Charter and Bylaws, the Rights Plan and applicable sections of the
Delaware General Corporation Law (the "DGCL") contain several provisions that
may make more difficult the acquisition of control of Crescent Operating without
the approval of the Crescent Operating Board. Certain provisions of Crescent
Operating's Charter and the Bylaws, among other things: (i) classify the
Crescent Operating Board into three classes, each of which serves for staggered
three-year terms; (ii) provide that a director of Crescent Operating may be
removed by the stockholders only for cause; (iii) provide that only the
Chairman, Vice-Chairman, President or the Crescent Operating Board may call
special meetings of the stockholders; (iv) provide that the stockholders may
take action only at a meeting of Crescent Operating stockholders, not by written
consent; (v) provide that stockholders must comply with certain advance notice
procedures in order to nominate candidates for election to the Crescent
Operating Board or to place stockholders' proposals on the agenda for
consideration at meetings of the stockholders; (vi) provide that, under certain
circumstances, the affirmative vote of the holders of two-thirds of the Crescent
Operating Common Stock is required to approve any merger or similar business
combination involving Crescent Operating (the "control shares provision"); and
(vii) provide that the stockholders may amend or repeal any of the foregoing
provisions of the Charter or the Bylaws only by a vote of 80% of the stock
entitled to vote generally in the election of directors. With certain
exceptions, Section 203 of the DGCL ("Section 203") imposes certain restrictions
on mergers and other business combinations between Crescent Operating and any
holder of 15% or more of the Crescent Operating Common Stock. The Charter
provides that the control shares provision, the Rights Plan and Section 203 do
not apply to Crescent and its affiliates. Accordingly, Crescent and its
affiliates will be in a position to effect a business combination or other
transaction with Crescent Operating in situations where others would be
restricted from effecting a similar transaction. The Charter authorizes the
Board of Directors to issue up to 10 million shares of preferred stock, par
value $.01 per share, in series, and to establish the rights and preferences
(including the convertibility of such shares of preferred stock into shares of
Crescent Operating Common Stock) of any series of preferred stock so issued. The
issuance of preferred stock could have the effect of delaying or preventing a
change in control of Crescent Operating, even if such a change in control were
in the best interests of some, or a majority, of Crescent Operating's
stockholders. See "Description of Crescent Operating Capital Stock" and "Certain
Antitakeover Provisions."
The Rights Plan would cause substantial dilution to a person or group that
attempts to acquire Crescent Operating on terms not approved in advance by the
Crescent Operating Board. Under the Rights Plan, until 10 business days
following such time as a person or group has acquired beneficial ownership of,
or has proposed a tender offer or exchange offer that would result in a person
or group's owning, 10% or more of the outstanding shares of Crescent Operating
Common Stock, (the "Rights Distribution Date") the Rights will be transferred
only with the Crescent Operating Common Stock. Following the Rights Distribution
Date, separate certificates evidencing the Rights will be mailed to each holder
of record on the Rights Distribution Date. Thereafter, each holder of a Right
(other than the person or group) will thereafter have the right to receive, upon
exercise of such Right, that number of shares of Crescent Operating Common Stock
having a market value equal to two times the exercise price of the Right.
Similar provisions apply in the event of a merger or other business combination
as a result of which a person or group will own 10% or more of the outstanding
shares of Crescent Operating Common Stock. Prior to the time that any such
person or group acquires 10% or more of the outstanding shares of Crescent
Operating Common Stock, the Board of Directors may redeem the Rights in whole
for $.01 per Right. After the time that any such person or group acquires 10% or
more, but less than 50%, of the outstanding shares of Crescent Operating Common
Stock, the Board of Directors may exchange the Rights, in whole or in part, at
an exchange ratio of one share of Crescent Operating Common Stock, or
one-hundredth of a Junior Preferred Share per Right.
15
<PAGE> 20
FEDERAL INCOME TAX RISKS
On the Distribution Date, Crescent will, in the opinion of Shaw, Pittman,
Potts & Trowbridge, tax counsel to Crescent Operating and Crescent ("Tax
Counsel"), recognize gain measured by the difference between the value of the
Crescent Operating Common Stock distributed by Crescent and the basis of
Crescent in such stock, which will depend in turn on the basis of Crescent's
share of the Assets contributed by the Crescent Operating Partnership to
Crescent Operating. Although management anticipates that any such gain would be
nominal, the Internal Revenue Service (the "Service") may be able to assert
successfully that the gain is not insubstantial. Because of the factual nature
of valuation, Tax Counsel is not able to render an opinion on it. Under the REIT
rules, Crescent's gain, if any, would be passed through to the Crescent
shareholders. The value of the Crescent Operating Common Stock distributed, plus
any cash distributed in lieu of fractional shares, would be treated under the
rules generally applicable to cash distributions. Management anticipates that,
for a typical Crescent shareholder, the result of the Distribution, as compared
to what would occur in the absence of the Distribution, will be to increase the
shareholder's tax-free return of capital, but this result cannot be assured.
With respect to Limited Partners, the contribution by the Crescent Operating
Partnership into Crescent Operating should not constitute a taxable event, but
the Service may successfully assert the contrary, and in any event the
Distribution will be taxable to a Limited Partner if and to the extent the value
of the Crescent Operating Stock received by the Limited Partner exceeds the
Limited Partner's basis in the Limited Partner's partnership interest. See "The
Distribution -- Federal Income Tax Consequences."
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Crescent Operating has been formed to become a lessee and operator of
various assets and to perform the Intercompany Agreement. Under the Intercompany
Agreement, Crescent Operating and Crescent Operating Partnership will agree to
provide each other with rights to participate in certain transactions. In
particular, Crescent Operating will have a right of first refusal to become the
lessee of any real property acquired by Crescent Operating Partnership if
Crescent Operating Partnership determines that, consistent with Crescent's
status as a REIT, it is required to enter into a "master" lease arrangement,
provided that Crescent Operating Partnership determines, in its sole discretion,
that Crescent Operating is qualified to be the lessee. See "Business -- The
Intercompany Agreement." In addition, Crescent Operating intends to pursue
additional opportunities with others in the future. The Distribution of Crescent
Operating Common Stock will enable Crescent shareholders and the Limited
Partners as of the Record Date with the opportunity to participate in the
benefits both of the real estate operations of Crescent (including ownership of
real property) and of the lease of certain of such assets and the ownership of
other non-real estate assets.
Crescent Operating is intended to function principally as an operating
company, in contrast to Crescent's principal focus on investment in real estate
assets. The operating activities and operating assets made available to Crescent
Operating by Crescent is designed to provide Crescent's existing shareholders
with the long-term benefits of ownership in an entity devoted to the conduct of
operating business activities in addition to their investment interest in
Crescent itself. A small number of REITs, operating under tax provisions that no
longer are available to new REITs, have shares that are "paired" or "stapled"
with shares of a related operating company, and therefore cannot be owned or
transferred independently. Because the shares of Crescent and Crescent Operating
can be owned and transferred separately and independently of each other,
Crescent and Crescent Operating will not provide a paired investment on an
ongoing basis to investors who purchase shares of only one Company or the other.
Crescent's existing shareholders who retain their shares in both Crescent and
Crescent Operating, however, as well as future shareholders who purchase shares
of both companies, will be able to participate in the benefits of investment in
both companies in a manner similar to holders of shares in "paired share" REITs.
On May 8, 1997, Crescent Operating Partnership contributed cash in the
amount of approximately $12.6 million in exchange for all of the outstanding
shares of Crescent Operating Common Stock which are being distributed by
Crescent Operating Partnership to its partners, including Crescent, and by
Crescent to its shareholders in connection with the Distribution.
16
<PAGE> 21
MANNER OF EFFECTING THE DISTRIBUTION
It is expected that the Distribution Date will be , 1997 (one
business day following effectiveness of the registration statement of which this
prospectus is a part). At the time of the Distribution, share certificates for
Crescent Operating Common Stock will be delivered to the Distribution Agent.
Commencing on or about the date of the Distribution, the Distribution Agent will
begin mailing account statements reflecting ownership of Crescent Operating
Common Stock to holders of Crescent Common Shares and Units as of the close of
business on the Record Date. The Distribution will be made on the basis of one
share of Crescent Operating Common Stock for every 10 Crescent Common Shares
held on the Record Date and one share of Crescent Operating Common Stock for
every 5 Units held on the Record Date. The difference in the Distribution ratio
as between the Crescent shareholders and the Limited Partners is due to a
two-for-one stock split with respect to Crescent Common Shares, effective as of
March 26, 1997, for which there was not a corresponding split of Units. No
certificates representing fractional shares of Crescent Operating will be issued
in connection with the Distribution. In lieu of fractional shares, the
Distribution Agent will pay to any holder who would be entitled to a fractional
share of Crescent Operating Common Stock an amount of cash (without interest)
equal to $0. per share. All shares of Crescent Operating Common Stock will
be fully paid and nonassessable. See "Description of Crescent Operating Capital
Stock."
Prior to the Distribution Date, inquiries relating to the Distribution
should be directed to the Distribution Agent at 150 Royall, Canton,
Massachusetts 02021 Monday through Friday, 9:00 a.m. to 5:00 p.m. (Eastern
time), at 617-575-4190. After the Distribution Date, inquiries may be directed
to the Distribution Agent or Crescent Operating Investor Relations, at 777 Main
Street, Fort Worth, Texas 76102; or by telephone at 817-877-0477, Monday through
Friday, 9:00 a.m. to 5:00 p.m. (Dallas time).
NO HOLDER OF CRESCENT COMMON SHARES OR OF UNITS WILL BE REQUIRED TO MAKE
ANY PAYMENT FOR THE SHARES OF CRESCENT OPERATING COMMON STOCK TO BE RECEIVED IN
THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE CRESCENT COMMON SHARES OR UNITS OR
TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE CRESCENT OPERATING COMMON STOCK TO
WHICH THE HOLDER IS ENTITLED IN THE DISTRIBUTION.
FEDERAL INCOME TAX CONSEQUENCES
Introduction. The following is a summary of the material federal income tax
considerations associated with the Distribution prepared by Tax Counsel. This
discussion is based upon the laws, regulations and reported rulings and
decisions in effect as of the date of this Prospectus, all of which are subject
to change, retroactively or prospectively, and to possibly differing
interpretations. This discussion does not purport to deal with the federal
income or other tax consequences applicable to all investors in light of their
particular investment circumstances or to all categories of investors, some of
whom may be subject to special rules (including, for example, insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States). No ruling on the federal, state or local tax considerations relevant to
the operation of Crescent or Crescent Operating or to the Distribution is being
requested from the Service or from any other tax authority. Tax Counsel has
rendered certain opinions discussed herein and believes that if the Service were
to challenge the conclusions of Tax Counsel, such conclusions would prevail in
court. However, opinions of counsel are not binding on the Service or on the
courts, and no assurance can be given that the conclusions reached by Tax
Counsel would be sustained in court.
Taxation of Crescent in General. Crescent has made an election to be
treated as a real estate investment trust under Sections 856 through 860 of the
Code (as used in this section, a "REIT"), commencing with its taxable year ended
December 31, 1994. Crescent believes that it was organized and has operated in
such a manner so as to qualify as a REIT, and Crescent intends to continue to
operate in such a manner, but no assurance can be given that it has operated in
a manner so as to qualify, or will operate in a manner so as to continue to
qualify as a REIT.
17
<PAGE> 22
The sections of the Code relating to qualifications and operation as a REIT
are highly technical and complex. In the opinion of Tax Counsel, Crescent
qualified as a REIT under the Code with respect to its taxable years ending on
or before December 31, 1996, and is organized in conformity with the
requirements for qualification as a REIT, its manner of operation has enabled it
to meet the requirements for qualification as a REIT as of the date of this
Prospectus, and its proposed manner of operation will enable it to meet the
requirements for qualification as a REIT in the future. It must be emphasized
that this opinion is based on various assumptions relating to the organization
and operation of Crescent and Crescent Operating Partnership and is conditioned
upon certain representations made by Crescent and Crescent Operating Partnership
as to certain relevant factual matters, including matters related to the
organization, expected operation, and assets of Crescent and Crescent Operating
Partnership. Moreover, continued qualification as a REIT will depend upon
Crescent's ability to meet, through actual annual operating results, the
distribution levels, stock ownership requirements and the various qualification
tests and other requirements imposed under the Code, as discussed below.
Accordingly, no assurance can be given that the actual stock ownership of
Crescent, the mix of its assets, or the results of its operations for any
particular taxable year will satisfy such requirements.
Tax Counsel has also addressed what Tax Counsel believes to be the material
issues with respect to the qualification of Crescent as a REIT which are raised
by the structure and currently anticipated activities of Crescent Operating. In
particular, Tax Counsel has opined that Crescent and Crescent Operating will be
treated as separate corporate entities, that Crescent Operating will not be
treated as the agent of Crescent, that Crescent and Crescent Operating will not
be considered to constitute a stapled entity under Section 269B, that rent paid
by affiliates of Crescent Operating should not be considered to be rent from
related parties which does not qualify as rent from real property under Section
856(d), and that the temporary ownership of Crescent Operating by the Crescent
Operating Partnership will not cause Crescent to be considered to have violated
the requirement under Section 856(c)(5) that Crescent not own, at the close of
each quarter of the taxable year, more than 10 percent of the outstanding voting
securities of an issuer.
Income Recognition by Crescent as a Result of the Distribution. On the
Distribution Date, Crescent will, in the opinion of Tax Counsel, recognize gain
on the Distribution to the extent the value of the Crescent Operating Common
Stock distributed by Crescent exceeds the basis of Crescent in such stock, which
will depend in turn on the basis of Crescent's share of the Assets contributed
by the Crescent Operating Partnership to Crescent Operating. Because the Assets
consist primarily of cash and recently negotiated contract rights, management
anticipates that any such gain will be nominal, but the Service may be able to
assert successfully that the gain is not insubstantial. Because of the factual
nature of the valuation issue, Tax Counsel is unable to render an opinion on it.
The amount of gain, if any, will increase Crescent's current or accumulated
earnings and profits.
Taxation of Taxable Domestic Shareholders of Crescent as a Result of the
Distribution. The Distribution will be treated as a distribution whose amount
equals the value of the Crescent Operating Common Stock distributed plus any
cash in lieu of fractional shares, and Crescent shareholders will receive a
basis in Crescent Operating Common Stock equal to the value thereof at the time
of the Distribution. As long as Crescent qualifies as a REIT, distributions
(including the Distribution) made to Crescent's taxable U.S. shareholders out of
Crescent's current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by such U.S. shareholders as
ordinary income and, for corporate shareholders, will not be eligible for the
dividends received deduction. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Crescent Common
Shares, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a shareholder's Crescent Common Shares, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one year or less)
assuming the shares are a capital asset in the hands of the shareholder. In
addition, any distribution declared by Crescent in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by Crescent and received by the shareholder
on December 31 of such year, provided that the distribution is actually paid by
Crescent during January of the following calendar year. Shareholders may not
include any net operating losses or capital losses of Crescent in their
respective income
18
<PAGE> 23
tax returns. In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from Crescent required to be treated by such shareholder
as long-term capital gain.
Based upon the above, management anticipates that for a typical Crescent
shareholder, the result of the Distribution, as opposed to what would occur in
the absence of the Distribution, will be to increase the shareholder's tax-free
return of capital, but this result cannot be assured.
Taxation of Tax-Exempt Shareholders of Crescent as a Result of the
Distribution. Most tax-exempt employees' pension trusts are not subject to
federal income tax except to the extent of their receipt of "unrelated business
taxable income" as defined in Section 512(a) of the Code ("UBTI"). The
Distribution to a shareholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Crescent Common Shares with "acquisition indebtedness" within the meaning of
the Code and the Crescent Common Shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, certain pension trusts
that own more than 10% of a "pension-held REIT" must report a portion of the
dividends that they receive from such a REIT as UBTI. Crescent has not been and
does not expect to be treated as a pension-held REIT for purposes of this rule.
Taxation of Foreign Stockholders of Crescent as a Result of the
Distribution. The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are complex,
and no attempt will be made in this Prospectus to provide more than a summary of
such rules. Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of federal, state and local tax laws with regard to the
Distribution, including any reporting requirements. In general, as is the case
with domestic taxable shareholders of Crescent, the Distribution is treated as a
distribution whose amount equals the value of the Crescent Operating Common
Stock distributed plus any cash in lieu of fractional shares, and Crescent
shareholders will receive a basis in Crescent Operating Common Stock equal to
the fair market value thereof at the time of the Distribution.
Distributions that are not attributable to gain from sales or exchanges by
Crescent of United States real property interests and not designated by Crescent
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current and accumulated earnings and profits of
Crescent. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution, unless an applicable tax
treaty reduces or eliminates that tax. Crescent expects to withhold U.S. income
tax at the rate of 30% on the gross amount of any such distribution made to a
Non-U.S. Stockholder unless (i) a lower treaty rate applies and the Non-U.S.
Stockholder has filed the required IRS Form 1001 with Crescent or (ii) the
Non-U.S. Stockholder files an IRS Form 4224 with Crescent claiming that the
distribution is effectively connected with the Non-U.S. Stockholder's conduct of
a U.S. trade or business. Distributions in excess of Crescent's current and
accumulated earnings and profits will be subject to a 10% withholding
requirement but will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's Crescent
Common Shares, but rather will reduce the adjusted basis of such shares. To the
extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Stockholder's shares, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of the
Crescent Common Shares, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distributions would be
subject to withholding at the same rate as dividends. However, a Non-U.S.
Stockholder may seek a refund of such amounts from the Service if it is
subsequently determined that such distribution was, in fact, in excess of
Crescent's current and accumulated earnings and profits.
Gain recognized by a Non-U.S. Stockholder upon a sale of Crescent Common
Shares generally will not be taxed under the provisions of the Foreign
Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"), if Crescent
is a "domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. Crescent is and currently
expects to continue to be a "domestically controlled REIT," and in
19
<PAGE> 24
such case the sale of Crescent Common Shares would not be subject to taxation
under FIRPTA. However, gain not subject to FIRPTA nonetheless will be taxable to
a Non-U.S. Stockholder if (i) investment in the Crescent stock is treated as
effectively connected with the Non-U.S. Stockholder's U.S. trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. shareholders with respect to such gain or (ii) the Non-U.S. Stockholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and either the individual has a "tax home" in
the United States or the gain is attributable to an office or other fixed place
of business maintained by the individual in the United States, in which case
gains will be subject to a 30% tax. If the gain on the sale of Crescent Common
Shares were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as U.S. shareholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and the purchaser of
the Crescent Common Shares would be required to withhold and remit to the IRS
10% of the purchase price.
Taxation of Limited Partners of Crescent Operating Partnership as a Result
of the Distribution. In the opinion of Tax Counsel, the contribution of the
Assets by the Crescent Operating Partnership into Crescent Operating should
qualify as a tax-free contribution of assets to a controlled corporation for
federal income tax purposes. The Service may, however, be able to challenge this
conclusion successfully, and if the contribution were taxable it would result in
gain equal to the excess, if any, of the Crescent Operating Partnership's basis
in the Assets over the value of the Crescent Operating Common Stock received by
the Crescent Operating Partnership. Limited Partners would be taxable on their
distributable share of such gain, if any. Because the Assets consist primarily
of cash and recently negotiated contract rights, management anticipates that any
such gain would be nominal, but the Service may be able to assert successfully
that the gain is not insubstantial. Because of the factual nature of the
valuation issue, Tax Counsel is unable to render an opinion on it. Furthermore,
under tax rules which pertain to the distribution by partnerships of marketable
securities, whether or not the contribution by the Crescent Operating
Partnership is taxable, the distribution of Crescent Operating Common Stock to a
Limited Partner will, in the opinion of Tax Counsel, be taxable to such Limited
Partner if and to the extent that the value of the Crescent Operating Common
Stock distributed exceeds the basis of such Limited Partner in such Limited
Partner's partnership interest immediately prior to the distribution.
ALL CRESCENT SHAREHOLDERS AND LIMITED PARTNERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO
THEM, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF CRESCENT OPERATING COMMON STOCK
There is currently no public market for Crescent Operating Common Stock.
Although Crescent Operating has applied to the Nasdaq National Market for
quotation of the Crescent Operating Common Stock, it has not yet been approved
for listing, there can be no assurance that it will be approved for listing, and
there can be no assurance as to the prices at which trading in Crescent
Operating Common Stock will occur after the Distribution. Until Crescent
Operating Common Stock is fully distributed and an orderly trading market
develops, the prices at which trading in such stock occurs may fluctuate
significantly. There can be no assurance that an active trading market in
Crescent Operating Common Stock will develop or be sustained in the future.
The prices at which Crescent Operating Common Stock trades will be
determined by the marketplace and may be influenced by many factors, including,
among others, Crescent Operating's performance and prospects, the depth and
liquidity of the market for Crescent Operating Common Stock, investor perception
of Crescent Operating and of the industries in which the Company operates and
economic conditions in general, Crescent Operating's dividend policy, and
general financial and other market conditions. In addition, financial markets,
have experienced extreme price and volume fluctuations that have affected the
market price of many stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
fluctuations have also affected the share prices of many newly public issuers.
Such
20
<PAGE> 25
volatility and other factors may materially adversely affect the market price of
Crescent Operating Common Stock.
Crescent Operating will have approximately 400 stockholders of record,
based on the number of record holders of Crescent Common Shares on the Record
Date and the number of Limited Partners. The Transfer Agent and Registrar for
the Crescent Operating Common Stock will be The First National Bank of Boston.
For certain information regarding options and other equity-based employee
benefit awards involving Crescent Operating Common Stock that may become
outstanding after the Distribution, see "Management."
SHARES AVAILABLE FOR FUTURE SALE
Crescent Operating Common Stock distributed in the Distribution
(approximately 10,975,556 shares, assuming, for purposes of providing an
indication of the Crescent Operating Common Stock to be outstanding immediately
after the Distribution, a Record Date of May 9, 1997) will be freely
transferable, except for securities received by persons who may be deemed to be
"affiliates" of Crescent Operating under the Securities Act of 1933, as amended
(the "Securities Act"). Persons who may be deemed to be affiliates of Crescent
Operating after the Distribution generally include individuals or entities that
control, are controlled by, or are under common control with, Crescent Operating
and may include certain officers and directors of Crescent Operating as well as
principal stockholders of Crescent Operating, if any. Persons who are affiliates
of Crescent Operating will be permitted to sell their shares of Crescent
Operating Common Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemption afforded by Section 4(2) of the
Securities Act (relating to private sales) or by Rule 144 under the Securities
Act. Neither Crescent nor Crescent Operating is able to predict whether
substantial amounts of Crescent Operating Common Stock will be sold in the open
market following the Distribution. Sale of substantial amounts of Crescent
Operating Common Stock in the public market, or the perception that such sales
might occur, could adversely affect the market price of Crescent Operating
Common Stock.
DIVIDEND POLICY
Crescent Operating intends to use its available funds to pursue investment
and business opportunities and, therefore, does not anticipate the payment of
any cash dividends on Crescent Operating Common Stock in the foreseeable future.
Payment of dividends on Crescent Operating Common Stock is prohibited under the
loans and line of credit from Crescent Operating Partnership until all amounts
outstanding thereunder are paid in full, and will also be subject to such
limitations as may be imposed by any other credit facilities that Crescent
Operating may obtain from time to time. The declaration of dividends will be
subject to the discretion of the Crescent Operating Board.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of the Company, the
Company has received approximately $12.6 million in cash from Crescent Operating
Partnership and will borrow approximately $29.9 million (approximately $15.3
million of which was funded on May 8, 1997) from Crescent Operating Partnership
pursuant to a five-year term loan. The loan is a recourse loan secured by a
first lien on the Assets and all other assets owned by Crescent Operating now or
in the future. The loan will bear interest at the rate of 12% per annum,
compounded annually, and is payable quarterly in an amount equal to the lesser
of (i) the net cash flow for the preceding quarter and (ii) the total amount of
principal and accrued interest outstanding on the loan. Net cash flow will be
computed by subtracting the total costs incurred by Crescent Operating from its
gross receipts. The loan will mature on May 8, 2002. The Company also will
obtain a $20.0 million line of credit which bears interest at the same rate as
the term loan. The line of credit is payable on an interest-only basis during
its term, which expires on the later of (i) May 7, 2002 or (ii) five years after
the last draw under
21
<PAGE> 26
the line of credit. Draws may be made under the line of credit until May 1,
2002. The line of credit is a recourse obligation and amounts outstanding
thereunder are secured by a first lien on the Assets and all other assets owned
by Crescent Operating now or in the future (other than subsidiaries of CBHS
formed or acquired after May 8, 1997). The approximately $12.6 million in cash
and the proceeds of approximately $15.3 million of loans were used to acquire
the Carter-Crowley Assets. The remaining approximately $14.6 million to be
advanced in the form of loans is expected to be used both to acquire the CBHS
Interest and the warrants to acquire shares of Magellan common stock, and to
fund an obligation to purchase construction equipment of Moody-Day, the
construction equipment sales, leasing and servicing company acquired from
Carter-Crowley. The line of credit is expected to be used to support future
funding obligations associated with the Assets and cash requirements.
RESULTS OF OPERATIONS
Crescent Operating has no external sources of financing except as described
above in "Liquidity." The Company is not aware of any known trends or
uncertainties, other than national economic conditions, which have had or which
may reasonably be expected to have a material impact, favorable or unfavorable,
on revenues or income from the acquisition of the Assets and operations of its
business, other than those referred to in this Prospectus.
THE CARTER-CROWLEY ASSET GROUP (THE "PORTFOLIO")
Results Of Operations -- Three Months Ended March 31, 1997 And 1996
Total revenue increased approximately $.3 million, or 11.1%, to $3.0
million for the three months ended March 31, 1997, as compared to $2.7 million
for the three months ended March 31, 1996.
Total cost of sales increased $.2 million, or 8.7%, to $2.5 million for the
three months ended March 31, 1997, as compared to $2.3 million for the three
months ended March 31, 1996.
Results Of Operations -- Years Ended December 31, 1996 And 1995
Total revenue increased approximately $1.3 million, or 14.3%, to $10.4
million for the year ended December 31, 1996, as compared to $9.1 million for
the year ended December 31, 1995.
Total cost of sales increased $1.1 million, or 14.9%, to $8.5 million for
the year ended December 31, 1996, as compared to $7.4 million for the year ended
December 31, 1995.
In the year ended December 31,1996, the equity in income of investment in
limited partnership was approximately $.7 million due to distribution in excess
of the Portfolio's investment in Mavericks.
Results Of Operations -- Years Ended December 31, 1995 And 1994
Total revenue increased approximately $1.4 million, or 18.2%, to $9.1
million for the year ended December 31, 1995, as compared to $7.7 million for
the year ended December 31, 1994.
Total cost of sales increased $1.2 million, or 19.4%, to $7.4 million for
the year ended December 31, 1995, as compared to $6.2 million for the year ended
December 31, 1994.
Liquidity And Capital Resources
Cash and cash equivalents were approximately $124,000 and $22,000 at March
31, 1997 and December 31, 1996, respectively. The $102,000 increase is
attributable to approximately $682,000 and $11,000 of cash provided by financing
and operating activities, respectively, offset by $591,000 used in investing
activities. The Portfolio cash inflow of cash provided by financing activities
is primarily attributable to proceeds received from Carter-Crowley Properties,
Inc. ("CCP") in the form of capital contributions of $1,165,000 and proceeds of
$299,000 received from CCP through notes payable offset by $841,000 repayment of
CCP notes payable. The Portfolio utilized $591,000 of cash flow primarily
attributable to $860,000 purchases of rental equipment offset by $270,000 from
sales of rental equipment.
22
<PAGE> 27
The Portfolio expects to meet its liquidity requirements primarily through
cash flow provided by operating activities, which the Portfolio believes will be
adequate to fund normal recurring operating expenses, debt service requirements
and certain capital expenditures. To the extent the Portfolio's cash flow from
operating activities was not sufficient to finance certain capital expenditures,
the Portfolio financed such activities with proceeds available through the line
of credit with CCP.
In April 1997, the line of credit and note payable with CCP were
contributed by CCP to the Portfolio as a capital contribution resulting in the
removal of substantially all debt of the Portfolio.
Crescent Operating has only recently been formed and has no operating
history. The Company has financed the acquisition of the Assets in part through
borrowings, and may under certain circumstances borrow for the purpose of making
additional investments or to provide working capital for operations. Crescent
Operating's Assets may not be readily marketable and their values may be
affected by general market conditions. Nevertheless, the Company believes that
its capital and revenues will be sufficient to fund the Company's anticipated
investments and proposed operations.
CAPITAL RESOURCES -- LONG-TERM CASH GENERATION
As of the date of this Prospectus, the Company has no commitments to
purchase any assets, although it has the right to acquire the CBHS Interest. The
purchase of additional assets will be contingent upon securing adequate funding
on terms acceptable to the Company. The Company is not aware of any material
unfavorable trends in either capital resources or the outlook for long-term cash
generation, nor does it expect any material changes in the availability and
relative cost of such capital resources.
There are currently no material changes being considered in the objectives
and policies of the Company as set forth in this Prospectus.
BUSINESS
OVERVIEW
Crescent Operating expects to become a lessee and operator of various types
of assets, including real property owned by Crescent and others. Crescent
Operating has had no operations to date. It owns the Carter-Crowley Assets and
anticipates that it will acquire the CBHS Interest. The Carter-Crowley Assets
consist of various assets, including an equipment sales, leasing and service
company, an interest in a limited partnership that owns the NBA franchise for
the Dallas Mavericks and an interest in a private venture capital fund. If
Crescent Operating acquires the CBHS Interest, it will become a 50% owner of
CBHS which will operate the Facilities.
Crescent Operating's Charter provides that one of its corporate purposes is
to perform the Intercompany Agreement between Crescent Operating and Crescent,
pursuant to which Crescent Operating and Crescent have agreed to provide each
other with rights to participate in certain transactions. In addition, the
Charter prohibits Crescent Operating from engaging in activities or making
investments that a REIT could make unless Crescent was first given the
opportunity but elected not to pursue such activities or investments.
Crescent Operating is intended to function principally as an operating
company, in contrast to Crescent's principal focus on investment in real estate
assets. The operating activities and operating assets made available to Crescent
Operating by Crescent is designed to provide Crescent's existing shareholders
with the long-term benefits of ownership in an entity devoted to the conduct of
operating business activities in addition to their investment interest in
Crescent itself. A small number of REITs, operating under tax provisions that no
longer are available to new REITs, have shares that are "paired" or "stapled"
with shares of a related operating company, and therefore cannot be owned or
transferred independently. Because the shares of Crescent and Crescent Operating
can be owned and transferred separately and independently of each other,
Crescent and
23
<PAGE> 28
Crescent Operating will not provide a paired investment on an ongoing basis to
investors who purchase shares of only one Company or the other. Crescent's
existing shareholders who retain their shares in both Crescent and Crescent
Operating, however, as well as future shareholders who purchase shares of both
companies, will be able to participate in the benefits of investment in both
companies in a manner similar to holders of shares in "paired share" REITs.
STRATEGY
Crescent Operating intends to manage the Assets, enter into certain of the
businesses to which the Assets relate and pursue additional opportunities.
Crescent Operating believes that it has, or will have access to, sufficient
liquidity and management expertise to manage the Assets successfully.
Crescent Operating's investment and operating strategies are to acquire and
operate a complementary group of businesses which are aligned with certain of
the investments and businesses of Crescent. To pursue additional opportunities,
Crescent Operating plans to capitalize on its relationship with Crescent and
Crescent's ability to structure transactions creatively. It also plans to
determine whether Crescent Operating could provide to Crescent certain lessee
and operator functions currently provided by others to Crescent. In this regard,
it plans to negotiate to replace the tenants of certain hotels and resorts owned
by Crescent and leased to third parties. No such negotiations are currently
ongoing, however, and there is no assurance that any such agreements will be
reached. The additional opportunities Crescent Operating may pursue are expected
to be varied and may be unrelated to any business in which Crescent Operating is
then engaged or may be engaged at any future date. Crescent Operating also
expects that, in the future, it may sell existing assets that are inconsistent
with its long-term strategies. To the extent any such sales are made at a time
when Crescent Operating has outstanding indebtedness, Crescent Operating
anticipates that it will use the proceeds of any such sales of assets to reduce
the amount of any such indebtedness.
Crescent Operating also intends to pursue additional and similar
opportunities with Crescent and others in the future. The Distribution of
Crescent Operating Common Stock will provide Crescent shareholders and the
Limited Partners as of the Record Date who retain their Crescent Common Shares
with the opportunity to participate in the benefits both of the real estate
operations of Crescent (including ownership of real property) and of the lease
of certain of such assets and the ownership of other non-real estate assets.
THE INTERCOMPANY AGREEMENT
Crescent Operating and Crescent Operating Partnership have entered into the
Intercompany Agreement to provide each other with rights to participate in
certain transactions. The Intercompany Agreement is designed to permit investors
who purchase or retain equity interests in both Crescent and Crescent Operating
to participate in the benefits of investments in both companies in a manner
similar to holders of shares in "paired share" REITS. See "-- Overview." The
Intercompany Agreement provides, subject to certain terms, that Crescent
Operating Partnership will provide Crescent Operating with a right of first
refusal to become the lessee of any real property acquired by Crescent Operating
Partnership if Crescent Operating Partnership determines that, consistent with
Crescent's status as a REIT, it is required to enter into a "master" lease
arrangement, provided that Crescent Operating Partnership determines, in its
sole discretion, that Crescent Operating is qualified to be the lessee. For
example, Crescent generally would be required, consistent with its status as a
REIT, to enter into a master lease arrangement as to hotels and behavioral
health care facilities. In general, master lease arrangement is an arrangement
pursuant to which an entire property or project (or a group of related
properties or projects) are leased to a single lessee. Crescent Operating
Partnership also has advised Crescent Operating that it may elect to make
available to Crescent Operating, in addition to lessee opportunities, investment
opportunities consistent with an alignment of certain businesses and investments
of Crescent. Under the Intercompany Agreement, Crescent Operating 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 a 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 notified Crescent
Operating Partnership of the acquisition or investment opportunity, and Crescent
Operating Partnership has
24
<PAGE> 29
determined not to pursue such acquisitions or investments. Crescent Operating
also has agreed to assist Crescent Operating Partnership in structuring and
consummating any such acquisition or investment which Crescent Operating
Partnership elects to pursue, on terms determined by Crescent Operating
Partnership. In addition, Crescent Operating has agreed to notify Crescent
Operating Partnership of, and make available to, Crescent Operating Partnership
investment opportunities developed by Crescent Operating or of which Crescent
Operating becomes aware but is unable or unwilling to pursue.
THE CARTER-CROWLEY ASSETS
On February 10, 1997, Crescent entered into a contract with Carter-Crowley
and various of its affiliated entities (collectively, the "Carter-Crowley
Sellers"), all of whom are unaffiliated with Crescent and Crescent Operating, to
acquire for approximately $383.3 million, substantially all of the assets (the
"Carter-Crowley Portfolio") of Carter-Crowley. At the time the contract was
executed, the Carter-Crowley Portfolio included 14 office properties (the
"Carter-Crowley Office Portfolio"), with an aggregate of approximately 3.0
million net rentable square feet, approximately 1,216 acres of commercially
zoned, undeveloped land located in the Dallas/Fort Worth metropolitan area, two
multifamily residential properties located in the Dallas/Fort Worth metropolitan
area, marketable securities, secured and unsecured promissory notes, certain
direct non-operating working interests in various oil and gas wells, an
approximately 35% limited partner interest in two oil and gas limited
partnerships and the Carter-Crowley Assets. Pursuant to an agreement between
Carter-Crowley and Crescent, Carter-Crowley liquidated approximately $51.0
million of such assets originally included in the Carter-Crowley Portfolio,
consisting primarily of the marketable securities and the oil and gas
investments, resulting in a reduction in the total purchase price by a
corresponding amount to approximately $332.3 million. On May 9, 1997, Crescent
and Crescent Operating acquired the Carter-Crowley Portfolio.
Crescent acquired certain assets from the Carter-Crowley Portfolio, with an
aggregate purchase price of approximately $306.3 million, consisting primarily
of the Carter-Crowley Office Portfolio, the two multifamily residential
properties, the approximately 1,216 acres of undeveloped land and the secured
and unsecured promissory notes relating primarily to the Dallas Mavericks. In
addition to the promissory notes relating to the Dallas Mavericks, Crescent
obtained rights from the current holders of the majority interest in the Dallas
Mavericks to a contingent $10.0 million payment if a new arena is built within a
75-mile radius of Dallas.
The remainder of the Carter-Crowley Portfolio, consisting of the
Carter-Crowley Assets, was purchased by Crescent Operating utilizing cash
contributions and loan proceeds that were provided to Crescent Operating by
Crescent Operating Partnership. These assets, which have an allocated cost of
approximately $26.0 million, consist primarily of the assets described below.
Moody-Day, Inc. Moody-Day is a Texas corporation, wholly owned by Crescent
Operating, engaged in the sale, leasing and service of construction equipment
and accessories to the construction and utility industries located primarily in
Texas. Moody-Day's leasing activities consist principally of leasing
construction equipment and accessories under various leases, including certain
non-cancelable operating leases and sales-type leases.
Moody-Day's inventory available for sale or lease is supplied pursuant to
various distributor or dealer agreements. Moody-Day believes that the terms and
conditions of these agreements are consistent with industry standards.
Moody-Day's operations are not notably seasonal, although adverse weather
conditions, such as extended periods of precipitation, could adversely affect
its operations.
The business is operated from a building and the adjacent property in
Dallas, Texas. An underground gasoline and diesel storage tank was previously
removed from the property, but prior to the time case closure documentation was
issued by the State of Texas, regulations applicable to removal of the tank were
modified to require testing and monitoring procedures. A remedial plan for the
installation of test wells was prepared by Moody-Day and accepted by the State
of Texas, and monitoring of the groundwater currently is in process.
Moody-Day competes with various large and small companies in its business.
Among its primary competitors are national firms such as A-1, Prime Equipment
Company and Hertz, and local firms such as Gaedcke Equipment Company, a Texas
company with four locations. Moody-Day believes that the principal
25
<PAGE> 30
competitive factors in its markets for sale and rental of the construction
equipment and accessories it offers are availability of requested equipment,
price and product features. Moody-Day's products and services are marketed
directly by its 11-person sales force. No customer accounted for more than 10%
of Moody-Day's gross sales for the twelve-month period ended December 31, 1996,
with the exception of Austin Commercial, a commercial construction contractor,
which accounted for approximately 11% of Moody-Day's sales for that period.
Day-to-day operations and management will be the responsibility of Mark
Roberson, who has been employed by Moody-Day since 1989. From 1989 through 1991,
Mr. Roberson served as Moody-Day's general rental manager. Since 1991, he has
served as the general manager of operations. Prior to joining Moody-Day, Mr.
Roberson had a total of six years of similar industry experience.
At March 1, 1997, Moody-Day had 32 employees, all of whom worked full time.
Of this number, 6 were involved in corporate administrative and support
functions and the remainder were employed in the sales, leasing and service
operations of the business. Moody-Day is currently not a party to any collective
bargaining agreements covering its employees, has not experienced any work
stoppages, and believes that relations with its employees are good. Moody-Day is
not a party to any material pending litigation.
Dallas Mavericks Interest. Crescent Operating owns a 12.38% limited partner
interest in Dallas Basketball, Ltd., a Texas limited partnership that owns the
Dallas Mavericks basketball team, the related rights in the NBA franchise and
various other related rights and interests. The Dallas Basketball, Ltd.
partnership agreement sets forth the rights and obligations of the partners,
including rights and restrictions regarding transferring interests in the
partnership and future capital contributions. If the general partner does not
waive the provision, transfers of interests to a person or entity not related to
an existing partner must be offered to the existing partners who have the right
to accept, in the aggregate, all of the interests offered. If the offerees elect
to take less than all of the offered interests, the offer is deemed to be
rejected. When a contract for the sale of the interests has been entered into,
the general partner will review the contract and any additional information
regarding the character and financial capacity of the proposed purchaser, and
determine whether it will consent to the transfer. This consent may not be
unreasonably withheld, assuming the interest to be transferred is less than 25%
of the partnership interests. Any transfer is subject to all relevant
restrictions on such transfer as may be contained in the Constitution and Bylaws
of the NBA.
The partnership agreement does not contain any additional capital
contribution requirements. A limited partner, however, may make voluntary
contributions when and if requested by the general partner. Any such
contributions are subject to a preferential return.
Generally, the general partner has full control over the activities of the
partnership and has and can exercise full management powers and control.
However, until three promissory notes (aggregating approximately $47 million,
excluding a contingent $10 million note, all of which are held by Crescent) are
paid or otherwise retired or canceled, a "majority interest" must consent to the
general partner taking various actions, including incurring debt in excess of
$10 million, mortgaging or otherwise encumbering any or all of the material
assets of the partnership, agreeing to the transfer of certain limited partner
interests and certain mergers or consolidations. "Majority interest" means 50%
of the 33% of limited partner interests not affiliated with the general partner.
There are six limited partners not affiliated with the general partner
(including Crescent Operating), four of which each own a 4.13% limited partner
interest and one of which owns a 4.10% limited partner interest. Accordingly,
the other limited partners could combine, or Crescent Operating with one of the
4.13% limited partners could combine, to constitute a majority interest.
Hicks Muse Tate & Furst Equity Fund II, LP. Hicks Muse Tate & Furst Equity
Fund II, LP is a private venture capital fund in which Crescent Operating owns a
1.21% limited partner interest. Crescent Operating participates in Hicks-Muse on
an investment-by-investment basis and does not own an interest in all
investments included in the Hicks-Muse portfolio. As of December 31, 1996, the
unpaid principal balance due on the original commitment by Carter-Crowley to
invest $10 million in Hicks-Muse was approximately $2.2 million. This amount is
required to be paid by Crescent Operating when called.
As of December 31, 1996, Crescent Operating's investments in the Hicks-Muse
portfolio consists primarily of investments in companies that make chocolate,
wire and cable, polyurethane foam, toys, tools,
26
<PAGE> 31
and that invest in real estate. Of these investments of Crescent Operating, 56%
were invested in manufacturers of wire and cable as of December 31, 1996.
THE CBHS INTEREST
Crescent Operating expects to become an operator of behavioral healthcare
and related facilities through its acquisition of an ownership interest in CBHS
pursuant to the Magellan Transaction. Each of the transactions, as identified
below, that forms a part of the Magellan Transaction is conditioned upon the
closing of the other transactions. Accordingly, Crescent Operating's ability to
acquire the CBHS Interest is contingent upon the closing of the Magellan
Transaction. Officers and Directors of Crescent Operating and their affiliates
and associates have significant interests in Crescent and Magellan. See "Certain
Transactions." It is expected that the Magellan Closing will occur in the second
quarter of 1997.
The Magellan Transaction includes:
- the purchase of the Facilities by a newly formed affiliated limited
partnership of Crescent Operating Partnership, pursuant to a Real Estate
Purchase and Sale Agreement between Crescent and Magellan;
- the formation of CBHS pursuant to an Operating Agreement to be entered
into between Crescent Operating and Magellan;
- the capitalization of CBHS, as set forth in a Contribution Agreement to
be entered into between Crescent Operating and Magellan;
- the lease of the Facilities from Crescent to CBHS, pursuant to the
Facilities Lease;
- the grant of rights to CBHS with respect to various assets currently used
by Magellan in the operation of the Facilities but not otherwise
contributed to CBHS or sold to Crescent, pursuant to the Master Franchise
Agreement and the Subsidiary Franchise Agreement; and
- the grant by Magellan of an option to Crescent and Crescent Operating to
become equity holders of Magellan, and the grant by Crescent Operating to
Magellan to become an equity holder of Crescent Operating, pursuant to
warrant agreements.
A newly formed affiliated limited partnership of Crescent Operating
Partnership will acquire the approximately 90 Facilities (including the related
medical office buildings) and substantially all of the fixtures, furniture and
equipment currently owned by separate indirect subsidiaries of Magellan and used
in the operation of the Facilities. CBHS will be formed as a joint venture
between Magellan and Crescent Operating to operate the Facilities pursuant to
the Facilities Lease and utilizing the franchise services to be provided to CBHS
by Magellan for an annual fee that initially will be approximately $81 million
pursuant to the Master Franchise Agreement.
As a result of the Magellan Transaction, Crescent Operating will acquire an
interest in CBHS, through which Crescent Operating will participate in the
operations of CBHS. Initially, each of Magellan and Crescent Operating will own
50% of CBHS, subject to CBHS' right to grant up to 10% of the equity interest in
CBHS to CBHS management as incentive compensation, with any such grant to reduce
the relative ownership interests of Crescent Operating and Magellan on an equal
basis. CBHS will continue the operations of the "provider" segment of Magellan's
former business and will focus its business strategy on the provider segment of
the behavioral healthcare industry.
Magellan will contribute to CBHS certain property and intangible rights
used in connection with the Facilities for its interest in CBHS, including
interests in five behavioral healthcare facilities and other ancillary real
property. Crescent Operating will contribute $5 million in exchange for its
interest. CBHS will purchase certain assets relating to Magellan's information
systems for approximately $5 million. The assets contributed or sold to CBHS by
Magellan and its subsidiaries will include all supplies and inventory and
certain equipment, contract rights and business records. CBHS will assume the
liabilities associated with these assets.
Through its interest in CBHS, Crescent Operating will also participate in
the management of CBHS. Each of Magellan and Crescent Operating will appoint two
directors to the four-member board of directors, and all "major decisions," as
described below, must be made by unanimous consent.
27
<PAGE> 32
Crescent Operating also will have the right, pursuant to warrants granted
by Magellan (see "Magellan Warrant Purchase Agreement," below) to acquire up to
1,283,311 shares of Magellan common stock at an exercise price of $30 per share
during the 12-year period after the Magellan Closing. In addition, Crescent
Operating has granted warrants to purchase up to 2.5% of Crescent Operating
Common Stock on similar terms (see "Crescent Operating Purchase Agreement,"
below).
Purchase Agreement. Crescent will acquire from Magellan the Facilities,
which consist of approximately 90 behavioral healthcare facilities. The
obligations of both Crescent and Magellan to consummate the Purchase Agreement
include the transfer of all material permits, licenses and approvals, the
absence of material regulatory or contractual impediments and governmental
proceedings respecting the operation of the Facilities, the receipt of all
necessary approvals and other material consents, regulatory and other approvals,
licenses and permits and the compliance with all federal and state laws
applicable to the execution of the Master Franchise Agreement. In addition,
Crescent's obligation to consummate the Purchase Agreement is subject to
conditions that include the absence of material adverse changes in the business
or financial condition of Magellan and the absence of any withdrawal of
Crescent's "fairness" opinion from its investment bankers, and Magellan's
obligation to consummate the Purchase Agreement is subject to conditions that
include the absence of any withdrawal of Magellan's "fairness" opinion from its
investment bankers and approval by Magellan's stockholders.
Contribution Agreement. For its 50% interest in CBHS, Crescent Operating
will make an initial cash contribution to CBHS in the amount of $5 million, to
be used by CBHS to purchase certain information systems-related assets from a
Magellan subsidiary. For its 50% interest in CBHS, Magellan will contribute to
CBHS certain assets related to the Facilities, and to certain leased facilities
operated by subsidiaries of Magellan, such as patient medical records, licenses
and permits used in the operation of the Facilities, to the extent they are
transferable, leasehold interests, as lessee, in the leased facilities and in
certain medical office buildings, and certain other assets.
On the Magellan Closing Date, CBHS will acquire from Magellan for $8
million various working capital assets related to the Facilities and the leased
facilities such as supplies and inventory, notes receivable, prepaid assets and
expenses, lease deposits and utility deposits, subject to a post-closing
adjustment. Magellan will retain certain assets used in the operation of the
Facilities, including those to be provided to CBHS under the Master Franchise
Agreement. CBHS will assume all debts, obligations, duties and liabilities
relating to, or arising out of, the operation of the Facilities and business
related thereto after the Magellan Closing, including obligations that require
performance after the Magellan Closing, liabilities and obligations relating to
the assets contributed to CBHS and liabilities relating to employee accrued
vacation time and sick days.
At the Magellan Closing, either (i) Magellan will provide CBHS with bridge
financing for a one-year term in the maximum amount of $55 million to fund CBHS'
reasonable working capital needs during its first year of operation, including
funding of CBHS' purchase of working capital assets from Magellan's subsidiaries
pursuant to the CBHS Contribution Agreement in the amount of approximately $8
million; or alternatively, (ii) the bridge financing may be provided by a bank
line of credit secured by receivables and guaranteed by Magellan under certain
circumstances. A group of commercial banks has agreed to issue a loan commitment
to CBHS for a line of credit of up to $100 million pursuant to a five-year
revolving credit facility.
Prior to the Magellan Closing, Magellan, in its capacity as a joint
venturer, will cause its subsidiaries which are joint venturers in a joint
venture owning or operating a domestic hospital to enter into a services
agreement with CBHS for each hospital owned or operated by a joint venture,
pursuant to which CBHS will perform, to the extent possible, all of Magellan's
obligations under the joint venture agreement in exchange for the payment to
CBHS by Magellan of all distributions and fees paid to Magellan by or on behalf
of the joint venture. The services agreement will continue in effect until
termination of the Facilities Lease.
CBHS Operating Agreement. The CBHS Operating Agreement provides that, in
addition to the contributions made by Crescent Operating and Magellan under the
CBHS Contribution Agreement, both Crescent Operating and Magellan will
contribute an additional $2.5 million in cash to the capital of CBHS within five
days after the Magellan Closing, and will agree to lend, in equal amounts, up to
an additional $17.5 million to CBHS upon demand by Magellan within five years of
the Magellan Closing.
28
<PAGE> 33
The management of CBHS will be vested in the CBHS Board, a four-member
governing board of directors, with Crescent Operating and Magellan each
designating two individuals as directors. Each director will have one vote and,
except in the event of certain decisions described below, the CBHS Board will
act by the affirmative vote of a majority of the directors. John C. Goff, Vice
Chairman of Crescent and Crescent Operating, will be Chairman of the CBHS Board.
John M. DeStefanis, an executive officer of Magellan, is expected to resign from
his positions with Magellan and become the Chief Executive Officer of CBHS. With
the exception of Mr. Goff, all of initial officers of CBHS are expected to be
former employees of Magellan.
Certain decisions will require 80% CBHS Board approval, including, among
others, any transfer or other disposition of any asset of CBHS in an amount in
excess of $50,000 (unless approved in CBHS' annual budget), the acquisition of
any stock or interest in any corporation, partnership or other business entity,
causing or permitting CBHS to engage in activities other than the behavioral
healthcare business, CBHS' entry into certain agreements proposed between CBHS
and Magellan or Crescent Operating or their affiliates, entering into contracts
not in the ordinary course of business or contracts requiring payments in a
single fiscal year in excess of $10,000 or such other amount authorized by the
CBHS Board, unless approved in CBHS' annual budget, incurring certain
indebtedness or granting certain security interests, the admission of any person
as an additional member to CBHS or the issuance of any additional interests in
CBHS, unless provided for in the CBHS Operating Agreement, employment of any
person whose annual compensation is likely to exceed $150,000, unless approved
in CBHS' annual budget, any distributions to Crescent Operating or Magellan,
selecting executive officers or removing the chairman of the CBHS Board or CBHS'
President, and the decision to renew the Facilities Lease, the Master Franchise
Agreement or the Subsidiary Franchise Agreement.
Crescent Operating and Magellan will not have any right or power to take
part in the management or control of CBHS in any way, except to the extent set
forth in the CBHS Operating Agreement. Crescent Operating and Magellan will only
have voting rights with respect to matters specifically reserved for their vote
in the CBHS Operating Agreement and each will have one vote for each percentage
interest in CBHS. The following actions may be taken only with the approval of
CBHS members owning at least 80% of CBHS' percentage interests: (i) causing or
permitting CBHS to engage in any activity not consistent with the purposes of
CBHS; (ii) the performance of any act in contravention of the CBHS Operating
Agreement; (iii) causing CBHS to reorganize, recapitalize, merge or consolidate
with another entity; (iv) electing to dissolve or liquidate CBHS; (v) causing
CBHS to take any action that would cause a bankruptcy; (vi) possessing CBHS
assets or assigning rights in CBHS assets other than for a CBHS purpose; (vii)
confessing a judgment against CBHS; (viii) changing the percentage interest of
any CBHS member without the consent of the affected member; or (ix) amending the
CBHS Operating Agreement. Crescent Operating and Magellan will not be liable for
a judgment, decree or order of a court, or any other debt, obligation or
liability of CBHS solely by reason of being a member of CBHS.
Except for certain transfers permitted in the CBHS Operating Agreement
under certain conditions, a CBHS member may not transfer all or any portion of
its interest in CBHS. Permitted transfers include transfers to (i) a wholly
owned subsidiary; (ii) the transferor's administrator or trustee if transferred
involuntarily by operation of law; (iii) any transferee if the transfer is
approved by all CBHS members having a 20% or greater interest in CBHS; (iv) in
the case of Crescent Operating, to a single transferee if necessary for Crescent
to avoid jeopardizing its status as a REIT (subject to certain conditions); and
(v) to any person upon compliance with the right of first refusal provision in
the CBHS Operating Agreement. In the event a CBHS member has a binding offer
from an unrelated person for the transfer of its interest in CBHS, other than
pursuant to the permitted transfers described above, the non-selling CBHS member
and, in the event there are more than two CBHS members, CBHS, will have a right
of first refusal to purchase all of the selling CBHS member's interest. In the
event that Crescent Operating's or Magellan's percentage interest in CBHS
decreases to less than 25%, (i) the other party may not transfer its CBHS
interest without allowing the other CBHS members to sell to the proposed
transferee, on the same terms and conditions, their CBHS interests; and (ii) the
other party may require the other CBHS members to sell their CBHS interests to a
proposed transferee, on the same terms and conditions.
29
<PAGE> 34
A deadlock of the CBHS Board will be deemed to exist if the CBHS Board will
be unable to reach agreement by the required vote at two successive meetings on
(i) a decision requiring 80% board approval; (ii) a decision involving the
expenditure of more than an amount to be specified; or (iii) a decision relating
to the election of executive officers. The CBHS Operating Agreement contains
provisions requiring CBHS' members, the CBHS Board and chief executive officers
of Crescent Operating and Magellan to use their best efforts to resolve a
deadlock. In the event of a failure to resolve a deadlock pursuant to these
procedures, either Crescent Operating or Magellan will be authorized to offer to
purchase all of the interest of the other, and the non-offering member must
either sell on the offered terms or purchase the offering member's interest on
such terms.
Facilities Lease. CBHS will establish a wholly-owned subsidiary to operate
each Facility. At the Magellan Closing, Crescent, CBHS and CBHS' subsidiaries
will enter into the Facilities Lease, which will be a triple-net lease
structured as an operating lease under which all of the Facilities will be
leased by Crescent to CBHS and its subsidiaries.
The initial term of the Facilities Lease will be twelve years, with four
renewal terms of five years each. CBHS may renew the lease as to all, but not
less than all, of the Facilities at its option upon notice at least one year
prior to the end of the initial term or any renewal term.
The base rent for the first year of the initial term will be $40 million
plus ten percent of any increase in the purchase price for the Facilities
resulting from the acquisition of additional facilities by Magellan after the
execution of the Purchase Agreement and prior to the Magellan Closing. The base
rent will increase by 5% compounded annually. At the commencement of any renewal
term of the Facilities Lease, a new fair market rent for the renewal term will
be determined by agreement of the parties, or if the parties are unable to agree
on a fair market rent, then by an appraisal mechanism. Following appraisal,
Crescent will have the right to render void the exercise of the option to extend
the Facilities Lease if Crescent is not satisfied with the fair market value
rent as determined by the appraiser. In addition, CBHS will pay annually an
additional $20 million under the Facilities Lease (the "Additional $20 Million
Amount"), 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' failure to pay the Additional $20 Million
Amount is not a default under the Facilities Lease unless Crescent has expended
funds for capital expenditures, property taxes, insurance premiums or franchise
fees.
CBHS will have the right to pledge its leasehold interest to secure senior
indebtedness provided that such pledge is subordinate to any lien placed on the
Facilities by Crescent to secure financing for Crescent.
CBHS will have the right to sublease all or any of the Facilities, or to
assign the Facilities Lease, to any affiliate of CBHS or joint venture in which
it owns at least a 25% interest provided that CBHS remains liable for all
obligations under the Facilities Lease and the Franchise Agreement is assigned
to the sublessee or assignee.
At the termination of the Facilities Lease, any improvements to real estate
revert to Crescent. CBHS will agree that upon expiration of the Facilities
Lease, supplies and inventory that are, in the aggregate, the equivalent amount
in value to that reasonably established for use by the Facilities in the
immediately preceding lease year, will remain at the leased premises.
Master Franchise Agreement. Under the Master Franchise Agreement, Magellan
will grant a franchise for each Facility, and CBHS agrees to enter into and
cause each subsidiary/lessee of a Facility to enter into a franchise agreement
for such Facility. Magellan has agreed to grant franchises for facilities
subsequently acquired, developed or leased by CBHS provided such facilities meet
reasonable requirements of Magellan and that Magellan is not contractually or
legally prevented from granting such franchise. CBHS will guarantee all
obligations of its subsidiaries under the Subsidiary Franchise Agreements.
30
<PAGE> 35
Franchise fees payable by CBHS under the Master Franchise Agreement will be
the greater of (i) $81 million, subject to increases for inflation; or (ii) $81
million, plus 3% of CBHS Gross Revenues (as defined in the agreement) over $1
billion and not exceeding $1.2 billion and 5% of CBHS Gross Revenues over $1.2
billion. Franchise fees are payable monthly. Interest will accrue on past due
franchise fees, but only to the extent that such franchise fees are not past due
as a result of either the operation of the Subordination Agreement or the
failure of CBHS to achieve earnings sufficient to pay such amounts. Franchise
fees are subordinated in payment to the annual base rent due Crescent under the
Facilities Lease.
In addition to other remedies, if franchise fees are past due for any
reason in the amount of $6 million or more, Magellan will have the right to
prohibit any incentive compensation to CBHS management and prohibit any vesting
of CBHS management equity. If they are past due in the amount of $18 million or
more, Magellan will have the right to prohibit any salary increases for key
personnel of CBHS, prohibit any additional hiring by CBHS and prohibit any new
hospital acquisitions/joint ventures, directly or indirectly. If they are past
due in an amount greater than $24 million, Magellan will have the right to
require a 5% cutback on budgeted expenses under the then-current approved CBHS
annual budget, require monthly approval of expenditures of CBHS by Magellan,
including capital and operating expenditures, and require transfer of control
and management of CBHS and CBHS franchisees to Magellan.
CBHS will agree during the term of the Master Franchise Agreement that it
will not engage as an owner, as an operator, in any managerial capacity or
otherwise in any business except (i) as a franchisee of Magellan; (ii) in
certain other businesses in the behavioral healthcare business pursuant to
existing contracts or contracts approved by Magellan; or (iii) in the management
and administration of businesses franchised by Magellan or conducted by a CBHS
subsidiary franchisee for new products. CBHS will not, directly or through any
subsidiary or other affiliate, engage in the hospital-based behavioral
healthcare business, except pursuant to a written agreement with Magellan, for
three years if the Master Franchise Agreement is terminated by Magellan prior to
the thirty-second anniversary of the Master Franchise Agreement. CBHS will keep
confidential the confidential information provided by Magellan and not use such
information other than to operate the franchised businesses. Magellan agrees
that CBHS will be a third party beneficiary of, and may enforce, Magellan's
covenants not to compete as set forth in the Subsidiary Franchise Agreement.
CBHS will have the right to use the "CHARTER" System in connection with its
business of the management and administration of the franchised businesses,
existing joint venture arrangements, existing businesses that are the subject of
management agreements, other businesses franchised by Magellan and new
arrangements. Magellan will continue to operate or provide a toll free "800"
telephone number and call center to provide substantially the same service to
the CBHS franchisees as provided by the call center to the Facilities when
operated by Magellan. The CBHS franchisees will advertise the "800" telephone
number and otherwise use the call center as a means of assisting customers to
locate the places of business of franchisees of Magellan.
CBHS will have the right to assign its rights under the Master Franchise
Agreement only (i) with the consent of Magellan (which consent may not be
unreasonably withheld, conditioned or delayed); (ii) to an entity which
simultaneously acquires all or substantially all of CBHS' business and assets,
provided, in each instance, that such assignee also acquires or assumes CBHS'
rights and obligations under the Facilities Lease; or (iii) if the Facilities
Lease is terminated as a result of an event of default thereunder, and Crescent
elects to assume all of CBHS' obligations under the Master Franchise Agreement
and all other agreements specified in the Facilities Lease, to Crescent or a
designee of Crescent. Magellan has the right to assign its obligations under the
Master Franchise Agreement with the prior written consent of CBHS and Crescent,
which consent may not be unreasonably withheld, or to an entity which
simultaneously therewith acquires all or substantially all of Magellan's
business and assets.
In the event the Master Franchise Agreement is assigned to Crescent as a
result of the early termination of the Facilities Lease upon an event of
default, Magellan may terminate the Master Franchise Agreement and all of
Crescent's rights thereunder for "good cause," which includes the assignee's
insolvency or bankruptcy; violation of any transfer and assignment provision
contained in the Master Franchise Agreement; the assignee's noncompliance with
any law, rule or regulation applicable to the operation of its business
31
<PAGE> 36
(subject to reasonable attempts to cure); material violations of confidentiality
or nondisclosure covenants; the assignee's failure to perform or the breach of
any covenant, obligation, term, condition, warranty or certification in the
Master Franchise Agreement (subject to reasonable cure periods); and the
assignee's failure to pay certain fees owed to Magellan under the Master
Franchise Agreement within ten days.
CBHS will indemnify and defend Magellan from all losses and liabilities
arising directly or indirectly as a result of, arising out of or in connection
with the operation of CBHS' business, except those directly resulting from
Magellan's willful misconduct or fraud, and Magellan will indemnify CBHS from
all losses and liabilities arising directly or indirectly as a result of,
arising out of or in connection with the operation of CBHS' business or from
Magellan's willful misconduct or fraud.
The initial term of the Master Franchise Agreement is 12 years. CBHS has
the right to renew the Master Franchise Agreement for four additional five-year
renewal terms, provided that at the end of the initial term and each renewal
term, the fees will be adjusted to reflect the fair market value of the
franchise utilized by the Facilities as of the renewal date for the
then-applicable renewal term. The Master Franchise Agreement includes an
appraisal mechanism for determining fair market value franchise fees.
Notwithstanding the foregoing, if the fair market value franchise fee as so
determined is not acceptable to Magellan, then Magellan will have the option to
terminate the Master Franchise Agreement at the end of the then-current term and
the Master Franchise Agreement will not be further extended. In all other
events, Magellan will not have the right to terminate the Master Franchise
Agreement (whether for breach or otherwise) without the consent of CBHS and
Crescent. CBHS will not have the right to terminate the Master Franchise
Agreement (whether for breach or otherwise) without the consent of Magellan and
Crescent.
Subsidiary Franchise Agreement. Each CBHS subsidiary that operates a
Facility (each, a "franchisee") will enter into a Subsidiary Franchise Agreement
with Magellan. Each franchisee will be granted the right to engage in the
business of providing behavioral healthcare utilizing the "CHARTER" System from
facilities in the territory defined in the Subsidiary Franchise Agreement. The
"CHARTER" System is a system for the operation of behavioral healthcare
businesses under the "CHARTER" names and marks, including the right to use
existing computer software, existing treatment programs and procedures, existing
quality standards, existing quality assessment methods, existing performance
improvement and monitoring programs, advertising and marketing assistance,
promotional materials, consultation and other matters relating to the operation
of the business. The rights granted under each Subsidiary Franchise Agreement
will relate solely to a defined territory.
Each Subsidiary Franchise Agreement will have the same term as the Master
Franchise Agreement. CBHS will pay Magellan, pursuant to the Master Franchise
Agreement, all franchise fees on behalf of each franchisee.
During the term of each Subsidiary Franchise Agreement, Magellan will
provide franchisees advertising and marketing assistance including (i)
consultation, access to media buying programs and access to broadcast and other
advertising materials produced by Magellan from time to time for franchisees;
(ii) risk management services, including risk financial planning, loss control
and claims management; (iii) outcomes monitoring; (iv) national and regional
contracting services; and (v) consultation by telephone or at Magellan's offices
with respect to matters relating to the franchisee's business in which Magellan
has expertise, including reimbursement, government relations, clinical
strategies, regulatory matters, strategic planning and business development.
During the term of the Subsidiary Franchise Agreement, franchisees will be
prohibited from engaging in the hospital-based behavioral healthcare business
except under franchise from Magellan. For a period expiring on the earlier of
three years after expiration or termination of the Subsidiary Franchise
Agreement or the thirty-second anniversary of the Magellan Closing, the
franchisee agrees not to engage in its exclusive territory in the operation of a
hospital/residential treatment center-based, behavioral healthcare business. The
franchisees agree to keep confidential the confidential information provided by
Magellan and not use such information other than to operate its franchised
business.
32
<PAGE> 37
The franchisee may not terminate a Subsidiary Franchise Agreement without
the consent of Magellan. Each Subsidiary Franchise Agreement will be subject to
termination by Magellan for "good cause," which includes certain acts of
bankruptcy or insolvency of the franchisee; violation of any transfer and
assignment provision contained in the Master Franchise Agreement; the
franchisee's noncompliance with any law, rule or regulation applicable to the
operation of its business (subject to reasonable attempts to cure); material
violations of confidentiality or nondisclosure covenants; the franchisee's
failure to perform or the breach of any covenant, obligation, term, condition,
warranty or certification in the Master Franchise Agreement (subject to
reasonable cure periods); and the franchisee's failure to pay certain fees owed
to Magellan under the Master Franchise Agreement within ten days.
Subordination Agreement
Magellan, CBHS and Crescent will enter into a Subordination Agreement at
the Magellan Closing, which will provide, in general, that franchise fees are
subordinated to base rent, the annual 5% increase (the "Minimum Escalator Rent")
and the first $10 million of the Additional $20 Million Amount due annually
under the Facilities Lease (including all renewals). If, however, the accrued
and unpaid franchise fees, including interest thereon, if any, equals or exceeds
$15 million, then CBHS's available cash generally will first be applied to base
rent and Minimum Escalator Rent, but not to the Additional $20 Million Amount,
under the Facilities Lease (including all renewals). To the extent, however,
that CBHS (with the consent of Magellan) informs Crescent that capital
expenditures are required and Crescent funds or makes an irrevocable commitment
to fund such capital expenditures, then franchise fees will be subordinated to
such amounts paid or committed by Crescent, and CBHS's available cash will first
be applied to base rent, Minimum Escalator Rent and the portion of the
Additional $20 Million Amount necessary to fund such capital expenditures, and
Crescent will have no obligation to refund any amounts paid by CBHS as the
Additional $20 Million Amount.
The subordination arrangement provided for in the Subordination Agreement
will continue as long as any base rent, Minimum Escalator Rent or the Additional
$20 Million Amount is unpaid under the Facilities Lease if such base rent,
Minimum Escalator Rent or the Additional $20 Million Amount would have been
entitled to the benefits of the subordination described above.
Magellan Warrant Purchase Agreement. Under the Magellan Warrant Purchase
Agreement, Crescent Operating and Crescent will each receive warrants (the
"Magellan Warrants") to acquire 1,283,311 shares of Magellan common stock at a
warrant exercise price of $30 per share (subject to adjustment pursuant to
antidilution provisions). The Magellan Warrants will be exercisable in varying
increasing amounts beginning on May 31, 1998 and ending on May 31, 2009 as set
forth below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
DATE FIRST MAGELLAN COMMON STOCK END OF
EXERCISABLE ISSUABLE UPON EXERCISE EXERCISE PERIOD
MAY 31 OF MAGELLAN WARRANTS MAY 31
- ----------- ---------------------- ---------------
<C> <C> <C>
1998 30,000 2001
1999 62,325 2002
2000 97,114 2003
2001 134,513 2004
2002 174,678 2005
2003 217,770 2006
2004 263,961 2007
2005 313,433 2008
2006 366,376 2009
2007 422,961 2009
2008 483,491 2009
</TABLE>
The Magellan Warrant Purchase Agreement provides that, at least 90 days
prior to the first date on which shares of Magellan common stock are issuable
upon exercise of Magellan Warrants, Magellan shall file with
33
<PAGE> 38
the SEC a registration statement under the Securities Act with respect to the
issuance of Magellan common stock upon exercise of the Magellan Warrants and the
resale of such shares and any other Magellan common stock or other equity
securities issued with respect thereto by way of stock dividend or stock split
or in connection with a recapitalization or reorganization or otherwise. The
Magellan Warrant Purchase Agreement also provides that Magellan shall keep such
registration statement effective on a continual basis so long as Crescent
Operating owns Magellan Warrants pursuant to which Magellan common stock may be
purchased upon exercise thereof, provided that Magellan is not required to
maintain the effectiveness of any registration statement for more than 12 years
and 60 days after the Magellan Closing. Crescent Operating is also given the
right to have shares of Magellan common stock issuable upon exercise of Magellan
Warrants included in certain other registration statements filed by Magellan
under the Securities Act.
Crescent Operating and Crescent have valued the Magellan Warrants at $10.0
million ($5.0 million for the Magellan Warrants issued to Crescent Operating and
$5.0 million for the Magellan Warrants issued to Crescent).
Crescent Operating Warrant Purchase Agreement. Under the Crescent Operating
Warrant Purchase Agreement, Magellan will receive warrants to acquire up to 2.5%
of Crescent Operating Common Stock (the "Crescent Operating Warrants")
outstanding as of the date of the Magellan Closing. The Crescent Operating
Warrants are exercisable only at the times, and in the proportions, that
Crescent Operating exercises its Magellan Warrants. The exercise price for the
Crescent Operating Warrants will reflect the same premium as used to calculate
the exercise price of the Magellan Warrants, based upon a valuation of Crescent
Operating to be conducted by a mutually agreed upon independent appraiser once a
trading market for Crescent Operating Common Stock has been established.
Prior to the first date on which Magellan exercises its right to acquire
shares of Crescent Operating Common Stock upon exercise of Crescent Warrants
under the Warrant Purchase Agreement, Crescent Operating will use its best
efforts to obtain effectiveness of a registration statement under the Securities
Act with respect to the issuance of the shares of Crescent Operating Common
Stock upon exercise of Crescent Operating Warrants and the resale of such shares
and any other Crescent Operating Common Stock or other equity securities of
Crescent Operating issued with respect thereto by way of stock dividend or stock
split or in connection with a recapitalization or reorganization or otherwise.
Crescent Operating also agrees to keep such registration statement effective on
a continual basis as long as Magellan owns Crescent Operating Warrants pursuant
to which shares of Crescent Operating Common Stock may be purchased upon
exercise thereof, provided that Crescent Operating is not required to maintain
the effectiveness of any registration statement for more than 12 years and 90
days after the Magellan Closing.
PROPERTY
Crescent has agreed to make available to Crescent Operating, at Crescent's
principal office in Fort Worth, Texas, space for Crescent Operating's principal
corporate office. In addition, Crescent Operating owns the property in Dallas,
Texas from which Moody-Day conducts its operations. This property consists of a
one-story office building and a lot and related buildings where equipment is
stored and serviced. Crescent Operating believes that its facilities are
adequate to meet its expected requirements for the coming year.
EMPLOYEES
As of May 23, 1997, Crescent Operating had no employees.
34
<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CRESCENT OPERATING
As of April 15, 1997, Gerald W. Haddock was the sole director of Crescent
Operating and served as its President, Chief Executive Officer and Chief
Financial Officer. The following table sets forth certain information concerning
those persons who have agreed to serve as executive officers and directors of
Crescent Operating commencing subsequent to April 15, 1997 and prior to the
Distribution.
<TABLE>
<CAPTION>
TERM
NAME EXPIRES AGE POSITION
---- ------- --- --------
<S> <C> <C> <C>
Richard E. Rainwater 1998 52 Chairman of the Board of Directors Nominee
John C. Goff 2000 41 Vice Chairman Nominee
Gerald W. Haddock 1999 49 President, Chief Executive Officer and
Director
Anthony M. Frank 2000 65 Director Nominee
Paul E. Rowsey, III 1998 42 Director Nominee
Carl F. Thorne 1999 56 Director Nominee
Jeffrey L. Stevens 2000 48 Treasurer, Chief Financial Officer,
Secretary and Director Nominee
</TABLE>
Richard E. Rainwater has been an independent investor since 1986. Mr.
Rainwater has been Chairman of the Board of Crescent since its formation in
1994. From 1970 to 1986, he served as the chief investment advisor to the Bass
family, whose overall wealth increased dramatically during his tenure. During
that time he was principally responsible for numerous major corporate and real
estate acquisitions and dispositions. Immediately after beginning his
independent investment activities, he founded ENSCO International Incorporated,
an oil field service and offshore drilling company, in 1986. Additionally, in
1990 he co-founded Columbia Hospital Corporation and in 1989 participated in a
management-led buyout of HCA-Hospital Corporation of America; both of these
companies owned and operated for-profit hospitals. In 1992, Mr. Rainwater was
one of the founders of 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 that created Columbia/HCA Healthcare Corporation, the
world's largest hospital company. 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 of
Crescent, which he founded in 1994.
John C. Goff, from 1987 to 1994, served as a senior investment advisor to,
and investor with, Mr. Rainwater, as well as a vice president of Rainwater,
Inc., a management operating company wholly owned by Mr. Rainwater. In those
capacities, he has been involved in, and principally responsible for, numerous
acquisitions and financings involving corporate, debt and real estate interests.
Prior to joining Rainwater, Inc. in 1987, Mr. Goff was employed by the
accounting firm of KPMG Peat Marwick LLP from 1981 to 1987. Before joining KPMG
Peat Marwick LLP, Mr. Goff was employed by Century Development Corporation, a
major Houston-based office developer and property management company. Mr. Goff
is a director and the Vice Chairman of the Board of Crescent. Mr. Goff is a
graduate of the University of Texas at Austin and is a Certified Public
Accountant. From 1994 to 1996, Mr. Goff was Chief Executive Officer and a
director of Crescent. Since December 19, 1996, Mr. Goff has served as Vice
Chairman of the Board of Trust Managers of Crescent. Mr. Goff will also serve as
Chairman of the CBHS Board.
Gerald W. Haddock, prior to joining Crescent in 1994, was in the private
practice of law, pursuant to which, among other things, he served as primary
outside legal counsel to, and investor with, Mr. Rainwater and Rainwater, Inc.
Mr. Haddock is President, Chief Executive Officer and a director of Crescent.
Mr. Haddock was vice president of Rainwater, Inc. from 1990 to 1994 and was the
lead transactional attorney for Mr. Rainwater from 1986 to 1994. Mr. Haddock
presently is a member of the board of directors of AmeriCredit Corporation, a
company engaged in the financing of automobile dealer paper, and ENSCO
International Incorporated, an oil field service and offshore drilling company,
of which he was one of the three
35
<PAGE> 40
founding directors. In addition, Mr. Haddock serves as general counsel for the
Texas Rangers baseball club. Mr. Haddock earned both Bachelor of Business
Administration (B.B.A.) and Juris Doctor (J.D.) degrees from Baylor University.
He also holds a Master of Laws (L.L.M.) degree in taxation from New York
University and has served as the Chairman of the Tax Section of the State Bar of
Texas. From 1994 through December 18, 1996, Mr. Haddock served as President,
Chief Operating Officer and a director of Crescent. Since December 19, 1996, Mr.
Haddock has served as President, Chief Executive Officer and a director of
Crescent.
Anthony M. Frank served as Postmaster General of the United States from
1988 to 1992. Prior to that time, Mr. Frank served as chairman and chief
executive officer of First Nationwide Bank, chairman of the Federal Home Loan
Bank of San Francisco, chairman of the California Housing Finance Agency, and as
the chairman of the Federal Home Loan Mortgage Corporation Advisory Board. Since
1992, he has served as the founding chairman of Independent Bancorp of Arizona
until October 1993 and currently serves as a consultant and director of
TransAmerica HomeFirst, a mortgage company specializing in loans to the elderly.
Mr. Frank currently serves as a director of Crescent and of Acrogen, Inc. a
biotechnology company. Irvine Apartment Communities, a large California-based
apartment REIT, and Charles Schwab & Co., one of the nation's largest discount
brokerages. He is also a director of Temple Inland, Inc., a manufacturer of
paper and timber products, Bedford Property Investors, Inc., an office and
commercial property REIT investing primarily on the West Coast, General American
Investors Company, Inc., a closed-end investment company, Financial Security
Assurance, a company providing credit enhancement for municipal bond issuers,
Cotelligent, Inc., a provider of temporary office support services, and Living
Centers of America, Inc., an operator of nursing homes. Mr. Frank received a
Bachelor of Arts (B.A.) degree from Dartmouth College and a Master of Business
Administration (M.B.A.) degree from the Amos Tuck School of Business at
Dartmouth where he currently serves as overseer.
Paul E. Rowsey, III is president of the commercial real estate group of
Rosewood Property Company, a commercial real estate development and investment
company, a position he has held for the past six years, and a member of the
board of directors of Rosewood Property Company. Mr. Rowsey is a director of
Crescent. Mr. Rowsey began his career in 1980 as an attorney specializing in
commercial real estate. Mr. Rowsey holds a Bachelor of Arts (B.A.) degree from
Duke University and a Juris Doctor (J.D.) degree from Southern Methodist
University School of Law.
Carl F. Thorne has been a director of ENSCO International Incorporated, an
oilfield service and offshore drilling company, since December 1986. He was
elected President and Chief Executive Officer of ENSCO in May 1987 and was
elected Chairman of the Board of Directors of ENSCO in November 1987. Mr. Thorne
holds a Bachelor of Science Degree in Petroleum Engineering from the University
of Texas and a Juris Doctorate Degree from Baylor University College of Law.
Jeffrey L. Stevens is the founder, President and Chief Executive Officer of
Petroleum Financial Inc., a firm providing accounting and financial services to
the oil and gas industry. Mr. Stevens has held this position since its inception
in 1991. Mr. Stevens is also a director of Amerac Energy Corporation, an oil and
gas acquisition, production and development company and has held various
positions with Amerac Energy Corporation since 1974. His last position was
Senior Vice President and Chief Financial Officer and Secretary which he held
until January 1997. Mr. Stevens is also a director of Gorilla Capital Limited, a
Canadian firm providing merger and acquisition services. Mr. Stevens is a
Certified Public Accountant.
COMMITTEES OF THE BOARD OF DIRECTORS
The Crescent Operating Board has standing Audit and Compensation
Committees. The Audit Committee consists of Anthony M. Frank, Chairman, and Carl
F. Thorne, and the Compensation Committee consists of Carl F. Thorne, Chairman,
and Paul E. Rowsey, III. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Company's
36
<PAGE> 41
internal controls. The Compensation Committee is responsible for establishing
salaries, bonuses and other compensation for the Company's officers and
administering the Company's stock option plans.
COMPENSATION OF DIRECTORS
Each director other than Messrs. Rainwater, Goff and Haddock will receive
from the Company an annual fee of $7,500 or a meeting fee of $500 for each
Crescent Operating Board or Committee meeting attended and reimbursements of
expenses incurred in attending meetings.
ANNUAL MEETING
Crescent Operating's Bylaws provide that its annual meeting of stockholders
will be held in June of each year at its principal office or on such other date
and at such other place and time as may be fixed by resolution of Crescent
Operating's Board. The first annual meeting for which proxies will be solicited
from stockholders will be held in 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AFTER THE
DISTRIBUTION
Executive officers and directors will receive shares of Crescent Operating
Common Stock in the Distribution in respect of Crescent Common Shares and Units
held by them on the Record Date. The Distribution will be made on the basis of
one share of Crescent Operating Common Stock for every 10 Crescent Common Shares
held on the Record Date and one share of Crescent Operating Common Stock for
every 5 Units held on the Record Date. In addition, existing incentive plan
awards under Crescent incentive plans will be converted into comparable awards
based on Crescent Operating Common Stock under the Crescent Operating Stock
Incentive Plan as described below.
For purposes of providing an indication of the beneficial ownership of
certain persons following the Distribution, the following table sets forth the
number of shares of Crescent Operating Common Stock that will be beneficially
owned immediately following the Distribution, assuming a Record Date of May 9,
1997, by each person then serving as an executive officer and director of
Crescent Operating, all such executive officers and directors of Crescent
Operating as a group, and persons or entities owning 5% or more of the
outstanding Crescent Common Shares and Units.
37
<PAGE> 42
BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF OF OF
BENEFICIAL OWNER(1) SHARES(2) SHARES(3)
------------------- ------------- ---------
<S> <C> <C>
Richard E. Rainwater 1,388,887 12.5%
John C. Goff 227,605 2.0%
Gerald W. Haddock 169,362 1.5%
Anthony M. Frank 1,980 *
Paul E. Rowsey, III 3,398 *
Carl F. Thorne -- *
Jeffrey L. Stevens -- *
FMR Corp. 719,080 6.6%
82 Devonshire Street
Boston, Massachusetts 02109
The Prudential Insurance 516,170 4.7%
Company of America
Prudential Plaza
Newark, New Jersey 07102-3777
Cohen & Steers Capital Management, Inc. 532,120 4.8%
757 Third Avenue
New York, New York 10017
Directors and Executive Officers as a Group
(7 persons) 1,791,232 15.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is 777
Main Street, Suite 2100, Fort Worth, Texas 76102.
(2) As of May 9, 1997, 96,488,489 Crescent Common Shares and 6,633,536 Units
were outstanding. Assuming a Record Date of May 9, 1997, such amounts of
Crescent Common Shares and Units outstanding would result in the
distribution of approximately 10,975,556 shares of Crescent Operating
Common Stock. For purposes of this table, a person is deemed to have
"beneficial ownership" of the number of shares of Crescent Operating Common
Stock that such person would have had the right to acquire within 60 days
of May 9, 1997 upon exercise of options to purchase Crescent Common Shares
granted pursuant to Crescent's stock incentive plans. For purposes of
computing the percentage of outstanding shares held by each person, all
shares of Crescent Operating Common Stock that such person has the right to
acquire within 60 days pursuant to the exercise of options for shares are
deemed to be outstanding, but are not deemed to be outstanding for the
purpose of computing the ownership percentage of any other person.
EXECUTIVE COMPENSATION
Crescent Operating was recently formed. None of the Company's executive
officers has received compensation from or on behalf of Crescent Operating since
its formation. The Company has no employment agreements with any person and will
not pay a salary or other compensation to any executive officer for his services
in such capacity, although options have been, and in the future may be, granted
to executive officers. See "Certain Transactions -- Contract with Affiliate of
Director."
38
<PAGE> 43
The following table provides certain information regarding options granted
to the Company's named executive officers at May 22, 1997. The Company has not
granted any SARs.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING EXERCISE OPTION TERM*
OPTIONS OR BASE EXPIRATION --------------------
NAME GRANTED PRICE ($/SH.) DATE 5% 10%
---- ---------- ------------- -------------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Richard E. Rainwater.............. 116,562 (1) April 2004 $ 78(1) $197(1)
John C. Goff...................... 289,190 (1) April 2004/July 2006 193(1) 489(1)
Gerald W. Haddock................. 265,247 (1) April 2004/July 2006 177(1) 448(1)
</TABLE>
- ---------------
* Potential Realizable Value is based on the assumed annual growth rates shown
over their ten-year option term. For example, a 5% growth rate compounded
annually, for Mr. Goff's grant results in a stock price of $1.73 per share
and a 10% growth rate, compounded annually, results in a stock price of
$2.75 per share. These Potential Realizable Values are listed to comply with
the regulations of the Securities and Exchange Commission, and the Company
cannot predict whether these values will be achieved. Actual gains, if any,
on stock option exercises are dependent on the future performance of the
stock.
(1) The exercise price per share will equal the approximately $12.6 million in
equity contributed by Crescent Operating Partnership divided by the sum of
(i) the number of shares of Crescent Operating Common Stock to be
distributed in the Distribution and (ii) the number of shares of Crescent
Operating Common Stock underlying options granted as of May 22, 1997 to all
persons (907,000) shares. Assuming a Record Date of May 9, 1997, 10,975,556
shares of Crescent Operating Common Stock would be distributed in the
Distribution and the exercise price per share would be $1.06.
CRESCENT OPERATING STOCK INCENTIVE PLAN
Crescent Operating has adopted a Stock Incentive Plan pursuant to which
grants of options ("Options") to purchase a specified number of shares of
Crescent Operating Common Stock and shares of restricted stock in Crescent
Operating ("Restricted Stock") to employees, officers and advisors of Crescent
Operating or its subsidiaries were made in order to provide each holder of
shares of restricted stock in Crescent or options in Crescent or Crescent
Operating Partnership with an equivalent number of shares of Restricted Stock or
Options in Crescent Operating, based on a ratio of one share of Restricted Stock
or Option to purchase Crescent Operating Common Stock for each 10 shares of
restricted stock in Crescent or options for Crescent Common Shares and one
Option to purchase Crescent Operating Common Stock for each 5 options for Units.
Under the Stock Incentive Plan, 1,000,000 shares of Crescent Operating Common
Stock are authorized for issuance. No shares of Crescent Operating Common Stock
are available under the Stock Incentive Plan, and no further grants of Options
or Restricted Stock will be made under the Stock Incentive Plan. The Stock
Incentive Plan expires on June 11, 2005.
The Compensation Committee of Crescent Operating has authority to determine
the employees, officers and advisors to be granted Options or Restricted Stock,
to interpret the Stock Incentive Plan, to prescribe, amend and rescind any rules
and regulations necessary or appropriate for the administration of the Stock
Incentive Plan, to determine and interpret the details and provisions of each
Option agreement and Restricted Stock agreement, to modify or amend any Option
agreement or Restricted Stock agreement or waive any conditions or restrictions
applicable to any Option (or the exercise thereof) or to Restricted Stock, and
to make all other determinations necessary or advisable for the administration
of the Stock Incentive Plan. With respect to any provisions of the Stock
Incentive Plan granting the Compensation Committee the right to agree, in its
sole discretion, to further extend the term of any award, the Compensation
Committee may exercise such right at the time of grant, in the agreement
relating to such award, or at any time or from time to time after the grant of
any award thereunder. The discretion of the Compensation Committee under the
Stock Incentive Plan does not extend to Options granted to outside directors.
39
<PAGE> 44
CERTAIN TRANSACTIONS
INTERESTS RELATING TO CRESCENT OPERATING PARTNERSHIP
Ownership of Crescent Operating Common Stock. Crescent Operating
Partnership is the sole stockholder of Crescent Operating as of the date hereof.
On April 1, 1997, Crescent Operating Partnership acquired 1,000 shares of the
Crescent Operating Common Stock for $1,000. In connection with the acquisition
of the Carter-Crowley Assets, Crescent Operating Partnership contributed cash
and advanced funds in the form of loans, as described below, in order to enable
Crescent Operating to acquire the Carter-Crowley Assets. In consideration of
this contribution, consisting of approximately $12.6 million in equity, Crescent
Operating will issue additional shares of Crescent Operating Common Stock to
Crescent Operating Partnership in an amount equal to the number of shares
required to make the Distribution to holders of record of Crescent Common Shares
and Units of Crescent Operating Partnership on the Record Date, less 1,000
(which would be 10,975,556 shares assuming a Record Date of May 9, 1997).
Management and Certain Beneficial Owners of Crescent Operating Partnership.
Gerald W. Haddock is the sole director of Crescent Ltd., the sole general
partner of Crescent Operating Partnership, and also serves as the President and
Chief Executive Officer of Crescent Ltd. Additionally, each of Messrs.
Rainwater, Haddock and Goff beneficially owns Units in Crescent Operating
Partnership representing 6.2%, 1.1% and 0.9% of partnership interest outstanding
as of May 9, 1997, and will own Crescent Operating Common Stock following the
Distribution, as set forth above under "Management -- Security Ownership of
Certain Beneficial Owners and Management After the Distribution."
Formation and Capitalization of Crescent Operating; Loans from Crescent
Operating Partnership. In connection with the formation and capitalization of
Crescent Operating, Crescent Operating Partnership will provide cash and advance
funds in the form of loans in the aggregate amount of $42.5 million. In exchange
for a contribution of approximately $12.6 million, Crescent Operating issued all
of the outstanding shares of Crescent Operating Common Stock to Crescent
Operating Partnership. The $42.5 million was or is expected to be used to
purchase the Assets and to support future funding obligations and cash
requirements.
Of the $42.5 million to be provided by Crescent Operating Partnership,
approximately $12.6 million was contributed in cash and approximately $29.9
million (approximately $15.3 million of which was funded on May 8, 1997) will be
loaned to Crescent Operating pursuant to a five-year term loan. The loan is a
recourse loan secured by a first lien on the Assets and all other assets owned
by Crescent Operating now or in the future (other than subsidiaries of CBHS
formed or acquired after May 8, 1997). The loan will bear interest at the rate
of 12% per annum, compounded annually, and is payable quarterly in an amount
equal to the lesser of (i) the net cash flow for the preceding quarter and (ii)
the total amount of principal and accrued interest outstanding on the loan. Net
cash flow will be computed by subtracting the total costs incurred by Crescent
Operating from its gross receipts. The loan will mature on May 8, 2002.
The Company will also obtain a line of credit for up to $20.0 million from
Crescent Operating Partnership which shall bear interest at the same rate as the
term loan. The line of credit is payable on an interest-only basis during its
term, which expires on the later of (i) May 8, 2002 or (ii) five years after the
last draw under the line of credit. Draws may be made under the line of credit
until May 1, 2002. The line of credit is a recourse obligation and amounts
outstanding thereunder are secured by a first lien on the Assets and all other
assets owned by Crescent Operating now or in the future (other than subsidiaries
of CBHS formed or acquired after May 8, 1997).
The Intercompany Agreement. The Intercompany Agreement between the Company
and Crescent Operating Partnership sets forth the basis on which Crescent
Operating and Crescent Operating Partnership will refer opportunities to one
another. See "Business -- The Intercompany Agreement."
CRESCENT
The officers of Crescent include Richard E. Rainwater, Chairman of the
Board of Directors, John C. Goff, Vice Chairman, and Gerald W. Haddock,
President and Chief Executive Officer. The sole general
40
<PAGE> 45
partner of Crescent Operating Partnership is Crescent Ltd., which is a
wholly-owned subsidiary of Crescent. Mr. Haddock is the sole director of
Crescent Ltd. The persons who are executive officers of Crescent hold the same
offices in Crescent Ltd., except that Messrs. Rainwater and Goff are not
directors or officers of Crescent Ltd. Messrs. Rainwater, Goff and Haddock owned
12.5%, 2.0% and 1.5% of Crescent as of May 9, 1997, which interests consist of
Crescent Common Shares and units of ownership in Crescent Operating Partnership
(including vested options to acquire Crescent Common Shares and Units). In
connection with the Magellan Transaction, Mr. Goff will become Chairman of CBHS.
Mr. Rainwater is an affiliate of Crescent Operating Partnership, Crescent Ltd.
and Crescent.
INTERESTS RELATING TO MAGELLAN
The CBHS Interest. The CBHS Interest is a part of the Assets expected to be
purchased by Crescent Operating and is a component of the Magellan Transaction.
The CBHS Interest cannot be acquired unless all of the transactions that
comprise the Magellan Transaction are consummated, including the acquisition by
Crescent of the Facilities, the lease of the Facilities from Crescent to CBHS
and the subordination of franchise fees to payments under the Facilities Lease.
Management of CBHS will be vested in the CBHS Board. Crescent Operating and
Magellan will each have the right to designate two members to the CBHS Board. It
is expected that Crescent Operating will designate John C. Goff and Gerald W.
Haddock as its two designees to the CBHS Board, and that Mr. Goff will serve as
Chairman of the CBHS Board.
Ownership of Magellan Securities. Messrs. Rainwater, Goff and Haddock and
Mr. Rainwater's children own shares of Magellan common stock and warrants to
acquire Magellan common stock. Mr. Rainwater, either directly or indirectly,
owns approximately 2,474,000 shares, and warrants to acquire 1,237,000 shares,
of Magellan common stock. Mr. Rainwater's children, either directly or
indirectly, own approximately 320,000 shares, and warrants to acquire 160,000
shares, of Magellan common stock. Messrs. Goff and Haddock each own, directly or
indirectly, approximately 57,000 shares, and warrants to acquire 28,000 shares,
of Magellan common stock. The Magellan Transaction is subject to the approval of
Magellan's stockholders.
The warrants entitle the warrant holders to purchase, at any time until the
January 25, 2000 expiration date, up to 2,000,000 shares of Magellan common
stock at a purchase price of $26.15 per share. Agreements executed in connection
with the acquisition of the warrants (the "Private Placement") provide, among
other things, for the adjustment of the number of shares of Magellan common
stock that can be purchased under the warrants and the purchase price,
respectively, for certain dilutive events, for registration rights for shares,
including the shares of Magellan common stock underlying the warrants, which
registration rights have been exercised, and for a variety of other customary
provisions, including, without limitation, certain restrictions on the private
sale of such shares, certain preemptive rights to acquire additional securities
issued by Magellan for cash in a private placement transaction (which have been
waived to the extent they may apply to the Magellan Transaction), and standstill
covenants restricting the purchase of additional shares of Magellan common stock
by Mr. Rainwater and his affiliates in certain circumstances.
Darla D. Moore is married to Mr. Rainwater and is a director of Magellan.
As part of the arrangements pursuant to which Mr. Rainwater acquired securities
of Magellan, Mr. Rainwater has the right to designate a nominee acceptable to
Magellan for election as a director of Magellan for so long as Mr. Rainwater and
his affiliates (collectively, the "Rainwater Group") continue to own
beneficially a specified minimum number of shares of Magellan common stock.
Rainwater-Magellan proposed Ms. Moore as its nominee for director, and Ms. Moore
was elected a director by the Magellan Board on February 22, 1996.
As part of the Private Placement, Magellan agreed (i) to pay a transaction
fee of $150,000; (ii) to reimburse certain expenses of Rainwater, Inc. in
connection with the Private Placement; (iii) to pay the Rainwater Group an
annual monitoring fee of $75,000 commencing on March 31, 1996; and (iv) to
reimburse the Rainwater Group for reasonable fees and expenses (up to a maximum
of $25,000 annually) incurred in connection with its ownership of the Magellan
common stock and the warrants. Magellan also agreed to reimburse the Rainwater
Group in the future for one additional filing under the Hart-Scott Rodino
Anti-Trust Improvements Act of 1976 if such a filing is required in connection
with an exercise of the warrants.
41
<PAGE> 46
From January 25, 1996 through December 31, 1996, Magellan paid to the
Rainwater Group under the Private Placement an aggregate of $306,344, consisting
of a transaction fee of $150,000, expense reimbursement in connection with the
Private Placement of $86,156, and monitoring fees and expenses of $70,188.
Excluded from these amounts are directors' fees and expense reimbursement paid
to Ms. Moore in her capacity as a director of Magellan.
CONTRACT WITH AFFILIATE OF DIRECTOR
Crescent Operating has entered into a one-year contract (subject to
automatic renewal for one-year terms unless terminated by either party 60 days
prior to any anniversary date of the contract) with Petroleum Financial Inc., a
company owned by Jeffrey Stevens, a director nominee and the Chief Financial
Officer, Treasurer and Secretary of the Company, pursuant to which Petroleum
Financial will provide certain services to Crescent Operating. These services
include accounting services, review or initial preparation of reports required
to be filed with the Commission, reports to shareholders, and similar matters.
Crescent Operating will pay Petroleum Financial an annual fee in an amount to be
determined.
DESCRIPTION OF CRESCENT OPERATING CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Crescent Operating's authorized capital stock consists of 10,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
22,500,000 shares of Crescent Operating Common Stock. Immediately following the
Distribution, approximately shares of Crescent Operating Common Stock
will be outstanding (10,975,556 assuming a Record Date of May 9, 1997). All of
the shares of Crescent Operating Common Stock that will be outstanding
immediately following the Distribution will be validly issued, fully paid and
nonassessable.
COMMON STOCK
The holders of Crescent Operating Common Stock will be entitled to one vote
for each share on all matters voted on by stockholders, including elections of
directors, and, except as otherwise required by law or provided in any
resolution adopted by Crescent Operating's Board with respect to any series of
Preferred Stock, the holders of such shares will possess all voting power. The
Charter does not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred Stock
created by the Crescent Operating Board from time to time, the holders of
Crescent Operating Common Stock will be entitled to such dividends as may be
declared from time to time by the Crescent Operating Board from funds available
therefor, and upon liquidation will be entitled to receive pro rata all assets
of the Company available for distribution to such holders.
PREFERRED STOCK
The Charter authorizes the Crescent Operating Board to establish one or
more series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Crescent Operating Board may thereafter (except where otherwise provided in
the applicable certificate of designation) increase or decrease (but not below
the number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative, and, in the case of shares of any series
having cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series shall be
cumulative, (iv) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable, (v) the
redemption rights and price or prices, if any, for shares of the series, (vi)
the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series, (vii) the amounts payable on and the
preferences, if any, of shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or
42
<PAGE> 47
winding up of the affairs of Crescent Operating, (viii) whether the shares of
the series will be convertible or exchangeable into shares of any other class or
series, or any other security, of Crescent Operating or any other corporation,
and, if so, the specification of such other class or series or such other
security, the conversion or exchange price or prices or rate or rates, any
adjustments thereof, the date or dates as of which such shares will be
convertible or exchangeable and all other terms and conditions upon which such
conversion or exchange may be made, (ix) restrictions on the issuance of shares
of the same series or of any other class or series, (x) the voting rights, if
any, of the holders of the shares of the series, and (xi) any other relative
rights, preferences and limitations of such series.
Crescent Operating believes that the ability of the Crescent Operating
Board to issue one or more series of Preferred Stock will provide it with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs which might arise. The authorized shares of
Preferred Stock, as well as shares of Crescent Operating Common Stock, will be
available for issuance without further action by Crescent Operating's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which Crescent Operating's
securities may be listed or traded. If the approval of Crescent Operating's
stockholders is not required for the issuance of shares of Preferred Stock or
Crescent Operating Common Stock, the Crescent Operating Board may determine not
to seek stockholder approval.
Although the Crescent Operating Board has no intention at the present time
of doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Crescent Operating Board will make any determination
to issue such shares based on its judgment as to the best interests of Crescent
Operating and its stockholders. The Crescent Operating Board, in so acting,
could issue Preferred Stock having terms that could discourage an acquisition
attempt through which an acquiror may be able to change the composition of the
Crescent Operating Board, including a tender offer or other transaction that
some, or a majority, of Crescent Operating's stockholders might believe to be in
their best interests or in which such stockholders might receive a premium for
their stock over the then-current market price of such stock.
The Company expects to reserve Junior Preferred Shares (as described in
"Certain Antitakeover Provisions -- Rights Plan") for issuance upon exercise of
the Rights.
WARRANTS
Crescent Operating Warrant Purchase Agreement. Under the Crescent Operating
Warrant Purchase Agreement, Magellan will receive warrants to acquire up to 2.5%
of Crescent Operating Common Stock outstanding as of the date of the Magellan
Closing Date. The Crescent Operating Warrants are exercisable only at the times,
and in the proportions, that Crescent or Crescent Operating exercises its
Magellan Warrants. The exercise price for the Crescent Operating Warrants will
reflect the same premium as used to calculate the exercise price of the Magellan
Warrants, based upon a valuation of Crescent Operating to be conducted by a
mutually agreed upon independent appraiser once a trading market for Crescent
Operating Common Stock has been established. See "Business -- The CBHS
Interest -- Crescent Operating Warrant Purchase Agreement" for a more detailed
description of the terms of the Crescent Operating Warrants.
43
<PAGE> 48
CERTAIN ANTITAKEOVER PROVISIONS
STAGGERED BOARD OF DIRECTORS
The Charter and the Bylaws provide that the Crescent Operating Board will
be divided into three classes of directors, each class constituting
approximately one-third of the total number of directors, with the classes
serving staggered three-year terms. The classification of the Crescent Operating
Board will have the effect of making it more difficult for stockholders to
change the composition of the Crescent Operating Board, because only a minority
of the directors are up for election, and the Crescent Operating Board may not
be replaced by vote of the stockholders, at any one time. Crescent Operating
believes, however, that the longer terms associated with the classified Crescent
Operating Board will help to ensure continuity and stability of the Company's
management and policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of Crescent Operating Common Stock
or attempting to obtain control of Crescent Operating, even though such an
attempt might be beneficial to the Company and some, or a majority, of its
stockholders. Accordingly, under certain circumstances stockholders could be
deprived of opportunities to sell their shares of Crescent Operating Common
Stock at a higher price than might otherwise be available.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Charter provides that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances ("Preferred
Holders' Rights"), the number of directors will be fixed by the Bylaws. The
Bylaws provide that, subject to any Preferred Holders' Rights, the number of
directors will be fixed by the Crescent Operating Board, but must not be more
than 25 nor less than three. In addition, the Bylaws provide that, subject to
any Preferred Holders' Rights, and unless the Crescent Operating Board otherwise
determines, any vacancies (other than vacancies created by an increase in the
total number of directors) will be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum, and any vacancies created
by an increase in the total number of directors may be filled by a majority of
the entire Crescent Operating Board. Accordingly, the Crescent Operating Board
could temporarily prevent any stockholder from enlarging the Crescent Operating
Board and then filling the new directorship with such stockholder's own
nominees.
The Charter and the Bylaws provide that, subject to any Preferred Holders'
Rights, directors may be removed only for cause upon the affirmative vote of
holders of at least 80% of the entire voting power of all the then-outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Charter and Bylaws provide that any action required or permitted to be
taken by the stockholders of Crescent Operating must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law and
subject to the rights of the holders of any Preferred Stock, special meetings of
stockholders of Crescent Operating for any purpose or purposes may be called
only by the Chairman, Vice Chairman, President or the Crescent Operating Board
pursuant to a resolution stating the purpose or purposes thereof, and any power
of stockholders to call a special meeting is specifically denied. No business
other than that stated in the notice shall be transacted at any special meeting.
These provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by the
Chairman, Vice Chairman, President or the Crescent Operating Board.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for directors or bring other business before an annual
meeting of stockholders of Crescent Operating (the "Stockholder Notice
Procedure").
44
<PAGE> 49
The Stockholder Notice Procedure provides that (i) only persons who are
nominated by, or at the direction of, the Crescent Operating Board, or by a
stockholder who has given timely written notice containing specified information
to the Secretary of Crescent Operating prior to the meeting at which directors
are to be elected, will be eligible for election as directors of Crescent
Operating and (ii) at an annual meeting, only such business may be conducted as
has been brought before the meeting by, or at the direction of the Chairman or
the Crescent Operating Board or by a stockholder who has given timely written
notice to the Secretary of Crescent Operating of such stockholder's intention to
bring such business before such meeting. In general, for notice of stockholder
nominations or proposed business to be conducted at an annual meeting to be
timely, such notice must be received by the Company not less than 70 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Crescent Operating Board a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Crescent Operating Board, to inform stockholders
and make recommendations about such nominees or business, as well as to ensure
an orderly procedure for conducting meetings of stockholders. Although the
Bylaws do not give the Crescent Operating Board power to block stockholder
nominations for the election of directors or proposal for action, they may have
the effect of discouraging a stockholder from proposing nominees or business,
precluding a contest for the election of directors or the consideration of
stockholder proposals if procedural requirements are not met, and deterring
third parties from soliciting proxies for a non-management slate of directors or
proposal, without regard to the merits of such slate or proposal.
RELEVANT FACTORS TO BE CONSIDERED BY THE CRESCENT OPERATING BOARD
The Charter, which provides that one of the purposes of Crescent Operating
is to perform the Intercompany Agreement, also provides that, in determining
what is in the best interest of Crescent Operating in evaluating a "business
combination," "change in control" or other transaction, a director of Crescent
Operating shall consider all of the relevant factors, which may include (i) the
immediate and long-term effects of the transaction on Crescent Operating's
stockholders, including stockholders, if any, who do not participate in the
transaction; (ii) the social and economic effects of the transaction on the
Company's employees, suppliers, creditors and customers and others dealing with
the Company and on the communities in which the Company operates and is located;
(iii) whether the transaction is acceptable, based on the historical and current
operating results and financial condition of the Company; (iv) whether a more
favorable price would be obtained for the Company's stock or other securities in
the future; (v) the reputation and business practices of the other party or
parties to the proposed transaction, including its or their management and
affiliates, as they would affect employees of the Company; (vi) the future value
of the Company's securities; (vii) any legal or regulatory issues raised by the
transactions; (viii) the effect on the Intercompany Agreement; and (ix) the
business and financial condition and earnings prospects of the other party or
parties to the proposed transactions including, without limitation, debt service
and other existing financial obligations, financial obligations to be incurred
in connection with the transaction and other foreseeable financial obligations
of such other party or parties. Pursuant to this provision, the Crescent
Operating Board may consider subjective factors affecting a proposal, including
certain nonfinancial matters, and on the basis of these considerations, may
oppose a business combination or other transaction which, evaluated only in
terms of its financial merits, might be attractive to some, or a majority, of
the Company's stockholders.
AMENDMENT
The Charter provides that the affirmative vote of the holders of at least
80% of the stock entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class, is required to amend
provisions of the Charter relating to stockholder action without a meeting; the
calling of special meetings; the number, election and term of the Company's
directors; the filling of vacancies; and the removal of directors. The Charter
further provides that the related Bylaws described above (including the
Stockholder Notice Procedure) may be amended only by the Crescent Operating
Board or by the affirmative vote of the
45
<PAGE> 50
holders of at least 80% of the voting power of the outstanding shares of Voting
Stock, voting together as a single class. In all cases, amendments to the
Charter require that the Crescent Operating Board determine that the proposed
amendment is advisable.
RIGHTS PLAN
The Crescent Operating Board currently expects to adopt a Share Purchase
Rights Plan (the "Rights Plan") on or prior to the Distribution Date. Pursuant
to the Rights Plan, the Crescent Operating Board will cause to be issued one
preferred share purchase right (a "Right") for each outstanding share of
Crescent Operating Common Stock. Each Right will entitle the registered holder
to purchase from Crescent Operating one-hundredth of a share of a new series of
junior preferred stock, par value $.01 per share (the "Junior Preferred
Shares"), of Crescent Operating at a price of $ (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights will be set forth
in a Rights Agreement (the "Rights Agreement"), between Crescent Operating and
the designated Rights Agent (the "Rights Agent"). The description set forth
below is intended as a summary only and is qualified in its entirety by
reference to the form of the Rights Agreement, which will be filed as an exhibit
to the Registration Statement. See "Available Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 10% or more of the outstanding
shares of Crescent Operating Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Crescent Operating Board prior
to such time as any person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 10% or more of such outstanding shares of
Crescent Operating Common Stock (the earlier of such dates being called the
"Rights Distribution Date"), the Rights will be evidenced by the certificates
representing the Crescent Operating Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Crescent Operating Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
the Crescent Operating Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights (the "Right Certificates") will be mailed to holders of record of the
Crescent Operating Common Stock as of the close of business on the Rights
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on the 10th anniversary of the date of issuance (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by Crescent Operating, in each case, as
summarized below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Crescent Operating Common Stock having a
market value of two times the exercise price of the Right. In the event that
Crescent Operating is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group of affiliated or associated persons becomes an Acquiring
Person, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
Crescent Operating Common Stock and prior to the acquisition by such person or
group of 50% or more of the outstanding Crescent Operating Common Stock, the
Crescent Operating Board may exchange the Rights (other than Rights owned by
such person or group which have
46
<PAGE> 51
become void), in whole or in part, at an exchange ratio of one share of Crescent
Operating Common Stock, or one-hundredth of a Junior Preferred Share (or of a
share of a class or series of the Preferred Stock having equivalent rights,
preference and privileges) per Right (subject to adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
Crescent Operating Common Stock, the Crescent Operating Board may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis and with such conditions as the Crescent Operating Board, in its sole
discretion, may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the holders of the Rights then
will be eligible to receive only the Redemption Price.
The terms of the Rights may be amended by the Crescent Operating Board
without the consent of the holders of the Rights; provided, however, that from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person, no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Crescent Operating, including, without limitation,
the right to vote or to receive dividends.
The number of outstanding Rights and the number of one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right also will be subject
to adjustment in the event of a split of the Crescent Operating Common Stock, or
a stock dividend on the Crescent Operating Common Stock payable in Crescent
Operating Common Stock or subdivisions, consolidations or combinations of the
Crescent Operating Common Stock occurring, in any such case, prior to the Rights
Distribution Date.
The Purchase Price payable, and the number of Junior Preferred Shares or
other securities or property issuable, upon exercise of the Rights will be
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Junior Preferred Shares, (ii) upon the grant to holders of the Junior Preferred
Shares of certain rights or warrants to subscribe for or purchase Junior
Preferred Shares at a price, or securities convertible into Junior Preferred
Shares with a conversion price, less than the then-current market price of the
Junior Preferred Shares or (iii) upon the distribution to holders of the Junior
Preferred Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Junior Preferred Shares) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Junior Preferred Shares will be
issued (other than fractions which are integral multiples of one-hundredth of a
Junior Preferred Share, which may, at the election of the Company, be evidenced
by depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred Shares on the last trading day
prior to the date of exercise.
Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $ per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Crescent Operating Common Stock. In the event of liquidation, the holders of
the Junior Preferred Shares will be entitled to a minimum preferential
liquidation payment of $ per share but will be entitled to an aggregate
payment of 100 times the payment made per share of Crescent Operating Common
Stock. Each Junior Preferred Share will have 100 votes voting together with the
Crescent Operating Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Crescent Operating Common
Stock are exchanged, each Junior Preferred Share will be entitled to receive 100
times the amount received per share of Crescent Operating Common Stock. These
rights are protected by customary anti-dilution provisions.
47
<PAGE> 52
Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one-hundredth interest in a Junior Preferred
Share purchasable upon exercise of each Right should approximate the value of
one share of Crescent Operating Common Stock.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
Crescent Operating on terms not approved by the Crescent Operating Board. The
Rights should not interfere with any merger or other business combination
approved by the Crescent Operating Board prior to the time that a person or
group has acquired beneficial ownership of 10% or more of the Crescent Operating
Common Stock since the Rights may be redeemed by Crescent Operating at the
Redemption Price until such time.
The Rights contain certain provisions to exclude Crescent and its
affiliates from the operative provisions thereof.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. Except as otherwise specified in
Section 203, an interested stockholder is defined to include (x) any person that
is the owner of 15% or more of the outstanding voting stock of the corporation,
or is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within three
years immediately prior to the date of determination and (y) the affiliates and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. Crescent Operating has
not elected to be exempt from the restrictions imposed under Section 203.
However, the Charter excludes Crescent and its affiliates from the definition of
"interested stockholder" pursuant to the terms of Section 203. The provisions of
Section 203 may encourage persons interested in acquiring Crescent Operating to
negotiate in advance with the Crescent Operating Board, since the stockholder
approval requirement would be avoided if a majority of the directors then in
office approves either the business combination or the transaction which results
in any such person becoming an interested shareholder. Such provisions also may
have the effect of preventing changes in the management of Crescent Operating.
It is possible that such provisions could make it more difficult to accomplish
transactions which the Company's stockholders may otherwise deem to be in their
best interests.
CONTROL SHARE ACQUISITIONS
The Charter provides that "control shares" of Crescent Operating acquired
in a control share acquisition have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast by
stockholders, excluding shares owned by the acquiror, officers of Crescent
Operating and employees of Crescent Operating who are also directors.
Accordingly, "control shares" are shares which, if aggregated with all other
shares previously acquired which the person is entitled to vote, would entitle
the acquiror to vote (i) 20% or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority of the outstanding shares.
Control shares do not include shares that the acquiring person is entitled to
vote on the
48
<PAGE> 53
basis of prior stockholder approval. A "control share acquisition" means the
acquisition of control shares subject to certain exceptions.
The Charter provides that a person who has made or proposed to make a
control share acquisition and who has obtained a definitive financing agreement
with a responsible financial institution providing for any amount of financing
not to be provided by the acquiring person may compel the Crescent Operating
Board to call a special meeting of stockholders to be held within 50 days of
demand to consider the voting rights of the shares. If no request for a meeting
is made, the Charter permits Crescent Operating itself to present the question
at any stockholders' meeting.
Pursuant to the Charter, if voting rights are not approved at a
stockholders' meeting or if the acquiring person does not deliver an acquiring
person's statement, which would disclose certain information about the
particular control share acquisition, as required by the Charter, then, subject
to certain conditions and limitations set forth in the Charter, Crescent
Operating may redeem any or all of the control shares, except those for which
voting rights have previously been approved, for fair value determined, without
regard to the absence of voting rights, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. Under the Charter, if voting rights for
control shares are approved at a stockholders' meeting and, as a result, the
acquiror would be entitled to vote a majority of the shares entitled to vote,
all other stockholders will have the rights of dissenting stockholders under the
DGCL. The Charter provides that the fair value of the shares for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition, and that certain limitations and
restrictions of the DGCL otherwise applicable to the exercise of dissenters'
rights do not apply.
The control share acquisition provision does not apply to shares acquired
in a merger, consolidation or share exchange if Crescent Operating is a party to
the transaction, or if the acquisition is approved or excepted by the Charter or
Bylaws prior to a control share acquisition. The control share provisions in the
Charter do not apply to Crescent and its affiliates.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
The Charter provides that a director of Crescent Operating will not be
personally liable to Crescent Operating or its stockholders for monetary damages
for breach of fiduciary duty as a director, except, if required by the DGCL, as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to Crescent Operating or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce the
effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
While the Charter provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Charter will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
The Charter provides that each person who was threatened to be made a party
to or is involved in any proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of Crescent
Operating or is or was serving at the request of Crescent Operating as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, will be
indemnified and held harmless by Crescent Operating to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
Crescent Operating to provide broader indemnification rights than said
49
<PAGE> 54
law permitted Crescent Operating to provide prior to such amendment), against
all expense, liability and loss reasonably incurred or suffered by such person
in connection therewith. Such right to indemnification includes the right to
have Crescent Operating pay the expenses incurred in defending any such
proceeding in advance of its final disposition, subject to the provisions of the
DGCL. Such rights are not exclusive of any other right which any person may have
or thereafter acquire under any statute, provision of the Charter, Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise. No
repeal or modification of such provision will in any way diminish or adversely
affect the rights of any director, officer, employee or agent of Crescent
Operating thereunder in respect of any occurrence or matter arising prior to any
such repeal or modification. The Charter also specifically authorizes Crescent
Operating to maintain insurance and to grant similar indemnification rights to
employees or agents of Crescent Operating.
Crescent Operating has entered into indemnification agreements with each of
its executive officers and directors. The indemnification agreements require,
among other things, that Crescent Operating indemnify its officers and directors
to the fullest extent permitted by law, and advance to the officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that the indemnification is not permitted. The Company also must
indemnify and advance expenses incurred by officers and directors seeking to
enforce their rights under the indemnification agreements and cover officers and
directors under the Company's directors' and officers' liability insurance.
Although the indemnification agreements offer substantially the same scope of
coverage afforded by provisions in the Charter and Bylaws, they provide greater
assurance to directors and executive officers that indemnification will be
available, because, as contracts, they cannot be modified unilaterally in the
future by the Board of Directors or by the stockholders to alter, limit or
eliminate the rights they provide.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
LEGAL MATTERS
The legality of the issuance of the shares of Crescent Operating Common
Stock to be distributed in the Distribution will be passed upon for the Company
by Shaw, Pittman, Potts & Trowbridge, Washington, D.C., a partnership including
professional corporations.
50
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
CRESCENT OPERATING, INC. --
Report of Independent Public Accountants............... F-2
Balance Sheet as of April 3, 1997...................... F-3
Notes to Balance Sheet................................. F-4
CARTER-CROWLEY ASSET GROUP --
Report of Independent Public Accountants............... F-5
Combined Balance Sheets as of December 31, 1996 and
1995.................................................. F-6
Combined Statements of Operations for the years ended
December 31, 1996, 1995 and 1994...................... F-7
Combined Statements of Shareholder's Equity for the
years ended December 31, 1996, 1995 and 1994.......... F-8
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994...................... F-9
Notes to Combined Financial Statements................. F-10
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC. --
Report of Independent Public Accountants............... F-16
Combined Balance Sheets as of September 30, 1995 and
1996 (audited) and December 31, 1996 (unaudited)...... F-17
Combined Statements of Operations for the years ended
September 30, 1994, 1995 and 1996 (audited) and the
three months ended December 31, 1995 and 1996
(unaudited)........................................... F-19
Combined Statements of Changes in Stockholder's Deficit
for the years ended September 30, 1994, 1995 and 1996
(audited) and the three months ended December 31, 1995
and 1996 (unaudited).................................. F-20
Combined Statements of Cash Flows for the years ended
September 30, 1994, 1995 and 1996 (audited) and the
three months ended December 31, 1995 and 1996
(unaudited)........................................... F-21
Notes to Combined Financial Statements................. F-22
PROFORMA CONSOLIDATING FINANCIAL INFORMATION
Crescent Operating, Inc................................... F-33
Charter Behavioral Health Systems, LLC.................... F-40
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Crescent Operating, Inc.:
We have audited the accompanying balance sheet of Crescent Operating, Inc.
(a Delaware corporation) as of April 3, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Crescent Operating, Inc. as of
April 3, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 3, 1997
F-2
<PAGE> 57
CRESCENT OPERATING, INC.
BALANCE SHEET
APRIL 3, 1997
<TABLE>
<S> <C>
Cash........................................................ $1,000
======
Shareholder's Equity:
Common Stock, $.01 par value, 1,000 shares, authorized,
issued and outstanding................................. $ 10
Additional paid-in capital................................ 990
------
$1,000
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE> 58
CRESCENT OPERATING, INC.
NOTES TO BALANCE SHEET
APRIL 3, 1997
(1) Crescent Operating, Inc. ("Crescent Operating" or the "Company"), a
Delaware corporation and wholly owned subsidiary of Crescent Real
Estate Equities Limited Partnership ("Crescent Operating Partnership"),
was formed on April 1, 1997, to become a lessee and operator of various
assets and to perform an agreement between Crescent Operating and
Crescent Real Estate Equities Company ("Crescent") (the "Intercompany
Agreement"). Under the Intercompany Agreement, Crescent Operating and
Crescent agree, subject to certain terms, to provide each other with
rights to participate in certain transactions.
Subsequent to registration of the Company's Common Stock, the Crescent
Operating Common Stock will be distributed (the "Distribution") to
holders of Crescent common shares and Crescent Real Estate Equities
Limited Partnership Units on the basis of one share of the Company's
common stock for every 10 Crescent common shares held, and one share of
the Company's common stock for every 5 Units held. Each share of the
Company's Common Stock issued in the distribution is expected to be
accompanied by one Preferred Share Purchase Right.
Crescent Operating Partnership has provided the Company with a
combination of debt and equity capital (i) of which a portion will be
used to acquire certain assets owned by Carter Crowley Properties, Inc.
(the "Carter-Crowley Assets") and (ii) of which a portion will be used
primarily to acquire and fund ongoing obligations and cash requirements
relating to, among other things, a 50% interest in CBHS, an operator of
behavioral healthcare and related facilities, and acquire certain
warrants as part of a larger sale, leaseback and license transaction
(the "Magellan Transaction") among Crescent, CBHS and Magellan Health
Services, Inc. ("Magellan"). The right to acquire 50% of CBHS cannot be
consummated unless the Magellan Transaction is consummated.
The Carter-Crowley Assets consist primarily of a construction equipment
sales, leasing and servicing company, a minority interest in the
limited partnership which holds the National Basketball Association
franchise for the Dallas Mavericks and a limited partner interest in a
private venture capital fund.
Pursuant to the Magellan Transaction, the Company will acquire a 50%
interest in CBHS and warrants to acquire up to 1,283,311 shares of
Magellan common stock.
(2) Upon formation, Crescent Operating Partnership contributed $1,000 cash
to the Company for 100% of the outstanding Crescent Operating Common
Stock. Crescent Operating Partnership has also agreed to provide
approximately $12.6 million of equity, and approximately $29.9 million
of debt, to be utilized in the acquisition of the Carter-Crowley Assets
and the assets to be acquired pursuant to the Magellan Transaction.
Additionally, the Company has agreed to provide CBHS with a line of
credit of $20.0 million to be used primarily in conjunction with the
Magellan Transaction.
(3) Warrant Purchase Agreement. Under the Crescent Operating Warrant
Purchase Agreement, Magellan will receive warrants to acquire up to
2.5% of Crescent Operating Common Stock outstanding as of the Magellan
Transaction closing date. The Crescent Operating Warrants are
exercisable only in the same proportion as Crescent and Crescent
Operating, in the aggregate, have exercised their Warrants to purchase
shares of common stock of Magellan. The exercise price for the Crescent
Operating Warrants will reflect the same premium as used to calculate
the exercise price of the Magellan Warrants, based upon a valuation of
Crescent Operating conducted by a mutually agreed upon independent
appraiser.
(4) Subsequent Event (Unaudited). On May 8, 1997, approximately $12.6
million of equity was contributed and approximately $15.3 million of
debt was funded to Crescent Operating by Crescent Operating Partnership
to be utilized in the acquisition of the Carter-Crowley assets.
F-4
<PAGE> 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Carter-Crowley Properties, Inc.:
We have audited the accompanying combined balance sheets of Carter-Crowley
Asset Group (the "Portfolio") as described in Notes 1 and 3, as of December 31,
1996 and 1995, and the related combined statements of operations, shareholder's
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carter-Crowley Asset Group
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Dallas, Texas,
May 14, 1997
F-5
<PAGE> 60
CARTER-CROWLEY ASSET GROUP
COMBINED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------- -------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 123,888 $ 510,154 $ 22,335 $ 352,577
Accounts receivable --
Trade, net of allowance for doubtful
accounts of $30,645 and $16,334 in
1996 and 1995, respectively....... 1,617,876 748,784 1,030,648 1,307,729
Affiliate........................... -- 138,131 -- 14,096
Other............................... 56,333 26,930 42,641 36,669
Inventories............................ 1,611,083 1,174,080 1,612,952 736,024
Investment in sales-type leases, net... 152,751 152,609 212,320 311,777
Deferred income tax asset.............. 30,705 22,823 30,705 22,823
Prepaid expenses and other current
assets.............................. 9,283 10,265 6,164 4,062
----------- ----------- ----------- -----------
Total current assets........... 3,601,919 2,783,776 2,957,765 2,785,757
PROPERTY AND EQUIPMENT, at cost:
Rental equipment....................... 8,308,889 4,974,818 7,733,007 4,568,970
Land................................... 452,397 452,397 452,397 451,647
Building and improvements.............. 680,895 648,772 680,895 648,772
Transportation equipment............... 376,691 468,101 375,721 465,529
Office furniture and other equipment... 369,169 363,533 368,752 346,841
----------- ----------- ----------- -----------
10,188,041 6,907,621 9,610,772 6,481,759
Less -- Accumulated depreciation......... (3,238,060) (2,399,941) (2,927,314) (2,240,524)
----------- ----------- ----------- -----------
Net property and equipment..... 6,949,981 4,507,680 6,683,458 4,241,235
INVESTMENTS:
Investment in Hicks, Muse, Tate and
Furst Equity Fund II................ 7,794,478 6,896,186 7,593,493 5,915,749
Investment in Dallas Basketball,
Ltd................................. -- -- -- 263,353
Investments in sales-type leases,
net................................. 118,721 287,275 118,721 287,275
----------- ----------- ----------- -----------
$18,465,099 $14,474,917 $17,353,437 $13,493,369
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities --
Affiliate........................... $ 54,294 $ -- $ 136,764 $ --
Trade............................... 1,047,342 661,608 782,567 540,523
Notes payable, current portion --
Affiliate........................... 1,874,100 1,941,606 1,941,606 1,182,319
Other............................... 299,188 176,240 264,136 108,307
----------- ----------- ----------- -----------
Total current liabilities...... 3,274,924 2,779,454 3,125,073 1,831,149
LONG-TERM LIABILITIES:
Long-term debt, affiliate, net of
current portion..................... 2,689,910 1,008,907 3,199,607 1,830,070
Deferred income taxes.................. 369,806 210,746 369,806 210,746
----------- ----------- ----------- -----------
Total liabilities.............. 6,334,640 3,999,107 6,694,486 3,871,965
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY..................... 12,130,459 10,475,810 10,658,951 9,621,404
----------- ----------- ----------- -----------
$18,465,099 $14,474,917 $17,353,437 $13,493,369
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-6
<PAGE> 61
CARTER-CROWLEY ASSET GROUP
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales and service.............. $ 832,378 $ 856,716 $2,998,880 $2,873,657 $2,897,085
Equipment sales................ 1,349,310 1,259,198 4,364,039 4,237,337 2,810,132
Rental......................... 857,807 607,389 3,030,764 2,036,248 1,963,530
---------- ---------- ---------- ---------- ----------
Total revenues......... 3,039,495 2,723,303 10,393,683 9,147,242 7,670,747
COST OF SALES:
Sales and service.............. 679,676 683,144 2,535,525 2,412,289 2,373,603
Equipment sales................ 1,183,733 1,156,605 4,049,563 3,571,092 2,446,801
Rental......................... 598,574 425,845 1,951,783 1,466,242 1,393,085
---------- ---------- ---------- ---------- ----------
Total cost of sales.... 2,461,983 2,265,594 8,536,871 7,449,623 6,213,489
---------- ---------- ---------- ---------- ----------
GROSS PROFIT..................... 577,512 457,709 1,856,812 1,697,619 1,457,258
EQUITY IN INCOME OF INVESTMENT IN
LIMITED PARTNERSHIP............ -- -- (760,170) -- --
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES........ 438,406 389,407 1,747,839 1,608,226 1,374,410
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS........... 139,106 68,302 869,143 89,393 82,848
OTHER (INCOME) EXPENSE:
Interest expense............... 113,253 64,867 356,517 152,631 28,995
Interest income................ (9,718) (15,635) (51,881) (50,394) (10,819)
Other.......................... 58 (1,369) (27,202) (136,783) (2,977)
---------- ---------- ---------- ---------- ----------
Total other (income)
expense.............. 103,593 47,863 277,434 (34,546) 15,199
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES....... 35,513 20,439 591,709 123,939 67,649
INCOME TAX PROVISION............. 12,428 7,154 208,383 44,783 24,331
---------- ---------- ---------- ---------- ----------
NET INCOME....................... $ 23,085 $ 13,285 $ 383,326 $ 79,156 $ 43,318
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE> 62
CARTER-CROWLEY ASSET GROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------- -------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE, beginning of period... $10,658,951 $ 9,621,404 $ 9,621,404 $3,694,886 $3,812,189
Net income................... 23,085 13,285 383,326 79,156 43,318
Contributions................ 1,552,820 1,509,449 3,355,290 6,328,366 --
Distributions................ (104,397) (668,328) (2,701,069) (505,853) (166,121)
Net book value of assets
contributed............... -- -- -- 24,849 5,500
----------- ----------- ----------- ---------- ----------
BALANCE, end of period......... $12,130,459 $10,475,810 $10,658,951 $9,621,404 $3,694,886
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-8
<PAGE> 63
CARTER-CROWLEY ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
----------------------- --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ----------- ---------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................... $ 23,085 $ 13,285 $ 383,326 $ 79,156 $ 43,318
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization..................... 504,225 283,453 1,055,761 1,166,102 971,724
Equity in income of investment in limited
partnership..................................... -- -- (760,170) -- --
Provision (benefit) for deferred income taxes..... -- -- 151,178 29,421 (38,985)
Gain on sale of rental equipment.................. (96,921) (46,282) (103,968) (443,735) (242,756)
(Increase) decrease in accounts receivable, net... (683,390) 444,649 421,969 (741,731) 75,333
(Increase) decrease in inventories................ 1,869 (438,056) (876,928) (110,770) (152,538)
(Increase) decrease in prepaid expenses and other
current assets.................................. (3,119) (6,203) (2,102) 24,646 (24,188)
Increase in accounts payable and accrued
liabilities..................................... 264,775 121,085 242,044 26,232 177,434
---------- ---------- ----------- ---------- -----------
Net cash provided by operating activities..... 10,524 371,931 511,110 29,321 809,342
INVESTING ACTIVITIES:
Purchases of rental equipment....................... (860,270) (572,040) (4,296,971) (2,351,439) (2,121,839)
Purchases of fixed assets........................... (1,387) (20,014) (78,822) (283,120) (49,383)
Proceeds from sale of rental equipment.............. 270,301 212,475 981,777 1,343,032 1,241,773
---------- ---------- ----------- ---------- -----------
Net cash used in investing activities......... (591,356) (379,579) (3,394,016) (1,291,527) (929,449)
---------- ---------- ----------- ---------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable............. 299,188 670,229 4,885,240 3,288,642 --
Reduction in notes payable.......................... (841,339) (664,172) (2,600,587) (1,492,969) (57,522)
Capital contributions............................... 1,164,967 -- -- -- --
(Increase) decrease in investment in sales-type
leases, net....................................... 59,569 159,168 268,011 (599,052) --
---------- ---------- ----------- ---------- -----------
Net cash provided by (used in) financing
activities.................................. 682,385 165,225 2,552,664 1,196,621 (57,522)
---------- ---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 101,553 157,577 (330,242) (65,585) (177,629)
CASH AND CASH EQUIVALENTS, beginning of period........ 22,335 352,577 352,577 418,162 595,791
---------- ---------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period.............. $ 123,888 $ 510,154 $ 22,335 $ 352,577 $ 418,162
========== ========== =========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded)........................ $ -- $ -- $ (19,502) $ (22,462) $ (92,673)
========== ========== =========== ========== ===========
Interest paid....................................... $ 113,253 $ 64,867 $ 352,773 $ 144,039 $ 29,522
========== ========== =========== ========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Investments contributed by CCP...................... $ 387,853 $1,509,449 $ 3,355,290 $6,328,366 $ --
========== ========== =========== ========== ===========
Distributions from investments to CCP............... $ (104,397) $ (668,328) $(2,701,069) $ (505,853) $ (166,121)
========== ========== =========== ========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Purchase of inventory and equipment held for rental
in which short-term liabilities were assumed...... $ -- $ -- $ -- $ -- $ 532,823
========== ========== =========== ========== ===========
Transfer of fixed assets from CCP (net book
value)............................................ $ -- $ -- $ -- $ 24,849 $ 5,500
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-9
<PAGE> 64
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. DESCRIPTION OF PORTFOLIO AND NATURE OF OPERATIONS:
The Carter-Crowley Asset Group (the "Portfolio") is a portfolio of
businesses and investments wholly owned by Carter-Crowley Properties, Inc. (CCP)
which include ownership of a construction equipment and accessories sales and
leasing company, a minority investment in a National Basketball Association
(NBA) franchise, and a minority investment in a venture capital fund. The
Portfolio represents the businesses and investments owned by CCP which were sold
to Crescent Operating, Inc. on May 9, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND PRINCIPLES OF COMBINATION
The accompanying combined financial statements have been presented on a
combined historical cost basis because of the affiliated ownership and
management. All significant intercompany balances and transactions have been
eliminated. These combined financial statements have been prepared in accordance
with requirements for financial information required by Form S-1. The
accompanying combined financial statements for the three months ended March 31,
1997 and 1996, have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments considered necessary for
a fair presentation have been included.
USE OF ESTIMATES
The financial statements include estimates and assumptions made by
management that affect the carrying amounts of assets and liabilities, reported
amounts of revenues and expenses and the disclosure of contingent assets and
liabilities. Actual results may differ from these estimates.
CASH AND CASH EQUIVALENTS
The Portfolio considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
The Portfolio uses the straight-line and accelerated methods of
depreciation for financial statement purposes. The estimated useful lives used
in computing depreciation are as follows:
<TABLE>
<S> <C>
Rental equipment............................................ 2-7 years
Building and improvements................................... 30 years
Transportation equipment.................................... 3-5 years
Office furniture and other equipment........................ 5-10 years
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures for renewals or betterments are capitalized. The cost of
property replaced, retired, or otherwise disposed of is removed from the asset
account along with the related accumulated depreciation. Gains or losses on the
disposal of rental equipment are recorded in gross profit and for other assets
are recorded as other income or expense in the year of disposal. During 1996,
the Portfolio changed the estimated useful lives of certain rental equipment.
This change resulted in a decrease in 1996 depreciation expense of approximately
$157,000.
F-10
<PAGE> 65
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist of new equipment held for sale, construction
accessories, and equipment parts and are stated at the lower of average cost or
market.
REVENUE RECOGNITION
Revenues from equipment rentals under operating leases are recognized as
the revenue becomes receivable according to the provisions of the lease.
Revenues from equipment rentals under sales-type lease agreements are
capitalized and recognized over the life of the contract.
INCOME TAXES
The taxable income or loss of the Portfolio is included in the consolidated
federal income tax return filed by CCP. The Portfolio's income tax provision
(benefit) is determined as if the Portfolio had filed a separate income tax
return on a separate company basis. Taxes currently payable or receivable are
recorded as accounts receivables-affiliate and accounts payable-affiliate in the
accompanying balance sheets.
The Portfolio's current provision (benefit) for income taxes is generally
based on income before taxes adjusted for permanent differences between
financial reporting and taxable income. Deferred income taxes are provided for
temporary differences between financial reporting and taxable income (see Note
7).
FINANCIAL INSTRUMENTS
During 1995, the Portfolio adopted Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial
Instruments." This statement requires disclosure of the fair value of financial
instruments for which it is practicable to estimate as well as the methods and
significant assumptions used to estimate that value. The carrying amounts of
cash and cash equivalents and accounts receivable approximate fair value due to
the short maturity of those instruments. Notes payable bear interest at variable
rates which fluctuate based upon comparable market rates, and, therefore,
carrying amounts approximate fair value.
LONG-LIVED ASSETS
During 1996, the Portfolio adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which establishes methods of valuation for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used. The adoption of this statement had no material impact on the
accompanying financial statements.
3. DESCRIPTION OF PORTFOLIO BUSINESSES AND INVESTMENTS:
MOODY-DAY, INC.
Moody-Day, Inc. ("Moody-Day") is a wholly owned Texas corporation engaged
in the sale, leasing, and service of construction equipment and accessories to
the construction and utility industries located primarily in Texas. Effective
December 31, 1994, Moody-Day became a wholly owned subsidiary of CCP pursuant to
a corporate reorganization. Moody-Day and CCP had previously both been wholly
owned subsidiaries of a common parent (the "Former Parent").
INVESTMENT IN DALLAS BASKETBALL, LTD.
The Portfolio includes a 12.38% limited partner minority interest in Dallas
Basketball, Ltd. ("Mavericks"), a Texas limited partnership that owns the Dallas
Mavericks basketball team, the related rights in the NBA franchise and various
related rights and interests. The Portfolio's interest in Mavericks was
contributed
F-11
<PAGE> 66
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
by CCP. Accordingly, contributions between CCP and Mavericks are reflected in
the accompanying combined financial statements as adjustments to equity. The
Portfolio's interest is recorded in the accompanying combined financial
statements on the cost recovery basis. Distributions in excess of the
Portfolio's investment in Mavericks have been included in the accompanying
combined statements of operations within equity in income of investment in
limited partnership.
INVESTMENT IN HICKS MUSE FURST & TATE EQUITY FUND II
Effective January 1, 1995, CCP subscribed to a 1.42% limited partner
minority interest in Hicks Muse Furst & Tate Equity Fund II (the "Fund"), a
private venture capital fund. CCP has the option to participate on an investment
by investment basis within the fund. As of December 31, 1996, CCP owns a 1.21%
overall limited partner interest in the Fund. During 1995 and 1996, CCP
contributed its subscribed limited partner interest to the Portfolio.
Accordingly, contributions and distributions between CCP and the Fund are
reflected in the accompanying combined financial statements as adjustments to
equity. The Portfolio's interest in the Fund is recorded in the accompanying
combined financial statements based upon CCP's contributed historical cost
basis. The Portfolio has an unpaid balance due of approximately $2.2 million on
the original commitment to invest $10 million in the Fund. The remaining $2.2
million commitment is due upon capital calls from Hicks, Muse, Furst & Tate,
subject to certain morality exemptions. CCP's investment is comprised of
investments in companies making/selling chocolate, wire and cable, polyurethane
foam, toys, tools, and investments in real estate.
4. INVENTORIES:
Inventories at Moody-Day consisted of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
New equipment............................................... $ 995,306 $291,099
Light equipment and accessories............................. 453,567 308,623
Equipment parts............................................. 152,891 121,777
Other....................................................... 11,188 14,525
---------- --------
Total inventory................................... $1,612,952 $736,024
========== ========
</TABLE>
5. INVESTMENTS IN SALES-TYPE LEASES, NET:
Although Moody-Day's leasing operations consist primarily of leasing
construction equipment and accessories under operating leases (see Note 10),
Moody-Day occasionally enters into leases which are accounted for as sales-type
leases. At December 31, 1996, Moody-Day had approximately 18 sales-type leases
with expirations through 1999. The following is a summary of Moody-Day's
investment in sales-type leases, net at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Total minimum lease payments to be received................ $ 372,436 $ 676,594
Unearned income............................................ (41,395) (77,542)
--------- ---------
Net investment........................................... 331,041 599,052
Less -- Current amount................................ (212,320) (311,777)
--------- ---------
Long-term amount...................................... $ 118,721 $ 287,275
========= =========
</TABLE>
Minimum lease payments to be received as of December 31, 1996, for each of
the next five years and in the aggregate on sales-type leases are:
F-12
<PAGE> 67
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
1997........................................................ $212,320
1998........................................................ 92,727
1999........................................................ 67,389
2000........................................................ --
2001........................................................ --
Subsequent to 2001.......................................... --
--------
Total minimum future rentals...................... $372,436
========
</TABLE>
6. NOTES PAYABLE AND LONG-TERM DEBT:
The following summarizes the Portfolio's debt financing at December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Notes payable to a finance company, maturities through
June 1997, collateralized by equipment............... $ 264,136 $ 108,307
Note payable to CCP due December 1997, interest at
prime plus 1/2%, with monthly principal and interest
payments, collateralized by land and building........ 266,163 322,739
Note payable to CCP due March 1998, interest at prime
plus 1%, with monthly principal and interest
payments, collateralized by equipment................ 197,213 392,168
Note payable to CCP due March 1996, interest at 10%,
with monthly principal and interest payments,
collateralized by equipment.......................... -- 28,705
Line of credit with CCP, interest at prime plus 1%,
with monthly principal and interest payments through
December 1999, collateralized by land and
equipment............................................ 4,677,837 2,268,777
----------- -----------
Notes payable, affiliate............................... 5,141,213 3,012,389
----------- -----------
Total notes payable.................................... 5,405,349 3,120,696
Less -- Current maturities............................. (2,205,742) (1,290,626)
----------- -----------
$ 3,199,607 $ 1,830,070
=========== ===========
</TABLE>
MATURITIES OF LONG-TERM DEBT ARE AS FOLLOWS:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997..................................................... $2,205,742
1998..................................................... 1,388,197
1999..................................................... 991,968
2000..................................................... 558,727
2001..................................................... 196,167
Thereafter............................................... 64,548
----------
Total............................................. $5,405,349
==========
</TABLE>
F-13
<PAGE> 68
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The deferred tax balances in the accompanying balance sheets include the
following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax asset -- current............................... $ 92,712 $ 105,768
Valuation allowance......................................... (62,007) (82,945)
Deferred tax liability -- noncurrent........................ (369,806) (210,746)
--------- ---------
Net deferred tax liability................................ $(339,101) $(187,923)
========= =========
</TABLE>
The Portfolio has net operating loss carryforwards (NOLs) of approximately
$193,851 which will expire in years 2003 through 2005. Accordingly, a valuation
allowance was established for NOLs not expected to be utilizable.
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Assets:
Inventories............................................... $ 11,220 $ 8,346
Allowance for doubtful accounts........................... 10,725 5,717
Net operating loss carryforwards, net of allowance........ 8,760 8,760
--------- ---------
Deferred tax asset................................ 30,705 22,823
--------- ---------
Liabilities:
Rental equipment.......................................... (366,251) (205,966)
Property and equipment.................................... (3,555) (4,780)
--------- ---------
Deferred tax liability............................ (369,806) (210,746)
--------- ---------
Net deferred tax liability........................ $(339,101) $(187,923)
========= =========
</TABLE>
The components of income tax provision are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Federal:
Current provision................................... $ 57,205 $15,362 $ 63,316
Deferred tax provision (benefit).................... 151,178 29,421 (38,985)
-------- ------- --------
Total provision............................. $208,383 $44,783 $ 24,331
======== ======= ========
</TABLE>
The Portfolio's income tax provision differed from the statutory federal
rate of 35% due primarily to nondeductible expenses for federal income tax
purposes.
8. PROFIT SHARING PLAN:
Prior to 1996, Moody-Day had a noncontributory profit sharing plan (the
"Plan") covering substantially all of its full-time employees who have completed
one year of service. Contributions to the Plan were at the discretion of the
Board of Directors. Moody-Day made no contributions to the Plan in 1995 or 1994.
The Plan was terminated in 1995. Additionally, a loan from Moody-Day to the Plan
of $135,000 that was previously written off by Moody-Day was paid back and
included as other income on the December 31, 1995, income statement.
F-14
<PAGE> 69
CARTER-CROWLEY ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED-PARTY TRANSACTIONS:
Effective January 1, 1993, the Former Parent transferred the land and
building which Moody-Day occupies to Moody-Day in exchange for a note. The note
has an annual interest rate of prime + 1/2% and calls for monthly payments of
$7,000. The note, as further discussed in Note 6, had a balance of $266,163 at
December 31, 1996. Additionally, CCP has provided financing to Moody-Day (see
Note 6). The total outstanding principal to CCP at December 31, 1996, is
$5,141,213. The Company had a (payable) receivable for an income tax provision
(benefit) with CCP of $(65,631) and $14,096, respectively, at December 31, 1996
and 1995. Prior to 1996, Moody-Day was managed on a decentralized basis and had
relatively no senior management involvement from the parent company. Therefore,
no management fee has been allocated to the accompanying financial statements
for 1995 or 1994. Beginning in the fourth quarter of 1995, senior management of
the parent company became more involved in Moody-Day's daily operational
decision making as a result of an increased activity in the construction
industry and a management reorganization. In 1996, CCP charged Moody-Day
approximately $188,000 for management fees.
10. RENTALS UNDER OPERATING LEASES:
Moody-Day receives rental income from the lease of construction equipment
and accessories under operating leases, with expirations through 1998.
Minimum future rentals to be received under noncancelable leases over the
next five years and as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $307,394
1998........................................................ 74,700
1999........................................................ --
2000........................................................ --
2001........................................................ --
Subsequent to 2001.......................................... --
--------
Total minimum future rentals...................... $382,094
========
</TABLE>
11. CONCENTRATIONS:
As Moody-Day's operations are conducted primarily to the construction and
utility industries in Texas, Moody-Day is subject to vulnerability to economic
downturns in the geographic region and specific industries in which it operates.
Additionally, Moody-Day had one customer which accounted for 11% of its gross
revenues for the year ended December 31, 1996.
F-15
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Magellan Health Services, Inc:
We have audited the accompanying combined balance sheets of the Provider
Segment (the "Company") of Magellan Health Services, Inc., a Delaware
corporation, as of September 30, 1995 and 1996, and the related combined
statements of operations, changes in stockholder's deficit and cash flows for
each of the three years in the period ended September 30, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Provider Segment of
Magellan Health Services, Inc. as of September 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 7, 1996
F-16
<PAGE> 71
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash, including cash equivalents of $60,234 in 1995 and
$20,999 in 1996 at cost which approximates market
value............................................... $ 103,735 $ 71,822 66,151
Accounts receivable, less allowance for doubtful
accounts of $47,851 in 1995 and $48,299 in 1996..... 170,728 148,805 145,296
Supplies............................................... 5,768 4,753 4,465
Other current assets................................... 13,064 20,120 20,074
--------- --------- ---------
Total Current Assets........................... 293,295 245,500 235,986
Assets restricted for settlement of unpaid claims and
other long-term liabilities............................ 94,138 105,303 96,402
Property and Equipment:
Land................................................... 88,019 83,431 82,705
Buildings and improvements............................. 377,169 388,821 393,812
Equipment.............................................. 107,681 122,927 126,549
--------- --------- ---------
572,869 595,179 603,066
Accumulated depreciation............................... (89,046) (118,937) (132,806)
--------- --------- ---------
483,823 476,242 470,260
Construction in progress............................... 2,902 1,879 2,573
--------- --------- ---------
Total Property and Equipment................... 486,725 478,121 472,833
Other Long-Term Assets................................... 36,846 34,923 28,859
Goodwill, net of accumulated amortization of $944 in 1995
and $1,147 in 1996..................................... 18,208 18,800 18,373
Other Intangible Assets, net of accumulated amortization
of $1,362 in 1995 and $2,958 in 1996................... 5,394 6,258 6,370
--------- --------- ---------
$ 934,606 $ 888,905 $ 858,823
========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these balance sheets.
F-17
<PAGE> 72
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable....................................... $ 69,726 $ 61,685 $ 56,154
Accrued liabilities.................................... 116,380 117,214 88,714
Current maturities of long-term debt and capital lease
obligations......................................... 2,799 2,751 2,845
--------- --------- ---------
Total Current Liabilities...................... 188,905 181,650 147,713
Long-Term Debt and Capital Lease Obligations............. 77,111 73,620 72,380
Reserve for Unpaid Claims................................ 100,125 73,040 62,316
Deferred Credits and Other Long-Term Liabilities......... 34,455 36,506 20,925
Minority Interest........................................ 7,486 21,421 21,947
Due to Parent............................................ 666,349 619,556 637,555
Commitments and Contingencies
Stockholder's Deficit:
Accumulated deficit.................................... (139,003) (114,906) (101,065)
Cumulative foreign currency adjustments................ (822) (1,982) (2,948)
--------- --------- ---------
(139,825) (116,888) (104,013)
--------- --------- ---------
$ 934,606 $ 888,905 $ 858,823
========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these balance sheets.
F-18
<PAGE> 73
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue......................... $904,646 $1,106,975 $1,044,345 $538,119 $479,289
-------- ---------- ---------- -------- --------
Costs and expenses
Salaries, supplies and other
operating expenses............. 661,436 825,468 800,912 406,471 372,201
Bad debt expense.................. 70,623 91,652 79,930 41,381 35,055
Depreciation and amortization..... 28,354 36,029 37,108 18,720 18,566
Amortization of reorganization
value in excess of amounts
allocable to identifiable
assets......................... 31,200 26,000 -- -- --
Interest, unaffiliated............ 6,364 5,421 5,492 2,872 2,483
Allocated interest, net from
Parent......................... 33,030 48,756 42,123 19,115 24,321
ESOP expense...................... 49,197 73,527 -- -- --
Stock option expense (credit)..... 10,614 (467) 914 1,414 1,433
Unusual items..................... 71,287 57,437 37,271 -- 1,395
-------- ---------- ---------- -------- --------
962,105 1,163,823 1,003,750 489,973 455,454
-------- ---------- ---------- -------- --------
Income (loss) before income taxes
and minority interest............. (57,459) (56,848) 40,595 48,146 23,835
Provision for (benefit from) income
taxes............................. (10,504) (12,934) 14,883 18,920 8,886
-------- ---------- ---------- -------- --------
Income (loss) before minority
interest.......................... (46,955) (43,914) 25,712 29,226 14,949
Minority interest................... 48 340 1,615 1,476 1,108
-------- ---------- ---------- -------- --------
Net income (loss)................... $(47,003) $ (44,254) $ 24,097 $ 27,750 $ 13,841
======== ========== ========== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-19
<PAGE> 74
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accumulated Deficit:
Balance, beginning of period....... $(47,746) $ (94,749) $(139,003) $(139,003) $(114,906)
Net income (loss).................. (47,003) (44,254) 24,097 27,750 13,841
-------- --------- --------- --------- ---------
Balance, end of period............. (94,749) (139,003) (114,906) (111,253) (101,065)
-------- --------- --------- --------- ---------
Cumulative Foreign Currency
Adjustments:
Balance, beginning of period....... (4,660) (2,454) (822) (822) (1,982)
Foreign currency translation gain
(loss).......................... 2,206 1,632 (1,160) (1,045) (966)
-------- --------- --------- --------- ---------
Balance, end of period............. (2,454) (822) (1,982) (1,867) (2,948)
-------- --------- --------- --------- ---------
Total Stockholder's Deficit.......... $(97,203) $(139,825) $(116,888) $(113,120) $(104,013)
======== ========= ========= ========= =========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-20
<PAGE> 75
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(AUDITED) (AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)................................... $(47,003) $(44,254) $ 24,097 $ 27,750 $ 13,841
--------- --------- -------- -------- --------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain on sale of assets.......................... -- (2,961) (1,697) (138) (3,302)
Depreciation and amortization................... 59,554 62,029 37,108 18,720 18,566
Non-cash portion of unusual items............... 70,207 45,773 31,206 -- --
ESOP expense.................................... 49,197 73,527 -- -- --
Stock option expense (credit)................... 10,614 (467) 914 1,414 1,433
Non-cash interest expense....................... 2,005 2,735 2,424 1,202 882
Cash flows from changes in assets and
liabilities, net of effects from sales and
acquisitions of businesses:
Accounts receivable, net.................... (7,533) 9,451 22,905 (8,828) 3,509
Other current assets........................ 4,563 8,273 575 (2,848) 667
Other long-term assets...................... 2,860 (5,726) 5,496 5,886 (3,350)
Accounts payable and accrued liabilities.... 2,683 (15,192) (16,917) (12,567) (31,536)
Reserve for unpaid claims................... 1,215 (5,885) (29,985) (10,625) (13,694)
Other liabilities........................... (8,249) (21,127) (18,968) (5,669) (15,179)
Minority interest, net of dividends paid.... 80 22 1,596 1,887 1,593
Due to Parent -- interest and income
taxes..................................... (42,459) (11,966) 19,618 11,741 6,402
Other....................................... 613 285 1,022 121 (1,063)
--------- --------- -------- -------- --------
Total adjustments........................... 145,350 138,771 55,297 296 (35,072)
--------- --------- -------- -------- --------
Net cash provided by (used in) operating
activities.............................. 98,347 94,517 79,394 28,046 (21,231)
--------- --------- -------- -------- --------
Cash Flows From Investing Activities
Capital expenditures................................ (14,626) (19,354) (30,978) (10,403) (9,463)
Acquisitions of businesses, net of cash acquired.... (130,550) (62,125) (235) (256) (6,998)
Decrease (increase) in assets restricted for
settlement of unpaid claims and other long-term
liabilities....................................... 7,076 (19,606) (17,732) (6,070) 8,626
Proceeds from sale of assets........................ 16,584 5,879 5,098 503 10,386
Investment in Parent................................ -- (4,736) -- -- --
Other............................................... -- (1,050) -- -- --
--------- --------- -------- -------- --------
Net cash provided by (used in) investing
activities.............................. (121,516) (100,992) (43,847) (16,226) 2,551
--------- --------- -------- -------- --------
Cash Flows From Financing Activities
Change in Due to Parent............................. 86,612 (16,970) (62,625) (30,443) 14,718
Payments on debt and capital lease obligations...... (19,842) (2,423) (4,835) (2,037) (1,709)
--------- --------- -------- -------- --------
Net cash provided by (used in) financing
activities.............................. 66,770 (19,393) (67,460) (32,480) 13,009
--------- --------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 43,601 (25,868) (31,913) (20,660) (5,671)
Cash and cash equivalents at beginning of period...... 86,002 129,603 103,735 103,735 71,822
--------- --------- -------- -------- --------
Cash and cash equivalents at end of period............ $129,603 $103,735 $ 71,822 $ 83,075 $ 66,151
========= ========= ======== ======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these statements.
F-21
<PAGE> 76
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(ALL REFERENCES TO MARCH 31, 1996 AND 1997 FINANCIAL DATA ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements of the Provider Segment of Magellan
Health Services, Inc. ("CBHS" or the "Company") include the accounts of the
Company and its subsidiaries except where control is temporary or does not rest
with the Company. All significant intercompany accounts and transactions have
been eliminated in combination. The accompanying unaudited combined financial
statements for the six months ended March 31, 1996 and 1997 have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments considered necessary for a fair presentation,
have been included. Magellan Health Services, Inc. ("Magellan" or "Parent") is
an integrated behavioral healthcare company providing behavioral healthcare
services in the United States, the United Kingdom and Switzerland. Magellan
operates through three principal subsidiaries engaging in (i) the provider
business, (ii) the managed care business and (iii) the public sector business.
The Company utilizes certain Parent systems and services ("Magellan
Overhead"), including, but not limited to, risk management, computer systems,
auditing, third-party reimbursement and treasury. The Company procures insurance
("Insurance") for professional liability claims, worker's compensation claims
and general matters through the Parent. The assets, liabilities and operating
expenses for Magellan Overhead and Insurance are included in the combined
financial statements of the Company. The combined financial statements of CBHS
have been prepared in connection with the sale of certain CBHS assets and
related transactions, which are more fully described in Note 2.
The combined financial statements present the historical combined financial
position, results of operations and cash flows of CBHS and, as a result, include
certain assets, liabilities, operations and personnel that will not be included
in the transactions described below in Note 2.
On June 2, 1992, Magellan filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code. The prepackaged plan of reorganization (the
"Plan") effected a restructuring of Magellan's debt and equity capitalization.
Magellan's Plan was confirmed on July 8, 1992, and became effective on July 21,
1992 (effective on July 31, 1992 for financial reporting purposes). The combined
financial statements for all periods are presented for the Company after the
consummation of the Plan. These financial statements were prepared under the
principles of fresh start accounting. (See Note 4.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NET REVENUE
Net revenue is based on established billing rates, less estimated
allowances for patients covered by Medicare and other contractual reimbursement
programs and discounts from established billing rates. Amounts received by the
Company for treatment of patients covered by Medicare and other contractual
reimbursement programs, which may be based on cost of services provided or
predetermined rates, are generally less than the established billing rates of
the Company's hospitals. Final determination of amounts earned under contractual
reimbursement programs is subject to review and audit by the applicable
agencies. Net revenue for fiscal 1994, 1995 and 1996 included $32.1 million,
$35.6 million and $28.3 million,
F-22
<PAGE> 77
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, for the settlement and adjustment of reimbursement issues related
to earlier fiscal periods. Net revenue for the six months ended March 31, 1996
and 1997 (unaudited) includes $11.1 million and $13.8 million, respectively for
the settlement and adjustment of reimbursement issues related to earlier fiscal
periods. Management believes that adequate provision has been made for any
adjustments that may result from such reviews.
ADVERTISING COSTS
The production costs of advertising are expensed as incurred. The Company
does not consider any of its advertising costs to be direct-response and,
accordingly, does not capitalize such costs. Advertising costs consist primarily
of radio and television air time, which is amortized as utilized, and printed
media services. Advertising expense was approximately $35.6 million, $33.5
million and $30.3 million for the years ended September 30, 1994, 1995 and 1996,
respectively.
CHARITY CARE
The Company provides healthcare services without charge or at amounts less
than its established rates to patients who meet certain criteria under its
charity care policies. Because the Company does not pursue collection of amounts
determined to be charity care, they are not reported as revenue. For the years
ended September 30, 1994, 1995 and 1996, the Company provided, at its
established billing rates, approximately $29.3 million, $41.2 million and $37.9
million, respectively, of such care.
ALLOCATED INTEREST, NET
Magellan provides financing and cash management services for CBHS.
Magellan's interest expense is allocated to CBHS based on the financing and the
cost of financing provided directly to CBHS. Deferred financing costs and
accrued interest related to such financing is carried on the books of the
Parent.
INCOME TAXES
The operations of CBHS are included in the Magellan consolidated federal
income tax return and in various unitary, foreign and consolidated state income
tax returns. Magellan allocates its consolidated income tax provision or benefit
to CBHS, which approximates income taxes that would be calculated on a
stand-alone basis.
Current and deferred income taxes payable or receivable are settled
currently through the Due to Parent account.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid interest-bearing investments
with a maturity of three months or less when purchased, consisting primarily of
money market instruments.
CONCENTRATION OF CREDIT RISK
Accounts receivable from patient revenue subject the Company to a
concentration of credit risk with third party payors that include insurance
companies, managed healthcare organizations and governmental entities. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific payors, historical trends and other
information. Management believes the allowance for doubtful accounts is adequate
to provide for normal credit losses.
F-23
<PAGE> 78
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ASSETS RESTRICTED FOR THE SETTLEMENT OF UNPAID CLAIMS AND OTHER LONG-TERM
LIABILITIES
Assets restricted for the settlement of unpaid claims and other long-term
liabilities include marketable securities which are carried at fair market
value. Transfer of such investments from the Insurance subsidiaries to the
Company or any of its other subsidiaries is subject to approval by certain
regulatory authorities. These assets will remain with Magellan subsequent to the
sale of the psychiatric facilities.
During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). Under FAS 115, investments are classified into three
categories: (i) held to maturity; (ii) available for sale; and (iii) trading.
Unrealized holding gains or losses are recorded for trading and available for
sale securities. The Company's investments are classified as available for sale
and the adoption of FAS 115 did not have a material effect on the Company's
financial statements, financial condition and liquidity or results of
operations. The unrealized gain or loss on investments available for sale was
not material at September 30, 1995 and 1996.
PROPERTY AND EQUIPMENT
As a result of the adoption of fresh start accounting, property and
equipment were adjusted to their estimated fair value as of July 31, 1992 and
historical accumulated depreciation was eliminated. Expenditures for renewals
and improvements are charged to the property accounts. Replacements and
maintenance and repairs that do not improve or extend the life of the respective
assets are expensed as incurred. The Company removes the cost and related
accumulated depreciation from the accounts for property sold or retired, and any
resulting gain or loss is included in operations. Amortization of capital lease
assets is included in depreciation expense. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets, which is
generally 10 to 40 years for buildings and improvements and three to ten years
for equipment. Depreciation expense was $27.4 million, $34.5 million and $34.9
million for the years ended September 30, 1994, 1995 and 1996, respectively.
INTANGIBLE ASSETS
Intangible assets are composed principally of (i) goodwill and (ii)
non-compete agreements. Goodwill represents the excess of the cost of businesses
acquired over the fair value of the net identifiable assets at the date of
acquisition and is amortized using the straight-line method over 25 to 40 years.
Non-compete agreements are amortized over the term of the related agreements.
The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of intangible assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of intangible assets may not be recoverable, the Company assesses the
recoverability of intangible assets by determining whether the carrying value of
such intangible assets will be recovered through the future cash flows expected
from the use of the asset and its eventual disposition. No impairment losses on
intangible assets were recorded by the Company in fiscal 1994 and 1996.
Impairment losses of approximately $4.0 million were recorded in fiscal 1995.
(See Note 4)
FOREIGN CURRENCY
Changes in the cumulative translation of foreign currency assets and
liabilities are presented as a separate component of stockholder's deficit.
Gains and losses resulting from foreign currency transactions, which were not
material, are included in operations as incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for
the Impairment of Long-Lived Assets and for
F-24
<PAGE> 79
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets to be Disposed Of," which became effective for fiscal years
beginning after December 15, 1995. FAS 121 established standards for determining
when impairment losses on long-lived assets have occurred and how impairment
losses should be measured. The Company adopted FAS 121 effective October 1,
1994. The initial financial statement impact of adopting FAS 121 was not
material.
2. SALE OF PSYCHIATRIC FACILITIES (UNAUDITED)
On January 30, 1997, Magellan announced that it had entered into a
definitive agreement to sell substantially all of CBHS' domestic hospital real
estate and related personal property (the "Assets") to Crescent Real Estate
Equities Limited Partnership ("Crescent"). In addition, Magellan will form New
CBHS, which will consist of the domestic portion of its provider business
segment. New CBHS will be operated as a joint venture that is equally owned by
Magellan and an affiliate of Crescent (the "Crescent Affiliate"). Magellan will
receive $400 million in cash, subject to adjustment, and warrants in the
Crescent Affiliate for the purchase of 2.5% of the Crescent Affiliate's common
stock, exercisable over 12 years, as consideration for the assets. In addition
to the assets, Crescent and the Crescent Affiliate will each receive 1,283,311
warrants to purchase Magellan Common Stock at $30 per share, exercisable over 12
years.
In related agreements, (i) Crescent will lease the real estate and related
assets to New CBHS for annual rent beginning at $40 million, subject to
adjustment, with a 5% annual escalation clause compounded annually and
additional rent of $20 million, of which at least $10 million must be used for
capital expenditures, and (ii) New CBHS will pay Magellan approximately $81
million in annual franchise fees, subject to increase, for the use of assets
retained by Magellan and for support in certain areas. The franchise fees paid
by New CBHS will be subordinated to the lease obligation with Crescent. The
assets retained by Magellan include, but are not limited to, the "CHARTER" name,
intellectual property, treatment protocols and procedures, clinical quality
management, operating processes and the "1-800-CHARTER" telephone call center.
Magellan will provide New CBHS ongoing support in areas including managed care
contracting services, advertising and marketing assistance, risk management
services, outcomes monitoring, and consultation on matters relating to
reimbursement, government relations, clinical strategies, regulatory matters,
strategic planning and business development.
These transactions are subject to approval by Magellan stockholders and
other customary closing conditions, including the negotiation of certain
financing matters.
On March 19, 1997, Magellan announced that it had signed definitive
agreements to sell its three European hospitals for approximately $75 million.
The transaction is expected to close in May, 1997, pending regulatory approval.
3. ACQUISITIONS AND JOINT VENTURES
ACQUISITIONS
In February 1995, the Company acquired a 90 percent ownership interest in
Westwood Pembroke Health System ("Westwood Pembroke"), which includes two
psychiatric hospitals and a professional group practice. The Company accounted
for the acquisition using the purchase method of accounting. Magellan will
retain its proportionate ownership interest in Westwood Pembroke subsequent to
the closing of the transactions with Crescent and the Crescent Affiliate.
During fiscal 1994, the Company agreed to acquire 40 psychiatric hospitals
(the "Acquired Hospitals") from Tenet Healthcare Corporation (formerly National
Medical Enterprises). The purchase price for the Acquired Hospitals was
approximately $120.4 million in cash plus an additional cash amount of
approximately $51 million, subject to adjustment, for the net working capital of
the Acquired Hospitals (the "Hospital Acquisition").
F-25
<PAGE> 80
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On June 30, 1994, the Company completed the purchase of 27 of the Acquired
Hospitals for a cash purchase price of approximately $129.6 million, which
included approximately $39.3 million, subject to adjustment, for the net working
capital of the facilities. On October 31, 1994, the Company completed the
purchase of three additional Acquired Hospitals for a cash purchase price of
approximately $5 million, which included approximately $2.2 million related to
the net working capital of the facilities. On November 30, 1994, the Company
completed the purchase of the remaining ten Acquired Hospitals for a cash
purchase price of approximately $36.8 million, including approximately $9.5
million related to the net working capital of the ten Acquired Hospitals. The
Company accounted for the Hospital Acquisition using the purchase method of
accounting. The operating results of the Acquired Hospitals are included in the
Company's Consolidated Statements of Operations from the respective dates of
acquisition.
JOINT VENTURES
The Company has entered into four hospital-based joint ventures with
Columbia/HCA Healthcare Corporation. Generally, each member of the joint venture
leases and/or contributes certain assets in each respective market to the joint
venture with the Company becoming the managing member.
The joint ventures' results of operations have been included in the
consolidated financial statements since inception, less minority interest. A
summary of the joint ventures is as follows:
<TABLE>
<CAPTION>
MARKET DATE
------ ------------
<S> <C>
Albuquerque, NM................................ May 1995
Raleigh, NC.................................... June 1995
Lafayette, LA.................................. October 1995
Anchorage, AK.................................. August 1996
</TABLE>
Magellan will retain its proportionate ownership interest in these joint
ventures subsequent to the closing of the transactions with Crescent and the
Crescent Affiliate.
4. THE RESTRUCTURING AND FRESH START REPORTING
Under the principles of fresh start accounting, Magellan's total assets
were recorded at their assumed reorganization value, with the reorganization
value allocated to identifiable tangible assets on the basis of their estimated
fair value. Accordingly, the Company's property and equipment were reduced and
its intangible assets were written off. The excess of the reorganization value
over the value of identifiable assets was reported by Magellan as
"reorganization value in excess of amounts allocable to identifiable assets"
(the "Excess Reorganization Value").
The total reorganization value assigned to Magellan's assets was estimated
by calculating projected cash flows before debt service requirements, for a
five-year period, plus an estimated terminal value of Magellan (calculated using
a multiple of approximately six (6) on projected EBDIT (which is net revenue
less operating and bad debt expenses)), each discounted back to its present
value using a discount rate of 12% (representing the estimated after-tax
weighted cost of capital). This amount was approximately $1.2 billion and was
increased by (i) the estimated net realizable value of assets to be sold and
(ii) estimated cash in excess of normal operating requirements. The above
calculations resulted in an estimated reorganization value of approximately $1.3
billion, of which the Excess Reorganization Value was $225 million, of which
$129 million related to continuing operations. The Excess Reorganization Value
was amortized by Magellan over the three-year period ended July 31, 1995, which
is reflected in the Company's Statement of Operations for the years ended
September 30, 1994 and 1995.
F-26
<PAGE> 81
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNUSUAL ITEMS
INSURANCE SETTLEMENTS
Unusual items included the resolutions of disputes between the Company and
insurance carriers concerning certain billings for services.
In November 1994, the Company and a group of insurance carriers resolved a
billing dispute that arose in the fourth quarter of fiscal 1994 related to
claims paid predominantly in the 1980's. As part of the resolution, the Company
agreed to pay the insurance carriers approximately $31 million plus interest,
for a total of $37.5 million in four installments over a three year period. The
Company and the insurance carriers will continue to do business at the same or
similar general levels. Furthermore, the parties will seek additional business
opportunities that will serve to enhance their present relationships.
In March 1995, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1995 related to matters arising
predominately in the 1980's. As part of the settlement, the Company agreed to
pay the insurance carriers $29.8 million payable in five installments over a
three year period. The Company and the insurance carriers have agreed to
continue to do business at the same or similar general levels and to seek
additional business opportunities that will serve to enhance their present
relationships.
In August 1996, the Company and a group of insurance carriers resolved a
billing dispute which arose in fiscal 1996 related to matters originating in the
1980's. As part of the settlement of these claims, certain related payer matters
and associated legal fees, the Company recorded a charge of approximately $30.0
million during the quarter ended June 30, 1996. The Company will pay the
insurance settlement amount in twelve installments over a three year period,
beginning August 1996. The Company and the insurance carriers have agreed that
the dispute and settlement will not negatively impact any present or pending
business relationships nor will it prevent the parties from negotiating in good
faith concerning additional business opportunities available to, and future
relationships between, the parties.
Amounts payable in future periods under the insurance settlements are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
- -------------
<S> <C> <C>
1997................................................ $21,510
1998................................................ 14,180
1999................................................ 5,745
</TABLE>
FACILITY CLOSURES
During fiscal 1995 and fiscal 1996, the Company consolidated, closed or
sold fifteen and nine psychiatric facilities (the "Closed Facilities"),
respectively. The Closed Facilities will be retained by Magellan subsequent to
the closing of the transaction with Crescent and the Crescent Affiliate and will
be sold, leased or used for alternative purposes depending on the market
conditions in each geographic area.
The Company recorded charges of approximately $3.6 million and $4.1 million
related to facility closures in fiscal 1995 and fiscal 1996, respectively, as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Severance and related benefits.............................. $2,132 $2,334
Contract terminations and other............................. 1,492 1,782
------ ------
$3,624 $4,116
====== ======
</TABLE>
Approximately 500 and 620 employees were terminated at the facilities
closed in the fourth quarter of fiscal 1995 and during fiscal 1996,
respectively. Severance and related benefits paid and charged against the
F-27
<PAGE> 82
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
resulting liability were approximately $1.3 million and $2.9 million in fiscal
1995 and fiscal 1996, respectively. Other exit costs paid and applied against
the resulting liabilities were approximately $212,000 and $1.4 million in fiscal
1995 and fiscal 1996, respectively.
During the six months ended March 31, 1997, (unaudited) the Company
consolidated or closed three psychiatric facilities and its one general hospital
(the "1997 Closed Facilities"). The 1997 Closed Facilities which are owned by
the Company are expected to be sold as part of the Crescent Transactions. The
Company recorded charges of approximately $4.2 million related to facility
closures during the six months ended March 31, 1997, (unaudited) which consisted
of approximately $3.0 million for severance and related benefits and $1.2
million for contract terminations and other costs.
Approximately 700 employees were terminated at the 1997 Closed Facilities.
Severance and related benefits paid and applied against the resulting liability
were approximately $2.3 million during the six months ended March 31, 1997,
(unaudited). Other exit costs paid and applied against the resulting liability
were approximately $280,000.
The following table presents net revenue, salaries, supplies and other
operating expenses and bad debt expenses and depreciation and amortization, of
the 1995 and 1996 Closed Facilities and the 1997 Closed Facilities (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------------
1994 1995 1996 1996 1997
-------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................... $124,185 $156,164 $85,810 $51,649 $20,856
Salaries, supplies and other
operating expenses and bad debt
expenses....................... 119,411 152,065 89,965 54,604 21,649
Depreciation and amortization.... 3,291 3,134 1,870 1,193 299
</TABLE>
The Company also recorded a charge of approximately $2.0 million in fiscal
1996 related to severance and related benefits for approximately 275 employees
who were terminated pursuant to planned overhead reductions.
ASSET IMPAIRMENTS
As a result of the Hospital Acquisition, the Company reassessed its
business strategy in certain markets at the end of fiscal 1994. The Company
established a plan to consolidate services in selected markets and to close or
sell certain facilities owned prior to the Hospital Acquisition. The Company
recorded a charge of $23 million in fiscal 1994 primarily to write down the
property and equipment at these facilities to their net realizable value.
As discussed in Note 1, the Company adopted FAS 121 effective October 1,
1994. During fiscal 1995, the Company recorded impairment losses on property and
equipment and intangible assets of approximately $23.0 million and $4.0 million,
respectively. During fiscal 1996, the Company recorded impairment losses on
property and equipment of approximately $1.2 million. Such losses resulted from
changes in the manner that certain of the Company's assets will be used in
future periods and current period operating losses at certain of the Company's
operating facilities combined with projected future operating losses. Fair
values of the long-lived assets that have been written down were determined
using the best available information in each individual circumstance, which
included quoted market price, comparable sales prices for similar assets or
valuation techniques utilizing present value of estimated expected cash flows.
F-28
<PAGE> 83
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
During fiscal 1994, the Company recorded a charge of approximately $4.5
million related to the relocation of the Company's executive offices. During
fiscal 1995, the Company recorded a gain of approximately $3.0 million related
to the sale of three psychiatric hospitals.
The Company also sold two psychiatric facilities during the six months
ended March 31, 1997 that were closed during fiscal 1995. The Company received
approximately $5.6 million in proceeds from sales and recorded an aggregate gain
on such sales of approximately $2.8 million during the six months ended March
31, 1997, (unaudited).
6. BENEFIT PLANS
Magellan maintains an Employee Stock Ownership Plan (the "ESOP"), a
noncontributory retirement plan that enables eligible Company employees to
participate in the ownership of Magellan.
Magellan had recorded unearned compensation to reflect the cost of Magellan
Common Stock purchased by the ESOP but not yet allocated to participants'
accounts. In the period that shares are allocated or projected to be allocated
to participants, ESOP expense is recorded and unearned compensation is reduced.
Magellan's ESOP expense is reflected in the Company's statement of operations.
All shares had been allocated to the participants as of September 30, 1995.
During fiscal 1992, Magellan reinstated a defined contribution plan (the
"401-K Plan"). Employee participants can elect to voluntarily contribute up to
6% of their compensation to the 401-K Plan. Effective October 1, 1992, Magellan
began making contributions to the 401-K Plan based on employee compensation and
contributions. Magellan makes a discretionary contribution of 2% of each
employee's compensation and matches 50% of each employee's contribution up to 3%
of their compensation. During the years ended September 30, 1994, 1995 and 1996,
Magellan made contributions of approximately $4.9 million, $5.8 million and $5.3
million, respectively, to the 401-K Plan, which is reflected in salaries,
supplies and other operating expenses.
Magellan maintains five stock option plans that enable key employees and
directors to purchase shares of Magellan Common Stock. Magellan's 1992 stock
option plan allows for the exercise price of certain options to be reduced upon
termination of employment of a certain optionee without cause. Stock option
expense under Magellan's 1992 stock option plan is reflected in the Company's
statement of operations. As of September 30, 1996, 362,990 options were
outstanding at an exercise price of $4.36 and 6,000 options were outstanding at
an exercise price of $22.75. Such options expire in October 2000 and are 100%
vested.
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
6.59% to 10.75% Mortgage and other notes payable through
1999..................................................... $ 5,268 $ 3,163
Variable rate secured notes due through 2013 (3.65% to
3.85% at September 30, 1996)............................. 62,025 60,875
3.85% to 11.50% Capital lease obligations due through
2014..................................................... 12,617 12,333
------- -------
79,910 76,371
Less amounts due within one year........................... 2,799 2,751
------- -------
$77,111 $73,620
======= =======
</TABLE>
F-29
<PAGE> 84
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate scheduled maturities of long-term debt and capital lease
obligations during the five years subsequent to September 30, 1996, are as
follows (in thousands): 1997 -- $2,751; 1998 -- $2,273; 1999 -- $2,103;
2000 -- $1,991 and 2001 -- $10,359.
LEASES
The Company leases certain of its operating facilities, some of which may
be purchased during the term or at expiration of the leases. The book value of
capital leased assets was approximately $8.4 million at September 30, 1996. The
leases, which expire at various dates through 2069, generally require the
Company to pay all maintenance, property tax and insurance costs.
At September 30, 1996, aggregate amounts of future minimum payments under
operating leases were as follows: 1997 -- $6.4 million; 1998 -- $4.8 million;
1999 -- $3.6 million; 2000 -- $2.2 million; 2001 -- $1.8 million; subsequent to
2001 -- $47.4 million.
Rent expense for the years ended September 1994, 1995 and 1996 was $11.4
million, $15.4 million and $14.0 million, respectively.
8. INCOME TAXES
The provision (benefit) for income taxes allocated to CBHS by Magellan
consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Income taxes currently payable:
Federal.............................................. $ -- $ 595 $ 977
State, excluding California state refund............. 639 1,694 971
California state refund.............................. -- -- (3,695)
Foreign.............................................. 1,466 1,188 3,779
Deferred income taxes:
Federal.............................................. (11,078) (14,360) 11,214
State................................................ (1,583) (2,051) 1,602
Foreign.............................................. 52 -- 35
-------- -------- -------
$(10,504) $(12,934) $14,883
======== ======== =======
</TABLE>
A reconciliation of the Company's income tax provision (benefit) to that
computed by applying the statutory federal income tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Income tax provision (benefit) at federal statutory
income tax rate...................................... $(20,111) $(19,897) $14,208
State income taxes, net of federal income tax benefit
and excluding California state refund................ (616) (232) 1,673
California state refund, net of federal income tax
benefit........................................... -- -- (2,402)
Foreign income taxes, net of federal income tax
benefit.............................................. 987 772 2,479
Amortization of excess reorganization value............ 10,920 9,100 --
Other -- net........................................... (1,684) (2,677) (1,075)
-------- -------- -------
Income tax provision (benefit)......................... $(10,504) $(12,934) $14,883
======== ======== =======
</TABLE>
F-30
<PAGE> 85
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Salaries, wages and other benefits.......................... $ 27,386 $ 27,313
Amounts due health insurance programs....................... 10,252 27,146
Other....................................................... 78,742 62,755
-------- --------
$116,380 $117,214
======== ========
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------ -------------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest, net of amounts
capitalized................................. $5,842 $5,303 $5,680 $2,099 $2,278
====== ====== ====== ====== ======
</TABLE>
The non-cash portion of unusual items for fiscal 1995 and 1996 includes the
unpaid portion of the $29.8 million and $30.0 million insurance settlements that
were recorded during the quarters ended March 31, 1995, and June 30, 1996,
respectively. The payments of the insurance settlements are included in accounts
payable and other accrued liabilities in the statement of cash flows for the
years ended September 30, 1995 and 1996.
11. COMMITMENTS AND CONTINGENCIES
The Company is self-insured for a substantial portion of its general and
professional liability risks through Magellan. The reserves for self-insured
general and professional liability losses, including loss adjustment expenses,
are based on actuarial estimates that are discounted at an average rate of 6% to
their present value based on the Company's historical claims experience adjusted
for current industry trends. The undiscounted amount of the reserve for unpaid
claims at September 30, 1995 and 1996 was approximately $113.1 million and $84.3
million, respectively. The reserve for unpaid claims is adjusted periodically as
such claims mature, to reflect changes in actuarial estimates based on actual
experience. During fiscal 1996, the Company recorded a reduction in malpractice
claim reserves of approximately $15.3 million as a result of updated actuarial
estimates. The Company recorded reductions of expenses of approximately $7.5
million and $5.0 million during the six months ended March 31, 1996 and 1997,
(unaudited) respectively. These reductions resulted primarily from updates to
actuarial assumptions regarding the Company's expected losses for more recent
policy years. These revisions are based on changes in expected values of
ultimate losses resulting from the Company's claim experiences, and increased
reliance on such claim experience. While management and its actuaries believe
that the present reserve is reasonable, ultimate settlement of losses may vary
from the amount recorded.
Certain assets of the Company, including substantially all accounts
receivable and personal property, are pledged to the Parent's bank lenders as
collateral for certain Parent indebtedness. In the opinion of management, the
Parent's obligations under such indebtedness will continue to be serviced from
ongoing operations, thereby mitigating the lenders' potential claims against
these assets.
Certain of the Company's subsidiaries are subject to or parties to claims,
civil suits and governmental investigations and inquiries relating to their
operations and certain alleged business practices. In the opinion of management,
based on consultation with counsel, resolution of these matters will not have a
material adverse effect on the Company's financial position or results of
operations.
F-31
<PAGE> 86
PROVIDER SEGMENT OF MAGELLAN HEALTH SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1996, the Company settled an ongoing dispute with the Resolution
Trust Corporation ("RTC"), for itself or in its capacity as conservator or
receiver for 12 financial institutions, which formerly held certain debt
securities that were issued by the Company in 1988. In connection with the
settlement, the Company, denying any liability or fault, paid $2.7 million to
the RTC in exchange for a release of all claims.
On August 1, 1996, the United States Department of Justice, Civil Division,
filed an Amended Complaint in a civil qui tam action initiated in November of
1994 against Magellan and the Company's Orlando South hospital subsidiary by two
former employees. The Amended Complaint alleges that the hospital violated the
federal False Claims Act ("the Act") in billing for inpatient treatment provided
to elderly patients. The Amended Complaint is based on disputed clinical and
factual issues which the Company believes do not constitute a violation of the
Act. The Company and its subsidiary deny any liability in this matter and will
continue to vigorously defend themselves against the suit. As is its policy, the
Company will continue to cooperate with the government in this matter. The
Company does not believe this matter will have a material adverse effect on its
financial position or results of operations.
F-32
<PAGE> 87
CRESCENT OPERATING, INC.
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
The following unaudited proforma Statements of Crescent Operating, Inc.,
assumes completion of (i) the formation and capitalization of the Company, (ii)
the acquisition of the Carter Crowley Asset Group, (iii) the acquisition of a
50% equity interest in Charter Behavioral Health Systems LLC and the related
acquisition of 1,238,311 warrants to purchase 1,238,311 common shares of
Magellan Health Services, Inc., as of December 31, 1996 as it relates to the
balance sheet, and as of January 1, 1996, in each case, as it relates to the
statement of operations.
In management's opinion, all adjustments necessary to reflect the above
discussed transactions have been made. The unaudited pro forma Consolidated
Balance Sheet and Statements of Operations are not necessarily indicative of
what actual results of operations of the Company would have been for the period,
nor does it purport to represent the Company's results of operations for future
periods.
F-33
<PAGE> 88
CRESCENT OPERATING, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 3, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CRESCENT OPERATING, INC.
CRESCENT CAPITALIZATION OF ACQUISITION OF AS ADJUSTED FOR
OPERATING, INC. CRESCENT CARTER CROWLEY ACQUISITION OF CARTER
HISTORICAL(A) OPERATING, INC.(B) ASSET GROUP(C) CROWLEY ASSET GROUP
--------------- ------------------ -------------- ------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash........................................... $ 1 $42,467 $(27,835) $14,633
A/R............................................ -- -- 1,073 1,073
Inventory...................................... -- -- 1,613 1,613
Other assets................................... -- -- 249 249
---- ------- -------- -------
Total current assets....................... 1 42,467 (24,900) 17,568
Property and equipment, net.................... -- -- 4,289 4,289
Investments.................................... -- -- 21,900 21,900
---- ------- -------- -------
Total assets............................... $ 1 $42,467 $ 1,289 $43,757
==== ======= ======== =======
LIABILITIES:
Accounts payable and accrued liabilities....... $ -- $ -- $ 919 $ 919
---- ------- -------- -------
Total current.............................. -- -- 919 919
Long-term notes payable........................ 29,867 -- 29,867
Deferred income taxes.......................... -- -- 370 370
------- -------- -------
Total liabilities.......................... 29,867 1,289 31,156
SHAREHOLDER'S EQUITY:
Common stock................................... -- -- --
Additional Paid in Capital..................... 1 12,600 -- 12,601
Retained Earnings.............................. -- -- -- --
------- -------- -------
Total shareholder's equity................. 1 12,600 -- 12,601
---- ------- -------- -------
Total liabilities and shareholder's
equity................................... $ 1 $42,467 $ 5,541 $43,757
==== ======= ======== =======
<CAPTION>
ACQUISITION OF 50% PROFORMA
INTEREST IN CBHS(D) CONSOLIDATED
-------------------- -------------
<S> <C> <C>
ASSETS:
Cash........................................... $(12,500) $ 2,133
A/R............................................ -- 1,073
Inventory...................................... -- 1,613
Other assets................................... -- 249
-------- -------
Total current assets....................... (12,500) 5,068
Property and equipment, net.................... -- 4,289
Investments.................................... 12,500 34,400
-------- -------
Total assets............................... $ -- $43,757
======== =======
LIABILITIES:
Accounts payable and accrued liabilities....... $ -- $ 919
-------- -------
Total current.............................. -- 919
Long-term notes payable........................ -- 29,867
Deferred income taxes.......................... -- 370
-------- -------
Total liabilities.......................... 31,156
SHAREHOLDER'S EQUITY:
Common stock...................................
Additional Paid in Capital..................... -- 12,601
Retained Earnings.............................. -- --
-------- -------
Total shareholder's equity................. -- 12,601
-------- -------
Total liabilities and shareholder's
equity................................... $ -- $43,757
======== =======
</TABLE>
F-34
<PAGE> 89
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Reflects Crescent Operating, Inc.'s audited historical balance sheet at
April 3, 1997.
(B) Reflects capitalization of Crescent Operating, Inc. to provide approximately
$12.6 million equity and $29.9 million debt to be utilized in the
acquisition of the various assets.
(C) Amounts reflect the acquisition of the Carter Crowley Asset Group, including
liabilities assumed, accounted for as a purchase transaction. Amounts
reflect the preliminary purchase price adjustments as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment, net................................ $(2,395)
Investments:
Hicks, Muse, Tate & Furst Equity Fund II................. 1,787
Dallas Basketball, Ltd................................... 12,400
Notes payable, current................................... (2,205)
Long-term Notes payable.................................... (3,200)
</TABLE>
Fair values assigned were based upon the following methodologies:
Dallas Basketball, Ltd. (DBL) -- Sales of comparable sports franchises
and a recent limited partnership transaction within DBL.
Hicks, Muse, Tate & Furst Equity Fund II -- current market value of the
underlying securities and investments.
Moody-Day -- A multiple of historical cash flow.
(D) Increase reflects the acquisition of a 50% interest in Charter Behavioral
Health Systems LLC ("CBHS") and the related acquisition of 1,283,311 million
warrants to purchase 1,283,311 million common shares of Magellan Health
Services, Inc. based on a preliminary valuation, as follows (in thousands):
<TABLE>
<S> <C>
Investments in CBHS..................... $ 7,500
Acquisition of warrants................. 5,000
=======
$12,500
=======
</TABLE>
Crescent Operating and Crescent have valued the Magellan Warrants at $10.0
million ($5.0 million for the Magellan Warrants issued to Crescent Operating and
$5.0 million for the Magellan Warrants issued to Crescent).
The following is a pro forma condensed balance sheet of CBHS as of March
31, 1997:
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Current assets.............................................. $ 9,657
Property and equipment, net................................. 18,418
Other long-term assets...................................... 343
-------
$28,418
=======
Accrued liabilities......................................... $ 6,984
Capital lease obligation.................................... 53
Note Payable -- Magellan.................................... 10,000
-------
Total current liabilities......................... 17,037
Capital lease obligation.................................... 888
Member capital.............................................. 10,493
-------
Total liabilities and member capital.............. $28,418
=======
</TABLE>
F-35
<PAGE> 90
CRESCENT OPERATING, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CRESCENT OPERATING, INC.
AS ADJUSTED FOR
CRESCENT ACQUISITION OF ACQUISITION OF
OPERATING, INC. CARTER CROWLEY OTHER CARTER CROWLEY
HISTORICAL(A) ASSET GROUP(B) ADJUSTMENTS ASSET GROUP
--------------- -------------- ----------- ------------------------
<S> <C> <C> <C> <C>
Revenues................................. $ -- $10,394 $ -- $10,394
Cost of Sales............................ -- 8,537 -- 8,537
---- ------- ------- -------
Gross Profit............................. -- 1,857 -- 1,857
Equity in loss of CBHS................... -- -- -- --
Equity in (income) of Limited
Partnership............................ -- (760) -- (760)
Selling, General and Administrative
Expenses............................... -- 1,748 700(C) 2,448
---- ------- ------- -------
Income from Operations................... -- 869 (700) 169
Other (Income) Expense:
Interest Expense....................... -- 357 3,584(D) 3,941
Other.................................. -- (79) -- (79)
---- ------- ------- -------
Total Other Expense, net......... -- 278 3,584 3,862
---- ------- ------- -------
Income (Loss) Before Income Taxes...... -- 591 (4,284) (3,693)
Income Tax Provision................... -- 208 208
---- ------- ------- -------
Net Loss............................... $ -- $ 383 $(4,284) $(3,901)
==== ======= ======= =======
<CAPTION>
ACQUISITION OF
50% INTEREST PRO FORMA
IN CBHS(E) CONSOLIDATED
-------------- ------------
<S> <C> <C>
Revenues................................. $ -- $ 10,394
Cost of Sales............................ -- 8,537
------- --------
Gross Profit............................. -- 1,857
Equity in loss of CBHS................... 7,659 7,659
Equity in (income) of Limited
Partnership............................ -- (760)
Selling, General and Administrative
Expenses............................... -- 2,448
------- --------
Income from Operations................... (7,659) (7,490)
Other (Income) Expense:
Interest Expense....................... -- 3,941
Other.................................. -- (79)
------- --------
Total Other Expense, net......... -- 3,862
------- --------
Income (Loss) Before Income Taxes...... (7,659) (11,352)
Income Tax Provision................... -- 208
------- --------
Net Loss............................... $(7,659) $(11,560)
======= ========
</TABLE>
F-36
<PAGE> 91
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(A) Crescent Operating, Inc. had no operations prior to the
acquisition of the Carter-Crowley Asset Group
(B) Reflects the historical income and expenses associated with
the acquired company, assuming it occurred at the beginning
of the period...............................................
(C) Reflects the incremental:
Corporate general and administrative expenses related to the
formation and operation of the Company as follows:
Salaries and benefits....................................... $ 250
Rent and other office supplies.............................. 200
Professional fees........................................... 150
Depreciation and amortization of the purchase price
adjustment as a result of the acquisition of the
Carter-Crowley Asset Group.................................. 100
-------
700
(D) Increase is a result of interest expense for long term
financing in conjunction with the capitalization of the
Company, assuming it occurred at the beginning of the
period.
$29,867 loan at a rate of 12%............................... $ 3,584
-------
(E) Reflects the Company's 50% share of net loss of Charter
Behavioral Health System LLC (accounted for on the equity
method of accounting since the Company does not control
CBHS; the four member board consists of two directors named
by the Company and two directors named by Magellan) (see
F-41)....................................................... $(7,659)
</TABLE>
F-37
<PAGE> 92
CRESCENT OPERATING, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CRESCENT OPERATING, INC.
AS ADJUSTED FOR
CRESCENT ACQUISITION OF ACQUISITION OF
OPERATING, INC. CARTER CROWLEY OTHER CARTER CROWLEY
HISTORICAL(A) ASSET GROUP(B) ADJUSTMENTS ASSET GROUP
--------------- -------------- ----------- ------------------------
<S> <C> <C> <C> <C>
Revenues................................. $ -- $3,039 $ -- $ 3,039
Cost of Sales............................ -- 2,462 -- 2,462
---- ------ ------- -------
Gross Profit............................. -- 577 -- 577
Equity in loss of CBHS................... -- -- -- --
Selling, General and Administrative
Expenses............................... -- 438 175(C) 613
---- ------ ------- -------
Income (loss) from Operations............ -- 139 (175) (36)
Other (Income) Expense:
Interest Expense....................... -- 113 896(D) 1,009
Other.................................. -- (10) -- (10)
---- ------ ------- -------
Total Other Expense, net......... -- 103 896 999
---- ------ ------- -------
Income (Loss) Before Income Taxes...... -- 36 (1,071) (1,071)
Income Tax Provision................... -- 12 12
---- ------ ------- -------
Net Income (Loss)...................... $ -- $ 24 $(1,071) $(1,071)
==== ====== ======= =======
<CAPTION>
ACQUISITION OF
50% INTEREST PRO FORMA
IN CBHS(E) CONSOLIDATED
-------------- ------------
<S> <C> <C>
Revenues................................. $ -- $ 3,039
Cost of Sales............................ -- 2,462
------- -------
Gross Profit............................. -- 577
Equity in loss of CBHS................... 2,416 2,416
Selling, General and Administrative
Expenses............................... -- 613
------- -------
Income (loss) from Operations............ (2,416) (2,452)
Other (Income) Expense:
Interest Expense....................... -- 1,009
Other.................................. -- (10)
------- -------
Total Other Expense, net......... -- 999
------- -------
Income (Loss) Before Income Taxes...... (2,416) (3,487)
Income Tax Provision................... -- 12
------- -------
Net Income (Loss)...................... $(2,416) $(3,499)
======= =======
</TABLE>
F-38
<PAGE> 93
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(A) Crescent Operating, Inc. had no operations prior to the
acquisition of the Carter-Crowley Asset Group
(B) Reflects the historical income and expenses associated with
the acquired company, assuming it occurred at the beginning
of the period...............................................
(C) Reflects the incremental:
Corporate general and administrative expenses related to the
formation and operation of the Company as follows:
Salaries and benefits....................................... $ 62
Rent and other office supplies.............................. 50
Professional fees........................................... 38
Depreciation and amortization of the purchase price
adjustment as a result of the acquisition of the
Carter-Crowley Asset Group.................................. 25
-------
175
(D) Increase is a result of interest expense for long term
financing in conjunction with the capitalization of the
Company, assuming it occurred at the beginning of the
period.
$29,867 loan at a rate of 12%............................... $ 896
-------
(E) Reflects the Company's 50% share of net loss of Charter
Behavioral Health System LLC (accounted for on the equity
method of accounting since the Company does not control
CBHS; the four member board consists of two directors named
by the Company and two directors named by Magellan) (see
F-38)....................................................... $(2,416)
</TABLE>
F-39
<PAGE> 94
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 1996
The following unaudited proforma statement of operations of Charter
Behavioral Health Systems, LLC (CBHS) for the year ended September 30, 1996,
assumes the following: (i) the elimination of the European Hospitals, JV
Hospitals not being acquired by CBHS and other operations and overhead and (ii)
the completion of the Crescent Transaction, including the execution of the
Facility Lease Agreement and Master Franchise Agreement, as if they had occurred
on October 1, 1995.
F-40
<PAGE> 95
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(The investment in this entity will be reflected in the financial
statements of Crescent Operating, Inc. on the equity method of accounting. (See
F-37 Note E)
<TABLE>
<CAPTION>
PRO FORMA
CHARTER CHARTER
PROVIDER BEHAVIORAL BEHAVIORAL
SEGMENT HEALTH PRO FORMA HEALTH
AS REPORTED CARVE OUT(A) SYSTEMS, LLC ADJUSTMENTS SYSTEMS, LLC
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenue............... $1,044,345 $235,601 $808,744 $ 10,615(B) $819,359
---------- -------- -------- -------- --------
Salaries, supplies and
other operating
expense................. 800,912 195,585 605,327 152,312(C) 757,639
Bad debt expense.......... 79,930 9,909 70,021 0 70,021
Depreciation and
amortization............ 37,108 8,245 28,863 (26,444)(D) 2,419
Interest, net............. 47,615 42,763 4,852 (1,252)(E) 3,600
Stock option expense...... 914 914 0 0 0
Unusual items............. 37,271 36,274 997 0 997
---------- -------- -------- -------- --------
1,003,750 293,690 710,060 124,616 834,676
---------- -------- -------- -------- --------
Income before income taxes
and minority interest... 40,595 (58,089) 98,684 (114,001) (15,317)
Provision for income
taxes................... 14,883 (24,591) 39,474 (39,474)(F) --
---------- -------- -------- -------- --------
Income before minority
interest................ 25,712 (33,498) 59,210 (74,527) (15,317)
Minority interest......... 1,615 1,615 0 -- --
---------- -------- -------- -------- --------
Net income................ $ 24,097 $(35,113) $ 59,210 $(74,527) $(15,317)
========== ======== ======== ======== ========
</TABLE>
F-41
<PAGE> 96
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(A) Includes the elimination of the European Hospitals, and JV Hospitals and
other operations which will not be part of CBHS after the Crescent
Transaction, and corporate overhead and other adjustments necessary to
eliminate revenues and expenses related to non-acquired assets.
(B) Represents management fees of $10.6 million payable by Magellan to CBHS for
the management of hospital based businesses controlled and less than
wholly-owned by Magellan which will not be part of CBHS after the Crescent
Transaction.
(C) Reflects increase in expenses pursuant to franchise fees of $81.0 million
payable under the Master Franchise Agreement, rent expense of $63.0 million
payable to Crescent for hospital-based real estate and equipment computed
on a straight-line basis over the 12 year term under the Facility Lease
Agreement, and $8.3 million of corporate general and administrative
expenses for necessary CBHS corporate functions formerly performed by
Magellan including human resources, legal, and finance and accounting.
(D) Reflects decrease in historical depreciation and amortization expense as a
result of the sale of fixed assets and the Facility Lease Agreement.
(E) Reflects decrease in interest expense based on the following assumptions
(in thousands):
<TABLE>
<S> <C> <C>
Old interest expense, net................................ $ (4,852)
Expected average borrowings -- working capital........... 45,000
Estimated borrowing rate................................. 8.0%
------
3,600
--------
Pro forma adjustment..................................... $ (1,252)
========
</TABLE>
Borrowing rate estimates the rate on a loan commitment received from a
group of commercial banks to provide a line of credit of up to $100 million
pursuant to a 5-year revolving credit facility.
(F) Pro forma adjustment reflects the elimination of the provision for income
taxes as Charter Behavioral Health Systems, LLC is a limited liability
company and is not subject to federal income tax.
F-42
<PAGE> 97
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
MARCH 31, 1997
The following unaudited proforma statement of operations of Charter
Behavioral Health Systems, LLC (CBHS) for the three months in the period ended
March 31, 1997, assumes the following: (i) the elimination of the European
Hospitals, JV Hospitals not being acquired by CBHS and other operations and
overhead and (ii) the completion of the Crescent Transaction, including the
execution of the Facility Lease Agreement and Master Franchise Agreement, as if
they had occurred on October 1, 1996.
F-43
<PAGE> 98
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
CHARTER CHARTER
PROVIDER BEHAVIORAL BEHAVIORAL
SEGMENT HEALTH PRO FORMA HEALTH
AS REPORTED CARVE OUT(A) SYSTEMS, LLC ADJUSTMENTS SYSTEMS, LLC
----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Revenue................ $236,862 $ 42,075 $194,787 $ 3,541(B) $198,328
-------- -------- -------- -------- --------
Salaries, supplies and
other operating
expense.................. 181,705 34,210 147,495 36,696(C) 184,191
Bad debt expense........... 14,826 690 14,136 0 14,136
Depreciation and
amortization............. 9,329 2,099 7,230 (6,097)(D) 1,133
Interest, net.............. 13,176 12,231 945 255(E) 1,200
Stock option expense....... 829 829 0
Unusual items.............. 1,395 (1,105) 2,500 0 2,500
-------- -------- -------- -------- --------
221,260 48,954 172,306 30,854 203,160
-------- -------- -------- -------- --------
Income before income taxes
and minority interest.... 15,602 (6,879) 22,481 (27,313) (4,832)
Provision for income
taxes.................... 5,938 (3,054) 8,992 (8,992)(F) --
-------- -------- -------- -------- --------
Income before minority
interest................. 9,664 (3,825) 13,489 (18,321) (4,832)
Minority interest.......... 693 693 0 -- --
-------- -------- -------- -------- --------
Net income................. $ 8,971 $ (4,518) $ 13,489 $(18,321) $ (4,832)
======== ======== ======== ======== ========
</TABLE>
F-44
<PAGE> 99
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS IN THE PERIOD ENDED MARCH 31, 1997
(A) Includes the elimination of the European Hospitals, and JV Hospitals and
other operations which will not be part of CBHS after the Crescent
Transaction, and corporate overhead and other adjustments necessary to
eliminate revenues and expenses related to non-acquired assets.
(B) Fees from Magellan for the management of hospital-based businesses
controlled by Magellan that are less than wholly-owned by Magellan.
(C) The pro forma adjustments to salaries, supplies and other operating
expenses are as follows (000's):
<TABLE>
<S> <C>
Franchise Fees.............................................. $20,250
Rent Expense under the Facilities Lease..................... 15,764
Additional Corporate Overhead............................... 682
-------
$36,696
=======
</TABLE>
(D) The pro forma adjustment to depreciation and amortization expense
represents the decrease in depreciation expense as a result of the sale of
property and equipment to Crescent by Magellan and the elimination of
amortization expense related to impaired intangible assets.
(E) The pro forma adjustment to interest, net, is computed as follows (000's):
<TABLE>
<S> <C>
Interest expense on serviced IRB's.......................... $ (945)
Interest expense for new borrowings......................... 1,200
--------
$ 255
========
Average borrowings.......................................... 60,000
Borrowing rate.............................................. 8.0%
--------
Annual Interest................................... 4,800
========
Quarterly Interest................................ 1,200
========
</TABLE>
(F) CBHS will be formed as a limited liability company. Accordingly, no tax
benefit is presented as the tax consequences will pass through to Magellan
and COI.
F-45
<PAGE> 100
============================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION MADE PURSUANT HERETO SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................... 2
Risk Factors................................ 10
The Distribution............................ 16
Dividend Policy............................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 21
Business.................................... 23
Management.................................. 35
Certain Transactions........................ 40
Description of Crescent Operating Capital
Stock..................................... 42
Certain Antitakeover Provisions............. 44
Experts..................................... 50
Legal Matters............................... 50
Index to Financial Statements............... F-1
---------------------
UNTIL , 1997 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK
DISTRIBUTED PURSUANT HERETO, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
</TABLE>
============================================================
============================================================
17,500,000 SHARES
CRESCENT
OPERATING, INC.
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1997
============================================================
<PAGE> 101
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Crescent Operating Common
Stock registered hereby, all of which expenses, except for the SEC registration
fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- -------
<S> <C>
SEC Registration Fee........................................ $ 3,685
Listing Fee................................................. $13,250
Transfer Agent's and Registrar's Fee........................ $ *
Printing and Engraving Fees................................. $ *
Legal Fees and Expenses..................................... $ *
Accounting Fees and Expenses................................ $ *
Miscellaneous............................................... $ *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <S>
3.1 -- Certificate of Incorporation (filed herewith)
3.2 -- Bylaws (filed herewith)
3.3 -- Form of Amended and Restated Certificate of Incorporation
(filed herewith)
3.4 -- Form of Amended and Restated Bylaws (filed herewith)
4.1** -- Specimen stock certificate
4.2* -- Form of Preferred Share Purchase Rights Plan
5** -- Opinion of Shaw, Pittman, Potts and Trowbridge as to the
legality of the Crescent Operating Common Stock being
registered
8** -- Opinion of Shaw Pittman, Potts & Trowbridge relating to
certain material tax issues
10.1 -- Form of Stock Incentive Plan (filed herewith)
10.2* -- Form of Intercompany Agreement between Crescent Operating
Partnership and Crescent Operating
10.3 -- Form of Operating Agreement of Charter Behavioral Health
Systems, LLC (filed herewith)
10.4 -- Form of Warrant Purchase Agreement between Crescent
Operating and Magellan with respect to Crescent Operating
securities (filed herewith)
10.5 -- Amended and Restated Credit and Security Agreement, dated
as of May 21, 1997, between Crescent Operating
Partnership and Crescent Operating, together with related
Note (filed herewith)
10.6 -- Line of Credit and Security Agreement, dated as of May
21, 1997, between Crescent Operating Partnership and
Crescent Operating, together with related Line of Credit
Note (filed herewith)
10.7 -- Acquisition Agreement, dated as of February 10, 1997,
between Crescent Operating Partnership and the
Carter-Crowley Sellers (filed herewith)
23.1** -- Consent of Shaw, Pittman, Potts & Trowbridge (to be
included in its exhibits filed as part of Exhibits 5 and
8)
23.2 -- Consent of Arthur Andersen LLP (filed herewith)
23.3 -- Consent of Arthur Andersen LLP (filed herewith)
23.4 -- Consent of Arthur Andersen LLP (filed herewith)
99.1* -- Consents of Certain Persons Named as Directors
</TABLE>
- ---------------
* Filed previously.
** To be filed by amendment.
(b) Financial Statement Schedules.
Not applicable.
II-1
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Worth, State of
Texas, on May 22, 1997.
CRESCENT OPERATING, INC.
(Registrant)
By: /s/ GERALD W. HADDOCK
-------------------------------------
GERALD W. HADDOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ GERALD W. HADDOCK Director, President and Chief May 22, 1997
- ------------------------------------------------ Executive Officer (Principal
GERALD W. HADDOCK Executive Officer and Principal
Financial Officer)
</TABLE>
II-2
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation (filed herewith)
3.2 -- Bylaws (filed herewith)
3.3 -- Form of Amended and Restated Certificate of Incorporation
(filed herewith)
3.4 -- Form of Amended and Restated Bylaws (filed herewith)
4.1** -- Specimen stock certificate
4.2* -- Form of Preferred Share Purchase Rights Plan
5** -- Opinion of Shaw, Pittman, Potts and Trowbridge as to the
legality of the Crescent Operating Common Stock being
registered
8** -- Opinion of Shaw Pittman, Potts & Trowbridge relating to
certain material tax issues
10.1 -- Form of Stock Incentive Plan (filed herewith)
10.2 -- Form of Intercompany Agreement between Crescent Operating
Partnership and Crescent Operating (filed herewith)
10.3 -- Form of Operating Agreement of Charter Behavioral Health
Systems, LLC (filed herewith)
10.4 -- Form of Warrant Purchase Agreement between Crescent
Operating and Magellan with respect to Crescent Operating
securities (filed herewith)
10.5 -- Amended and Restated Credit and Security Agreement, dated
as of May 21, 1997, between Crescent Operating
Partnership and Crescent Operating, together with related
Note (filed herewith)
10.6 -- Line of Credit and Security Agreement, dated as of May
21, 1997, between Crescent Operating Partnership and
Crescent Operating, together with related Line of Credit
Note (filed herewith)
10.7 -- Acquisition Agreement, dated as of February 10, 1997,
between Crescent Operating Partnership and the
Carter-Crowley Sellers (filed herewith)
23.1** -- Consent of Shaw, Pittman, Potts & Trowbridge (to be
included in its exhibits filed as part of Exhibits 5 and
8)
23.2 -- Consent of Arthur Andersen LLP (filed herewith)
23.3 -- Consent of Arthur Andersen LLP (filed herewith)
23.4 -- Consent of Arthur Andersen LLP (filed herewith)
99.1* -- Consents of Certain Persons Named as Directors
</TABLE>
- ---------------
* Filed previously.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CRESCENT OPERATING, INC.
FIRST. The name of the corporation is Crescent Operating, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is the
Corporation Trust Company.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are to engage in any other lawful activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue and the par value per share and class are as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE PER SHARE
----- ---------------- -------------------
<S> <C> <C>
Common 1,000 $0.01
</TABLE>
FIFTH. The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Donna Guihon 2300 N Street, N.W.
Washington, D.C.
</TABLE>
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
<PAGE> 2
SIXTH. The name and mailing address of (the/each) person who is to serve
as an initial director until the first annual meeting of stockholders or until
his successor is elected and qualified are as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Gerald W. Haddock 777 Main Street
Suite 2100
Fort Worth, Texas
</TABLE>
SEVENTH. The business of the corporation shall be managed by a board of
directors. The board of directors shall have the power, unless and to the
extent that the board may from time to time by resolution relinquish or modify
the power, without the assent or vote of the stockholders, to make, alter,
amend, change, add to, or repeal the bylaws of the corporation. The number of
directors which shall constitute the whole board of directors shall be fixed in
the manner provided in the bylaws.
EIGHTH. The corporation is to have perpetual existence.
NINTH. Elections of directors need not be by ballot unless the bylaws of
the corporation shall so provide.
TENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute.
ELEVENTH. No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this
- 2 -
<PAGE> 3
Article ELEVENTH shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of Title 8 of the Delaware Code (the Delaware General Corporation Law); or (iv)
for any transaction from which the director derived an improper personal
benefit. In the event that the Delaware General Corporation Law or any
successor thereto is amended with respect to the permissible limits of
directors' liability, this Article ELEVENTH shall be deemed to provide the
fullest limitation on liability permitted under such amended statute. Any
repeal or modification of this Article ELEVENTH by the stockholders of the
corporation only shall be applied prospectively, to the extent that such
repeal or modification would, if applied retrospectively, adversely affect any
limitation on the personal liability of a director of the corporation existing
immediately prior to such repeal or modification.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State
of Delaware, does make this certificate, hereby declaring and certifying that
the facts herein stated are true, and accordingly has hereunto set his hand
this 1st day of April, 1997.
/s/ Donna Guihon
-----------------------------------
Donna Guihon
- 3 -
<PAGE> 1
EXHIBIT 3.2
B Y L A W S
OF
C R E S C E N T O P E R A T I N G, I N C.
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of the
corporation shall be at 1209 Orange Street, in the City of Wilmington, County
of New Castle, State of Delaware. The registered agent of the corporation at
such address is Corporation Trust Center
Section 2. Other Offices. The Corporation may also have offices
including its principal office, at such other places both within and without
the State of Delaware as the board of directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at such places either within or
<PAGE> 2
without the State of Delaware as shall be designated from time to time by the
board of directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders for
the election of directors and the transaction of other business shall be held,
in each year, commencing with the year 1998, at such date and time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting, either personally or by mail, not
less than ten nor more than sixty days before the date of the meeting. If
mailed, such notice shall be deemed to have been given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
Section 4. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting,
-2-
<PAGE> 3
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. The list
shall be arranged by voting group and within each voting group by class or
series of shares. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present at such meeting.
Section 5. Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president or by the board of
directors and shall also be called by the secretary at the request in writing
of the holders of, in the aggregate, not less than 25% of the outstanding
shares of the Corporation entitled to vote at such
-3-
<PAGE> 4
meeting, or of the board of directors. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 7. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of at least a majority of the stock
issued and outstanding and entitled to vote at any meeting of the stockholders,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without
-4-
<PAGE> 5
notice other than announcement at the meeting of the time and place of the
adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Vote Required for Action. When a quorum is present at any
meeting:
(1) In all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders;
(2) Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors; and
-5-
<PAGE> 6
(3) Where a separate vote by a class or classes is required by
law or the certificate of incorporation, a majority of the outstanding shares
of such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Section 10. Voting Rights. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
stock having voting power held by such stockholder, but no proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period.
Section 11. Action Without Meeting.
(a) Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the stockholders may be taken without a meeting and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be (i)
signed
-6-
<PAGE> 7
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and (ii)
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested.
(b) Following the taking of corporate action without a meeting,
prompt notice shall be given to all stockholders who did not consent in writing
to such action.
ARTICLE III.
DIRECTORS
Section 1. Number Constituting Entire Board; Election. The number of
directors which shall constitute the whole board shall be not less than one nor
more than twenty five provided that from and after such time as the Corporation
files an amended and restated certificate of incorporation, it should then be
not less
-7-
<PAGE> 8
than three nor more than twenty five. Within such limits the actual number of
directors which shall constitute the whole board shall be as fixed from time to
time by the board of directors. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article
and except that the first directors of the Corporation were elected by the
incorporator of the Corporation, and each director elected shall hold office
until his successor is elected and qualified or until his earlier resignation
or removal. Directors need not be stockholders.
Section 2. Resignation and Removal. Any director may resign at any
time upon written notice to the Corporation. Any director may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
Section 3. Filling of Vacancies. Vacancies and newly created
directorships resulting from any increases in the authorized number of
directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and the directors
so
-8-
<PAGE> 9
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, or until their earlier
resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 4. Management by Directors. The business and affairs of the
Corporation shall be managed by its board of directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
Section 5. Place of Meetings. The board of directors of the
Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Section 6. Annual Meeting. The first meeting of each newly elected
board of directors shall be held immediately after the annual meeting of
stockholders and at the same place, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at that time and place, the meeting may be held at such time and
-9-
<PAGE> 10
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of
directors may be held without other notice at such time and at such place as
shall from time to time be determined by the board.
Section 8. Special Meetings. Special meetings of the board may be
called by the president on one day's notice to each director, either personally
or by mail, telegram or express courier; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of a majority of the directors.
Section 9. Quorum; Vote Required for Action. At all meetings of the
board, a majority of the total number of directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute or by
the certificate of incorporation. If a quorum shall not be present at any
meeting of the board of
-10-
<PAGE> 11
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 10. Participation By Conference Telephone. Members of the
Board of Directors, or any committee thereof, may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
Section 11. Action Without Meeting. Unless otherwise restricted by
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of the board
or such committee consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board or such committee.
Section 12. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each
-11-
<PAGE> 12
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
Section 13. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution,
and subject to any restrictions imposed by statute, shall have and may exercise
the powers of the board of directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; provided, however, that in the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of
-12-
<PAGE> 13
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the board
of directors.
Section 14. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
ARTICLE IV.
NOTICES
Section 1. Manner of Giving Notice. Whenever, under the provisions
of the statutes or of the certificate of incorporation or of these bylaws,
notice is required to be given to any director or stockholder, it shall not be
construed to require personal notice, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it
appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice may also be given by telegram or
by express courier.
-13-
<PAGE> 14
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or of these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person
at a meeting of stockholders, directors, or members of a committee of
directors, shall constitute a waiver of notice of such meeting, except when the
stockholder, director or committee member attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors, or members of a committee of directors
need be specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
ARTICLE V.
OFFICERS
Section 1. Required Officers. The officers of the Corporation shall
be chosen by the board of directors and shall
-14-
<PAGE> 15
include a president, a treasurer, and a secretary. Any number of offices may
be held by the same person unless the certificate of incorporation or these
bylaws otherwise provide.
Section 2. Additional Officers. The board of directors may appoint
one or more vice presidents and such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board.
Section 3. Election of Officers. The board of directors at its first
meeting after each annual meeting of stockholders shall choose the officers of
the Corporation, except that the first officers of the Corporation shall be
chosen by the board of directors at the organizational meeting of the board of
directors following incorporation.
Section 4. Compensation. The salaries of all officers and agents of
the Corporation shall be fixed by or in the manner prescribed by the board of
directors.
Section 5. Tenure. Each officer of the Corporation shall hold office
until his successor is elected and qualified or until his earlier resignation
or removal. Any officer elected or
-15-
<PAGE> 16
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the total number of directors. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation shall be filled by or in the manner
prescribed by the board of directors.
Section 6. President. The president shall be the chief executive
officer and chief operating officer of the Corporation and shall have general
and active supervision and management of the business of the Corporation. The
president may sign, on behalf of the Corporation, certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts or other instruments
which the board of directors has authorized to be executed, except in cases
where the signing and execution thereof shall be expressly delegated by the
board of directors or by these bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed,
and, in general, shall perform all duties incident to the office of president
and such other duties as may be prescribed by the board of directors from time
to time.
-16-
<PAGE> 17
Section 7. Vice President. In the absence of the president, the vice
president, if any, or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election, shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice president shall generally assist the
president and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 8. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and shall record all
the proceedings of the meetings of the stockholders and of the board of
directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees when requested by such committees. The secretary
shall give, or cause to be given, required notice of all meetings of the
stockholders and the board of directors, and shall perform such other duties as
may be prescribed by the board of directors. The secretary shall have custody
of the stock certificate books and stockholder records and such other books
-17-
<PAGE> 18
and records as the board of directors may direct. The secretary shall have
custody of the corporate seal of the Corporation and shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the secretary's signature. The board of directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing thereof by his signature.
Section 9. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors and shall disburse the funds of the Corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and
shall render to the chairman and the board of directors, at its regular
meetings, or when the board of directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation and
shall perform such other duties and have such
-18-
<PAGE> 19
other powers as the board of directors or president may from time to time
prescribe.
ARTICLE VI.
CERTIFICATES OF STOCK; STOCK TRANSFERS; RECORD DATE
Section 1. Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of, the
Corporation by the president or the vice president and by the treasurer or the
secretary certifying the number of shares owned by him in the Corporation. If
the corporation is authorized to issue different classes of shares or different
series within a class, the designations, relative rights, preferences, and
limitations applicable to each class and the variations in rights, preferences,
and limitations determined for each series (and by the authority of the board
of directors to determine variations for future series) shall be summarized on
the front or back of each certificate of shares of such class or series.
Alternatively, each certificate may state conspicuously on its front or back
that the corporation will furnish the stockholder this information on request
in writing and without charge. All certificates for share shall be
consecutively numbered or otherwise identified. The name and address of the
-19-
<PAGE> 20
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2. Lost Certificates. The board of directors may direct a
new stock certificate or certificates to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
owner claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum
-20-
<PAGE> 21
as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
Section 3. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares accompanied
by proper evidence of authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Fixing Record Date.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the board of directors, and which record date shall not be
more than sixty nor less than ten days before the date of such meeting. If no
record is fixed by the board of directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is
-21-
<PAGE> 22
given, or, if notice is waived, at the close of business on the day next
preceding the next day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the board
of directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by the General Corporation Law of Delaware, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in Delaware, its
-22-
<PAGE> 23
principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the board of directors and prior action by the
board of directors is required by the General Corporation Law of Delaware, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the board of directors adopts the resolution taking such prior
action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
-23-
<PAGE> 24
stockholders for any such purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
Section 5. Registered Stockholders. The Corporation shall be
entitled to treat the record holder of any shares of stock of the Corporation
as the owner thereof for all purposes, including all rights deriving from such
shares, and except as required by law shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or rights deriving
from such shares, on the part of any other person, including, but without
limiting the generality thereof, a purchaser, assignee or transferee of such
shares or rights deriving from such shares, unless and until such purchaser,
assignee, transferee or other person becomes the record holder of such shares,
whether or not the Corporation shall have either actual or constructive notice
of the interest of such purchaser, assignee, transferee or other person. Any
such purchaser, assignee, transferee or other person shall not be entitled to
receive notice of the meetings of stockholders, to vote at such meetings, to
examine a complete list of the stockholders entitled to vote at meetings, or to
own, enjoy, and exercise any other property or rights deriving from
-24-
<PAGE> 25
such shares against the Corporation, until such purchaser, assignee, transferee
or other person has become the record holder of such shares.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
January 1 to December 31. The board of directors shall have the power to
change the fiscal year of the Corporation from time to time.
Section 2. Execution of Instruments. Contracts, deeds, documents and
instruments shall be executed by the president, unless the board of directors
shall, in a particular situation or as a general direction, designate another
procedure for their execution.
Section 3. Checks and Drafts. The Corporation shall establish a bank
account for deposit of the funds of the Corporation and the drawing of checks
or drafts thereon. All checks or drafts drawn on such account shall require
the signature of one officer of the Corporation. The appointment of additional
signatories of the bank account and the opening of
-25-
<PAGE> 26
additional bank accounts shall require the approval of the board of directors.
Section 4. Corporate Seal. The corporate seal, if the directors
shall adopt one, shall have inscribed thereon the name of the Corporation, the
year of its organization and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed, affixed, or
reproduced in any other manner.
Section 5. Indemnification. The Corporation shall indemnify its
officers and directors to the full extent permitted by the General Corporation
Law of the State of Delaware as such may be amended from time to time.
Section 6. Voting Shares in Other Corporations. In the absence of
other arrangements by the board of directors, shares of stock issued by any
other corporation and owned or controlled by this Corporation may be voted at
any shareholders' meeting of the other corporation by the president of this
Corporation or, if he is not present at the meeting, by any vice president of
this Corporation, and in the event neither the president nor any vice president
is to be present at a meeting, the shares may be voted by such person as the
president and secretary of this Corporation
-26-
<PAGE> 27
shall by duly executed proxy designate to represent this Corporation.
ARTICLE VIII.
AMENDMENTS
Section 1. Power of Stockholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote of stockholders entitled to
exercise a majority of the voting power of the Corporation or by the written
consent of such stockholders, except as otherwise provided by law or by the
certificate of incorporation.
Section 2. Power of Directors. As specified in the Corporation's
certificate of incorporation, the board of directors shall have the power to
amend or repeal these bylaws or to adopt new bylaws by the vote of a majority
of the total number of directors or by the written consent of all of the
directors.
-27-
<PAGE> 1
EXHIBIT 3.3
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CRESCENT OPERATING, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is Crescent Operating, Inc., which is the name under
which the Corporation was originally incorporated; and the date of
filing the original certificate of incorporation of the Corporation
with the Secretary of State of Delaware is April 1, 1997.
2. The certificate of incorporation is hereby amended and restated in its
entirety as set forth in the First Amended and Restated Certificate of
Incorporation hereinafter provided for.
3. The provisions of the certificate of incorporation of the Corporation
as herein amended are hereby restated and integrated into the single
instrument which is hereinafter set forth, and which is entitled First
Restated Certificate of Incorporation of Crescent Operating, Inc.,
without any further amendments other than the amendments herein
certified.
4. As of the date this restatement of the certificate of incorporation is
filed with the Secretary of State of the State of Delaware, the
Corporation has received payment for its outstanding capital stock.
5. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 103, 242 and 245
of the General Corporation Law of the State of Delaware.
6. The certificate of incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this First Restated
Certificate of Incorporation, read as follows:
<PAGE> 2
ARTICLE I
NAME
The name of the corporation is: Crescent Operating, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized are (a) to become
a lessee and operator of various types of assets, including certain real estate
owned or to be owned directly or indirectly by (i) Crescent Real Estate
Equities Company, a Texas real estate investment trust ("Crescent Equities"),
its successor, or Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership ("CREELP", and collectively with Crescent Equities or its
successors, "Crescent") or (ii) other persons or entities whether or not
affiliated with Crescent; (b) to perform an agreement to be entered into by and
between the Corporation and CREELP (the "Intercompany Agreement"), pursuant to
which the Corporation and CREELP agree to provide each other with rights of
first opportunity with respect to certain transactions and investments; (c) to
be prohibited, in accordance with the Intercompany Agreement, from developing,
pursuing or taking advantage of opportunities to acquire or otherwise make an
2
<PAGE> 3
investment in real estate (including, but not limited to, investments in real
estate mortgages, real estate derivatives, or entities that invest primarily in
or have a substantial portion of their assets in the aforementioned types of
real estate assets, or any other investment which may be structured in a manner
so as to be a REIT-qualified investment, as well as opportunities to provide
real estate-related services,), for so long as the Intercompany Agreement
remains effective, unless and until the Corporation, in accordance with the
terms of the Intercompany Agreement, has offered any such opportunity to CREELP
and CREELP has rejected that opportunity; and (d) to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as from time to time amended (the
"DGCL").
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 32,500,000
shares of capital stock, each with a par value of $.01, consisting of
22,500,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.
ARTICLE V
COMMON STOCK
Section A. Common Stock Subject to Terms of Preferred Shares.
Common Stock shall be subject to the express terms of any series of Preferred
Stock.
3
<PAGE> 4
Section B. Dividend Rights. The holders of Common Stock shall
be entitled to receive such dividends as may be declared by the board of
directors out of funds legally available therefor.
Section C. Rights Upon Liquidation. In the event of any
voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets, of the Corporation, the aggregate assets available
for distribution to holders of Common Stock shall be determined in accordance
with applicable law. Each holder of Common Stock shall be entitled to receive,
ratably with each other holder of Common Stock, that portion of such aggregate
assets available for distribution as the number of outstanding Common Stock
held by such holder bears to the total number of outstanding Common Stock.
Section D. Voting Rights. Except as may be provided in this
First Restated Certificate of Incorporation, and subject to the express terms
of any series of Preferred Stock, the holders of Common Stock shall have the
exclusive right to vote on all matters (as to which a common stockholder shall
be entitled to vote pursuant to applicable law) at all meetings of the
stockholders of the Corporation, and shall be entitled to one (1) vote for each
share of Common Stock entitled to vote at such meeting.
ARTICLE VI
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series
as authorized by the board of directors. The board of directors is hereby
authorized, by filing a certificate
4
<PAGE> 5
pursuant to the DGCL (hereinafter, the "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each series,
and to fix the designations, powers, privileges, preferences, terms, rights,
restrictions and qualifications of the shares of each series. The authority of
the board of directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the board of
directors may thereafter (except where otherwise provided in
the Preferred Stock Designation) increase or decrease (but not
below the number of shares thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any series having
cumulative dividend rights, the date or dates or method of
determining the date or dates from which dividends on the
shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such
series, any conditions upon which such dividends shall be paid
and the date or dates or the method for determining the date
or dates upon which such dividends shall be payable;
(e) the price or prices (or method of determining such price or
prices) at which, the form of payment of such price or prices
(which may be cash, property or rights, including securities
of the same or another corporation or other entity) for which,
the period or periods within which and the terms and
conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of the
Corporation or at the option of the holder or holders thereof
or upon the happening of a specified event or events, if any;
(f) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or
otherwise and the price or prices at which, the form of
payment of such price or prices (which may be cash, property
or rights, including securities of the same or another
corporation or other entity) for which, the period or periods
within which and the terms and conditions upon which the
shares of such series shall be redeemed or purchased, in whole
or in part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to the
holders of shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
5
<PAGE> 6
(h) provisions, if any, for the conversion or exchange of the
shares of such series, at any time or times at the option of
the holder or holders thereof or at the option of the
Corporation or upon the happening of a specified event or
events, into shares of any other class or classes or any other
series of the same or any other class or classes of stock, or
any other security, of the Corporation, or any other
corporation or other entity, and the price or prices or rate
or rates of conversion or exchange and any adjustments
applicable thereto, and all other terms and conditions upon
which such conversion or exchange may be made;
(i) restrictions on the issuance of shares of the same series or
of any other class or series, if any;
(j) the voting rights, if any, of the holders of shares of the
series; and
(k) any other relative rights, preferences and limitations on
that series.
Subject to the express provisions of any other series of Preferred
Stock then outstanding, and notwithstanding any other provision of this First
Restated Certificate of Incorporation, the board of directors may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares, or alter the designation or classify or reclassify any
unissued shares of a particular series of Preferred Stock, by fixing or
altering, in one or more respects, from time to time before issuing the shares,
the terms, rights, restrictions and qualifications of the shares of any such
series of Preferred Stock.
ARTICLE VII
SOLE INCORPORATOR
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Donna Guihon 2300 N Street, N.W.
Washington, D.C. 20037
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
6
<PAGE> 7
ARTICLE VIII
BOARD OF DIRECTORS
Section A. Initial Director. The name and mailing address of
the person who is to serve as the initial director until the first annual
meeting of stockholders or until his successor is selected and qualifies is as
follows:
7
<PAGE> 8
Name Mailing Address
---- ---------------
Gerald W. Haddock 777 Main Street
Fort Worth, Texas
Section B. Powers of the Board of Directors. The business of
the Corporation shall be managed by the board of directors.
Section C. Number of Directors Constituting the Board. Subject
to any rights of holders of any class or series of stock having a preference
over the Common Stock as to dividends or liquidation to elect additional
directors under specified circumstances (herein referred to as "Preferred
Holders' Rights"), the number of directors that shall constitute the full board
of directors shall be fixed by the Bylaws of the Corporation.
Section D. Election and Terms of Directors. The directors,
other than any directors elected by the holders of any series of stock having a
preference over the Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible. One class will be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998, another class will be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1999, and another class
will be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2000, with each class to hold office until its
successor is duly elected and qualified. At each succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a term of office to expire
8
<PAGE> 9
at the third succeeding annual meeting of stockholders after their election,
with each director to hold office until such person's successor shall have been
duly elected and qualified.
Section E. Vacancies. Except as otherwise provided for or fixed
pursuant to the provisions of Article VI hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors under
specified circumstances, newly created directorships resulting from any
increase in the authorized number of directors and any vacancies on the board
of directors resulting from death, resignation, disqualification, removal or
other cause shall be filled as set forth in the Bylaws of the Corporation.
Section F. Election of Directors. The directors of the
Corporation shall not be required to be elected by written ballots unless the
Bylaws of the Corporation so provide.
Section G. Removal of Directors. Subject to any Preferred
Holders' Rights, directors may be removed only for cause upon the affirmative
vote of holders of at least 80% of the entire voting power of all the
then-outstanding shares of stock entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class.
Section H. Relevant Factors to be Considered by the Board of
Directors. In determining what is in the best interest of the Corporation, a
director of the Corporation shall consider all of the relevant factors, which
may include (i) the immediate and long-term effects of the transaction on the
Corporation's stockholders, including stockholders, if any, who do not
participate in the transaction; (ii) the social and economic effects of the
transaction on the
9
<PAGE> 10
Corporation's employees, suppliers, creditors and customers and others dealing
with the Corporation and on the communities in which the Corporation operates
and is located; (iii) whether the transaction is acceptable, based on the
historical and current operating results and financial condition of the
Corporation; (iv) whether a more favorable price would be obtained for the
Corporation's stock or other securities in the future; (v) the reputation and
business practices of the other party or parties to the proposed transaction,
including its or their management and affiliates, as they would affect
employees of the Corporation; (vi) the future value of the Corporation's
securities; (vii) any legal or regulatory issues raised by the transactions;
(viii) the effect on the Intercompany Agreement; and (ix) the business and
financial condition and earnings prospects of the other party or parties to the
proposed transactions including, without limitation, debt service and other
existing financial obligations, financial obligations to be incurred in
connection with the transaction, and other foreseeable financial obligations of
such other party or parties.
Section I. Amendment of Certain Provisions of Article VIII.
Notwithstanding anything contained in this First Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the Voting Stock then outstanding, voting together as a single class,
shall be required to alter, amend or adopt any provision inconsistent with or
repeal this Article VIII.
10
<PAGE> 11
ARTICLE IX
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Except as otherwise required by law and subject to the rights of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, special meetings of stockholders of the Corporation for any
purpose or purposes may be called only by the Chairman of the Board, the Vice
Chairman of the Board, the President or the board of directors pursuant to a
resolution stating the purpose or purposes thereof approved by a majority of
the total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board"). Any power of stockholders to call a special
meeting is specifically denied. No business other than that stated in the
notice shall be transacted at any special meeting. Notwithstanding anything
contained in this First Restated Certificate of Incorporation to the contrary,
the affirmative vote of the holders of at least 80% of the Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, or adopt any provision inconsistent with or repeal this Article IX.
ARTICLE X
RESTRICTION ON BUSINESS COMBINATIONS
The Corporation will be governed by Del. Code Ann. tit. 8, Section 203
(1991); provided, however, that Crescent and any Crescent affiliate shall be
excluded from the definition of "interested stockholder" pursuant to the terms
of Del. Code Ann. tit. 8, Section 203 (1991). For
11
<PAGE> 12
purposes of this First Amended and Restated Certificate of Incorporation,
"affiliate" shall have the meaning set forth in Rule 405 of Regulation C
promulgated under the Securities Act of 1933, as amended.
ARTICLE XI
DURATION OF CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE XII
BY-LAWS
The Bylaws may be altered or repealed and new Bylaws may be adopted (i)
at any annual or special meeting of stockholders, by the affirmative vote of
the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, provided, however, that any proposed
alteration or repeal of, or the adoption of any Bylaw inconsistent with,
Sections 5 and 11 of Article II of the Bylaws; Sections 1, 2, 10 and 12 of
Article V of the Bylaws; or this sentence, by the stockholders shall require
the affirmative vote of the holders of at least 80% of the voting power of all
Voting Stock then outstanding, voting together as a single class; and provided,
further, however, that in the case of any such stockholder action at a special
meeting of stockholders, notice of the proposed alteration, repeal or adoption
of the new Bylaw or Bylaws must be contained in the notice of such special
meeting, or (ii) by the affirmative vote of a majority of the Whole Board.
Notwithstanding anything contained in this First Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article XII.
12
<PAGE> 13
ARTICLE XIII
DIRECTOR LIABILITY
Section A. LIMITED LIABILITY OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, if required by the DGCL, as amended from time to time, for liability
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Neither the amendment nor repeal of Section A of
this Article XIII shall eliminate or reduce the effect of Section A of this
Article XIII in respect of any matter occurring, or any cause of action, suit
or claim that, but for Section A of this Article XIII would accrue or arise,
prior to such amendment or repeal.
Section B. INDEMNIFICATION AND INSURANCE.
(1) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other
13
<PAGE> 14
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the DGCL, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974, as in effect from time to time) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of such person's
heirs, executors and administrators; provided, however, that, except as
provided in paragraph (2) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors. The right to indemnification conferred
in this Section shall be a contract right and shall include the right to have
the Corporation pay the expenses incurred in defending any such proceeding in
advance of its final disposition; any advance payments to be paid by the
Corporation within 20 calendar days after the receipt by the Corporation of a
statement or statements from the claimant requesting such advance or advances
from time to time; provided, however, that, if and to the extent the DGCL
requires, the payment of such expenses incurred by a director or officer in
such person's capacity as a director or officer
14
<PAGE> 15
(and not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified under this Section or otherwise. The Corporation may, to the
extent authorized from time to time by the board of directors, grant rights to
indemnification, and rights to have the Corporation pay the expenses incurred
in defending any proceeding in advance of its final disposition, to any
employee or agent of the Corporation to the fullest extent of the provisions of
this Article with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
(2) Right of Claimant to Bring Suit. If a claim under paragraph (a)
of this Section is not paid in full by the Corporation within 30 calendar days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the DGCL for the Corporation to
indemnify the claimant for the amount, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its board of directors, independent legal counsel,
15
<PAGE> 16
or its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in
the DGCL, nor an actual determination by the Corporation (including its board
of directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. No repeal or modification of this
Article shall in any way diminish or adversely affect the rights of any
director, officer, employee or agent of the Corporation hereunder in respect of
any occurrence or matter arising prior to any such repeal or modification.
(4) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
(5) Severability. If any provision or provisions of this Article XIII
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (i) the validity, legality and
16
<PAGE> 17
enforceability of the remaining provisions of this Article XIII (including,
without limitation, each portion of any paragraph of this Article XIII
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Article XIII (including, without limitation,
each such portion of any paragraph of this Article XIII containing any such
provision held to be invalid, illegal or unenforceable) shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
ARTICLE XIV
AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this First Restated
Certificate of Incorporation, and any other provisions authorized by the law of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and, except as set forth in Article
XIII, all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other persons whomsoever by and pursuant to
this First Restated Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80% of the Voting
Stock then outstanding, voting together as a single class, shall be required to
alter, amend, or adopt any provision inconsistent with or repeal Article VIII,
IX, XII or this sentence.
17
<PAGE> 18
ARTICLE XV
VOTING RIGHTS OF CERTAIN CONTROL SHARES
Section A. Definitions. In this Article XV, the following
words have the meanings indicated:
1. "Acquiring person" means a person who makes or proposes to
make a control share acquisition.
2. "Associate," when used to indicate a relationship with any
person, means:
(a) Any corporation or organization (other than
the Corporation or a subsidiary of the
Corporation) of which such person is an
officer, director, or partner or is, directly
or indirectly, the beneficial owner of 10
percent or more of any class of equity
securities;
(b) Any trust or other estate in which such
person has a substantial beneficial interest
or as to which such person serves as trustee
or in a similar fiduciary capacity; and
(c) Any relative or spouse of such person, or any
relative of such spouse, who has the same
home as such person or who is a director or
officer of the corporation or any of its
affiliates; or
(d) A person that:
(i) Directly or indirectly controls, or
is controlled by, or is under common
control with, the person specified;
or
18
<PAGE> 19
(ii) Is acting or intends to act jointly
or in concert with the person
specified.
3. "Control shares"
(a) means shares of beneficial interest that,
except for this Article, would, if aggregated
with all other shares of beneficial interest
of the Corporation (including shares the
acquisition of which is excluded from the
definition of "control share acquisition" in
subsection (A)(4) of this section) owned by a
person or in respect of which that person is
entitled to exercise or direct the exercise
of voting power, except solely by virtue of a
revocable proxy, entitle that person,
directly or indirectly, to exercise or direct
the exercise of the voting power of shares of
beneficial interest of the Corporation in the
election of directors within any of the
following ranges of voting power:
(i) One-fifth or more, but less than
one-third of all voting power,
(ii) One-third or more, but less than a
majority of all voting power, or
(iii) A majority or more of all voting
power;
(b) includes shares of beneficial interest of the
Corporation only to the extent that the
acquiring person, following the acquisition
of the shares, is entitled, directly or
indirectly, to exercise or direct the
exercise of voting
19
<PAGE> 20
power within any level of voting power set
forth in this section for which approval has
not been obtained previously under Section B
of this Article;
(c) does not include shares of beneficial
interest of the Corporation owned by Crescent
or any Crescent affiliate, or in respect of
which Crescent or any Crescent affiliate is
entitled to exercise or direct the exercise
of the voting power of such shares of the
Corporation in the election of directors.
4. "Control share acquisition"
(a) means the acquisition, directly or
indirectly, by any person, of ownership of,
or the power to direct the exercise of voting
power with respect to, issued and outstanding
control shares.
(b) does not include the acquisition of shares:
(i) Under the laws of descent and
distribution;
(ii) Under the satisfaction of a pledge or
other security interest charged in
good faith and not for the purpose of
circumventing this Article; or
(iii) Under a merger, consolidation, or
share exchange if the Corporation is
a party to the merger, consolidation,
or share exchange.
(c) Unless the acquisition entitles any person,
directly or indirectly, to exercise or direct
the exercise of voting power in the election
of directors in excess of the range of voting
power previously authorized or attained
20
<PAGE> 21
under an acquisition that is exempt under
paragraph (b) of this subsection, "control
share acquisition" does not include the
acquisition of shares of the Corporation in
good faith and not for the purpose of
circumventing this Article by or from:
(i) Any person whose voting rights have
previously been authorized by
stockholders in compliance with this
Article; or
(ii) Any person whose previous acquisition
of shares of beneficial interest of
the Corporation would have
constituted a control share
acquisition but for paragraph (b) of
this subsection.
5. "Interested shares" means shares of beneficial interest of the
Corporation in respect of which any of the following persons
is entitled to exercise or direct the exercise of the voting
power of shares of beneficial interest of the Corporation in
the election of directors:
(a) An acquiring person;
(b) An officer of the Corporation; or
(c) An employee of the Corporation who is also a
Director of the Corporation.
6. "Person" includes an associate of the person.
Section B. Voting Rights
21
<PAGE> 22
1. Approval by Stockholders. Control shares of the Corporation acquired
in a control share acquisition have no voting rights except to the extent
approved by the stockholders at a meeting held under Section D of this Article
by the affirmative vote of two-thirds of all the votes entitled to be cast on
the matter, excluding all interested shares.
2. Acquisition of Shares; Voting Power. For the purposes of Section
A(3) of this Article:
(a) Shares acquired within 90 days of shares
acquired under a plan to make a control share
acquisition are considered to have been
acquired in the same acquisition; and
(b) A person may not be deemed to be entitled to
exercise or direct the exercise of voting
power with respect to shares held for the
benefit of others if the person:
(i) Is acting in the ordinary course of
business, in good faith and not for
the purpose of circumventing the
provisions of this section; and
(ii) Is not entitled to exercise or to
direct the exercise of the voting
power of the shares unless the person
first seeks to obtain the instruction
of another person.
Section C. Acquiring Person Statement. Any person who proposes
to make or who has made a control share acquisition may deliver an acquiring
person statement to the Corporation at
22
<PAGE> 23
the Corporation's principal office. The acquiring person statement shall set
forth all of the following:
1. The identity of the acquiring person and each other member of
any group of which the person is a part for purposes of determining control
shares;
2. A statement that the acquiring person statement is given under
this Article;
3. The number of shares of the Corporation owned (directly or
indirectly) by the acquiring person and each other member of any group;
4. The applicable range of voting power as set forth in Section
A(3) of this Article; and
5. If the control share acquisition has not occurred:
(a) A description in reasonable detail of the
terms of the proposed control share
acquisition; and
(b) Representations of the acquiring person,
together with a statement in reasonable
detail of the facts on which they are based,
that:
(i) The proposed control share
acquisition, if consummated, will not
be contrary to law; and
(ii) The acquiring person has the
financial capacity, through financing
to be provided by the acquiring
person and any additional specified
23
<PAGE> 24
sources of financing required under
Section E of this Article, to make
the proposed control share
acquisition.
Section D. Special Meeting
1. Request by Acquiring Person. Except as provided in Section E of this
Article, if the acquiring person requests, at the time of delivery of an
acquiring person statement, and gives a written undertaking to pay the
Corporation's expenses of a special meeting, except the expenses of opposing
approval of the voting rights, within 10 days after the day on which the
Corporation receives both the request and undertaking, the directors of the
Corporation shall call a special meeting of stockholders of the Corporation for
the purpose of considering the voting rights to be accorded the shares acquired
or to be acquired in the control share acquisition.
2. Bond. The Corporation may require the acquiring person to give bond,
with sufficient surety, to reasonably assure the Corporation that this
undertaking will be satisfied.
3. Time for Meeting. Unless the acquiring person agrees in writing to
another date, the special meeting of stockholders shall be held within 50 days
after the day on which the Corporation has received both the request and the
undertaking.
4. Delay at Request of Acquiring Person. If the acquiring person makes
a request in writing at the time of delivery of the acquiring person statement,
the special meeting may not be held sooner than 30 days after the day on which
the Corporation receives the acquiring person statement.
24
<PAGE> 25
5. In Absence of Request.
(a) If no request is made under subsection 1 of
this Section, the issue of the voting rights
to be accorded the shares acquired in the
control shares acquisition may, at the option
of the Corporation, be presented for
consideration at any meeting of stockholders.
(b) If no request is made under subsection 1 of
this Section and the Corporation proposes to
present the issue of the voting rights to be
accorded the shares acquired in a control
share acquisition for consideration at any
meeting of stockholders, the Corporation
shall provide the acquiring person with
written notice of the proposal not less than
20 days before the date on which notice of
the meeting is given.
Section E. Calls. A call of a special meeting of stockholders
of the Corporation is not required to be made under Section D(1) of this
Article unless, at the time of delivery of an acquiring person statement under
Section C of this Article, the acquiring person has:
1. Entered into a definitive financing agreement or agreements
with one or more responsible financial institutions or other
entities that have the necessary financial capacity, providing
for any amount of financing of the control share acquisition
not to be provided by the acquiring person; and
2. Delivered a copy of the agreements to the Corporation.
25
<PAGE> 26
Section F. Notice of Meeting.
1. In General. If a special meeting of stockholders is requested,
notice of the special meeting shall be given as promptly as reasonably
practicable by the Corporation to all stockholders of record as of the record
date set for the meeting, whether or not the stockholder is entitled to vote at
the meeting.
2. Contents. Notice of the special or annual meeting of stockholders at
which the voting rights are to be considered shall include or be accompanied by
the following:
(a) A copy of the acquiring person statement delivered to
the Corporation under Section C of this Article; and
(b) A statement by the board of directors of the
Corporation setting forth the position or
recommendation of the board, or stating that the
board is taking no position or making no
recommendation, with respect to the issue of voting
rights to be accorded the control shares.
Section G. Redemption Rights.
1. Upon delivery of acquiring person statement. If an acquiring
person statement has been delivered on or before the 10th day
after the control share acquisition, the Corporation at its
option, shall have the right to redeem any or all control
shares, except control shares for which voting rights have
been previously approved under Section B of this Article, at
any time during a 60-day period commencing on the day
26
<PAGE> 27
of a meeting at which voting rights are considered under
Section D of this Article and are not approved.
2. In absence of delivery of acquiring person statement. In
addition to the redemption rights authorized under subsection
1 of this Section, if an acquiring person statement has not
been delivered on or before the 10th day after the control
share acquisition, the Corporation, at its option, shall have
the right to redeem any or all control shares, except control
shares for which voting rights have been previously approved
under Section B of this Article, at any time during a period
commencing on the 11th day after the control share acquisition
and ending 60 days after a statement has been delivered.
3. Fair value. Any redemption of control shares under this
section shall be at the fair value of the shares. For
purposes of this section, "fair value" shall be determined:
(a) As of the date of the last acquisition of
control shares by the acquiring person in a
control share acquisition or, if a meeting is
held under Section D of this Article, as of
the date of the meeting; and
(b) Without regard to the absence of voting
rights for the control shares.
Section H. Status as Dissenting Stockholders.
1. In General. Before a control share acquisition has occurred,
if voting rights for control shares are approved at a meeting
held under Section D of this Article and the
27
<PAGE> 28
acquiring person is entitled to exercise or direct the
exercise of a majority or more of all voting power, all
stockholders of the Corporation (other than the acquiring
person) have the rights of dissenting stockholders under the
DGCL.
2. Corporation Deemed Successor. For purposes of applying the
provisions of the DGCL to stockholders under this Section H,
the Corporation shall be deemed to be a successor in a merger
and the date of the most recent approval of voting rights
referred to in subsection 1 of this Section shall be deemed to
be the date of filing of articles of merger for record as
therein provided.
3. Status To Be Contained In Notice. The notice required by
Section F of this Article shall also state that stockholders
(other than the acquiring person) are entitled to the rights
of dissenting shareholders under the DGCL and shall include a
copy the applicable provisions thereof.
4. Application of DGCL. For purposes of applying the provisions
of Section 262 of the DGCL to this Section:
(a) "Fair value" may not be less than the highest
price per share paid by the acquiring person
in the control share acquisition;
(b) Section 262(b)(1) and the second, third,
fourth and fifth sentences of Section
262(d)(1) of the DGCL do not apply; and
28
<PAGE> 29
(c) There shall be no requirement that the
dissenting stockholder shall not have voted
in favor of the action.
IN WITNESS WHEREOF, Crescent Operating, Inc. has caused this First
Restated Certificate of Incorporation to be signed in its name and on its
behalf on this ____ day of ____, 1997, by its President and Chief Executive
Officer, who acknowledges that this First Amended and Restated Certificate of
Incorporation is the act of the Corporation and that, to the best of his
knowledge, information and belief, and under penalties of perjury, all matters
and facts contained in this First Restated Certificate of Incorporation are
true in all material respects.
-----------------------------------------
Gerald W. Haddock
President and Chief Executive Officer
29
<PAGE> 1
Exhibit 3.4
FORM OF AMENDED AND RESTATED B Y L A W S
OF
CRESCENT OPERATING, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation
(the "Corporation") shall be at Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle, State of Delaware. The name of
its registered agent at such address is The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have offices,
including its principal office, at such other places both within and without
the State of Delaware as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at such places either within or without the State of Delaware as shall
be designated from time to
<PAGE> 2
time by the Board of Directors and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders for the
election of directors and the transaction of other business shall be held in
June of each year at the Corporation's principal office, commencing with the
year 1997, or on such other date and time as may be fixed by resolution of the
Board of Directors and stated in the notice of the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting, either personally or by mail, not
less than ten nor more than sixty days before the date of the meeting. If
mailed, such notice shall be deemed to have been given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
Section 4. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. The list shall be arranged by voting group and within each
voting group by class or series of shares. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the
2
<PAGE> 3
meeting is to be held. The list shall also be produced and kept at the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present at such meeting.
Section 5. Special Meetings. Except otherwise required by law and
subject to the rights of the holders of any class or series of preferred shares
of the Corporation to elect additional directors under specified circumstances
("Preferred Holders' Rights") special meetings of the stockholders for any
purpose or purposes may be called only by the Chairman of the Board, the Vice
Chairman of the Board, the President or the Board of Directors pursuant to a
resolution stating the purpose or purposes thereof, approved by a majority of
the total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board"). Any power of stockholders to call a special
meeting is specifically denied.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 7. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of at least a majority of the stock
issued and outstanding and entitled to vote at any meeting of the stockholders,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the Certificate of
3
<PAGE> 4
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present or represented. At such adjourned meeting, at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
Section 9. Notice of Stockholder Business and Nominations.
(a) Annual Meeting of Stockholders
(1) Nominations of candidates for directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (i) pursuant to the Corporation's notice of
meeting delivered pursuant to Article II, Section 3 of these Bylaws; (ii) by or
at the direction of the Chairman of the Board; or (iii) by any stockholder of
the Corporation who is entitled to vote at the meeting, who has complied with
the notice procedures set forth in clauses (2) and (3) of this Paragraph (a)
and who was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of Paragraph (a)(1) of
this Section 9, the
4
<PAGE> 5
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal office of the Corporation not less than seventy
(70) days nor more than ninety (90) days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of an annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, to be timely notice by
the stockholder must be so delivered not earlier than the ninetieth (90th) day
prior to such annual meeting or the tenth (10th) day following the day on which
public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, or any
successor statute thereto (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (ii) as to any other business that the stockholder
proposes to bring before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made; and
(iii) as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (a) the name and address of
such stockholder, as they appear on the Corporation's share transfer books, and
the name and address of such beneficial owner; (b) the class or series and
number of shares of beneficial interest of the Corporation which are owned
5
<PAGE> 6
beneficially and of record by such stockholder and such beneficial owner; and
(c) the date or dates upon which the stockholder acquired ownership of such
shares.
(3) Notwithstanding anything in the second sentence of Paragraph (a)
(2) of this Section 9 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by Paragraph
(a) of this Section 9 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(4) The provisions of this Section 9(a) shall apply beginning
January 1, 1998.
(b) Special Meeting of Shareholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting subject to the Corporation's notice of meeting pursuant to Article II,
Section 6 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Section 9 and who is a stockholder of
record at the time such notice is delivered to the Secretary
6
<PAGE> 7
of the Corporation. Nominations by stockholders of persons for election to the
Board of Directors may be made at such special meeting of stockholders if the
stockholder's notice as required by Paragraph (a)(2) of this Section 9 shall be
delivered to the Secretary at the principal office of the Corporation not
earlier than the ninetieth (90th) day prior to such special meeting and not
later than the close of business on the later of the seventieth (70th) day
prior to such special meeting or the tenth (10th) day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting.
(c) General
(1) Only persons who are nominated in accordance with the procedures
set forth in this Section 9 shall be eligible to serve as directors, and only
such business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before
the meeting was made or brought in accordance with the procedures set forth in
this Section 9 and, if any proposed nomination or business is determined not to
be in compliance herewith, to declare that such defective nomination or
proposal shall be disregarded.
(2) For purposes of this Section 9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or
7
<PAGE> 8
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or to create any
additional rights with respect to any such inclusion.
Section 10. Vote Required for Action.
(1) Subject to the Preferred Holders' Rights and applicable law, each
stockholder having the right to vote shall be entitled at every meeting of
stockholders to one (1) vote for every share owned in his or her name on the
record date fixed by the Board of Directors pursuant to these Bylaws. Except as
otherwise provided by law, the Certificate of Incorporation, these Bylaws, any
resolution adopted by the Board of Directors authorizing a series of preferred
shares, or any resolution adopted by a majority of the Whole Board, all matters
submitted to the stockholders at any meeting (other than the election of
directors) shall be decided by a majority of the votes cast with respect
thereto.
(2) Election of directors requires the affirmative vote of a majority
of the votes cast at the meeting for the election of directors.
8
<PAGE> 9
(3) Where a separate vote by a class or classes is required by law or
the Certificate of Incorporation, a majority of the outstanding shares of such
class or classes, present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority of shares of such class or classes present in
person or represented by proxy at the meeting shall be the act of such class.
Section 11. No Action Without Meeting.
Any action required or permitted to be taken at any meeting of the
stockholders must be effected at a duly called annual or special meeting of
such stockholders and may not be effected by any consent in writing by such
stockholders.
ARTICLE III
DIRECTORS
Section 1. Number Constituting Entire Board; Election. Subject to
Preferred Holders' Rights, the number of directors which shall constitute the
Whole Board shall be not less than three (3) nor more than twenty-five (25).
Within such limits, the actual number directors which shall constitute the
Whole Board shall be as fixed from time to time by the Board of Directors.
Except for the initial director of the Corporation who was appointed by the
Incorporator of the Corporation and those directors who may be elected pursuant
to Preferred Holders' Rights, the Board of Directors shall be classified with
respect to the time for which they severally hold office into three classes, as
nearly equal in number as possible, one class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1998,
9
<PAGE> 10
another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1999, and another class to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2000, with each class to hold office until its successor is duly elected and
qualified. At each succeeding annual meeting of stockholders, directors elected
to succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
shall have been duly elected and qualified. Directors need not be stockholders.
Section 2. Resignation and Removal. Any director may resign at any
time upon written notice to the Corporation. Subject to any Preferred Holders'
Rights, any director may be removed only for cause by the affirmative vote of
holders of at least 80% of the entire voting power of all the then-outstanding
shares of stock entitled to vote at an election of directors, voting together
as a single class.
Section 3. Filling of Vacancies. Subject to any Preferred Holders'
Rights, and unless the Board of Directors otherwise determines, any vacancies
(other than vacancies resulting from any increases in the authorized number of
directors) may be filled by the affirmative vote of a majority of the directors
then in office, though less than a quorum, or by a sole remaining director. Any
vacancies created by an increase in the total number of directors may be filled
by a majority of the entire board. The directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify, or until their earlier
10
<PAGE> 11
resignation or removal. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 4. Management by Directors. The business and affairs of the
Corporation shall be managed by its Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 5. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Section 6. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately after the annual meeting of
stockholders and at the same place, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at that time and place, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written
waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the Board of
Directors may be held without other notice at such time and at such place as
shall from time to time be determined by the board.
11
<PAGE> 12
Section 8. Special Meetings. Special meetings of the board may be
called at the request of the Chairman of the Board, the Vice Chairman, the
Chief Executive Officer, the President or a majority of the Board of Directors.
The person or persons authorized to call a special meeting of the board may fix
the place and time of the meeting.
Section 9. Quorum; Vote Required for Action. At all meetings of the
board, a majority of the total number of directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute, the
Certificate of Incorporation or these Bylaws. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting of the time and place of the adjourned meeting, until a quorum
shall be present.
Section 10. Participation By Conference Telephone. Members of the
Board of Directors, or any committee thereof, may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
Section 11. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all
12
<PAGE> 13
members of the board or such committee consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the board or
such committee.
Section 12. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of standing or special committees may be allowed like compensation for
attending committee meetings.
Section 13. Committees. The Board of Directors may, by resolution
passed by a majority of the Whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution, and
subject to any restrictions imposed by statute, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Such
13
<PAGE> 14
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 14. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
ARTICLE IV
NOTICES
Section 1. Manner of Giving Notice. Whenever, under the provisions of
applicable law, the Certificate of Incorporation or these Bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to require personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice may also be given by telegram or by express courier.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting of stockholders, directors, or members of a committee of directors,
shall constitute a waiver of notice of such meeting, except when the
stockholder, director or committee member attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
14
<PAGE> 15
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these Bylaws.
ARTICLE V
OFFICERS
Section 1. Categories of Officers. The elected officers of the
Corporation shall consist of a Chairman of the Board, a Vice Chairman of the
Board, a Chief Executive Officer, a President, one or more Executive Vice
Presidents or Vice Presidents, a Secretary and a Treasurer. Such other
officers, assistant officers, agents and employees as the Board of Directors
may from time to time deem necessary may be elected by the Board of Directors
or appointed by the Chairman of the Board. The Chairman of the Board and the
Vice Chairman of the Board shall be chosen from among the directors. Two or
more offices may be held by the same person, except that a person may not
concurrently serve as the President and a Vice President or Executive Vice
President. Each officer chosen or appointed in the manner prescribed by the
Board of Directors shall have such powers and duties as generally pertain to
his or her office or offices, subject to the specific provisions of this
Article V. Such officers also shall have such powers and duties as from time to
time may be conferred by the Board of Directors or by any committee thereof
authorized to do so.
15
<PAGE> 16
Section 2. Election and Term of Office. The elected officers of the
Company shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as is convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified, or until his or her death or until he or she shall resign
or be removed from office.
Section 3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for general management of the
affairs of the Corporation and shall perform all duties incidental to the
office which may be required by law, and all such other duties as may properly
be required by the Board of Directors. Except where by law the signature of the
Chief Executive Officer or the President is required, the Chairman of the Board
shall possess the same power as the Chief Executive Officer and the President
to sign all certificates, contracts, and other instruments of the Company which
may be authorized by the Board of Directors. The Chairman of the Board shall
make such reports to the Board of Directors and the stockholders as are
properly required by the Board of Directors. The Chairman of the Board shall
see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
Section 4. Vice Chairman of the Board. The Vice Chairman of the Board
shall, in the absence of the Chairman, preside at all meetings of the
stockholders and of the Board of Directors. The Vice Chairman of the Board
shall, together with the Chairman of the Board and
16
<PAGE> 17
the Chief Executive Officer, act in a general executive capacity and shall have
such powers and duties as from time to time may be established by the Board of
Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer shall
act in a general executive capacity and shall assist the Chairman of the Board
in the administration and operation of the Corporation's business and general
supervision of its policies and affairs. The Chief Executive Officer may, in
the absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and, in the absence of or
because of the inability to act of the Chairman of the Board and the Vice
Chairman of the Board, preside at all meetings of stockholders and of the Board
of Directors. The Chief Executive Officer may sign, alone or with the Secretary
or any assistant secretary or any other officer of the Corporation properly
authorized by the Board of Directors, certificates, contracts and other
instruments of the Company as authorized by the Board of Directors.
Section 6. President. The President shall be the chief operating
officer of the Corporation, shall act in a general executive capacity and shall
assist the Chairman of the Board and the Chief Executive Officer in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President may, in the absence of
or because of the inability to act of the Chairman of the Board and the Chief
Executive Officer, perform all duties of the Chairman of the Board and, in the
absence of or because of the inability to act of the Chairman of the Board, the
Vice Chairman of the Board and the Chief Executive Officer, preside at all
meetings of stockholders and of the Board of Directors. The President may sign,
alone or with the Secretary or any assistant secretary or any other officer of
the Corporation
17
<PAGE> 18
properly authorized by the Board of Directors, certificates, contracts and
other instruments of the Company as authorized by the Board of Directors.
Section 7. Vice Presidents. The Vice President or Vice Presidents, if
any, including any Executive Vice Presidents, shall perform the duties of the
Chief Executive Officer and the President in the absence or disability of both
the Chief Executive Officer and the President, and shall have such powers and
perform such other duties as the Board of Directors or the Chairman of the
Board from time to time may prescribe.
Section 8. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of shareholders and directors and all other notices
required by law, by the Articles of Incorporation or by these Bylaws, and in
case of his or her absence or refusal or neglect so to do, any such notice may
be given by any person thereunto directed by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or the Board
of Directors, upon whose request the meeting is called, as provided in these
Bylaws. The Secretary shall record all the proceedings of the meetings of the
Board of Directors, any committees thereof and the stockholders of the
Corporation in a book or books to be kept for that purpose, and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President. The Secretary shall have custody of the seal, if any, of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President, and shall attest to the same.
18
<PAGE> 19
Section 9. Treasurer. The Treasurer shall have custody of all
Corporation funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation
in such manner as may be ordered by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President, taking proper vouchers for
such disbursements. The Treasurer shall render to the Chairman of the Board,
the Chief Executive Officer, the President and the Board of Directors, whenever
requested, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his or her other duties in such amount and with such surety as the Board of
Directors shall prescribe. The Treasurer also shall perform such duties and
have such powers as the Board of Directors from time to time may prescribe.
Section 10. Removal. Any officer elected by the Board of Directors or
appointed in the manner prescribed hereby may be removed by a majority of the
members of the Whole Board whenever, in their judgment, the best interests of
the Company would be served thereby. No elected or appointed officer shall have
any contractual rights against the Corporation for compensation by virtue of
such election or appointment beyond the date of the election or appointment of
his or her successor, his or her death, resignation or removal, whichever event
shall first occur, except as otherwise provided in an employment or similar
contract or under an employee deferred compensation plan.
19
<PAGE> 20
Section 11. Salaries. The Board of Directors shall fix the salaries of
the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer and the President of the Corporation, or may delegate the authority to
do so to a duly constituted committee of the Board of Directors. The salaries
of other officers, agents and employees of the Corporation may be fixed by the
Board of Directors, by a committee of the Board, by the Chairman of the Board
or by another officer or committee to whom that function has been delegated by
the Board of Directors or the Chairman of the Board.
Section 12. Vacancies. Any newly created office or vacancy in any
office because of death, resignation or removal shall be filled by the Board of
Directors or, in the case of an office not specifically provided for in Section
1 hereof, by or in the manner prescribed by the Board of Directors. The officer
so selected shall hold office until his or her successor is duly selected and
shall have qualified, unless he or she sooner resigns or is removed from office
in the manner provided in these Bylaws.
Section 13. Resignations. Any director or officer, whether elected or
appointed, may resign at any time by serving written notice of such resignation
on the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary, and such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Chairman of the Board,
the Chief Executive Officer, the President or the Secretary. No action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
20
<PAGE> 21
ARTICLE VI
CERTIFICATES OF STOCK; STOCK TRANSFERS; RECORD DATE
Section 1. Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of, the
Corporation by the Chief Executive Officer, President or a Vice President and
by the Treasurer or the Secretary certifying the number of shares owned by him
in the Corporation. If the corporation is authorized to issue different classes
of shares or different series within a class, the designations, relative
rights, preferences, and limitations applicable to each class and the
variations in rights, preferences, and limitations determined for each series
(and by the authority of the Board of Directors to determine variations for
future series) shall be summarized on the front or back of each certificate of
shares of such class or series. Alternatively, each certificate may state
conspicuously on its front or back that the corporation will furnish the
stockholder this information on request in writing and without charge. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the corporation. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Corporation as if he were such officer, transfer agent or registrar at the date
of issue. No fractional shares of the Corporation's stock will be issued.
21
<PAGE> 22
Section 2. Lost Certificates. The Board of Directors may direct a new
stock certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the owner
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares accompanied
by proper evidence of authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Fixing Record Date.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be more than
sixty nor less than ten days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on
22
<PAGE> 23
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 5. Registered Stockholders. The Corporation shall be entitled
to treat the record holder of any shares of stock of the Corporation as the
owner thereof for all purposes, including all rights deriving from such shares,
and except as required by law shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such
shares, on the part of any other person, including, but without limiting the
generality thereof, a purchaser, assignee or transferee of such shares or
rights deriving from such shares, unless and until such purchaser, assignee,
transferee or other person becomes the record holder of such shares, whether or
not the Corporation shall have either actual or constructive notice of the
23
<PAGE> 24
interest of such purchaser, assignee, transferee or other person. Any such
purchaser, assignee, transferee or other person shall not be entitled to
receive notice of the meetings of stockholders, to vote at such meetings, to
examine a complete list of the stockholders entitled to vote at meetings, or to
own, enjoy, and exercise any other property or rights deriving from such shares
against the Corporation, until such purchaser, assignee, transferee or other
person has become the record holder of such shares.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
January 1 to December 31. The Board of Directors shall have the power to change
the fiscal year of the Corporation from time to time.
Section 2. Execution of Instruments. Contracts, deeds, documents and
instruments shall be executed by the officers of the Corporation as set forth
in Article V of these Bylaws, unless the Board of Directors shall, in a
particular situation or as a general direction, designate another procedure for
their execution.
Section 3. Checks and Drafts. The Corporation shall establish a bank
account for deposit of the funds of the Corporation and the drawing of checks
or drafts thereon. All checks or drafts drawn on such account shall require the
signature of one officer of the Corporation. The appointment of additional
signatories of the bank account and the opening of additional bank accounts
shall require the approval of the Board of Directors.
24
<PAGE> 25
Section 4. Corporate Seal. The corporate seal, if the directors shall
adopt one, shall have inscribed thereon the name of the Corporation, the year
of its organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed, affixed, or
reproduced in any other manner.
Section 5. Indemnification. The Corporation shall indemnify its
officers and directors to the full extent permitted by the General Corporation
Law of the State of Delaware as such may be amended from time to time.
Section 6. Voting Shares in Other Corporations. In the absence of
other arrangements by the Board of Directors, shares of stock issued by any
other corporation and owned or controlled by this Corporation may be voted at
any shareholders' meeting of the other corporation by the Chairman of the Board
of this Corporation or, if he or she is not present at the meeting, by the Vice
Chairman, the Chief Executive Officer, the President or any Vice President of
this Corporation, and in the event none of the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President is to be present at a meeting, the shares may be voted by such person
as the Chairman of the Board and the Secretary of this Corporation shall by
duly executed proxy designate to represent this Corporation.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended, added to, rescinded or repealed (i) by the
affirmative vote of a majority of the Whole Board, or (ii) at any annual or
special meeting of the
25
<PAGE> 26
stockholders, provided that notice of the proposed change was given to the
stockholders in accordance with Article II of these Bylaws, by the affirmative
vote of the holders of a majority of the stock issued and outstanding and
entitled to vote at the meeting of stockholders; provided, however, that any
proposed alteration or repeal of, or adoption of any Bylaw inconsistent with,
Sections 5 and 11 of Article II of or Sections 1, 2, 10 and 12 of Article V of
these Bylaws shall require the affirmative vote of the holders of at least 80%
of the issued and outstanding stock entitled to vote at the meeting of
stockholders, voting together as a single class.
26
<PAGE> 1
EXHIBIT 10.1
1997 CRESCENT OPERATING, INC.
STOCK INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1997 Crescent Operating,
Inc. Stock Incentive Plan." Capitalized terms used herein are defined in
Article X hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and
general prosperity of the Company by permitting the Company, its Subsidiaries,
and Affiliated Companies to grant Options to their Employees, Outside Directors
and Advisors and Restricted Stock to their Employees and Advisors. The Plan is
designed to help the Company, its Subsidiaries, and Affiliated Companies
attract and retain superior personnel for positions of substantial
responsibility and to provide Employees (including officers), Outside Directors
and Advisors with an additional incentive to contribute to the success of the
Company, its Subsidiaries, and Affiliated Companies. The Company intends that
Incentive Stock Options granted pursuant to Article IV will qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
Subject to Article VII, Outside Directors may elect to receive Common Stock in
lieu of Director's Fees. With respect to Reporting Participants, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent that any
provision of the Plan or action by the Committee fails to so comply, it will be
deemed null and void to the extent permitted by law and deemed advisable by the
Committee.
1.3 EFFECTIVE DATE. The Plan will become effective upon the
Effective Date.
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Outside Director or
Advisor will be eligible to participate in the Plan; provided that Incentive
Stock Options may be granted only to persons who are Employees of the Company
and its Subsidiaries. The Committee may grant Options to Employees and
Advisors in accordance with such determinations as the Committee from time to
time in its sole discretion may make.
1.5 MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO AWARDS. The
shares of Common Stock subject to Awards pursuant to the Plan may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company. Subject to adjustment pursuant to the provisions of Section 8.2, and
subject to any additional restrictions elsewhere in the Plan, the maximum
aggregate number of shares of Common Stock that may be issued from time to time
pursuant to the Plan shall be 1,000,000. Subject to adjustment pursuant to the
provisions of Section 8.2, and subject to any additional restrictions elsewhere
in the Plan, the maximum aggregate number of shares of Common Stock that may be
issued under the Plan shall increase automatically on January 1 of each year by
an amount equal to 8.5% of the increase in
<PAGE> 2
the number of shares of Common Stock outstanding since January 1 of the
preceding year. The maximum number of shares of Common Stock with respect to
which Awards may be granted to any Reporting Participant during any calendar
year shall be five hundred thousand (500,000) shares under this Plan. The
maximum number of shares of Common Stock which may be subject to Incentive
Stock Options during the life of the Plan shall be fifty thousand (50,000)
shares. If shares of Restricted Stock are reacquired by the Company pursuant
to the provisions of Section 6.1 of the Plan or if an Option expires or
terminates for any reason without having been exercised in full, the reacquired
shares and/or the shares not purchased or distributed will again be available
for issuance under the Plan.
1.6 CONDITIONS PRECEDENT. The Company will not issue or deliver any
certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of
the following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Committee
determines in its sole discretion that such listing is neither necessary
nor advisable;
(b) The completion of any registration or other qualification
of the sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or
any other governmental regulatory body that the Committee in its sole
discretion deems necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee in its sole
discretion determines to be necessary or advisable.
1.7 RESERVATION OF SHARES OF COMMON STOCK. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as may be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company will from time
to time, as is necessary to accomplish the purposes of the Plan, use its best
efforts to obtain from any regulatory agency having jurisdiction any requisite
authority necessary to issue Plan Shares hereunder. The inability of the
Company to obtain from any regulatory agency having jurisdiction the authority
deemed by the Company's counsel to be necessary for the lawful issuance of any
Plan Shares will relieve the Company of any liability in respect of the
nonissuance of Plan Shares as to which the requisite authority has not been
obtained.
1.8 TAX WITHHOLDING.
(a) Condition Precedent. The issuances of Plan Shares
pursuant to Awards under the Plan are subject to the condition that if
at any time the Committee determines, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under
any federal, state or local law is necessary or desirable as a condition
of, or in connection with such issuances, then the issuances will not be
effective unless the withholding has been effected or obtained in a
manner acceptable to the Committee. Each Option
-2-
<PAGE> 3
granted to a Reporting Participant shall contain a provision in the
related Option Agreement making any required withholding tax or other
withholding liability mandatory, and specifying that the Company
withhold a portion of the Plan Shares as specified in clause (iv) of
paragraph (b) below.
(b) Manner of Satisfying Withholding Obligation. When a
Participant is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with an Award,
such payment may be made (i) in cash, (ii) by check, (iii) by delivery
to the Company of shares of Common Stock already owned by the
Participant having a Fair Market Value on the date the amount of tax to
be withheld is to be determined (the "Tax Date") equal to the amount
required to be withheld, (iv) with respect to Options, through the
withholding by the Company ("Company Withholding") of a portion of the
Plan Shares acquired upon the exercise of the Options (provided that,
with respect to any Option held by a Reporting Participant, at least six
months has elapsed between the grant of such Option and the exercise
involving tax withholding) having a Fair Market Value on the Tax Date
equal to the amount required to be withheld or (v) in any other form of
valid consideration, as permitted by the Committee in its discretion.
(c) Notice of Disposition of Stock Acquired Pursuant to
Incentive Stock Options. The Company may require as a condition to the
issuance of Plan Shares covered by any Incentive Stock Option that the
party exercising such Option give a written representation to the
Company, which is satisfactory in form and substance to its counsel and
upon which the Company may reasonably rely, that he will report to the
Company any disposition of such shares prior to the expiration of the
holding periods specified by Section 422(a)(1) of the Code. If and to
the extent that the realization of income in such a disposition imposes
upon the Company federal, state or local withholding tax requirements,
or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company will have the right to
require that the recipient remit to the Company an amount sufficient to
satisfy those requirements; and the Company may require as a condition
to the issuance of Plan Shares covered by an Incentive Stock Option that
the party exercising such Option give a satisfactory written
representation promising to make such a remittance.
1.9 ACCELERATION IN CERTAIN EVENTS. The Committee may accelerate the
exercisability of any Option or waive any restrictions with respect to shares
of Restricted Stock in whole or in part at any time. Notwithstanding the
provisions of any Option Agreement or Restricted Stock Agreement, the following
provisions will apply:
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, any Option will become
immediately exercisable with respect to the full number of shares
subject to that Option and all restrictions will lapse with respect to
an Award of Restricted Stock during the period
-3-
<PAGE> 4
commencing as of the date of the agreement to dispose of all or
substantially all of the assets of the Company and ending when the
disposition of assets contemplated by that agreement is consummated or
the Award is otherwise terminated in accordance with its provisions or
the provisions of the Plan, whichever occurs first; provided that no
Reporting Participant may exercise an Option and no restrictions will
lapse with respect to an Award of Restricted Stock to a Reporting
Participant unless at least six months have elapsed since the grant of
such Option or Award; provided, further, that no Option will be
immediately exercisable and no restrictions will lapse with respect to
an Award of Restricted Stock under this Section on account of any
agreement of merger or other reorganization when the shareholders of the
Company immediately before the consummation of the transaction will own
at least fifty percent of the total combined voting power of all classes
of stock entitled to vote of the surviving entity immediately after the
consummation of the transaction. An Option will not become immediately
exercisable and no restrictions will lapse with respect to an Award of
Restricted Stock if the transaction contemplated in the agreement is a
merger or reorganization in which the Company will survive.
(b) Change in Control. In the event of a change in control or
threatened change in control of the Company, all Options granted prior
to the change in control or threatened change in control will become
immediately exercisable, and all restrictions will lapse with respect to
awards of Restricted Stock granted prior to the change in control or
threatened change in control, provided that no Reporting Participant may
exercise an Option and no restriction will lapse with respect to an
Award of Restricted Stock to a Reporting Participant unless at least six
months have elapsed since the grant of such Option or Award. The term
"change in control" for purposes of this Section refers to the
acquisition of 15% or more of the voting securities of the Company by
any person or by persons acting as a group within the meaning of Section
13(d)(3) of the Exchange Act (other than an acquisition by (i) a person
or group meeting the requirements of clauses (i) and (ii) of Rule
13d-l(b)(1) promulgated under the Exchange Act, (ii) or any employee
pension benefit plan (within the meaning of Section 3(2) of ERISA) of
the Company or of its Subsidiaries, including a trust established
pursuant to such plan); provided that no change in control or threatened
change in control will be deemed to have occurred (i) if prior to the
acquisition of, or offer to acquire, 15% or more of the voting
securities of the Company, the full Board has adopted by not less than
two-thirds vote a resolution specifically approving such acquisition or
offer or (ii) from (A) a transfer of the Company's voting securities by
Richard E. Rainwater ("Rainwater") to (i) a member of Rainwater's
immediate family (within the meaning of Rule 16a-1(e) of the Exchange
Act) either during Rainwater's lifetime or by will or the laws of
descent and distribution; (ii) any trust as to which Rainwater or a
member (or members) of his immediate family (within the meaning of Rule
16a-1(e) of the Exchange Act) is the beneficiary; (iii) any trust as to
which Rainwater is the settlor with sole power to revoke; (iv) any
entity over which Rainwater has the power, directly or indirectly, to
direct or cause the direction of the management and policies of the
entity, whether through the ownership of voting securities, by contract
or otherwise; or (v) any charitable trust, foundation or corporation
under Section 501(c)(3) of the Code that is funded by Rainwater; or (B)
the acquisition of voting securities of the
-4-
<PAGE> 5
Corporation by either (i) Rainwater or (ii) a person, trust or other
entity described in the foregoing clauses (A)(i)-(v) of this subsection.
The term "person" for purposes of this Section refers to an individual
or a corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein. Whether a change in
control is threatened will be determined solely by the Committee.
1.10 COMPLIANCE WITH SECURITIES LAWS. Plan Shares will not be issued
with respect to any Award unless the issuance and delivery of the Plan Shares
(and the exercise of an Option, if applicable) complies with all relevant
provisions of federal and state law, including without limitation the
Securities Act, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the Plan Shares may then be
listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance. The Committee may also require a Participant
to finish evidence satisfactory to the Company, including, without limitation,
a written and signed representation letter and consent to be bound by any
transfer restrictions imposed by law, legend, condition or otherwise, and a
representation that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any federal or state law, rule or regulation. Further, each Participant will
consent to the imposition of a legend on the certificate representing the Plan
Shares issued pursuant to an Award restricting their transferability as
required by law or by this Section.
1.11 EMPLOYMENT OF PARTICIPANT. Nothing in the Plan or in any Award
granted hereunder will confer upon any Participant any right to continued
employment by the Company, any of its Subsidiaries, or any Affiliated Company
or to continued service as a Director or Advisor or limit in any way the right
of the Company, any Subsidiary, or any Affiliated Company at any time to
terminate or alter the terms of that employment or services as a Director or
Advisor.
1.12 INFORMATION TO PARTICIPANTS. The Company will furnish to each
Participant copies of annual reports, proxy statements and all other reports
sent to the Company's shareholders. Upon written request, the Company will
furnish to each Participant a copy of its most recent Annual Report on Form
10-K and each quarterly report to shareholders issued since the end of the
Company's most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by the Board or by a
Committee of not fewer than two directors appointed by the Board. As used
herein, if the Company has any class of common equity securities required to be
registered under Section 12 of the Exchange Act, as to any grant to a Reporting
Participant, "Committee" shall mean a committee consisting of two or more
Directors, each of whom shall be an "outside director" as defined in Section
162(m) of the Code. Subject to the provisions of the Plan, the Board or
Committee will have the sole discretion and authority to determine from time to
time the Employees and Advisors to whom Awards will be granted and the number
of Plan Shares subject to each Award, to interpret the Plan, to prescribe,
amend and rescind any rules and regulations necessary or appropriate for
-5-
<PAGE> 6
the administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement and Restricted Stock Agreement, to modify
or amend any Option Agreement or Restricted Stock Agreement or waive any
conditions or restrictions applicable to any Option (or the exercise thereof)
or to any shares of Restricted Stock, and to make all other determinations or
advisable for the administration of the Plan. With respect to any provision of
the Plan granting the Board or the Committee the right to agree, in its sole
discretion, to further extend the term of any Award hereunder, the Board or
the Committee may exercise such right at the time of grant, in the Option
Agreement relating to such Award, or at any time or from time-to-time after the
grant of any Award hereunder. Notwithstanding any other provision of this
Section 2.1 or this Plan, all Awards made to Outside Directors shall be
automatic and nondiscretionary as set forth in this Plan.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the
members of the Board or the Committee will constitute a quorum, and any action
taken by a majority present at a meeting at which a quorum is present or any
action taken without a meeting evidenced by a writing executed by all members
of the Board or the Committee will constitute the action of the Board or the
Committee. Meetings of the Committee may take place by telephone conference
call.
2.3 COMPANY ASSISTANCE. The Company will supply full and timely
information to the Committee on all matters relating to Employees, Outside
Directors and Advisors, their employment, death, Retirement, Disability or
other termination of employment, and such other pertinent facts as the Board or
the Committee may require. The Company will furnish the Board or the Committee
with such clerical and other assistance as is necessary to the performance of
its duties.
ARTICLE III
OPTIONS
3.1 METHOD OF EXERCISE. Each Option will be exercisable at any time
and from time in whole or in part in accordance with the terms of the Option
Agreement pursuant to which the Option was granted. No Option may be exercised
for a fraction of a Plan Share.
3.2 PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares
purchased will be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) by shares of Common Stock, if
permitted by the Committee, (iv) as to Outside Directors, by cash or certified
or cashier's check for the par value of the Plan Shares plus a recourse
promissory note for the balance of the purchase price, such note to provide for
the right to repay the note partially or wholly with Common Stock and with an
interest rate based on the current dividend yield of the Common Stock, (v) as
to Employees and Advisors, by cash or certified or cashier's check for the par
value of the Plan Shares plus a promissory note for the balance of the purchase
price, which note will contain such terms and provisions as the Board or the
Committee may approve, including without limitation the right to repay the note
partially or wholly with Common Stock and to base the interest rate on the
current dividend yield of the Common Stock, (vi) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
-6-
<PAGE> 7
reasonably acceptable to the Company, to sell certain of the Plan Shares upon
exercise of the Option or to pledge them as collateral for a loan and promptly
deliver to the Company the amount of sale or loan proceeds necessary to pay
such purchase price or (vii) as to Employees and Advisors, in any other form of
valid consideration, as permitted by the Board or the Committee in its
discretion. If any portion of the purchase price or a note given at the time
of exercise is paid in shares of Common Stock, those shares will be valued at
the then Fair Market Value.
3.3 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.2.
3.4 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE.
(a) In the event an Optionee ceases to be an Employee and
Advisor, and does not continue to be a Director, for any reason other than
death, Retirement, Disability or for Cause, (i) the Board or the Committee
shall have the ability to accelerate the vesting of the Optionee's Option in
its sole discretion, and (ii) such Optionee's Option shall be exercisable (to
the extent exercisable on the date of termination of employment or service as
an Employee or Advisor, or, if the Committee, in its discretion, has
accelerated the vesting of such Option, to the extent exercisable following
such acceleration) (a) if such Option is an Incentive Stock Option, at any time
within three months after the date of termination of employment with the
Company or any Subsidiary, unless by its terms the Option expires earlier; or
(b) if such Option is a Nonqualified Stock Option, at any time within one year
after the date of termination of employment or service as an Employee or
Advisor, unless by its terms the Option expires earlier or unless the Committee
agrees, in its sole discretion, to further extend the term of such Nonqualified
Stock Option; provided that the term of any such Nonqualified Stock Option
shall not be extended beyond its initial term. An Employee or Advisor who
continues to be a Director shall not be deemed to have terminated employment
or service as to any Nonqualified Stock Option. Notwithstanding any provision
in this Plan to the contrary, no Option granted to a Reporting Participant may
be exercised unless at least six months have elapsed since the grant of such
Option.
(b) In addition, unless the Board or the Committee agrees, in
its sole discretion, to extend the term of a Nonqualified Stock Option granted
to an Employee or Advisor (provided that the term of any such Option shall not
be extended beyond its initial term), an Optionee's Option may be exercised as
follows in the event such Optionee ceases to serve as an Employee, Outside
Director or Advisor due to death, Disability, Retirement or for Cause:
(i) Death. If an Optionee dies while serving as an Employee,
Outside Director or Advisor, or within three months after ceasing to be
an Employee, Outside Director or Advisor, his option shall become fully
exercisable on the date of his death and shall expire 12 months
thereafter, unless by its terms it expires sooner. During such period,
the Option may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Optionee's personal
representative or by the distributees to whom the
-7-
<PAGE> 8
Optionee's rights under the Option shall pass by will or by the laws of
descent and distribution.
(ii) Retirement. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Retirement, his
Option shall become fully exercisable on the date of his Retirement and
(a) if such Option is an Incentive Stock Option, such Option will be
exercisable at any time within three months after the effective date of
such Retirement, unless by its terms the Option expires earlier, and (b)
if such Option is a Nonqualified Stock Option, such Option will be
exercisable at any time within one year after the effective date of such
Retirement, unless by its terms the Option expires sooner.
(iii) Disability. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Disability, the
Optionee's Option shall become fully exercisable and shall expire 12
months thereafter, unless by its terms it expires sooner.
(iv) Cause. If an Optionee ceases to serve as an Employee,
Outside Director or Advisor, because the Optionee is terminated for
Cause, the Optionee's Option shall automatically expire. If any facts
that would constitute Cause for termination or removal of an Employee or
Advisor are discovered after the Optionee's relationship with the
Company has ended, any Options then held by the Optionee may be
immediately terminated by the Committee. Notwithstanding the foregoing,
if an Optionee is an Employee employed pursuant to a written employment
agreement, or is an Advisor retained pursuant to a written agreement,
the Optionee's relationship with the Company will be deemed terminated
for 'Cause' for purposes of the Plan only if the Optionee is considered
under the circumstances to have been terminated for cause for purposes
of such written agreement.
3.5 TRANSFERABILITY OF OPTIONS. Options shall not be transferable
other than pursuant to a qualified domestic relations order, by will or by the
laws of descent and distribution and, with respect to an Incentive Stock
Option, may be exercised during the lifetime of an Optionee only by that
Optionee or by his legally authorized representative.
ARTICLE IV
INCENTIVE STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Board or the
Committee may, in its discretion, determine, as long as all Options granted
under this Article satisfy the requirements of this Article.
4.2 DURATION OF OPTIONS. Each Option granted under this Article will
expire on the date determined by the Committee, but in no event will any Option
granted under this Article expire earlier than one year or later than ten years
after the date on which the Option is granted. In addition, each Option will
be subject to early termination as provided elsewhere in the Plan.
-8-
<PAGE> 9
4.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article will not be less than the Fair Market Value of the Plan Shares at the
time of the grant of the Option.
4.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR.
The maximum aggregate Fair Market Value of Plan Shares (determined at the time
the Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its Subsidiaries and
affiliates may not exceed $100,000. Any portion of an Option granted under the
Plan and first exercisable in excess of the foregoing limitations will be
considered granted under Article V.
4.5 REQUIREMENTS AS TO CERTAIN OPTIONS. In the event of the grant of
any Option to an individual who, at the time the Option is granted, owns shares
of stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries or affiliates
within the meaning of Section 422 of the Code, the purchase price for the Plan
Shares subject to that Option must be at least 110% of the Fair Market Value of
those Plan Shares at the time the Option is granted, and the Option must not be
exercisable after the expiration of five years from the date of its grant.
4.6 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options
under this Article will be required to enter into a written Option Agreement
with the Company. In such Option Agreement, the Employee will agree to be
bound by the terms and conditions of the Plan and such other matters as the
Committee deems appropriate.
ARTICLE V
NONQUALIFIED STOCK OPTIONS
5.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Committee may, in
its discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
5.2 OUTSIDE DIRECTOR OPTION TERMS AND CONDITIONS. Each Outside
Director shall be granted an Option to purchase one thousand four hundred
(1,400) shares of Common Stock on May __, 1997. Each Outside Director shall be
granted an Option to purchase one thousand four hundred (1,400) shares of
Common Stock on the date of commencement of each regular annual stockholders'
meeting beginning with the 1998 Annual Stockholder's meeting. Each Option
granted under this Section 5.2 shall vest on the schedule determined by the
Board or the Committee. Notwithstanding the preceding sentence, each Option
granted under this Section 5.2 shall vest if the Outside Director dies while
serving as an Outside Director, or ceases to serve as an Outside Director as a
result of Retirement or Disability as provided in Section 3.4(b). Each Option
granted to an Outside Director shall expire no later than ten (10) years from
the date of grant, subject to early termination as provided elsewhere in the
Plan.
-9-
<PAGE> 10
5.3 DURATION OF OPTIONS. Each Option granted to an Employee or
Advisor under this Article and all rights thereunder will expire on the date
determined by the Committee, but in no event will any Option granted under this
Article expire later than ten years after the date on which the Option is
granted. In addition, each Option will be subject to early termination as
provided elsewhere in the Plan.
5.4 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article shall be the Fair Market Value of the Plan Shares at the time of the
grant of the Option.
5.5 INDIVIDUAL OPTION AGREEMENTS. Each Employee, Outside Director or
Advisor receiving Options under this Article will be required to enter into a
written Option Agreement with the Company. In such Option Agreement, the
Employee, Outside Director or Advisor will agree to be bound by the terms and
conditions of the Plan and such other matters as the Committee deems
appropriate.
ARTICLE VI
RESTRICTED STOCK
6.1 TERMS AND CONDITIONS. Each Restricted Stock Grant confers upon
the recipient thereof the right to receive a specified number of shares of
Common Stock of the Company in accordance with the terms and conditions of each
Participant's individual written agreement as set forth in Section 6.2. The
general terms and conditions of the Restricted Stock awards shall be as
follows:
(a) Any shares of Common Stock awarded hereunder to a
Participant shall be restricted for a period of time to be determined by
the Committee for each participant at the time of the Award, which
period shall be not less than one year or more than ten years. The
restrictions shall prohibit the sale, assignment, transfer, pledge or
other encumbrance of such shares, and will provide for possible
reversion thereof to the Company in accordance with subparagraph (b)
during the period of restriction.
(b) All Restricted Stock awarded under this Plan to a
Participant shall be forfeited and returned to the Company in the event
the Participant ceases to be employed by, serve as a Director of, or
serve as an Advisor to the Company, one of its Subsidiaries, or any
Affiliated Company prior to the expiration of the period of restriction,
unless the Participant's termination of employment is due to his or her
death, Disability or Retirement. An Employee or Advisor who continues
to be a Director shall not be deemed to have terminated employment or
service.
(c) In the event of a Participant's death or Disability, the
restrictions under subparagraph (a) will lapse with respect to all
Restricted Stock awarded to the Participant under this Plan prior to any
such event, and the shares of Common Stock involved shall cease to be
Restricted Stock within the meaning of this Plan and shall no longer be
subject to forfeiture to the Company pursuant to subparagraph (b).
-10-
<PAGE> 11
(d) In the event of a Participant's Retirement, the
restrictions under subparagraph (a) shall continue to apply unless the
Board or the Committee in its discretion shall shorten the restriction
period.
(e) Stock certificates issued with respect to awards of
Restricted Stock made under this Plan shall be registered in the name of
the Participant, but shall be delivered by him or her to the Company
together with a stock power endorsed in blank. Each such certificate
shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND
CONDITIONS SET FORTH IN THE 1997 CRESCENT OPERATING, INC. STOCK
INCENTIVE PLAN AND THE AGREEMENT BETWEEN THE REGISTERED OWNER OF
THE SHARES REPRESENTED BY THIS CERTIFICATE AND CRESCENT
OPERATING, INC. ENTERED INTO PURSUANT TO SUCH PLAN."
(f) Upon the lapse of a restriction period as determined
pursuant to subparagraph (a), the Company will return the stock
certificates representing the shares with respect to which the
restriction has lapsed to the Participant or his or her legal
representative, and pursuant to the instruction of the Participant or
his or her legal representative will issue a certificate for such shares
which does not bear the legend set forth in subparagraph (e).
(g) Any other securities or assets (other than ordinary cash
dividends) which are received by a Participant with respect to
Restricted Stock awarded to him, which is still subject to restrictions
provided for in subparagraph (a), will be subject to the same
restrictions and shall be delivered by the Participant to the Company as
provided in subparagraph (e).
(h) From the time of grant of the Restricted Stock Award, the
Participant shall be entitled to exercise all rights attributable to the
Restricted Stock, subject to forfeiture of such rights and the stock as
provided in subparagraph (b).
6.2 INDIVIDUAL AGREEMENTS. Each Participant receiving an Award of
Restricted Stock under this Article will be required to enter into a written
Restricted Stock Agreement with the Company. In such Restricted Stock
Agreement, the Participant will agree to be bound by the terms and conditions
of the Plan and such other matters as the Board or the Committee deems
appropriate.
-11-
<PAGE> 12
ARTICLE VII
OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTIONS
7.1 OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTION. Each Outside Director
shall be permitted to receive Director's Fees in the form of Common Stock
rather than cash in accordance with the following provisions:
(a) Each Outside Director shall have the right to elect to
receive one-half or all of such Outside Director's Fees in the form of
Common Stock rather than cash by tendering an irrevocable written
election to the Secretary of the Company pursuant to which all
Director's Fees otherwise payable to the Outside Director shall be paid
in the form of Common Stock as provided in (b) below. Such election
shall become effective six (6) months after its delivery to the
Secretary of the Company by the Outside Director. Such election shall
remain in effect until the earlier of (i) the date six (6) months after
such Outside Director shall have delivered to the Secretary of the
Company irrevocable written notice that his or her election to receive
Common Stock shall cease as of the date six months following delivery of
the notice, or (ii) the date on which such Outside Director terminates
as a member of the Board of Directors by reason of resignation,
non-reelection, death, or disability. Any Outside Director who having
terminated an election to receive Common Stock or having failed to elect
to receive Common Stock rather than cash may elect to receive Director's
Fees in the form of Common Stock as of the date six (6) months following
delivery of irrevocable written notice of such election to the Secretary
of the Company. An Outside Director who does not elect to have
Director's Fees paid in Common Stock shall receive his or her
remuneration in cash at such times that such remuneration is otherwise
due.
(b) If an Outside Director elects to receive payment of
Director's Fees in the form of Common Stock, such Common Stock shall be
issued as soon as practicable after the annual meeting of shareholders
or meeting of the Board or Committee of the Board to which such
remuneration relates. The number of shares of Common Stock to be issued
to such Outside Director shall be determined by dividing:
(i) the remuneration otherwise payable to the Outside
Director, by
(ii) ninety percent (90%) of the Fair Market Value of the
Company's Common Stock on the determination date on the rounding up or
down of any fractional share to the nearest whole share.
The determination date shall be the date that the relevant payment of
Director's Fees is payable.
(c) Shares of Common Stock issued under this Article VII shall
be free of any restrictions except for restrictions applicable under the
Exchange Act.
-12-
<PAGE> 13
7.2 INCOME TAX. Each Outside Director who elects to receive
Director's Fees in the form of Common Stock rather than cash shall be
responsible for payment of federal, state, and local income taxes on the Fair
Market Value of such Common Stock.
ARTICLE VIII
TERMINATION, AMENDMENT AND ADJUSTMENT
8.1 TERMINATION AND AMENDMENT. The Plan will terminate on March 31,
2007. No Awards will be granted under the Plan after that date of termination,
although Awards granted prior to such date shall remain outstanding in
accordance with their terms. Subject to the limitations contained in this
Section 8.1, the Board or the Committee may at any time amend or revise the
terms of the Plan, including the form and substance of the Option Agreements
and Restricted Stock Agreements to be used in connection herewith; provided
that, without shareholder approval, no amendment or revision may (i) increase
the maximum aggregate number of Plan Shares, except as permitted under Section
1.5 and Section 8.2, (ii) change the minimum purchase price for shares under
Article IV or Article V or (iii) permit the granting of an Award to anyone
other than as provided in the Plan. No amendment, suspension or termination of
the Plan may, without the consent of the Optionee who has received an Award
hereunder, alter or impair any of that Participant's rights or obligations
under any Award granted under the Plan prior to that amendment, suspension or
termination.
8.2 ADJUSTMENT. If the outstanding Common Stock is increased,
decreased, changed into or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split, an appropriate and proportionate adjustment will
be made in the maximum number and kind of Plan Shares as to which Awards may be
granted under the Plan. A corresponding adjustment will be made in the number
or kind of shares allocated to and purchasable under unexercised Options or
shares of Restricted Stock with respect to which restrictions have not yet
lapsed prior to any such change. Any such adjustment in outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share purchasable under the Option. Any new or additional or
different class of securities that are distributed to a Participant in his
capacity as the owner of Restricted Stock as granted hereunder shall be
considered to be Restricted Stock and shall be subject to all of the conditions
and restrictions provided herein applicable to Restricted Stock. The foregoing
adjustments and the manner of application of the foregoing provisions will be
determined solely by the Board or the Committee, and any such adjustment may
provide for the elimination of fractional share interests.
ARTICLE IX
MISCELLANEOUS
9.1 OTHER COMPENSATION PLANS. The adoption of the Plan will not
affect any other stock option or incentive or other compensation plans in
effect for the Company, any of its Subsidiaries, or any Affiliated Company, nor
will the Plan preclude the Company, any of its
-13-
<PAGE> 14
Subsidiaries, or any Affiliated Company from establishing any other forms of
incentive or other compensation for Employees.
9.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company and any of its Subsidiaries that adopt
the Plan.
9.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular
will include the plural where appropriate, and the masculine pronoun will
include the feminine gender.
9.4 HEADINGS. Headings of articles and sections hereof are inserted
for convenience of reference and constitute no part of the Plan.
ARTICLE X
DEFINITIONS
As used herein with initial capital letters, the following terms have the
meanings set forth unless the context clearly indicates to the contrary:
10.1 "Advisor" means any person performing advisory or consulting
services for the Company, any Subsidiary of the Company, or any Affiliated
Company, with or without compensation, to whom the Company chooses to grant
Options in accordance with the Plan, provided that bona fide services must be
rendered by such person and such services shall not be rendered in connection
with the offer or sale of securities in a capital raising transaction.
10.2 "Affiliated Company" means any entity that owns, directly or
indirectly, more than fifty percent (50%) of the Company's Common Stock.
10.3 "Award" means a grant of Options under Articles IV and V of the
Plan or an Award of Restricted Stock under Article VI of the Plan.
10.4 "Board" means the Board of Directors of the Company, provided
that, if the Board delegates all or any part of its authority to a committee
composed of one or more directors, then the term "Board" shall be deemed to
refer to such committee to the extent of such delegation.
10.5 "Cause" will mean an act or acts involving a felony, fraud,
willful misconduct, commission of any act that causes or reasonably may be
expected to cause substantial injury to the Company or other good cause. The
term "other good cause" as used in this Section will include, but shall not be
limited to, habitual impertinence, a pattern of conduct that tends to hold the
Company up to ridicule in the community, conduct disloyal to the Company,
conviction of any crime of moral turpitude and substantial dependence, as
judged by the Committee, on alcohol or any controlled substance. "Controlled
substance" means a drug, immediate precursor or other substance listed in
Schedules I-V of the Federal Comprehensive Drug Abuse Prevention Control Act of
1970, as amended.
10.6 "Code" means the Internal Revenue Code of 1986, as amended.
-14-
<PAGE> 15
10.7 "Committee" shall have the meaning set forth in Section 2.1.
10.8 "Common Stock" means the Common Stock, par value $.01 per share,
of the Company or, in the event that the outstanding shares of such Common
Stock are hereafter changed into or exchanged for shares of a different stock
or security of the Company or some other corporation, such other stock or
security.
10.9 "Company" means Crescent Operating, Inc., a Delaware corporation.
10.10 "Director" means a member of the Board of Directors of the
Company.
10.11 "Director's Fees" means the remuneration otherwise payable to an
Outside Director as an annual retainer and for attending meetings of the Board
and meetings of the committees of the Board.
10.12 "Disability" of a Participant shall be deemed to occur whenever a
Participant is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for
a continuing period of not less than 12 months.
10.13 "Effective Date" means April 1, 1997, or, if later, the date on
which an amendment to this Plan is approved by the shareholders of the Company
in accordance with the provisions of Sections 162(m) and 422 of the Code and
Rule 16b-3 under the Exchange Act.
10.14 "Employee" means an officer or other employee of the Company, any
of its Subsidiaries, or any Affiliated Company, as defined under Section
3401(c) of the Code and the regulations promulgated thereunder.
10.15 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
10.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10.17 "Fair Market Value" means such value as will be determined by the
Board or the Committee on the basis of such factors as it deems appropriate;
provided that if the Common Stock is traded on a national securities exchange,
such value will be determined by the Committee on the basis of the closing
price for the Common Stock on the date for which such determination is
relevant, as reported on the exchange and further provided that if there should
be no sales on such date, such value shall be deemed equal to the closing price
on the last preceding date on which sales of Common Stock were reported. If
the Common Stock is traded on more than one exchange, such value will be
determined on the basis of the exchange trading the greatest volume of shares
on such date. In no event shall "Fair Market Value" be less than the par value
of the Common Stock.
10.18 "Incentive Stock Option" means an Option granted under Article
IV.
-15-
<PAGE> 16
10.19 "Nonqualified Stock Option" means an Option granted under Article
V.
10.20 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
10.21 "Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Options.
10.22 "Outside Director" means a Director who is not an Employee of the
Company or a Subsidiary.
10.23 "Participant" means an Employee, Director or Advisor to whom an
Award has been granted hereunder.
10.24 "Plan" means the 1997 Crescent Operating, Inc. Stock Incentive
Plan, as amended from time to time.
10.25 "Plan Shares" means shares of Common Stock issuable pursuant to
the Plan.
10.26 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act or who is a "covered
employee" within the meaning of Section 162(m) of the Code.
10.27 "Restricted Stock" means an Award of Common Stock granted under
Article VI.
10.28 "Restricted Stock Agreement" means an agreement between the
Company and a Participant with respect to an Award of Restricted Stock.
10.29 "Retirement" means termination of employment or service as a
Director on or after the date on which a Participant attains age 70.
10.30 "Securities Act" means the Securities Act of 1933, as amended.
10.31 "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
-16-
<PAGE> 1
EXHIBIT 10.2
FORM OF INTERCOMPANY AGREEMENT
THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the ____ day of _____________, 1997, by and between Crescent Real Estate
Equities Limited Partnership, a Delaware limited partnership (the "Operating
Partnership") and Crescent Operating, Inc., a Delaware corporation ("Crescent
Operating").
W I T N E S S E T H:
WHEREAS, Crescent Real Estate Equities Company, a Texas real estate
investment trust ("Crescent Equities"), owns, directly or indirectly, a one
percent general partnership and an approximately 83.4 percent limited
partnership interest in the Operating Partnership;
WHEREAS, the Operating Partnership may in certain circumstances determine
that it is precluded from pursuing, or is limited in the manner in which it
pursues, various business opportunities due to the status of Crescent Equities
as a real estate investment trust ("REIT") under sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Crescent Operating is a newly created corporation that was formed
for the purposes of, among other things, becoming a lessee and operator of
various types of assets, including real estate owned by the Operating
Partnership and others; and
WHEREAS, in light of the purposes for which Crescent Operating was formed,
the Operating Partnership and Crescent Operating desire to enter into this
Agreement in order to provide to each other a right of first opportunity and
notification right with respect to certain investment opportunities available
to each of them.
NOW, THEREFORE, in consideration of the premises and mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
undersigned parties hereby agree as follows:
1. Definitions. Except as may be otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
<PAGE> 2
(a) "Company Affiliate" means any entity in which a majority of the
beneficial ownership interests are owned by the Operating Partnership or by any
entity controlled by, controlling or under common control with the Operating
Partnership.
(b) "Insider" means Gerald W. Haddock, John C. Goff, Richard E.
Rainwater or any senior officer or director of the Operating Partnership or of
any entity controlled by, controlling or under common control with the
Operating Partnership.
(c) "REIT Opportunity" means a direct or indirect opportunity to
invest in (i) real estate (including without limitation the opportunity to
provide services related to real estate or to invest in a hotel property), real
estate mortgages, real estate derivatives, or entities that invest primarily in
or have a substantial portion of their assets in the aforementioned types of
real estate assets, or (ii) any other investments which may be structured in a
manner so as to be REIT-Qualified Investments (as hereinafter defined), as
determined by the Operating Partnership in its sole discretion. The Operating
Partnership shall have the right from time to time to provide written notice
to Crescent Operating specifying certain criteria for a REIT Opportunity in
addition to the criteria specified above in this definition of REIT
Opportunity. Any such written notice from the Operating Partnership may be
modified or canceled by written notice given by the Operating Partnership at
any time. The definition of REIT Opportunity shall be modified as appropriate
from time to time in accordance with any such written notices sent by the
Operating Partnership.
(d) "Tenant Opportunity" means the opportunity to become the lessee
under a "master" lease arrangement of a property owned or subsequently acquired
by the Operating Partnership if the Operating Partnership, in its sole
discretion, determines that, consistent with the status of Crescent Equities as
a REIT, the Operating Partnership is required to enter into such a "master"
lease arrangement for such property, including without limitation a hotel or
similar type of facility, so long as the Operating Partnership determines, in
its sole discretion, that Crescent Operating or an entity that Crescent
Operating controls is qualified to be the lessee based on experience in the
industry and financial and legal qualifications, provided that all
determinations relating to both (i) the ability or inability of the Operating
Partnership to pursue an opportunity or acquire assets and (ii) the necessity
for the Operating Partnership to enter into a "master" lease arrangement for a
property, shall be made by the Operating Partnership in its sole discretion. A
Tenant Opportunity shall not include (1) a property which already has an
existing "master" lessee as of the date of this Agreement (or, with respect to
a property acquired subsequent to the date of this Agreement, which has an
existing binding "master" lessee arrangement that predates the acquisition of
the property by the Operating Partnership), provided that the Operating
Partnership shall offer any such "master" lessee interest to Crescent
Operating if the lessee interest subsequently becomes available), or (2) an
opportunity in which the seller of the property (or any affiliate or designee
of the seller) desires to enter into a "master"
-2-
<PAGE> 3
lease agreement with the Operating Partnership. Crescent Operating shall have
the right from time to time to provide written notice to the Operating
Partnership specifying certain criteria for a Tenant Opportunity
in addition to the criteria specified above in this definition of Tenant
Opportunity. Any such written notice from Crescent Operating may be modified or
canceled by written notice given by Crescent Operating at any time. The
definition of Tenant Opportunity shall be modified as appropriate from time to
time in accordance with any such written notices sent by Crescent Operating.
2. Operating Partnership Right of First Opportunity; Notification Right.
(a) Right of First Opportunity.
(i) During the term of this Agreement, if Crescent Operating
develops a REIT Opportunity, or if any REIT Opportunity otherwise becomes
available to Crescent Operating, Crescent Operating shall first offer such REIT
Opportunity to the Operating Partnership. The offer shall be made by written
notice (the "Crescent Operating Notice") from Crescent Operating to the
Operating Partnership, which Crescent Operating Notice shall contain a detailed
description of the material terms and conditions of the REIT Opportunity. The
Operating Partnership shall have ten days (the "Ten-Day Period") from the
date of receipt of the Crescent Operating Notice to notify Crescent Operating
in writing that it has accepted or rejected the REIT Opportunity. If the
Operating Partnership does not respond by the end of the Ten-Day Period, the
Operating Partnership shall be deemed to have rejected the REIT Opportunity. If
the Operating Partnership accepts a REIT Opportunity, but subsequently decides
not to pursue such opportunity, or for any other reason fails to consummate
the REIT Opportunity, the Operating Partnership shall immediately provide
written notice that it is no longer pursuing such REIT Opportunity to Crescent
Operating.
(ii) If the Operating Partnership rejects a REIT Opportunity, or
accepts such REIT Opportunity but thereafter provides, or is required by the
provisions hereof to provide, written notice to Crescent Operating that it is
no longer pursuing such REIT Opportunity, Crescent Operating shall, for a period
of one year after the Operating Partnership Withdrawal Date (as hereinafter
defined), be entitled to acquire the REIT Opportunity (A) at a price, and on
terms and conditions, that are not more favorable to Crescent Operating in any
material respect than the price and terms and conditions set forth in the
Crescent Operating Notice relating to such REIT Opportunity or (B) if the
Operating Partnership, at any time after the Crescent Operating Notice,
negotiated a different price, terms or conditions with the seller, then at a
price, and on terms and conditions, that are not more favorable than, the price
and terms and conditions negotiated by the Operating Partnership with the
seller). If Crescent Operating does not enter into a binding agreement to
acquire the REIT Opportunity within such one-year period, or if the price and
terms and conditions are more favorable to Crescent Operating in any material
respect than the price and terms and conditions set forth in the Crescent
Operating Notice (or, if applicable, than the
-3-
<PAGE> 4
price and terms and conditions negotiated by the Operating Partnership with the
seller subsequent to the Crescent Operating Notice), Crescent Operating shall
again be required to comply with the procedures set forth above in Section
2(a)(i) if it desires to acquire such REIT Opportunity. The Operating
Partnership Withdrawal Date means any one of the following dates, as applicable:
(A) the date that the Operating Partnership notifies Crescent Operating that it
has rejected the REIT Opportunity, (B) if the Operating Partnership does not
respond to Crescent Operating regarding the REIT Opportunity, the expiration
date of the Ten-Day Period, or (C) if the Operating Partnership accepts the REIT
Opportunity but subsequently ceases to pursue the opportunity, the earlier of
(i) 30 days after the date on which the Operating Partnership ceases to pursue
the REIT Opportunity or (ii) the date of receipt by Crescent Operating of
written notice from the Operating Partnership that it is no longer pursuing the
REIT Opportunity.
(iii) Crescent Operating agrees to use its commercially
reasonable best efforts to assist the Operating Partnership in structuring and
consummating any REIT Opportunity accepted by the Operating Partnership, on
terms determined by the Operating Partnership (including without limitation
structuring such investment opportunity as a "REIT-Qualified Investment," as
hereinafter defined). A "REIT-Qualified Investment" means an investment, the
income from which would qualify under the 95% gross income test set forth in
section 856(c)(2) of the Code, the ownership of which would not cause a REIT to
violate the asset limitations set forth in section 856(c)(5) of the Code, and
which otherwise meets the federal income tax requirements applicable to REITs.
Any expenses incurred that are directly related to structuring an investment as
a REIT-Qualified Investment shall be borne solely by the Operating Partnership.
(b) Notification Right. In the event that Crescent Operating develops
or becomes aware of any investment opportunity during the term of this Agreement
(other than a REIT Opportunity), and Crescent Operating is not interested in
pursuing such opportunity, or the opportunity is otherwise unavailable to
Crescent Operating, Crescent Operating shall immediately notify the Operating
Partnership of such opportunity and provide to the Operating Partnership a copy
of all written information, and a description of all material terms not set
forth in writing, available to Crescent Operating concerning such opportunity.
3. Crescent Operating Right of First Opportunity for Tenant Opportunity.
(a) During the term of this Agreement, if the Operating Partnership
develops a Tenant Opportunity, or if a Tenant Opportunity otherwise becomes
available to the Operating Partnership, the Operating Partnership shall first
offer such Tenant Opportunity to Crescent Operating. The offer shall be made by
written notice (the "Operating Partnership Notice") from the Operating
Partnership to Crescent Operating, which Operating Partnership Notice shall
contain a detailed description of the material terms and conditions under which
the Operating Partnership
-4-
<PAGE> 5
proposes to offer such Tenant Opportunity to Crescent Operating. The Operating
Partnership shall thereafter provide or cause to be provided promptly to
Crescent Operating such additional information relating to the Tenant
Opportunity as Crescent Operating reasonably may request. For a period of 30
days after the date that the Operating Partnership delivers the Operating
Partnership Notice to Crescent Operating, the Operating Partnership and Crescent
Operating shall negotiate with each other on an exclusive basis with respect to
such Tenant Opportunity. If the Operating Partnership and Crescent Operating are
unable to enter into a mutually satisfactory arrangement with respect to the
Tenant Opportunity within such 30-day period, or if Crescent Operating indicates
that it is not interested in pursuing such Tenant Opportunity (in which event
Crescent Operating shall provide written notice to the Operating Partnership as
soon as Crescent Operating decides against pursuing such opportunity), then the
Operating Partnership shall be free for a period of one year after the
expiration of such 30-day period to enter into a binding agreement with
respect to such Tenant Opportunity with any party at a price and on
terms and conditions that are not more favorable to the Operating Partnership in
any material respect than the price and terms and conditions last proposed in
writing by the Operating Partnership to Crescent Operating. If the Operating
Partnership does not enter into a binding agreement with respect to such
Tenant Opportunity within such one-year period, or if the price
and terms and conditions are more favorable to the Operating Partnership in any
material respect than the price and terms and conditions last proposed in
writing by the Operating Partnership to Crescent Operating, the Operating
Partnership shall again be required to comply with the procedures set forth
above in this Section 3(a) if it desires to pursue such Tenant Opportunity.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (1) the Operating Partnership shall not be required to offer to
Crescent Operating any Tenant Opportunity in connection with a proposed
acquisition until a binding contract has been entered into with respect to such
acquisition, and the consummation of any agreement between the Operating
Partnership and Crescent Operating with respect to a Tenant Opportunity shall
be subject to the actual closing of such acquisition by the Operating
Partnership, (2) the Operating Partnership shall have the right in its sole
discretion to decide not to pursue, or to discontinue at any time pursuing, any
investment opportunity, even if such opportunity, if pursued, would create a
Tenant Opportunity, and (3) the Operating Partnership shall have no obligation
to offer any opportunity other than a Tenant Opportunity to Crescent Operating.
(c) Crescent Operating agrees to cooperate with the Operating
Partnership in structuring all dealings with outside parties in connection with
any Tenant Opportunity that Crescent Operating and the Operating Partnership
agree to enter into pursuant to Section 3(a) above. Crescent Operating agrees
to cooperate with the Operating Partnership in structuring any Tenant
Opportunity with the Operating Partnership as a "REIT-Qualified Investment" for
the Operating Partnership. The Operating Partnership shall have the right, in
its sole discretion, to structure any investment as a REIT-Qualified Investment,
even if such structuring prevents the Operating Partnership from creating a
Tenant Opportunity for Crescent Operating.
-5-
<PAGE> 6
4. General Terms and Conditions for Rights of First Opportunity/
Notification Rights.
(a) Unless waived or unless agreed to as part of an investment,
each party shall bear its own expenses with respect to any opportunity to which
this Agreement is applicable, and each party agrees that it shall not be
entitled to any compensation from the other party with respect to any such
opportunity.
(b) A party shall not be required to comply with the right of
first opportunity and notification requirements set forth in this Agreement
during any period in which the other party or any Controlled Affiliate of such
other party (as hereinafter defined) is in default of this Agreement or any
other agreement entered into by the parties hereto or any of their Controlled
Affiliates, if such default is material and remains uncured for fifteen days
after receipt of notice thereof. A "Controlled Affiliate" of a party means any
entity controlled by, controlling or under common control with such party.
(c) Any opportunity which is offered to a party under this
Agreement and rejected by such party may thereafter be offered to Insiders,
subject to the reoffer provisions set forth in Sections 2(a)(ii) and 3(a) above.
(d) Any opportunity which is offered to and accepted by the
Operating Partner ship under this Agreement may be entered into by or on behalf
of the Operating Partnership or by any designee which is a Company Affiliate or
Controlled Affiliate of the Operating Partnership. Any opportunity which is
offered to and accepted by Crescent Operating under this Agreement may be
entered into by or on behalf of Crescent Operating or by any designee which is
a Controlled Affliate of Crescent Operating.
(e) All right of first opportunity and notification rights set
forth in this Agreement shall be subordinated to any seller consent and
confidentiality requirements; no party shall
-6-
<PAGE> 7
be required to comply with the first opportunity and notification rights set
forth in this Agreement if such compliance would violate any seller consent or
confidentiality requirements.
(f) While it is the intention of the parties to align their
businesses in accordance with the terms of this Agreement, each party shall act
independently in its own best interests, and neither party shall be considered
a partner or agent of the other party or to owe any fiduciary or other common
law duties to the other party.
5. Specific Performance. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party hereto would likely have no adequate remedy at law if such party
shall fail to perform its obligations hereunder, and such party therefor
confirms that the other party's right to specific performance of the terms of
this Agreement is essential to protect the rights and interests of the other
party. Accordingly, in addition to any other remedies that a party hereto may
have at law or in equity, such party shall have the right to have all
obligations, covenants, agreements and other provisions of this Agreement
specifically performed by the other party hereto and the right to obtain a
temporary restraining order or a temporary or permanent injunction to secure
specific performance and to prevent a breach or threatened breach of this
Agreement by the other party hereto. Each party submits to the jurisdiction of
the courts of the State of Delaware for this purpose.
6. Affiliates. Each party hereto shall cause all entities that are under
its control to comply with the terms hereof. Crescent Equities, by its
signature below, hereby agrees that it and Crescent Real Estate Equities, Ltd.
shall comply with the terms of this Agreement applicable to the Operating
Partnership.
7. Term. The term of the Agreement shall commence as of the date first
written above and shall terminate on December 31, 2007. Notwithstanding the
foregoing, a party hereto may terminate this Agreement if the other party or
any Controlled Affiliate of such other party is in default of this Agreement or
any other agreement entered into by the parties hereto or any of their
Controlled Affiliates, if such default is material and remains uncured for
fifteen days after receipt of notice thereof.
8. Miscellaneous.
(a) Notices. Notices shall be sent to the parties at the following
addresses:
Crescent Real Estate Equities Limited Partnership
777 Main Street,
-7-
<PAGE> 8
Fort Worth, Texas 76102
Facsimile: 817-878-0429
with a copy to:
-------------------------
-------------------------
Facsimile:
-------------
Crescent Operating, Inc.
777 Main Street,
Fort Worth, Texas 76102
Facsimile: 817-878-0429
with a copy to:
-------------------------
-------------------------
Facsimile:
-------------
Notices may be sent be certified mail, return receipt requested, Federal
Express or comparable overnight delivery service, or facsimile. Notice will be
deemed received on the fourth business day following deposit in U.S. mail and
on the first business day following deposit with Federal Express or other
delivery service, or transmission by facsimile. Any party to this Agreement may
change its address for notice by giving written notice to the other party at
the address and in accordance with the procedures provided above.
(b) Reasonable and Necessary Restrictions. Each of the parties
hereto hereby acknowledges and agrees that the restrictions, prohibitions and
other provisions of this Agreement are reasonable, fair and equitable in
scope, term and duration, are necessary to protect the legitimate business
interests of the parties hereto and are a material inducement to the parties
hereto to enter into the transactions described in and contemplated by the
recitals hereto. Each party hereto covenants that it will not sue to challenge
the enforceability of this Agreement or raise any equitable defense to its
enforcement.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns. This Agreement shall not be assigned without the express written
consent of each of the parties hereto. Notwithstanding the foregoing, this
Agreement may be assigned without the consent of any party hereto in connection
with any merger, consolidation, reorganization or other combination of a party
with or into another entity where the party is not the surviving entity.
-8-
<PAGE> 9
(d) Amendments; Waivers. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
(e) Choice of Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of Delaware,
without regard to the principles of choice of law thereof.
(f) Severability. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a
court of competent jurisdiction to be invalid, illegal or unenforceable, such
court shall have the power, and hereby is directed, to substitute for or limit
such invalid term(s), provision(s) or application(s) and to enforce such
substituted or limited terms or provisions, or the application thereof.
Subject to the foregoing, the invalidity, illegality or enforceability of any
one or more of the terms or provisions of this Agreement, as the same may be
amended from time to time, shall not affect the validity, legality or
enforceability of any other term or provision hereof.
(g) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to
specifically in this Agreement or is executed by the parties after the date
hereof; and (ii) is not intended to confer upon any other person any rights or
remedies hereunder, and shall not be enforceable by any party not a signatory
to this Agreement.
(h) Gender; Number. As the context requires, any word used herein in
the singular shall extend to and include the plural, any word used in the
plural shall extend to and include the singular and any word used in any gender
or the neuter shall extend to and include each other gender or be neutral.
(i) Headings. The headings of the sections hereof are inserted for
convenience of reference only and are not intended to be a part of or affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
-9-
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by one of its duly authorized corporate officers, as of the date
first above written.
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its sole
general partner
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
CRESCENT OPERATING, INC., a Delaware
corporation
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
The undersigned, on its own behalf and in its capacity as the sole
shareholder of Crescent Real Estate Equities, Ltd., the sole general partner of
the Operating Partnership, hereby agrees to the restrictions imposed upon it
and Crescent Real Estate Equities, Ltd. pursuant to Section 6 of the Agreement.
CRESCENT REAL ESTATE EQUITIES COMPANY,
a Texas real estate investment trust
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
-10-
<PAGE> 1
EXHIBIT 10.3
OPERATING AGREEMENT
OF
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
This OPERATING AGREEMENT (this "AGREEMENT") is entered into by and
between Magellan Health Services, Inc. ("MAGELLAN"), a Delaware corporation,
and ________________ ("NEW CRESCENT"), a ________ [corporation/LLC/partnership]
and a designee of Crescent Real Estate Equities Limited Partnership
("CRESCENT"), a Delaware limited partnership (Magellan and New Crescent being
referred to individually as a "MEMBER" and collectively as the "MEMBERS"), and
shall be effective as of the ____ day of April, 1997 (the "EFFECTIVE DATE").
W I T N E S S E T H:
WHEREAS, Charter Behavioral Health Systems, Inc. ("CHARTER BEHAVIORAL"),
a wholly owned subsidiary of Magellan, is currently engaged in the business of
operating acute care psychiatric hospitals and certain related activities;
WHEREAS, Magellan and Crescent are parties to that certain Real Estate
Purchase and Sale Agreement, dated January ___, 1997 (the "REAL ESTATE PURCHASE
AND SALE AGREEMENT"), pursuant to which Magellan has agreed to cause Charter
Behavioral and certain subsidiaries of Charter Behavioral to sell to Crescent
substantially all of the real property and related improvements, furniture,
fixtures and equipment (including medical office buildings located on such real
property) owned by Charter Behavioral and used in the operation of Charter
Behavioral's acute care psychiatric hospitals (the "PURCHASED FACILITIES");
WHEREAS, Magellan and Crescent have agreed that, upon closing of the
Real Estate Purchase and Sale Agreement, Crescent and Charter Behavioral Health
Systems, LLC shall enter into a master lease (the "FACILITIES LEASE"), pursuant
to which Crescent shall lease the Purchased Facilities and certain other
applicable property (collectively, the "FACILITIES") to Charter Behavioral
Health Systems, LLC;
WHEREAS, Magellan and Crescent are parties to that certain OpCo
Contribution Agreement, dated January __, 1997 (the "OPCO CONTRIBUTION
AGREEMENT"), pursuant to which, among other things, Magellan agreed to
contribute certain assets, and Crescent agreed to cause New Crescent to
contribute cash, to Charter Behavioral Health Systems, LLC and to enter into
this Agreement;
WHEREAS, the Members desire to establish, operate and maintain a limited
liability company to be known as Charter Behavioral Health Systems, LLC, formed
under the laws of the
<PAGE> 2
2
State of Delaware, which shall operate the Facilities (and certain leased
facilities) and engage in the business of hospital-based behavioral healthcare.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
DEFINITIONS
1.1 DEFINITIONS.
Capitalized words and phrases used in this Agreement have the following
meanings:
"ACT" means the Delaware Limited Liability Company Act, 6 Del. C.
Section 18-101, et seq., as amended from time to time (or any corresponding
provisions of succeeding law).
"ACTION" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any governmental authority or other
authority with jurisdiction and power to adjudicate such Action.
"ADDITIONAL CAPITAL CONTRIBUTION" has the meaning specified in Section
3.2(e) hereof.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Allocation Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account of any amounts which such Member
is deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-2(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
"AFFILIATE" means, with respect to any Person (i) any individual,
corporation, partnership, trust or other legal entity directly or indirectly
controlling, controlled by or under common control with such Person, (ii) any
officer, director, general partner, member or trustee of such Person or (iii)
any individual who is an officer, director, general partner, member or trustee
of any Person described in clauses (i) or (ii) of this sentence. For purposes
of this definition, the terms
<PAGE> 3
3
"controlling," "controlled by" or "under common control with" shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise, or the power to elect at least 50%
of the directors, general partners, members or persons exercising similar
authority with respect to such Person.
"AGREEMENT" or "OPERATING AGREEMENT" means this Operating Agreement of
Charter Behavioral Health Systems, LLC, as amended from time to time, which
shall constitute the limited liability company agreement of the Company for all
purposes of the Act. Words such as "herein," "hereinafter," "hereof," "hereto"
and "hereunder" refer to this Agreement as a whole, unless the context
otherwise requires.
"ALLOCATION YEAR" means (i) the period commencing on the Effective Date
and ending on September 30, 1997, (ii) any subsequent twelve (12) month period
commencing on October 1 and ending on September 30 (except as may be required
by Regulations promulgated under Section 706 of the Code), or (iii) any portion
of the period described in clauses (i) or (ii) for which the Company is
required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Section 6 hereof.
"ANNUAL BUDGET" has the meaning specified in Section 8.3(a).
"BANKRUPTCY" means, with respect to any Person, a "VOLUNTARY
BANKRUPTCY" or an "INVOLUNTARY BANKRUPTCY." A "VOLUNTARY BANKRUPTCY" means,
with respect to any Person (i) the inability of such Person generally to pay
its debts as such debts become due, or an admission in writing by such Person
of its inability to pay its debts generally or a general assignment by such
Person for the benefit of creditors, (ii) the filing of any petition or answer
by such Person seeking to adjudicate itself as bankrupt or insolvent, or
seeking for itself any liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of such Person or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking, consenting to, or acquiescing in the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for such Person or for any substantial part of its property or (iii)
corporate or other action taken by such Person to authorize any of the actions
set forth above. An "INVOLUNTARY BANKRUPTCY" means, with respect to any
Person, without the consent or acquiescence of such Person, (i) the entering of
an order for relief or approving a petition for relief or reorganization or any
other petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or other similar relief under any
present or future bankruptcy, insolvency or similar statute, law or regulation,
(ii) the filing of any such petition against such Person which petition shall
not be dismissed within ninety (90) days, or (iii) without the consent or
acquiescence of such Person, the entering of an order appointing a trustee,
custodian, receiver or liquidator of such Person or of all or any substantial
part of the property of such Person which order shall not be dismissed within
ninety (90) days. The foregoing is intended to supersede and replace the events
listed in Sections 18-304(a) and (b) of the Act.
<PAGE> 4
4
"BRIDGE LOAN" means all amounts outstanding pursuant to that certain
Bridge Loan Agreement, dated April __, 1997 between Magellan and the Company.
"BUSINESS" means (i) the operation of an acute care psychiatric
hospital, part of an acute care general hospital operating an acute care
psychiatric unit, a behavioral healthcare residential treatment center, a part
of a facility operating a behavioral healthcare residential treatment center,
or other similar facility providing 24-hour behavioral healthcare, and the
delivery of behavioral healthcare from such facility and other affiliated
facilities; such behavioral healthcare to include inpatient hospitalization,
partial hospitalization programs, outpatient therapy, intensive outpatient
therapy, ambulatory detoxification, behavioral modification programs and
related services; and (ii) additional services, concepts or products undertaken
pursuant to the Franchise Agreement.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in Atlanta, Georgia or Dallas, Texas.
"CAPITAL ACCOUNT" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
(a) To each Member's Capital Account there shall be credited
(i) such Member's Capital Contributions, (ii) such Member's distributive
share of Profits and any items in the nature of income or gain which are
specially allocated pursuant to Section 6.3 or Section 6.4 hereof and
(iii) the amount of any Company liabilities assumed by such Member or
which are secured by any Property distributed to such Member;
(b) To each Member's Capital Account there shall be debited
(i) the amount of money and the Gross Asset Value of any Property
distributed to such Member pursuant to any provision of this Agreement,
(ii) such Member's distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated pursuant to
Section 6.3 or Section 6.4 hereof and (iii) the amount of any
liabilities of such Member assumed by the Company or which are secured
by any Property contributed by such Member to the Company;
(c) In the event a Member's Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it
relates to the Transferred Interest; and
(d) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Governing Board
determines that it is prudent to modify the manner in which the Capital
Accounts,
<PAGE> 5
5
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
Property or which are assumed by the Company or any Members), are computed in
order to comply with such Regulations, the Governing Board may make such
modification, provided that such modification is not likely to have a material
effect on the amounts distributed to any Person pursuant to Section 13 hereof
upon the dissolution of the Company. The Governing Board also shall (i) make
any adjustments that are necessary or appropriate to maintain equality between
the Capital Accounts of the Members and the amount of capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).
"CAPITAL CONTRIBUTIONS" means, with respect to any Member, the amount
of money and the initial Gross Asset Value of any Property (other than money)
contributed to the Company with respect to such Member's Interest.
"CERTIFICATE" means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
"CHARTER BEHAVIORAL" has the meaning specified in the recitals.
"CHIEF EXECUTIVE OFFICER" has the meaning specified in Section 15.2
hereof.
"CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"COMPANY" means the limited liability company, known as Charter
Behavioral Health Systems, LLC, formed pursuant to this Agreement and the
Certificate.
"COMPANY MINIMUM GAIN" has the meaning given the term "partnership
minimum gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"CRESCENT" has the meaning specified in the introductory statement.
"CRESCENT DIRECTOR" means a Director designated by New Crescent in
accordance with Section 8.1 hereof.
"DEADLOCK" has the meaning specified in Section 15.1 hereof.
"DEBT" of a Person means (iii) any indebtedness for borrowed money or
the deferred purchase price of Property as evidenced by a note, bonds, or other
instruments, (ii) obligations as lessee under capital leases, (iii) to the
extent of the fair market value of any asset owned or held by
<PAGE> 6
6
such Person, obligations secured by any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind existing on any such asset whether or
not the Company has assumed or become liable for the obligations secured
thereby, (iv) any obligation under any interest rate swap agreement (the amount
of such obligation shall be deemed to be the amount that would be required to
be paid by such Person to sell, unwind or terminate the swap transaction), (v)
trade credit incurred other than in the ordinary course of business and (vi)
obligations under direct or indirect guarantees of (including obligations
(contingent or otherwise) to assure a creditor against loss in respect of)
indebtedness or obligations of the kinds referred to in clauses (i), (ii),
(iii), (iv) and (v) above.
"DEPRECIATION" means, for each Allocation Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
United States federal income tax purposes with respect to an asset for such
Allocation Year, except that if the Gross Asset Value of an asset differs from
its adjusted basis for United States federal income tax purposes at the
beginning of such Allocation Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the United States federal
income tax depreciation, amortization, or other cost recovery deduction for
such Allocation Year bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for United States federal income tax
purposes of an asset at the beginning of such Allocation Year is zero (E),
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Governing Board.
"DIRECTOR" means any of the individuals provided in Section 8.1 hereof
or otherwise designated by the Members to serve on the Governing Board pursuant
to this Agreement and "DIRECTORS" means all of such individuals.
"DISSOLUTION EVENT" has the meaning specified in Section 14.1 hereof.
"EFFECTIVE DATE" has the meaning specified in the introductory
statement.
"ELECTION NOTICE" has the meaning specified in Section 12.8 hereof.
"ENCUMBRANCES" has the meaning specified in Section 4.2 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED LIABILITIES" has the meaning specified in Section 9.7(a)
hereof.
"EXECUTIVE OFFICER" means each of the Chairman of the Governing Board,
the Vice Chairman of the Governing Board, the President, any Vice President
designated as an "Executive Vice President" of the Company by the Governing
Board, the Chief Financial Officer and the Treasurer.
"FACILITIES LEASE" means (i) that certain Master Lease Agreement, dated
as of April ___, 1997, between Crescent, as landlord, and the Company and its
subsidiaries, as lessees, and any
<PAGE> 7
7
amendment or renewal thereof, and (ii) any other real estate lease agreements
between Crescent, as landlord, and the Company or a subsidiary of the Company,
as lessee.
"FAIR MARKET VALUE" has the meaning specified in Section 12.9 hereof.
"FIRST OFFER PERIOD" shall mean a period commencing upon delivery of an
Offer Notice and expiring at 5:00 p.m., New York time, on the 15th Business Day
following delivery of such Offer Notice; provided, however, if the Proposed
Transfer involves Non-Cash Consideration, the First Offer Period shall not
expire until the 10th Business Day after a binding determination of the Fair
Market Value of such Non-Cash Consideration has been made in accordance with
Section 12.9 hereof.
"FISCAL QUARTER" means (i) the period commencing on the Effective Date
and ending on June 30, 1997, (ii) any subsequent three-month period commencing
on each of January 1, April 1, July 1 and October 1 and ending on the last date
before the next such date and (iii) the period commencing on the immediately
preceding January 1, April 1, July 1 or October 1, as the case may be, and
ending on the date on which all Property is distributed to the Members pursuant
to Section 12 hereof.
"FISCAL YEAR" means (i) the period commencing on the Effective Date and
ending on September 30, 1997, (ii) any subsequent twelve (12) month period
commencing on October 1 and ending on September 30 (except as may be required
by Regulations promulgated under Section 706 of the Code), or (iii) the period
commencing on the immediately preceding October 1 and ending on the date on
which all Property is distributed to the Members pursuant to Section 14 hereof.
"FRANCHISE AGREEMENT" means (i) the Master Franchise Agreement, dated
April ___, 1997 between Magellan and the Company and any amendment or renewal
thereof and (ii) any Franchise Agreement entered into between Magellan and the
Company or its Affiliates.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"GOVERNING BOARD" has the meaning specified in Section 8.1 hereof.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for United States federal income tax purposes, except as
follows:
(a) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such
asset, as determined by the Governing Board; provided that the initial
Gross Asset Values of the assets contributed to the Company pursuant to
Section 3.1 hereof shall be the Net Asset Values of such assets as set
forth in such Section, increased by any liabilities either treated as
assumed by the Company upon the contribution of such assets or to which
such assets are treated as subject when contributed pursuant to the
provisions of Code Section 752;
<PAGE> 8
8
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking Code
Section 7701(g) into account), as determined by the Governing Board as
of the following times: (i) the acquisition of an additional interest
in the Company by any new or existing Member in exchange for more than a
de minimis Capital Contribution; (ii) the distribution by the Company to
a Member of more than a de minimis amount of Company property as
consideration for an interest in the Company; and (iii) the liquidation
of the Company within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this paragraph shall be made only if the Governing Board
reasonably determines that such adjustment is necessary to reflect the
relative economic interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair
market value (taking Code Section 7701(g) into account) of such asset on
the date of distribution as determined by the Governing Board; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), and subparagraph (vi) of the definition of
"PROFITS" and "LOSSES" provided, however, that Gross Asset Values shall
not be adjusted pursuant to this subparagraph (d) to the extent that an
adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraph (b) or (d), such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset, for purposes
of computing Profits and Losses.
"INTEREST" means a Member's ownership interest in the Company,
including all rights attributable to a member of a limited liability company
under the Act.
"INVOLUNTARY BANKRUPTCY" has the meaning set forth in the definition of
Bankruptcy.
"ISSUANCE ITEMS" has the meaning specified in Section 6.3(h) hereof.
"LENDER" has the meaning set forth in Section 8.2(11) hereof.
"LIQUIDATOR" has the meaning specified in Section 14.5(a) hereof.
"MAGELLAN" has the meaning specified in the introductory statement.
<PAGE> 9
9
"MAGELLAN DIRECTOR" means a Director designated by Magellan in
accordance with Section 8.1 hereof.
"MAJOR DECISION" has the meaning specified in Section 8.2 hereof.
"MEMBER" means New Crescent, Magellan or any Person who is admitted as
a Member pursuant to the terms of this Agreement. "MEMBERS" means all such
Persons.
"MEMBER ADVANCE" has the meaning specified in Section 3.2(e) hereof.
"MEMBER COMMITMENT" has the meaning specified in Section 3.2(e) hereof.
"MEMBER NONRECOURSE DEBT" has the same meaning as the term "Member
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"MEMBER NOTE" has the meaning specified in Section 3.2(e) hereof.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"MEMBER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"Member nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"NET ASSET VALUE" means, with respect to any asset contributed by a
Member to the Company, the Gross Asset Value of such asset at the time of its
contribution, reduced by any liabilities either treated as assumed by the
Company upon the contribution of such asset or to which such asset is treated
as subject when contributed pursuant to the provisions of Code Section 752;
provided that the initial Net Asset Value of the assets contributed to the
Company pursuant to Section 3.1 hereof shall be as set forth in such Section.
"NEW CRESCENT" has the meaning specified in the introductory statement.
"NEW CRESCENT CONTRACT" has the meaning specified in Section 5.4 hereof.
"NON CASH CONSIDERATION" has the meaning specified in Section 12.8(e)
hereof.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section 1.704-
2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section 1.704-
2(b)(3) of the Regulations.
<PAGE> 10
10
"NON-SELLING MEMBER" has the meaning specified in Section 12.8 hereof.
"OFFER NOTICE" has the meaning specified in Section 12.8 hereof.
"OFFER PERCENTAGE" has the meaning specified in Section 12.8 hereof.
"OFFERING PARTY" has the meaning specified in Section 15.3(a) hereof.
"OPCO CONTRIBUTION AGREEMENT" has the meaning specified in the
recitals.
"ORIGINAL CAPITAL CONTRIBUTION" means, with respect to any Member, any
Capital Contribution provided by such Member as of the Effective Date.
"PERCENTAGE INTEREST" means the Interest of each Member expressed as a
percentage as initially set forth in Section 3.1 hereof, or as subsequently
established by the Members in accordance with the provisions of this Agreement.
"PERCENTAGE INTERESTS" means the entire percentage interest of
ownership in the Company.
"PERMITTED TRANSFER" has the meaning set forth in Section 12.2 hereof.
"PERSON" means any individual, partnership (whether general or
limited), limited liability company, corporation, trust, estate, association,
nominee or other entity.
"PROFITS" and "LOSSES" mean, for each Allocation Year, an amount equal
to the Company's taxable income or loss for such Allocation Year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from United States
Federal income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this definition of "PROFITS" and "LOSSES" shall be added to
such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "PROFITS" and
"LOSSES" shall be subtracted from such taxable income or loss;
(c) In the event that the Gross Asset Value of any Company asset is
adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset
Value, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the Gross Asset Value of the asset) or an
<PAGE> 11
11
item of loss (if the adjustment decreases the Gross Asset Value of the asset)
from the disposition of such asset and shall be taken into account for purposes
of computing gain or loss;
(d) Gain or loss resulting from any disposition of Property with
respect to which gain or loss is recognized for United States federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
Property disposed of, notwithstanding that the adjusted tax basis of such
Property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Allocation Year,
computed in accordance with the definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest in the Company, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 6.3 or Section 6.4 hereof
shall not be taken into account in computing Profits or Losses; and
(h) The amounts of the items of Company income, gain, loss or
deduction available to be specially allocated pursuant to Sections 6.3 and 6.4
hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"PROPERTY" means all real and personal property acquired by the
Company, including cash, and any improvements thereto, and shall include both
tangible and intangible property.
"PROPOSED TRANSFER" has the meaning specified in Section 12.8 hereof.
"PROTECTED INFORMATION" means trade secrets, confidential or
proprietary information, intellectual property, knowledge or know-how
pertaining primarily to the operation of the Company or the Business or any
confidential or proprietary information concerning any Member, including,
without limitation, research and development information, inventions, formulas,
methods, techniques, processes, protocols, plans, procedures, contracts,
financial information, computer models and know-how. Protected Information
shall not include Protected Information which at the time of its disclosure was
in the public domain other than as result of a breach hereof by any of the
parties hereto.
"PURCHASING PARTY" has the meaning specified in Section 15.3(b) hereof.
<PAGE> 12
12
"REAL ESTATE PURCHASE AND SALE AGREEMENT" has the meaning specified in
the recitals.
"RECONSTITUTION PERIOD" has the meaning specified in Section 14.1(b).
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations are amended from
time to time.
"REGULATORY ALLOCATIONS" has the meaning specified in Section 6.4
hereof.
"RESPONDING PARTY" has the meaning specified in Section 15.3(a) hereof.
"RIGHT OF FIRST REFUSAL" has the meaning specified in Section 12.8
hereof.
"SECOND OFFER PERIOD" shall mean a period commencing on the first
Business Day following the First Offer Period and expiring at 5:00 p.m., New
York time on the 10th Business Day thereafter.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING MEMBER" has the meaning specified in Section 12.8 hereof.
"SELLING PARTY" has the meaning set forth in Section 15.3(b) hereof.
"SENIOR FACILITY" has the meaning set forth in Section 8.2(13) hereof.
"STATED VALUE" has the meaning specified in Section 15.3(a) hereof.
"THIRD PARTY PURCHASER" has the meaning specified in Section 12.8
hereof.
"TRANSACTION AGREEMENTS" means the Real Estate Purchase and Sale
Agreement, the OpCo Contribution Agreement, the Facilities Lease, the Franchise
Agreement, the Warrant Agreement, the Bridge Loan Agreement and this Agreement,
collectively.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer,
sale, pledge or hypothecation or other disposition and, as a verb, voluntarily
or involuntarily to transfer, sell, pledge or hypothecate or otherwise dispose
of.
"VOLUNTARY BANKRUPTCY" has the meaning set forth in the definition of
"BANKRUPTCY."
"WARRANT AGREEMENT" means that certain Warrant Agreement, dated January
__, 1997 between Magellan and Crescent.
"WARRANTS" means those Warrants of Magellan, issued to Crescent,
pursuant to the Warrant Agreement.
<PAGE> 13
13
SECTION 2.
THE COMPANY
2.1 FORMATION.
The Members hereby agree to form the Company as a for-profit limited
liability company and as described in the Certificate attached hereto as
Exhibit A. The fact that the Certificate is on file in the office of the
Secretary of State of the State of Delaware shall constitute notice that the
Company is a limited liability company. Simultaneously with the execution of
this Agreement and the formation of the Company, each of the Members shall be
admitted as members of the Company and each of the Directors designated in
Section 8.1 shall be admitted as Directors of the Company. The rights and
liabilities of the Members and Directors shall be as provided under the Act,
the Certificate and this Operating Agreement.
2.2 NAME.
The name of the Company shall be Charter Behavioral Health Systems, LLC.
and all business of the Company shall be conducted in such name or in such
other name as the Governing Board may designate. The Governing Board may
change the name of the Company upon ten (10) Business Days notice to the
Members and shall change it to eliminate the name "Charter" upon expiration of
the Franchise Agreement in accordance with the terms thereof.
2.3 PURPOSE; POWERS.
(a) The purposes of the Company are to (i) operate the Business, (ii)
make such additional investments and engage in such additional activities as
the Governing Board may approve pursuant to Section 8.2 and (iii) engage in any
and all activities and exercise any power permitted to limited liability
companies under the laws of the State of Delaware, as applicable, related or
incidental to the purposes set forth in clauses (i) and (ii).
(b) The Company shall have the power to do any and all acts
necessary, appropriate, proper, advisable, incidental or convenient to or in
furtherance of the purposes of the Company set forth in this Section 2.3 and
has, without limitation, any and all powers that may be exercised on behalf of
the Company by the Governing Board pursuant to Section 8 hereof.
2.4 PRINCIPAL PLACE OF BUSINESS; AGENT FOR SERVICE OF PROCESS.
(a) The principal place of business of the Company shall be located
at such place as is determined by the Governing Board.
<PAGE> 14
14
(b) The registered agent for service of process on the Company in the
State of Delaware shall be Prentice Hall or any successor as appointed by the
Governing Board in accordance with the Act. The initial registered office for
the registered agent shall be:
____________________
____________________
Wilmington, Delaware _____
(c) The initial registered office of the Company in the State of
Delaware is:
Charter Behavioral Health Systems, LLC
____________________
c/o ________________
Wilmington, Delaware _____
The Company may maintain other offices, as determined by the Governing
Board. The Company shall maintain a registered agent for service of process in
the State of _______ at ________________, ________________ and _____________;
(d) The principal place of business of Magellan is:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E., Suite 1400
Atlanta, Georgia 30326
Attention: __________________________
(e) The principal place of business of New Crescent is:
___________________________________
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Attention: __________________________
2.5 TERM.
The term of the Company shall commence on the date the Certificate is
filed in the office of the Secretary of State of the State of Delaware in
accordance with the Act. The Members intend that the existence of the Company
shall continue until the earlier to occur of (i) the winding up and liquidation
of the Company and the completion of its business following a Dissolution
Event, as provided in Section 14 hereof or (ii) ninety-nine (99) years from the
date on which the term of the Company commences. Prior to the time that the
Certificate is filed, no Person shall represent to third parties the existence
of the Company or hold itself out as a Member or Director.
<PAGE> 15
15
2.6 TITLE TO PROPERTY.
All Property owned by the Company shall be owned by the Company as an
entity, and no Member shall have any ownership interest in such Property in its
individual name, and each Member's interest in the Company shall be personal
property for all purposes. At all times after the Effective Date, the Company
shall hold title to all of its Property in the name of the Company or a wholly
owned subsidiary and not in the name of any Member.
2.7 PAYMENTS OF INDIVIDUAL OBLIGATIONS.
The Company's credit and assets shall be used solely for the benefit of
the Company, and no asset of the Company shall be transferred or encumbered
for, or in payment of, any individual obligation of any Member.
SECTION 3.
MEMBER SHARES, CAPITAL CONTRIBUTIONS AND FUNDING
3.1 ORIGINAL CAPITAL CONTRIBUTIONS.
On the Effective Date, Magellan and New Crescent shall each make an
Original Capital Contribution to the Company, with the initial Net Asset Value
of each such Original Capital Contribution (which shall also constitute the
initial Capital Account balance of the Member making the Original Capital
Contribution) immediately after the date of the Original Capital Contributions
being as follows:
<TABLE>
<CAPTION>
INITIAL NET ASSET VALUE OF
PROPERTY ORIGINAL CAPITAL PERCENTAGE
NAME CONTRIBUTED CONTRIBUTION INTEREST
----------------- ----------------- -------------------------- ----------
<S> <C> <C> <C>
Magellan Property set
forth on Schedule
3.1 $5.0 million 50.0%
New Crescent Cash $5.0 million 50.0%
</TABLE>
Documents evidencing the Original Capital Contributions of the Members
are attached hereto as Exhibits B(1) and B(2), respectively.
<PAGE> 16
16
3.2 OTHER MATTERS.
(a) Except as otherwise provided in this Agreement, no Member shall
demand or receive a return on or of its Capital Contributions or withdraw from
the Company without the consent of all Members. Under circumstances requiring
a return of any Capital Contributions, no Member has the right to receive
Property other than cash except as may be specifically provided herein.
(b) No Member shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Company, or otherwise, in its capacity as a Member,
except as otherwise provided in this Agreement or approved by the Governing
Board, or except as provided in the Transaction Agreements.
(c) No Member shall be liable for the Debts or any other obligations
of the Company.
(d) A Member shall not be required to restore a deficit balance in
its Capital Account or to lend any funds to the Company, except as otherwise
provided herein or in the Transaction Agreements.
(e) Each of Magellan and New Crescent will contribute an additional
$2.5 million to the capital of the Company within five (5) days after Closing
("ADDITIONAL CAPITAL CONTRIBUTION"). Additionally, on the Effective Date, (i)
each of Magellan and New Crescent shall agree to loan the Company up to an
aggregate of $17.5 million each (a "MEMBER COMMITMENT"), which Member
Commitments shall terminate on the fifth anniversary of the Effective Date, and
(ii) the Company shall execute two notes (the "MEMBER NOTES"), one to Magellan
and one to New Crescent, as security for each such Member Commitment.
Magellan, in its sole discretion, shall have the right to require OpCo, from
time to time, to draw down a portion of the Member Commitments by providing
written notice specifying the total amount to be drawn, and the date (which
shall not be less than thirty Business Days after the date of such notice)of
such draw. Each such draw (a "MEMBER ADVANCE") shall be funded 50% by Magellan
from its Member Commitment and 50% by New Crescent from its Member Commitment.
Each Member Advance shall bear interest at a rate of 10% per annum and have a
term of five years (notwithstanding any termination of the Member Commitment
after the Member Advance is made). Notwithstanding anything to the contrary,
neither Magellan nor OpCo shall have the right to require a Member Advance from
New Crescent unless Magellan is required to make a Member Advance in the same
amount as that required for New Crescent. Until the Company secures a Senior
Facility in an amount of at least $55 million supported by the Company without
a guarantee from New Crescent, payments under any Member Advances which are
required to be made to Magellan shall be subordinated to payments under any
Member Advances which are required to be made to New Crescent. If either
Magellan or New Crescent shall fail to make a Member Advance pursuant to this
paragraph within fifteen Business Days of the date specified above, with
respect to the Additional Capital Contribution, or in such notice from Magellan
requiring a Member Advance and such failure continues for an additional ten
Business Days after notice from the other Member, then such defaulting Member
shall be deemed to have sold its membership interest in the Company to the
other Member upon delivery of payment by such other Member to the defaulting
Member of the sum of $100. Except for the foregoing, the Members shall not be
required to make any additional capital contributions or loans to the Company.
Such obligation to make Additional Capital
<PAGE> 17
17
Contributions or loans is solely for the benefit of the Members, and no Person
shall be considered a third-party beneficiary of such obligation. The Company
shall use all Additional Capital Contributions and Member Advances for the
benefit of the Company in such manner as Magellan, in its sole discretion,
directs.
(f) The Directors shall not have any personal liability for the
repayment of any Capital Contributions of any Member.
(g) Notwithstanding any other provision of this Agreement, each
Member agrees to approve such amendments to this Agreement as are necessary to
allocate up to 10% of the Percentage Interests in the Company, equally from
each Member, for future incentive payments to management.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF MAGELLAN
Magellan represents and warrants to New Crescent as of the date hereof
as follows:
4.1 ORGANIZATION AND AUTHORITY OF MAGELLAN.
Magellan is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power
and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Magellan, and (assuming due
execution and delivery by New Crescent) constitutes the legal, valid and
binding obligation of Magellan enforceable against Magellan in accordance with
its terms, except as enforceability may be limited by bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or by general principles of equity.
4.2 NO CONFLICT.
The execution, delivery and performance by Magellan of this Agreement
does not and will not (i) violate or conflict with the certificate of
incorporation or bylaws of Magellan, (ii) conflict with or violate any law,
rule, regulations, order, writ, judgment, injunction, decree, determination or
award applicable to Magellan or (iii) result in any breach of, or constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
pledge, lien, security interest, mortgage, charge, adverse claim or ownership
or use, or other encumbrance of any kind (collectively "ENCUMBRANCES") on any
of the assets or properties of Magellan pursuant to, any note, bond, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which Magellan is a party or by which
any of such assets or properties is bound or affected, except, in the case of
(ii) or (iii), any conflict, violation,
<PAGE> 18
18
breach or default which would not individually or in the aggregate have a
material adverse effect on Magellan or the Company.
4.3 CONSENTS AND APPROVALS.
Except as set forth on Schedule 4.3, the execution and delivery by
Magellan of this Agreement does not and will not, and the performance by
Magellan of this Agreement does not and will not, require any consent,
approval, authorization or other action by, or filing with or notification to,
any governmental or regulatory authority.
SECTION 5.
REPRESENTATIONS AND WARRANTIES OF NEW CRESCENT
New Crescent represents and warrants to Magellan as of the date hereof
as follows:
5.1 ORGANIZATION AND AUTHORITY OF NEW CRESCENT.
New Crescent is a _________ duly formed, validly existing and in good
standing under the laws of the State of Delaware and has all necessary power
and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by New Crescent and (assuming
due execution and delivery by Magellan) constitutes its legal, valid and
binding obligation enforceable against New Crescent in accordance with its
terms, except as enforceability may be limited by bankruptcy, conservatorship,
receivership, insolvency, moratorium or similar laws affecting creditors'
rights generally or by general principles of equity.
5.2 NO CONFLICT.
The execution, delivery and performance by New Crescent of this
Agreement does not and will not (i) violate or conflict with the organizational
documents of New Crescent, (ii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to New Crescent or (iii) result in any breach of, or constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Encumbrance on any of the assets or properties of New Crescent pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to such assets or properties to which
New Crescent is a party or by which any of such assets or properties is bound
or affected, except, in the case of (ii) or (iii), any conflict, violation,
breach or default which would not individually or in the aggregate have a
material adverse effect on New Crescent or the Company.
<PAGE> 19
19
5.3 CONSENTS AND APPROVALS.
Except as set forth in Schedule 5.3, the execution and delivery of this
Agreement by New Crescent does not and will not, and the performance of this
Agreement by New Crescent does not and will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority. New Crescent is in compliance in all
material respects with all laws and regulations of all governmental or quasi-
governmental authorities having jurisdiction over the business of New Crescent.
New Crescent has no knowledge of material violations of laws or regulations
relating to the business of New Crescent and no written notice of any material
violation of any such law, regulation or ordinance has been received by New
Crescent except for violations or alleged violations that are being corrected
in the ordinary course of business pursuant to an approved plan of correction
and are listed on Schedule 5.3.
SECTION 6.
ALLOCATIONS
6.1 PROFITS.
After giving effect to the special allocations set forth in Sections 6.3
and 6.4, Profits for any Allocation Year shall be allocated to the Members in
proportion to their Percentage Interests.
6.2 LOSSES.
After giving effect to the special allocations set forth in Sections 6.3
and 6.4 and subject to Section 6.5, Losses for any Allocation Year shall be
allocated to the Members in proportion to their Percentage Interests.
6.3 SPECIAL ALLOCATIONS.
The following special allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGE BACK. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 6, if there is a net decrease in Company Minimum Gain during any
Allocation Year, each Member shall be specially allocated items of Company
income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Member's share of the net decrease
in Company Minimum Gain, as determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.
This Section 6.3(a) is intended to
<PAGE> 20
20
comply with the minimum gain charge back requirement in Section 1.704-2(f) of
the Regulations and shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGE BACK. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision
of this Section 6, if there is a net decrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member Nonrecourse Debt during any Allocation
Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Company income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Member's share of the net decrease
in Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i) (4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations.
This Section 6.3(b) is intended to comply with the minimum gain charge back
requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
(c) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6)
of the Regulations, items of Company income and gain shall be specially
allocated to such Member in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, the Adjusted Capital Account Deficit of
the Member as quickly as possible; provided that an allocation pursuant to this
Section 6.3(c) shall be made only if and to the extent that the Member would
have an Adjusted Capital Account Deficit after all other allocations provided
for in Section 6 have been tentatively made as if this Section 6.3(c) were not
in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Allocation Year which is in excess of the sum
of the amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Member shall be specially allocated items of Company income and gain
in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 6.3(d) shall be made only if and to the
extent that such Member would have a deficit Capital Account in excess of such
amount after all other allocations provided for in this Section 6 have been
made as if Section 6.3(c) and this Section 6.3(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Allocation Year shall be specially allocated to the Members in proportion to
their respective Percentage Interests.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions
for any Allocation Year shall be specially allocated to the Member who bears
the economic risk of loss with
<PAGE> 21
21
respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Regulations Section 1.704-
2(i)(1).
(g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Member in
complete liquidation of such Member's interest in the Company, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Members in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member to whom
such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) ALLOCATIONS RELATING TO TAXABLE ISSUANCE OF COMPANY INTEREST.
Any income, gain, loss or deduction realized as a direct or indirect result of
the issuance of Interests by the Company to a Member (the "ISSUANCE ITEMS")
shall be allocated among the Members so that, to the extent possible, the net
amount of such Issuance Items, together with all other allocations under this
Agreement to each Member, shall be equal to the net amount that would have been
allocated to each such Member if the Issuance Items had not been realized.
6.4 CURATIVE ALLOCATIONS.
The allocations set forth in Sections 6.3(a) to (g) and 6.5 (the
"REGULATORY ALLOCATIONS") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Company income, gain,
loss or deduction pursuant to this Section 6.4. Therefore, notwithstanding any
other provision of this Section 6 (other than the Regulatory Allocations), the
Governing Board shall make such offsetting special allocations of Company
income, gain, loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 6.1 and
6.2; provided, however, that the Governing Board shall not make offsetting
special allocations if and to the extent that such Regulatory Allocations were
or likely will be offset with Regulatory Allocations in prior or future years.
6.5 LOSS LIMITATION.
Losses allocated pursuant to Section 6.2 hereof shall not exceed the
maximum amount of Losses that can be allocated without causing any Member to
have an Adjusted Capital Account Deficit at the end of any Allocation Year. In
the event some but not all of the Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Losses pursuant to
<PAGE> 22
22
Section 6.2 hereof, the limitation set forth in this Section 6.5 shall be
applied on a Member by Member basis and Losses not allocable to any Member as a
result of such limitation shall be allocated to the other Members in accordance
with the positive balances in such Members' Capital Accounts so as to allocate
the maximum permissible Losses to each Member under Section 1.704-
1(b)(2)(ii)(d) of the Regulations.
6.6 OTHER ALLOCATION RULES.
(a) For purposes of determining the Profits, Losses, or any other
items allocable to any period, Profits, Losses, and any such other items shall
be determined on a daily, monthly, or other basis, as determined by the
Governing Board, using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Members are aware of the income tax consequences of the
allocations made by this Section 6 and hereby agree to be bound by the
provisions of this Section 6 in reporting their shares of Company income and
loss for income tax purposes.
(c) For purposes of making all allocations pursuant to this Section 6
for any Allocation Year, cash distributed within thirty (30) days after the
last day of such Allocation Year shall be treated as having been distributed on
such last day pursuant to Section 7.1 hereof.
(d) Solely for purposes of determining a Member's proportionate share
of the "excess nonrecourse liabilities" of the Company within the meaning of
Regulations Section 1.752-3(a)(3), the Members' interests in Company profits
shall be in proportion to their Percentage Interests.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the Governing Board shall endeavor to treat distributions of cash
as having been made from the proceeds of a Nonrecourse Liability or a Member
Nonrecourse Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Member.
6.7 TAX ALLOCATIONS: CODE SECTION 704(C).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any Property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis
of such Property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition of Gross Asset
Value). Any such variation with respect to the Contributed Assets (as defined
in the OpCo Contribution Agreement) shall be calculated using the remedial
allocation method described in Regulation Section 1.704-3(d).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted
<PAGE> 23
23
basis of such asset for federal income tax purposes and its Gross Asset Value
in the same manner as under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by a supermajority (of at least 80%) of the Governing Board in any manner
that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 6.7 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into
account in computing, any Member's Capital Account or share of Profits, Losses,
other items, or distributions pursuant to any provision of this Agreement.
SECTION 7.
DISTRIBUTIONS
7.1 DISTRIBUTION OF AVAILABLE CASH. Subject to the provisions of
this Section 7, the Company's available cash shall be distributed to the
Members, in such amounts and only at such times as determined by the Governing
Board, in proportion to their respective Percentage Interests. In no event
shall any cash distribution be made to the Members unless and until rent due
under the Facilities Lease and fees due under the Franchise Agreement are fully
paid in the year of any distribution.
7.2 AMOUNTS WITHHELD. Each Member hereby authorizes the Company to
withhold from or pay on behalf of or with respect to such Member any amount of
federal, state, local, or foreign taxes that the Governing Board determines
that the Company is required to withhold or pay with respect to any amount
distributable or allocable to such Member pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Company pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount
paid on behalf of or with respect to a Member shall constitute a loan by the
Company to such Member, which loan shall be repaid by such Member within
fifteen (15) days after notice from the Governing Board that such payment must
be made unless (i) the Company withholds such payment from a distribution which
would otherwise be made to the Member, or (ii) the Governing Board determines,
in its sole and absolute discretion, that such payment may be satisfied out of
the available funds of the Company which would, but for such payment, be
distributed to the Member. Any amounts withheld pursuant to the foregoing
clauses (i) or (ii) shall be treated as having been distributed to such Member.
Each Member hereby unconditionally and irrevocably grants to the Company a
security interest (which shall be subordinate to any pledge granted to a
financial institution as contemplated by Section 12.2) in such Member's
Percentage Interest to secure such Member's obligation to pay to the Company
any amounts required to be paid pursuant to this Section 7.2. In the event
that a Member fails to pay any amounts owed to the Company pursuant to this
Section 7.2 when due, the Governing Board may, in its sole and absolute
discretion, elect to make the payment to the Company on behalf of such
defaulting Member and, until repayment of such loan, shall succeed to all
rights and remedies of the Company against such defaulting Member (including,
without limitation, the right to receive distributions). Any amounts payable
by a Member hereunder shall bear interest at the base rate on corporate loans
at large United States money center commercial banks, as published from time to
time in the Wall Street Journal, plus four percentage points (but not higher
than the maximum lawful rate) from the date such
<PAGE> 24
24
amount is due (i.e., fifteen (15) days after demand) until such amount is paid
in full. Each Member shall take such actions as the Company or the Governing
Board shall request in order to perfect or enforce the security interest
created hereunder.
SECTION 8.
MANAGEMENT
8.1 DIRECTORS; GOVERNING BOARD.
(a) The management of the Company shall be vested in the four-member
Governing Board (the "GOVERNING BOARD") designated by the Members as provided
in Sections 8.1(c) and (d) hereof.
(b) The number of Persons, each of whom shall be an individual
(hereinafter referred to as "DIRECTORS") on the Governing Board shall be four
(4) unless otherwise provided herein. Each Director shall be a "MANAGER," as
defined in the Act, who shall have authority to act on behalf of the Company as
set forth herein. The Directors shall serve without compensation but shall be
entitled to reimbursement for their out-of-pocket costs for their services
hereunder.
(c) Simultaneously with the execution hereof, Magellan hereby
designates the individuals set forth in Items (1) through (2) as Magellan
Directors and New Crescent hereby designates the individuals set forth in Items
(3) through (4) as Crescent Directors, such that the name and address of the
Directors who shall serve until their respective successors shall have been
designated and qualified are as follows:
<TABLE>
<CAPTION>
Name Business Address and Telephone Number
----------------------------------- ---------------------------------------
<S> <C>
1. [MAGELLAN DIRECTOR]
2. [ " ]
3. [CRESCENT DIRECTOR]
4. [ " ]
</TABLE>
(d) No vote of the Members shall be required to designate Directors.
Rather, Magellan shall have the right to designate two (2) Magellan Directors,
and New Crescent shall have the right to designate two (2) Crescent Directors.
A Director shall remain in office until removed by the Member designating such
Director. With respect to any Director other than the initial Directors set
forth in Section 8.1(c) hereof, Magellan or New Crescent, as the case may be,
shall designate such Director by delivering to the Company the Member's written
statement designating such Director and setting forth such Director's business
address and telephone number.
<PAGE> 25
25
(e) A Director may be removed at any time, with or without cause,
solely by the Member originally designating such Director. Removal shall be
accomplished by delivery of written notice to the Company demanding such
removal and designating the Person who shall fill the position of the removed
Director.
(f) In the event any Director dies or is unwilling or unable to serve
as such or is removed from office by the Member that designated such Director,
the appropriate Member shall promptly designate a successor to such Director.
A Director chosen to fill a vacancy shall be designated by the Member whose
previously designated Director shall have been removed or shall have resigned.
(g) Each Director shall have one (1) vote. Except as otherwise
provided in Sections 8.2 and 8.3 hereof, the Governing Board shall act by the
affirmative vote of a majority of the total number of Directors on the
Governing Board. A Director may authorize any other Director to act for him by
proxy on all matters in which a Director is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Director or its attorney-in-fact. No proxy shall
be valid after the expiration of eleven (11) months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Director executing it.
(h) The Governing Board shall have the power to delegate authority to
such committees of Directors, officers, employees, agents and representatives
of the Company as it may from time to time deem appropriate. Any delegation of
authority to take any action must be approved in the same manner as would be
required for the Governing Board to approve such action directly.
(i) A Director shall not be liable under a judgment, decree or order
of court, or in any other manner, for a debt, obligation or liability of the
Company.
8.2 MAJOR DECISIONS.
Notwithstanding the other provisions of this Section 8, no officer or
employee of the Company shall have any authority to cause or permit the Company
or any of its subsidiaries or Affiliates to take any of the following actions
or make any of the following decisions (each, a "MAJOR DECISION") without the
prior express action and approval of at least eighty percent (80%) of the
Governing Board:
(1) any sale, lease, transfer or other disposition of any
asset of the Company or any subsidiary of the Company in an amount in
excess of $50,000, to the extent such sale, lease, transfer, other
disposition or granting of security interest was not previously approved
in the Annual Budget for the then current Fiscal Year;
(2) the acquisition from any Person of any stock or interest
in any corporation, company, partnership, association, business or
business division, whether by stock purchase, asset purchase,
contribution, merger or other business combination or joint venture, or
<PAGE> 26
26
otherwise causing or permitting the Company to be a party to a merger,
transfer of assets, consolidation or reorganization with any other
Person, provided, however, that the Company shall have the right to
invest in short-term, highly liquid investments (which mature in no more
than 60 days) with appropriate safety of principal including, without
limitation, U.S. Government securities;
(3) the filing of a voluntary petition for bankruptcy,
insolvency or the making of any assignment for the benefit of creditors
by or of the Company or any other action which would constitute a
Bankruptcy of the Company, or the substantial equivalent thereof;
(4) the election to dissolve and terminate the Company;
(5) causing or permitting the Company to engage in any
business or activities other than the Business.
(6) except as provided in the Transaction Agreements, the
Company's entry into any agreement or contract that is proposed to be
entered into between the Company and any Member or Affiliate of a Member
or any amendment thereof;
(7) any entering into, modification, amendment, extension or
termination by the Company of any contract which delegates the
management of any significant part of the business of the Company to any
Person not employed by the Company;
(8) the selection of any Person to act as Liquidator in
connection with the liquidation and termination of the Company in
accordance with Section 14;
(9) approval of a commitment for any capital expenditure (to
the extent not previously approved in the Annual Budget for the then
current Fiscal Year);
(10) entering into any (i) contract of any sort not in the
ordinary course of business or (ii) contract or series of related
contracts calling for payments by the Company of more than the contract
limit authorized by the Governing Board, or, in the absence of such
express authorization, $10,000 in any one Fiscal Year (to the extent not
previously approved in the Annual Budget for the then current Fiscal
Year);
(11) incurring any indebtedness by the Company or granting any
security interest in any asset of the Company to the extent not
previously approved in the Annual Budget; provided, however, that if
requested by a bank or group of banks (the "LENDER") which has committed
to provide the Company with a credit facility of at least $55 million
(the "SENIOR FACILITY"), the Company shall (i) cause any subsidiaries of
the Company designated by the Lender to guarantee the debt incurred by
the Company under the Senior Facility, (ii) pledge its ownership
interest in any subsidiaries of the Company designated by the Lender to
the Lender as security for the debt incurred by the Company under the
Senior Facility, and (iii)
<PAGE> 27
27
grant a security interest in its accounts receivables to the Lender as
security for the debt incurred by the Company under the Senior Facility.
(12) except as may be expressly provided hereunder, the
admission of any Person to the Company as an additional Member or
substitute Member or the issuance of any additional Interests or rights
to acquire Interests in the Company;
(13) making a loan of Company funds to any Person, or
guaranteeing any obligation or indebtedness of any Person, to the extent
not previously approved in the Annual Budget;
(14) making a loan of Company funds to or guaranteeing any
obligation or indebtedness of any Member or any Affiliate of any Member;
(15) approval of the Annual Budget for the Company for any
Fiscal Year and approval of any changes (as described in Section 8.3) to
such Annual Budget;
(16) the employment or retention of any Person (including,
without limitation, counsel, auditors and consultants) whose gross
annual compensation (including benefits) or fees are reasonably likely
to exceed $150,000 in any fiscal year (unless previously approved in the
Annual Budget);
(17) the establishment, amendment or termination of any
employee pension, profit sharing or other benefit plan;
(18) any change of the Company's fiscal year;
(19) any distributions to the Members;
(20) entering into any employment agreement with any employee
of the Company;
(21) selecting any Executive Officer or removing either the
Chairman of the Governing Board or the President of the Company;
(22) any change in accounting principles used by the Company,
except to the extent required by GAAP;
(23) closing any hospital or Facility which the Governing Board
has determined is in the financial best interests of the Company;
(24) the decision to renew any Facilities Lease;
(25) the decision to renew any Franchise Agreement;
<PAGE> 28
28
(27) the decision to make an initial public offering of any
interest (debt or equity) in the Company;
(28) the Company's decision to exercise its right of purchase
of an interest during the Second Offer Period in accordance with Section
12;
(29) any amendment of this Agreement or the Certificate; and
(30) any capital contribution by any Member other than the
Additional Capital Contribution; and
(31) certain tax matters as provided in Sections 6.7 and 9.5.
Notwithstanding the foregoing or any other provision hereof (i) Magellan shall
have the approval and other rights relating to OpCo's business and operations
specified in Section 15 of the Franchise Agreement in the event that Magellan
is the Selling Party pursuant to an exercise of the buy-sell option pursuant to
Section 15.3 and (ii) nothing in this Section 8.2 shall require the approval of
the Governing Board for the performance, by the Company, of any of its
obligations under the Transaction Agreements.
8.3 ANNUAL BUDGET.
(a) Within forty-five (45) days after the date of this Agreement, the
President and the Treasurer of the Company shall prepare or cause to be
prepared a proposed annual operating and capital budget for the Company for the
Fiscal Year ending December 31, 1997 (for such Fiscal Year and each subsequent
Fiscal Year, the "ANNUAL BUDGET") containing the information set forth on
Schedule 8.3. The proposed annual operating and capital budget shall be
submitted to the Governing Board for consideration and approval. Upon approval
by the Governing Board, the proposed Annual Budget shall become the 1997 Annual
Budget.
(b) After the adoption of the initial Annual Budget for the Company,
the President and the Treasurer of the Company shall similarly prepare or cause
to be prepared a proposed Annual Budget for the Company for the succeeding
Fiscal Year which shall be submitted to the Governing Board for consideration
and approval on or before the December 31 immediately preceding the next Fiscal
Year. Upon approval by the Governing Board, the proposed Annual Budget shall
become the Annual Budget for the next succeeding Fiscal Year.
(c) If the Governing Board is unable to agree on the Annual Budget,
then until such time as the Governing Board is able to adopt and approve an
Annual Budget, the Annual Budget shall consist of the items in the proposed
Annual Budget which are not in dispute and, with respect to those items in
dispute, the items and amounts in the prior year's Annual Budget shall be
deemed to constitute the approved amounts in the Annual Budget, as the case may
be; provided, however, that the amount budgeted for acquisitions or financing
for the then-current Fiscal Year shall be the amount
<PAGE> 29
29
that the parties are able to agree upon or, if they are unable to agree, then
these amounts shall be zero for the then-current Fiscal Year unless necessary
for ongoing operations. Notwithstanding anything contained herein to the
contrary, to the extent that an expenditure is required to be made pursuant to
a legally binding obligation of the Company which has been previously approved
by the Governing Board or the Members (or not required to be approved pursuant
to this Agreement) or to the extent that any such expenditure is beyond the
Company's control, such as utility costs, taxes and insurance premiums, then
the approved Annual Budget for the current fiscal year shall be deemed to
include such expenditure.
(d) Upon approval of an Annual Budget by the Governing Board, the
Company shall, and the officers of the Company shall cause the Company to,
conduct its operations in accordance therewith, and no modifications shall be
made except in accordance with Section 8.2.
8.4 MEETINGS OF THE GOVERNING BOARD.
(a) The Governing Board shall hold regular meetings no less
frequently than once every Fiscal Quarter and shall establish meeting times,
dates and places and requisite notice requirements (not shorter than those
provided in Section 8.5(b)) and adopt rules or procedures consistent with the
terms of this Agreement. At such meetings the Governing Board shall transact
such business as may properly be brought before the meeting, whether or not the
notice of such meeting referenced the action taken at such meeting.
(b) Special meetings of the Governing Board may be called by any
Director. Notice of each such meeting shall be given to each Director on the
Governing Board by telephone, telecopy, telegram or similar method (in each
case, notice shall be given at least five (5) Business Days before the time of
the meeting) or sent by first-class mail (in which case notice shall be given
at least ten (10) days before the meeting), unless a longer notice period is
established by the Governing Board. Each such notice shall state (i) the time,
date, place (which shall be at the principal office of the Company unless
otherwise agreed to by all Directors) or other means of conducting such meeting
and (ii) the purpose of the meeting to be so held. No actions other than those
specified in the notice may be considered at any special meeting unless
unanimously approved by the Directors. Any Director may waive notice of any
meeting in writing before, at or after such meeting. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except when a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting was not properly called.
(c) A majority of the Governing Board as constituted at a particular
time shall constitute a quorum for the transaction of business at such time.
(d) Any action required to be taken at a meeting of the Governing
Board, or any action that may be taken at a meeting of the Governing Board, may
be taken at a meeting held by means of telephone conference or other
communications equipment by means of which all persons participating
<PAGE> 30
30
in the meeting can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting.
(e) Notwithstanding anything to the contrary in this Section 8.4, the
Governing Board may take without a meeting any action that may be taken by the
Governing Board under this Agreement if such action is approved by the
unanimous written consent of the Directors.
8.5 GOVERNING BOARD POWERS.
(a) Except as otherwise provided in this Agreement, the Governing
Board shall have the right and authority to take all actions which the
Governing Board deems necessary, useful or appropriate for the management and
conduct of the Business.
(b) Except as otherwise provided in this Agreement, all powers to
control and manage the Business and affairs of the Company shall be exclusively
vested in the Governing Board, and the Governing Board may exercise all powers
of the Company and do all such lawful acts as are not by statute, the
Certificate or this Agreement directed or required to be exercised or done by
the Members, and no Member shall have any right or power to control or manage
the Business.
(c) The Governing Board will establish policies and guidelines for
the hiring of employees to permit the Company to act as an operating company
with respect to its Business. The Governing Board may adopt appropriate
management incentive plans and employee benefit plans in accordance with
Section 8.2.
8.6 INDEPENDENT ACTIVITIES; TRANSACTIONS WITH AFFILIATES.
(a) Each Director shall be required to devote such time to the
affairs of the Company as may be necessary to manage and operate the Company
and its subsidiaries and shall be free to serve any other Person or enterprise
in any capacity that such Director may deem appropriate in his, her or its
discretion.
(b) To the extent permitted by applicable law and subject to the
provisions of this Agreement, in furtherance of the purposes of the Company set
forth in Section 2.3, the Governing Board is hereby authorized to cause the
Company to purchase or lease property (whether real, personal or mixed) from,
sell or lease such property to or otherwise deal with any Member or Director,
acting on its own behalf, or any Affiliate of any Member or Director; provided
that any such purchase, sale, lease, dealing or other transaction shall be made
in accordance with Section 8.2.
(c) Each Member and Director and any Affiliate thereof may also lend
money to, borrow money from, act as a surety, guarantor or endorser for,
guarantee or assume one or more specific obligations of, provide collateral
for, and transact other business with the Company and, subject to other
applicable law, have the same rights and obligations with respect thereto as a
Person who is not a Member, subject to Section 8.2.
<PAGE> 31
31
8.7 OFFICERS.
(a) The officers of the Company initially shall be those listed on
Exhibit C. Thereafter, the Executive Officers shall be chosen by the Governing
Board as provided in Section 8.2. The Company may also have, at the discretion
of the Governing Board, such other officers as are desired, including one or
more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers, and such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Governing Board. In the event there are
two or more Vice Presidents, then one or more may be designated as Executive
Vice President, Senior Vice President, or other similar or dissimilar title.
At the time of the election of officers, the Governing Board may determine the
order of their rank. Any number of offices may be held by the same person.
(b) The officers of the Company shall hold office until their
successors are chosen by the Governing Board and commence to perform their
respective duties, provided that the initial Chairman of the Governing Board
and the initial President of the Company shall serve until resignation or
termination by the Governing Board in accordance with Section 8.2. Any other
officer elected or appointed by the Governing Board may be removed at any time
with or without cause by the Governing Board in accordance with Section 8.2.
If the office of any officer or officers becomes vacant for any reason, such
vacancy shall be filled by the Governing Board in accordance with Section 8.2
and this Section 8.7.
(c) The officers of the Company shall include:
(1) THE CHAIRMAN OF THE GOVERNING BOARD. The Chairman of the
Governing Board shall, if present, preside at all meetings of the
Governing Board and all meetings of the Members and exercise and perform
such other powers and duties as may be from time to time assigned to him
by the Governing Board. All Executive Officers engaged in strategic
planning and development and in capital functions, including without
limitation, the Treasurer, Chief Financial Officer and the senior
officers responsible for acquisitions, shall report to the Chairman of
the Governing Board with respect to those functions, but shall continue
to report to the President with respect to other functions. If there is
no President, the Chairman of the Governing Board shall in addition be
the Chief Executive Officer of the Company and shall have the powers and
duties prescribed in clause (3) below. The initial Chairman of the
Governing Board shall be John C. Goff.
(2) VICE CHAIRMAN OF THE GOVERNING BOARD. The Vice Chairman
of the Governing Board shall exercise and perform such other powers and
duties as may be from time to time assigned to him by the Governing
Board. In the absence of the Chairman of the Governing Board, he or she
shall preside at all meetings of the Governing Board.
<PAGE> 32
32
(3) PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Governing Board to the Chairman of the Governing
Board, the President shall be the Chief Executive Officer of the Company
and shall, subject to the control of the Governing Board, have general
supervision, direction and control of the Business and officers of the
Company. He shall be an ex-officio member of all committees and shall
have the general powers and duties of management usually vested in the
office of President and chief executive officer of corporations
organized under the laws of the State of Delaware, and shall have such
other powers and duties as may be prescribed by the Governing Board.
The initial President shall be John M. DeStefanis.
(4) VICE PRESIDENT. In the absence or disability of the
President and the Chairman of the Governing Board, the Vice Presidents
in order of their rank as fixed by the Governing Board, or if not
ranked, the Vice President designated by the Governing Board, shall
perform all the duties of the President, and when so acting shall have
all the powers and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from
time to time may be prescribed for them, respectively, by the Governing
Board.
(5) ASSISTANT VICE PRESIDENT. The Assistant Vice President,
or if there be more than one, the Assistant Vice Presidents, shall have
such duties as from time to time may be prescribed for them,
respectively, by the Governing Board.
(6) SECRETARY. The Secretary shall attend all sessions of the
Governing Board and all meetings of the Members and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and
shall perform like duties for the standing committees when required by
the Governing Board. The Secretary shall give, or cause to be given,
notice of all meetings of the Members and of the Governing Board and
shall perform such other duties as may be prescribed by the Governing
Board.
(7) ASSISTANT SECRETARY. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by
the Governing Board, of if there be no such determination, the Assistant
Secretary designated by the Governing Board, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other
powers as the Governing Board may from time to time prescribe.
(8) TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to
the credit of the Company, in such depositories as may be designated by
the Governing Board. The Treasurer shall disburse the funds of the
Company as may be ordered by the Governing Board, taking proper vouchers
for such disbursements, and shall render to the
<PAGE> 33
33
Governing Board, at its regular meetings, or when the Governing Board so
requires, an account of all of his transactions as Treasurer and of the
financial condition of the Company.
(9) ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined
by the Governing Board, or if there be no such determination, the
Assistant Treasurer designated by the Governing Board, shall, in the
absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have
such other powers as the Governing Board may from time to time
prescribe.
8.8 INDEMNIFICATION OF THE DIRECTORS.
(a) Unless otherwise provided in Section 8.8(d) hereof, the Company,
its receiver, or its trustee (in the case of its receiver or trustee, to the
extent of Property contributed to the Company) shall indemnify, save harmless,
and pay all judgments and claims against any Director relating to any liability
or damage incurred by reason of any act performed or omitted to be performed by
any Director in connection with the Business, including reasonable attorneys'
fees incurred by the Director in connection with the defense of any action
based on any such act or omission, which attorneys' fees may be paid as
incurred.
(b) Unless otherwise provided in Section 8.8(d) hereof, in the event
of any action by a Member against any Director, including a Company derivative
suit, the Company shall indemnify, save harmless, and pay all expenses of such
Director, including reasonable attorneys' fees, incurred in the defense of such
action.
(c) Unless otherwise provided in Section 8.8(d) hereof, the Company
shall indemnify, save harmless, and pay all expenses, costs, or liabilities of
any Director, if for the benefit of the Company and in accordance with this
Agreement said Director makes any deposit or makes any other similar payment or
assumes any obligation in connection with any Property proposed to be acquired
by the Company and suffers any financial loss as the result of such action.
(d) Notwithstanding the provisions of Sections 8.8(a), 8.8(b) and
8.8(c) above, such Sections shall be enforced only to the maximum extent
permitted by law and no Director shall be indemnified from any liability for
the fraud, intentional misconduct, gross negligence or a knowing violation of
the law which was material to the cause of action.
(e) The obligations of the Company set forth in this Section 8.8 are
expressly intended to create third party beneficiary rights of each of the
Directors and any Member is authorized, on behalf of the Company, to give
written confirmation to any Director of the existence and extent of the
Company's obligations to such Director hereunder.
<PAGE> 34
34
8.9 FILINGS.
(a) Each Director is hereby authorized to and shall execute and cause
the Certificate to be filed in the office of the Secretary of State of the
State of Delaware as an authorized person within the meaning of the Act. The
Governing Board shall take any and all other actions reasonably necessary to
perfect and maintain the status of the Company as a limited liability company
under the laws of the State of Delaware, including the preparation and filing
of such amendments to the Certificate and such other assumed name certificates,
documents, instruments and publications as may be required by law, including,
without limitation, action to reflect:
(1) a change in the Company name; or
(2) a correction of false or erroneous statements in the
Certificate or the desire of the Members to make a change in any
statement therein in order that it shall accurately represent the
agreement among the Members.
(b) The Members and the Governing Board shall execute and cause to be
filed original or amended certificates and shall take any and all other actions
as may be reasonably necessary to perfect and maintain the status of the
Company as a limited liability company or similar type of entity under the laws
of any other jurisdictions in which the Company engages in business.
(c) Upon the dissolution and completion of the winding up and
liquidation of the Company in accordance with Section 14, the Liquidator, as an
authorized person within the meaning of the Act, shall promptly execute and
cause to be filed statements of intent to dissolve and certificate of
cancellation in accordance with the Act and the laws of any other jurisdictions
in which the Liquidator deems such filing necessary or advisable.
8.10 OTHER AGREEMENTS.
(a) Bridge Loan. Each Member agrees to use its commercially
reasonable best efforts to cause the Company to refinance the Bridge Loan prior
to its expiration. If either Member obtains a commitment from a third party
lender to refinance the bridge loan on commercially reasonable terms (taking
into account the Company's history and financial condition), the Member shall
cause the Company to approve and obtain such financing.
(b) Franchise Fees. Notwithstanding any other provision herein, each
of New Crescent and Magellan agrees that if franchise fees due Magellan
pursuant to the Franchise Agreement are past due for any reason in the amounts
set forth below, the Magellan Directors shall have the right to prohibit the
Company from taking one or more of the following actions, and to exercise one
or more of the following rights:
<PAGE> 35
35
<TABLE>
<CAPTION>
AMOUNT IN ARREARS RIGHTS OF MAGELLAN/PROHIBITED ACTIONS BY THE COMPANY
----------------- ----------------------------------------------------
<S> <C>
$6 million to $18 million 1. No incentive compensation to management
2. No vesting of management equity
Above $18 million to $24 million 1. No salary increases for key personnel
2. No additional hiring
3. No new hospital acquisitions/joint
ventures
Above $24 million 1. 5% cutback on expenses provided for in
the Annual Budget
2. Monthly approval of expenditures by
Magellan (capital and operating)
3. Rights to require transfer of
management and control of OpCo and its
SubCos to Magellan
</TABLE>
SECTION 9.
ROLE OF MEMBERS
9.1 RIGHTS OR POWERS.
The Members shall not have any right or power to take part in the
management or control of the Company or its Business and affairs or to act for
or bind the Company in any way, except the Members have all the rights and
powers specifically set forth in this Agreement and, to the extent not
inconsistent with this Agreement, in the Act. A Member, any Affiliate thereof
or an employee, stockholder, agent, director or officer of a Member or any
Affiliate thereof, may also be an employee or be retained as an agent of the
Company. The existence of these relationships and acting in such capacities
will not result in the Member's being deemed to be participating in the control
of the Business of the Company or otherwise affect the limited liability of the
Member. A Member shall not, in its capacity as a Member, take part in the
operation, management or control of the Company's business, transact any
business in the Company's name or have the power to sign documents for or
otherwise bind the Company.
9.2 VOTING RIGHTS.
No Member has any voting right except with respect to those matters
specifically reserved for a Member vote as set forth in this Agreement or as
required in the Act. A Member shall have one vote for each Percentage Interest
such Member has in the Company (for example, initially, Magellan and New
Crescent will each hold a 50% Interest in the Company and each have fifty
votes). The approval of Members owning eighty percent (80%) or more of the
Percentage Interests in the Company is required to act on any matter submitted
to a vote of the Members.
<PAGE> 36
36
9.3 MEETINGS OF THE MEMBERS.
(a) Meetings of the Members may be called upon the written request of
any Member. Such notice of meeting shall state the location of the meeting and
the nature of the business to be transacted. Notice of any such meeting shall
be given to all Members not less than seven (7) Business Days nor more than
thirty (30) days prior to the date of such meeting. Members may vote in
person, by proxy or by telephone at such meeting and may waive advance notice
of such meeting. Members which own in the aggregate eighty percent (80%) or
more of the Percentage Interests in the Company constitute a quorum for the
transaction of business at a meeting of the Members. Whenever the vote or
consent of Members is permitted or required under the Agreement, such vote or
consent may be given at a meeting of the Members or may be given in accordance
with the procedure prescribed in this Section 9.3.
(b) Each Member may authorize any Person or Persons to act for it by
proxy on all matters in which a Member is entitled to participate, including
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Member or its attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Member executing it.
(c) Notwithstanding this Section 9.3, the Company may take any action
contemplated under this Agreement as approved by the consent of the Members,
such consent to be provided in writing, or by telephone or facsimile, if such
telephone conversation or facsimile is followed by a written summary of the
telephone conversation or facsimile communication sent by registered or
certified mail, postage and charges prepaid, addressed as described in Section
16.2 hereof, or to such other address as such Person may from time to time
specify by notice to the Members and Directors.
9.4 REQUIRED MEMBER CONSENTS.
Notwithstanding any other provision of this Operating Agreement, no
action may be taken by the Company (whether by the Governing Board or
otherwise) in connection with the following matters without the approval of
Members owning at least 80% of the outstanding Percentage Interest:
(a) Cause or permit the Company to engage in any activity that is not
consistent with the purposes of the Company as set forth in Section 2.3 hereof;
(b) Knowingly do any act in contravention of this Agreement;
(c) Cause the Company to reorganize, recapitalize, merge or
consolidate with another Person;
(d) Elect to dissolve or liquidate the Corporation;
<PAGE> 37
37
(e) Cause the Company to take any action that would cause a
Bankruptcy of the Company;
(f) Possess Company assets, or assign rights in any Company assets,
for other than a Company purpose;
(g) Confess a judgment against the Company;
(h) Change the Percentage Interest of any Member without the consent
of the affected Member; or
(i) Amend this Agreement.
9.5 TAX ELECTIONS.
The Governing Board by supermajority (at least 80%) vote (except as
provided below) shall, without any further consent of the Members being
required (except as specifically required herein), make any and all elections
for United States federal, state, local, and foreign tax purposes including,
without limitation, any election, if permitted by applicable law: (i) to
adjust the basis of Property pursuant to Code Sections 754, 734(b) and 743(b),
or comparable provisions of state, local or foreign law, in connection with
Transfers of Interests and Company distributions and (ii) with the consent of
all of the Members, to extend the statute of limitations for assessment of tax
deficiencies against the Members with respect to adjustments to the Company's
United States federal, state, local or foreign tax returns. Magellan is
specifically authorized to act as the "Tax Matters Member" under Section 6231
of the Code and in any similar capacity under state or local law; provided,
however, that the Tax Matters Member shall not, without the consent of the
Members holding at least 80% of the Percentage Interests, file a request for
administrative review of any Partnership item (as defined in Section 6231 of
the Code) which may be expected to result in the material assessment of tax
against a Member, initiate judicial review of any adjustment with respect to
any Partnership item, or enter into any agreement with the Internal Revenue
Service (or any state and local taxing authority) that would result in any
material change in any item of income, gain, loss, deduction, or credit or
Profits or Losses as previously reported or in the allocation of such items of
Profits or Losses. The Tax Matters Member shall be responsible for preparing
and filing, or causing to be prepared and filed, all federal, state, and local
tax returns and shall submit all federal, state, and local income tax returns
and any other material federal, state, and local tax returns to the Governing
Board for review and supermajority (at least 80%) approval at least fifteen
days prior to the filing of such returns. The Company shall reimburse the Tax
Matters Member for all direct expenses incurred by the Tax Matters Member in
fulfilling its duties hereunder.
<PAGE> 38
38
9.6 MEMBERS' LIABILITY.
No Member shall be liable under a judgment, decree or order of a court,
or in any other manner for the Debts or any other obligations or liabilities of
the Company solely by reason of being a Member of the Company. A Member shall
be liable only to make the Capital Contributions described in Section 3, on the
terms therein described, and shall not be required to lend any funds to the
Company, or to make any other contributions, assessments or payments to the
Company; provided that a Member may be required to repay distributions made to
it as provided in Section 18-607 of the Act.
9.7 COMPANY'S LIABILITIES.
(a) Notwithstanding any other provision of this Agreement and except
for those liabilities assumed by the Company pursuant to the OpCo Contribution
Agreement, the Company shall not assume, or otherwise be responsible for, any
liabilities or obligations of any Member whether actual or contingent, or
liquidated or unliquidated, arising or occurring prior to the date hereof
("EXCLUDED LIABILITIES"), which Excluded Liabilities shall include, without
limitation:
(1) Any liability or obligation of any Member (other than as
provided in the Facilities Lease) in respect of any federal, state,
local, foreign or other tax, levy, impost, fee, assessment or other
governmental charge, including, without limitation, income, estimated
income, business, occupation, franchise, property, payroll, personal
property, sales, transfer, use, employment, commercial rent, occupancy,
franchise or withholding taxes, and any premium, including, without
limitation, interest, penalties and additions in connection therewith;
(2) Any liability (to the extent not covered by insurance)
arising from any injury to or death of any person or damage to or
destruction of any property, whether based on negligence, breach of
warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from services performed by or on behalf of any
Member prior to the date hereof;
(3) Any liability or obligation of any Member resulting from
entering into, performing its obligations pursuant to or consummating
the transactions contemplated by, this Agreement.
9.8 PARTITION.
While the Company remains in effect or is continued, each Member agrees
not to have any Company Property partitioned or file a complaint or institute
any suit, action or proceeding at law or in equity to have any Company Property
partitioned, and each Member, on behalf of itself, its successors and its
assigns hereby waives any such right.
<PAGE> 39
39
9.9 OTHER INSTRUMENTS.
Each Member hereby agrees to execute and deliver to the Company within
five (5) Business Days after receipt of a written request therefor, such other
and further documents and instruments, statements of interest and holdings,
designations, powers of attorney and other instruments and to take such other
action as the Governing Board deems necessary to comply with any laws, rules or
regulations as may be necessary to enable the Company to carry out fully the
provisions of this Agreement in accordance with its terms.
SECTION 10.
ACCOUNTING, BOOKS AND RECORDS;
CONFIDENTIALITY
10.1 ACCOUNTING, BOOKS AND RECORDS.
(a) The Company shall keep on site at its principal place of business
each of the following:
(1) Separate books of account for the Company which shall show
a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the conduct of the Company and the operation of its
business in accordance with this Operating Agreement;
(2) A current list of the full name and last known business,
residence, or mailing address of each Member and Director, both past and
present;
(3) A copy of the Certificate and all amendments thereto,
together with executed copies of any powers of attorney pursuant to
which any amendment has been executed;
(4) Copies of the Company's federal, state, and local income
tax returns and reports, if any, for the three most recent years;
(5) Copies of this Operating Agreement; and
(6) Unless contained in this Operating Agreement, a statement
prepared and certified as accurate by the Governing Board of the Company
which describes:
(a) The amount of cash and a description and statement
of the agreed value of the other property contributed by each
Member and which each Member has agreed to contribute in the
future;
<PAGE> 40
40
(b) Any right of a Member to receive distributions, and
the relative preferences and designations of the Member's
Interest.
(b) The Company shall use the accrual method of accounting in
preparation of its financial reports and for tax purposes and shall keep its
books and records accordingly. Any Member or its designated representative has
the right at its own cost and expense, at any reasonable time, to have access
to and inspect and copy the contents of such books or records. The Governing
Board shall be reimbursed by such Member for reasonable costs incurred as a
result of such inspection. Notwithstanding anything in the Act (including
Section 18-305(c) of the Act) or this Agreement to the contrary, the Governing
Board shall not have the right to keep confidential from any Member any
information concerning the Company.
10.2 REPORTS.
The Governing Board shall be responsible for causing the preparation of
(i) monthly financial reports of the Company, and (ii) annual audited financial
statements in conformity with SEC standards, if required, within 75 days of the
Company's year end, and (iii) the coordination of financial matters of the
Company with the Company's accountants.
10.3 CONFIDENTIALITY.
Except as required by law, each Member shall cause each of its
affiliates to treat and safeguard as confidential and secret any Protected
Information. None of the Members hereto or any of their respective affiliates
shall use or disclose, furnish or make accessible to any Person any Protected
Information.
SECTION 11.
AMENDMENTS
Amendments to this Agreement may be proposed by any Director or any
Member. Following such proposal, the Governing Board shall submit to the
Members a verbatim statement of any proposed amendment, providing that counsel
for the Company shall have approved of the same in writing as to form, and the
Governing Board shall include in any such submission a recommendation as to the
proposed amendment. The Governing Board shall seek the written vote of the
Members on the proposed amendment or shall call a meeting to vote thereon and
to transact any other business that it may deem appropriate.
<PAGE> 41
41
SECTION 12.
TRANSFERS
12.1 RESTRICTIONS ON TRANSFERS.
Except as otherwise permitted by this Agreement, no Member shall
Transfer all or any portion of its Interest.
12.2 PERMITTED TRANSFERS.
Subject to the conditions and restrictions set forth in Section 12.3
hereof, a Member may at any time Transfer all (but not less than all) of its
Interest to (i) a wholly owned subsidiary of that Member, provided that the
transferee subsidiary agrees to retransfer all of such Interest to such
transferring Member if such transferee subsidiary ceases to be a wholly owned
subsidiary of the transferring Member, (ii) the transferor's administrator or
trustee to whom such Interest is transferred involuntarily by operation of law,
(iii) any transferee if the transfer is approved by all Members which own
twenty percent (20%) or more of the outstanding Percentage Interests, in their
sole discretion, (iv) in the case of New Crescent, to a single transferee if
such transfer is necessary for Crescent Real Estate Equities Company ("CEI"),
as currently operated or as operated or proposed to be operated in the future
to avoid jeopardizing its status as a real estate investment trust (a "REIT")
under the Code, provided that prior to any transfer made by New Crescent
pursuant to this clause (iv), New Crescent shall provide Magellan with a
written opinion of counsel that such transfer is necessary to avoid
jeopardizing the qualification of CEI as a REIT, subject to Magellan's right of
first refusal under Section 12.8; provided that Magellan will notify New
Crescent within 15 days after receiving notice from New Crescent of its intent
to transfer pursuant to this clause (iv) and a written opinion of counsel
referred to above, whether it will exercise such rights, and, if it elects to
exercise such right, shall complete the purchase of such Interest within 25
days after the original notice from New Crescent (subject to the right of
Magellan to extend the date for completion of the purchase for up to an
additional 20 days if necessary to obtain any regulatory approvals required in
connection therewith) and (v) to any Person upon compliance with the provisions
of Section 12.8 hereof (any such Transfer being referred to in this Agreement
shall be a "PERMITTED TRANSFER"). A permitted transferee or other transferee
shall be admitted as a substituted Member of the Company in accordance with
Section 12.6.
In addition, a Member may also transfer its Interest, except for any
voting rights associated with such Interest (other than voting rights in
respect of the matters listed in Section 9.4) and the right to designate
Directors on the Governing Board (each of which rights will remain with such
Member), in the form of a pledge to a bona fide financial institution, which,
immediately prior to the creation of such pledge, is not an Affiliate of such
Member, to secure bona fide arms' length recourse indebtedness of such Member
and/or its subsidiaries if the pledgee thereof agrees (i) to provide the
Company with all notices of foreclosure by such pledgee and (ii) in the event
such pledgee becomes a Member, to be bound by the provisions of this Agreement
applicable to its transferor, it being
<PAGE> 42
42
understood that both (x) the making of such pledge and (y) such financial
institution's becoming a Member as the result of foreclosure on such pledge in
full or partial satisfaction of all or any part of the indebtedness secured
thereby or otherwise as a result of the exercise by it of its rights and
remedies with respect thereto shall each constitute a Permitted Transfer and
such financial institution shall be a "Member" for the purposes of this
Agreement, subject to the limitations described above. If such financial
institution transfers any portion of a Member's Interest pursuant to the terms
of this Agreement, including pursuant to Section 15.3 in the event of an
Unresolved Deadlock, then, upon the consummation of such transfer, the
transferee shall have all of the rights associated with such transferred
Interest prior to its transfer to such financial institution (including all
voting rights and the right to designate Directors related to such transferred
Interest or a portion thereof), and the Member which initially transferred its
Interest to such financial institution shall have no more rights in such
Interest (to the extent transferred by the financial institution).
12.3 CONDITIONS TO PERMITTED TRANSFERS.
A Transfer shall not be treated as a Permitted Transfer under Section
12.2 hereof unless and until the following conditions are satisfied:
(a) Except in the case of a Transfer involuntarily by operation of
law, the transferor and transferee shall execute and deliver to the Company
such documents and instruments of conveyance as may be necessary or appropriate
in the opinion of counsel to the Company to effect such Transfer and to confirm
the agreement of the transferee to be bound by the provisions of this Section
12, and to comply with the requirements of Code Section 6050K. In the case of
a Transfer of Interests involuntarily by operation of law, the Transfer shall
be confirmed by presentation to the Company of legal evidence of such Transfer,
in form and substance satisfactory to counsel to the Company. In all cases,
unless the requirements of this sentence have been waived by the Governing
Board, the Company shall be reimbursed by the transferor and/or transferee for
all costs and expenses that it reasonably incurs in connection with such
Transfer.
(b) The transferor and transferee shall furnish the Company with the
transferee's taxpayer identification number, sufficient information to
determine the transferee's initial tax basis in the Interest transferred, and
any other information reasonably necessary to permit the Company to file all
required federal and state tax returns and other legally required information
statements or returns. Without limiting the generality of the foregoing, the
Company shall not be required to make any distribution otherwise provided for
in this Agreement with respect to any transferred Interest until it has
received such information.
(c) Either (i) the Transfer occurs pursuant to an effective
registration statement under the Securities Act and any applicable state
securities law or (ii) the Transfer is exempt from registration or is otherwise
in compliance with the Securities Act and applicable state securities law, and
the transferor has furnished to the Company evidence (which may but need not in
the discretion of the Governing Board include an opinion of counsel) reasonably
satisfactory to the Governing Board.
<PAGE> 43
43
(d) The Transfer will not cause the Company to be deemed to be an
"investment company" under the Investment Company Act of 1940, as amended, and
the transferor shall provide an opinion of counsel to such effect, unless the
Governing Board waives the requirement that such opinion be provided. Such
opinion and counsel shall be reasonably satisfactory to the Governing Board.
(e) The Transfer will not cause the Company to be deemed to be a
publicly traded partnership under Code Section 7704.
12.4 PROHIBITED TRANSFERS.
Any purported Transfer of an Interest that is not a Permitted Transfer
shall be null and void and of no force or effect whatever; provided that, if
the Company is required to recognize a Transfer that is not a Permitted
Transfer (or if the Company, in its sole discretion, elects to recognize a
Transfer that is not a Permitted Transfer), the Interest transferred shall be
strictly limited to the transferor's rights to allocations and distributions as
provided by this Agreement with respect to the transferred Interest, which
allocations and distributions may be applied (without limiting any other legal
or equitable rights of the Company) to satisfy any debts, obligations, or
liabilities for damages that the transferor or transferee of such Interest may
have to the Company.
In the case of a Transfer or attempted Transfer of an Interest that is
not a Permitted Transfer, the parties engaging or attempting to engage in such
Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all cost, liability, and damage that the Company or any of
such indemnified Members may incur (including, without limitation, incremental
tax liabilities, lawyers' fees and expenses) as a result of such Transfer or
attempted Transfer and efforts to enforce the indemnity granted hereby. Any
indemnification payments made to the Company under this Section 12.4, to the
extent paid with respect to costs, liabilities or other damages incurred by a
Member, shall immediately be paid by the Company to such Member.
12.5 RIGHTS OF UNADMITTED ASSIGNEES.
A Person who acquires an Interest but who is not admitted as a
substituted Member pursuant to Section 12.6 hereof shall be entitled only to
allocations and distributions with respect to such Interest in accordance with
this Agreement, and shall not have any of the rights of a Member under the Act
or this Agreement.
12.6 ADMISSION OF SUBSTITUTED MEMBERS.
Subject to the other provisions of this Section 12, a transferee of an
Interest may be admitted to the Company as a substituted Member only upon
satisfaction of each of the conditions set forth in this Section 12.6:
<PAGE> 44
44
(a) (i) The non-transferring Members consent to such admission, which
consent may be given or withheld in the sole and absolute discretion of each
such Member, or (ii) the Interest with respect to which the transferee is being
admitted was acquired by means of a Permitted Transfer;
(b) The transferee of an Interest shall, by written instrument in
form and substance reasonably satisfactory to the Director (and, in the case of
clause (ii) below, the transferor Member), (i) accept and adopt the terms and
provisions of this Agreement, including this Section 12 and (ii) assume the
obligations of the transferor Member under this Agreement with respect to the
transferred Interest. The transferor Member shall be released from all such
assumed obligations except (i) those obligations or liabilities of the
transferor Member arising out of a breach of this Agreement and (ii) in the
case of a Transfer to any Person other than a Member, those obligations or
liabilities of the transferor Member based on events occurring, arising or
maturing prior to the date of Transfer;
(c) Unless the requirements of this Section 12.6(c) have been waived
by the Governing Board, the transferee pays or reimburses the Company for all
reasonable legal, filing, and publication costs that the Company incurs in
connection with the admission of the transferee as a Member with respect to the
Transferred Interest; and
(d) If required by the Governing Board, the transferee (other than a
transferee that was a Member prior to the Transfer) shall deliver to the
Company evidence of the authority of such Person to become a Member and to be
bound by all of the terms and conditions of this Agreement, and the transferee
and transferor shall each execute and deliver such other instruments as the
Governing Board reasonably deems necessary or appropriate to effect, and as a
condition to, such Transfer, including amendments to the Certificate or any
other instrument filed with the State of Delaware or any other state or
governmental authority.
12.7 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED
INTERESTS.
If all or any portion of an Interest is Transferred during any
Allocation Year in compliance with the provisions of this Section 12, Profits,
Losses, each item thereof, and all other items attributable to the Transferred
Interest for such Allocation Year shall be divided and allocated between the
transferor and the transferee by taking into account their varying Percentage
Interests during the Fiscal Year in accordance with Code Section 706(d), using
any conventions permitted by law and agreed to by the transferor and
transferee. All distributions on or before the date of such Transfer shall be
made to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Company shall recognize such Transfer not later than the end of the
calendar month during which it is given notice of such Transfer; provided that,
if the Company is given notice of a Transfer at least ten (10) Business Days
prior to the Transfer, the Company shall recognize such Transfer as of the date
of such Transfer; and provided further that if the Company does not receive a
notice stating the date such Interest was transferred and such other
information as the Director may reasonably require within thirty (30) days
after the end of the Allocation Year during which the Transfer occurs, then all
such
<PAGE> 45
45
items shall be allocated, and all distributions shall be made, to the Person
who, according to the books and records of the Company, was the owner of the
Interest on the last day of such Allocation Year. Neither the Company nor the
Director shall incur any liability for making allocations and distributions in
accordance with the provisions of this Section 12.7, whether or not the
Director or the Company has knowledge of any Transfer of ownership of any
Interest.
12.8 RIGHT OF FIRST REFUSAL
(a) In the event that any Member has a binding, written offer from an
unrelated Person for the Transfer of its Interest other than pursuant to a
Permitted Transfer and desires to accept such offer to purchase (a "PROPOSED
TRANSFER"), such Member (the "SELLING MEMBER") shall deliver to the Company and
the remaining Members (the "NON-SELLING MEMBERS") written notice of the
material terms of such offer, including the proposed purchaser thereof, the
amount, nature and payment schedule of the consideration to be received, the
conditions, if any, associated therewith and any other material terms of such
offer (an "OFFER NOTICE"). The Offer Notice shall constitute an irrevocable
offer by the Selling Member to sell all (but not less than all) of its Interest
subject to the Proposed Transfer (i) first, to the Non-Selling Members and (ii)
second, if and only if at that time there are more than two (2) Members, to the
Company on terms and conditions of the Proposed Transfer, except that a
purchaser under this Section 12.8 shall have the right to pay cash in an amount
equal to the Fair Market Value of any Non-Cash Consideration (the "RIGHT OF
FIRST REFUSAL").
(b) During the First Offer Period, each Non-Selling Member may elect
to purchase all or any portion of such Non-Selling Member's Offer Percentage
(as hereinafter defined) of the Interest subject to the Proposed Transfer by
delivering written notice of such election stating the percentage of the
Interest to be purchased (an "ELECTION NOTICE") to the Company and the Selling
Member prior to the expiration of the First Offer Period. As used herein, a
Member's Offer Percentage shall be a fraction, the numerator of which is equal
to the Percentage Interest of the Company held by such Member on the date of
the Offer Notice and the denominator of which is the Percentage Interests held
on such date by all Non-Selling Members (the "OFFER PERCENTAGE"); provided that
a Member shall have the right in an Election Notice to agree to purchase all or
any portion of the Interest that could be purchased by other Members; and, if
one or more Members do not deliver an Election Notice or elect to purchase less
than their respective Offer Percentages, then the portion of the Interest that
could have been purchased by such Members shall be purchased by Members that,
in an Election Notice, agreed to purchase such portion of the Interest, and
each such Member shall purchase the portion of the Interest indicated in an
Election Notice, unless the sum of the portions of the Interest exceeds the
Interest so available for purchase, in which case the portions of the Interest
shall be purchased pro rata on the basis of the proportionate amount of the
Offer Percentage of such Members that deliver an Election Notice. The failure
by any Non-Selling Member to deliver an Election Notice during the First Offer
Period shall be deemed to be an election by such Member not to purchase any of
the Interest subject to the Proposed Transfer.
(c) If the Non-Selling Members do not elect during the First Offer
Period to purchase all of the Interest subject to the Proposed Transfer, during
any Second Offer Period, the Company may
<PAGE> 46
46
elect to purchase all (but not less than all) of the Interest that the Non-
Selling Members did not elect to purchase during the First Offer Period by
delivering an Election Notice to the Selling Member prior to the expiration of
the Second Offer Period. The failure by the Company to deliver an Election
Notice during any Second Offer Period shall be deemed to be an election by the
Company not to purchase any of the Interest subject to the Proposed Transfer.
(d) If the Non-Selling Members and, if applicable, the Company
(either individually or collectively) do not elect to purchase all of the
Interest subject to the Proposed Transfer, the Selling Member may, Transfer to
the purchaser named in the Offer Notice (the "THIRD PARTY PURCHASER") all (but
not less than all) of the Interest subject to the Proposed Transfer in
accordance with the terms and conditions set forth in the Offer Notice;
provided, however, that if the Selling Member has not consummated the Transfer
of such Interest within the 45 Business Day period following any Second Offer
Period, all of the restrictions on Transfer contained in this Agreement shall
again be in effect with respect to such Interest.
(e) If the consideration for the sale of Interest pursuant to this
Right of First Refusal is cash consideration, the purchase price to be paid by
each of the Non-Selling Members and the Company, as applicable, shall be equal
to the total consideration set forth in the Offer Notice multiplied by the
percentage of such Interest being purchased by such Non-Selling Member or the
Company, as applicable. If the consideration for the Proposed Transfer
consists of consideration that is other than cash consideration payable in
immediately available funds at the closing thereunder ("NON-CASH
CONSIDERATION") or consists of a combination of cash consideration and Non-Cash
Consideration, the purchase price shall be cash in an amount equal to the total
of the cash consideration, if any, and the Fair Market Value of the Non-Cash
Consideration as determined in accordance with Section 12.9 hereof.
(f) The purchase and sale of Interest pursuant to this Right of First
Refusal shall be consummated at a closing that shall occur at the principal
business office of the Company within 20 Business Days following the expiration
of the relevant Offer Period, or at such other place or time as may be mutually
acceptable to the parties. At such closing, the Selling Member shall deliver a
certificate or other instrument representing the Interest being purchased, free
and clear of all liens, claims, encumbrances (other than as a result of this
Agreement) and defects in title and duly endorsed for Transfer to the
appropriate purchaser and, in exchange therefor, the purchaser of such Interest
shall pay the purchase price, as provided in Section 12.8(e) hereof, at such
closing by bank wire transfer of immediately available funds to a bank account
designated in writing by the Selling Member at least three Business Days prior
to such closing.
12.9 DETERMINATION OF FAIR MARKET VALUE.
In the event that a determination of the fair market value of Non-Cash
Consideration is required pursuant to the Right of First Refusal, the Selling
Member shall specify in the applicable Offer Notice its good faith estimate of
the fair market value of any Non-Cash Consideration to be paid in connection
with the proposed transfer. If a majority of the disinterested members of the
<PAGE> 47
47
Governing Board agrees with the estimated fair market value of such Non-Cash
Consideration, the estimate shall be deemed to be the Fair Market Value (the
"FAIR MARKET VALUE") thereof for purposes of this Agreement. If a majority of
the disinterested members of the Governing Board does not agree with the
estimated fair market value, the Governing Board shall, within 10 Business Days
of receipt of the Offer Notice, deliver to the Selling Member written notice of
its disagreement and shall, for a period of 10 Business Days after delivering
such notice, negotiate with the Selling Member for the purpose of determining
the fair market value of the Non-Cash Consideration that is acceptable to the
Governing Board and the Selling Member. If the Governing Board and the Selling
Member are unable to agree on a fair market value during the aforementioned
negotiation period, the Company and the Selling Member shall appoint a mutually
agreeable appraiser of recognized standing with respect to the nature of the
property constituting the Non-Cash Consideration to complete an appraisal of
the property constituting the Non-Cash Consideration. Such appraiser shall
render a binding and non-appealable appraisal of the Fair Market Value of the
property constituting the Non-Cash Consideration within 10 Business Days of
such appraiser's appointment or, if it is not reasonably possible to complete
such appraisal in such time period, such longer period as shall be reasonably
necessary to complete such appraisal (not to exceed 30 Business Days). The
Company and the Selling Member each shall bear one-half of the costs of such
appraisal.
12.10 TAG-ALONG AND BRING-ALONG RIGHTS.
(a) Exercise of "Tag-Along Right."
(i) Transfers by the Majority Member. In the event that
Magellan's or Crescent's Percentage Interest in the Company decreases to less
than 25%, the other party (the "Majority Member") shall not Transfer all or
part of its Interest without complying with the provisions of this Section
12.10(a). If the Majority Member desires to Transfer all or part of its
Interest (the "Offered Interest") to a proposed transferee, each of the other
Members (a "Remaining Member") may elect (the "Tag-Along Right") to sell to
such proposed transferee, on the same terms, consideration (on a Percentage
Interest basis) and conditions as were offered to the Majority Member, all of
the Interest then owned by each Remaining Member (if the Majority Member is
proposing to sell all of its Interest) or a portion of its Interest (if the
Majority Member is proposing to sell less than all of its Interest) in the same
proportion as the Interest proposed to be sold by the Majority Member.
(ii) Notification of Proposed Transfers. In the event of a
proposed Transfer subject to this Section 12.10(a), the Majority Member shall
notify in writing all Remaining Members of the proposed Transfer. Such notice
shall set forth: (i) the name of the proposed transferee and the portion of the
Interest that is to be transferred by the Majority Member, (ii) the proposed
amount and form of consideration and terms and conditions of payment offered by
such proposed transferee, and (iii) that the proposed transferee has been
informed of the Tag-Along Right provided for in this Section 12.10(a) and has
agreed to purchase additional Interests in accordance with the terms hereof.
The Tag-Along Right may be exercised by any Remaining Member by delivery of a
written notice to the Company (the "Tag-Along Notice") within 30 days following
receipt of the notice specified in the immediately preceding sentence stating
that the Remaining Member wishes to participate in such
<PAGE> 48
48
transfer to the proposed transferee by including such Remaining Member's
Interest (or a portion thereof). The Tag-Along Notice shall also specify, in
the event that only a portion of the Majority Member's Interest is being
purchased, whether or not the Remaining Member wishes to have any additional
portion (up to all) of his Interest purchased if any other Remaining Member
does not exercise such Member's Tag-Along Right. In the event that any
proposed transferee does not purchase the Interest of the Majority Member or
Remaining Member who has exercised such Member's Tag-Along Right on the same
terms, consideration (if applicable, on a Percentage Interest basis) and
conditions as those set forth in the notice delivered by the Majority Member
then the sale by the Majority Member to the proposed transferee shall be void
ab initio and of no force and effect, and the Company shall not recognize or
give effect to such transfer. Notwithstanding the foregoing, if any Remaining
Member shall not exercise its Tag-Along Right provided for herein, the other
Remaining Members shall have the right, upon receipt of written confirmation
from the Remaining Members not participating in the Tag-Along Right, to include
in their respective Tag-Along Notices, and to have purchased by the proposed
transferee, an additional Interest equal to each such Member's pro rata portion
of the Interest not included in the Tag-Along Right by the non-electing
Remaining Member.
(b) Exercise of "Bring-Along Right"
(i) Transfers by the Majority Member. In the event that
Magellan's or New Crescent's Percentage Interest in the Company decreases to
less than 25% and the Majority Member proposes to Transfer its Interest to a
proposed third party transferee in an arms-length transaction, then the
Majority Member may, at its option, require (the "Bring-Along Right") each
other Member to sell all of its Interest (the "Designated Interest") to the
proposed transferee, at the same time and on the same terms, consideration (on
a Percentage Interest basis) and conditions at which the Majority Member is
selling its Interest.
(ii) Notification of Proposed Transfer. The Majority Member
shall exercise its Bring-Along Right by sending written notice of the exercise
of the Bring-Along Right to each of the other Members. Such notice shall set
forth: (i) the name and address of the proposed transferee and the proposed
amount and form of consideration to be paid by the proposed transferee and (ii)
the terms and conditions of such transaction. Such notice shall be accompanied
by copies of all documents required to be executed by the Members in connection
with such transaction. Within 10 days following receipt of the notice, each of
the other Members shall deliver to a representative of the Majority Member,
designated in the notice, instruments (or other appropriate documents necessary
to transfer the Designated Interest) representing the Designated Interest held
by such Member, duly endorsed, together with fully executed copies of all other
documents required to be executed in connection with such transactions,
including (if requested) customary legal opinions from the counsel to such
Member. In the event that a Member should fail to deliver such instruments to
the Majority Member, the Company shall cause its books and records to show that
such Designated Interest is bound by the provisions of this Section 12.10(b)
and that such Designated Interest shall be transferred only to the third party
purchaser upon surrender for transfer by the holder thereof. If requested by
the Majority Member, each Member shall also cause a representative that is duly
<PAGE> 49
49
authorized to execute documents and to act on behalf of such Member to attend
the closing of the transaction and to take such actions as are reasonably
requested by the Majority Member.
(iii) Return of Designated Interest. If, within 120 days after
the Majority Member gives such notice, the sale of the Designated Interest by
the Majority Member in accordance herewith has not been completed, the Majority
Member shall return to each Member all instruments or other documentation
representing the Designated Interest that such Member delivered for sale
pursuant hereto.
(iv) Payment for Designated Interest. Simultaneously with the
consummation of the sale of the Designated Interest by the Majority Member and
the other Members pursuant to this Section 12.10(b), the Majority Member shall
remit, or cause the transferee to remit, to each of the Members the total sales
price of the Designated Interest sold pursuant thereto (net of the other
Members' pro rata share of any transaction expenses), and shall furnish such
other evidence of the completion and time of completion of such sale or other
disposition and the terms thereof as may be reasonably requested by such
Members.
SECTION 13.
POWER OF ATTORNEY
13.1 DIRECTORS AS ATTORNEYS-IN-FACT.
Each Member hereby makes, constitutes, and appoints each of the
Directors, severally, with full power of substitution and resubstitution, its
true and lawful attorney-in-fact for it and in its name, place, and stead and
for its use and benefit, to sign, execute, certify, acknowledge, swear to,
file, publish and record (i) all certificates of formation, amended name or
similar certificates, and other certificates and instruments (including
counterparts of this Operating Agreement) which the Governing Board may deem
necessary to be filed by the Company under the laws of the State of Delaware or
any other jurisdiction in which the Company is doing or intends to do business
in order to preserve its status as a limited liability company or conduct
business in such state; (ii) any and all duly authorized amendments,
restatements or changes to this Operating Agreement and the instruments
described in clause (i), as now or hereafter amended, which the Governing Board
may deem necessary to effect a change or modification of the Company in
accordance with the terms of this Operating Agreement, including, without
limitation, amendments, restatements or changes to reflect the admission of any
substituted Member and the disposition by any Member of its interest in the
Company; (iii) all certificates of cancellation and other instruments which the
Liquidator deems necessary or appropriate to effect the dissolution and
termination of the Company pursuant to the terms of this Operating Agreement;
and (iv) any other instrument which is now or may hereafter be required by law
to be filed on behalf of the Company or is deemed necessary by the Governing
Board to comply with any laws, rules or regulations or as may be necessary to
enable the Company to carry out fully the provisions of this Operating
Agreement in accordance with its terms. Each Member
<PAGE> 50
50
authorizes each such attorney-in-fact to take any further action which such
attorney-in-fact shall consider necessary in connection with any of the
foregoing, hereby giving each such attorney-in-fact full power and authority to
do and perform each and every act or thing whatsoever requisite to be done in
connection with the foregoing as fully as such Member might or could do
personally, and hereby ratify and confirm all that any such attorney-in-fact
shall lawfully do, or cause to be done, by virtue thereof or hereof.
13.2 NATURE OF SPECIAL POWER.
The power of attorney granted to each Director pursuant to this Section
13:
(a) Is a special power of attorney coupled with an interest and is
irrevocable;
(b) May be exercised by any such attorney-in-fact by listing the
Members executing any agreement, certificate, instrument, or other document
with the single signature of any such attorney-in-fact acting as
attorney-in-fact for such Members; and
(c) Shall survive and not be affected by the subsequent Bankruptcy,
insolvency, dissolution, or cessation of existence of a Member and shall
survive the delivery of an assignment by a Member of the whole or a portion of
its interest in the Company (except that where the assignment is of such
Member's entire interest in the Company and the assignee, with the consent of
the other Members, is admitted as a substituted Member, the power of attorney
shall survive the delivery of such assignment for the sole purpose of enabling
any such attorney-in-fact to effect such substitution) and shall extend to such
Member's or assignee's successors and assigns.
SECTION 14.
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION EVENTS.
(a) DISSOLUTION. The Company shall dissolve and shall commence
winding up and liquidating upon the first to occur of any of the following
(each a "DISSOLUTION EVENT"):
(1) The unanimous vote of the Members to dissolve, wind up,
and liquidate the Company;
(2) A judicial determination that an event has occurred that
makes it unlawful, impossible or impractical to carry on the Business;
(3) The expiration of the Company's term;
<PAGE> 51
51
(4) The entry of a decree of judicial dissolution; or
(5) The Bankruptcy, retirement, resignation or expulsion of
any Member; provided that any such event will not be deemed a
Dissolution Event if within ninety (90) days after such Dissolution
Event if the Company has one (1) or more remaining Members and such
Member or Members agree to continue the business and affairs of the
Company.
(b) RECONSTITUTION. If it is determined, by a court of competent
jurisdiction, that the Company has dissolved prior to the occurrence of a
Dissolution Event, then within an additional ninety (90) days after such
determination (the "RECONSTITUTION PERIOD"), all of the Members may elect to
reconstitute the Company and continue its Business on the same terms and
conditions set forth in this Agreement by forming a new limited liability
company on terms identical to those set forth in this Agreement. Unless such
an election is made within the Reconstitution Period, the Company shall
liquidate and wind up its affairs in accordance with Section 14.2 hereof. If
such an election is made within the Reconstitution Period, then:
(1) The reconstituted limited liability company shall continue
until the occurrence of a Dissolution Event as provided in this Section
14.1(a);
(2) All necessary steps shall be taken to cancel this
Agreement and the Certificate and to enter into a new operating
agreement and certificate of organization; provided that the right of
the Members to select successor Directors and to reconstitute and
continue the Business shall not exist and may not be exercised unless
the Company has received an opinion of counsel that the exercise of the
right would not result in the loss of limited liability of any Member
and neither the Company nor the reconstituted limited liability company
would cease to be treated as a partnership for U.S. federal income tax
purposes upon the exercise of such right to continue.
14.2 WINDING UP.
Upon the occurrence of a Dissolution Event, the Company shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Members,
and no Member shall take any action that is inconsistent with, or not necessary
to or appropriate for, the winding up of the Company's business and affairs;
provided that all covenants contained in this Operating Agreement and
obligations provided for in this Operating Agreement shall continue to be fully
binding upon the Members until such time as the Property has been distributed
pursuant to this Section 14.2 and the Certificate has been canceled pursuant to
the Act. The Liquidator shall be responsible for overseeing the winding up and
dissolution of the Company, which winding up and dissolution shall be completed
within ninety (90) days of the occurrence of the Dissolution Event. The
Liquidator shall take full account of the Company's liabilities and Property
and shall cause the Property or the proceeds from the sale thereof (as
determined pursuant to Section 12.6), to the extent sufficient therefor, to be
applied and distributed, to the maximum extent permitted by law, in the
following order:
<PAGE> 52
52
(a) First, to creditors (including Members and Directors who are
creditors, to the extent otherwise permitted by law) in satisfaction of all of
the Company's Debts and other liabilities (whether by payment or the making of
reasonable provision for payment thereof), other than liabilities for which
reasonable provision for payment has been made and liabilities for distribution
to Members under Section 18-601 or 18-604 of the Act;
(b) Second, except as provided in this Agreement, to Members and
former Members of the Company in satisfaction of liabilities for distribution
under Sections 18-601 or 18-604 of the Act; and
(c) The balance, if any, to the Members in accordance with the
positive balance in their Capital Accounts, after giving effect to all
contributions, distributions and allocations for all periods.
14.3 RIGHTS OF MEMBERS.
Except as otherwise provided in this Agreement, each Member shall look
solely to the Property of the Company for the return of its investment and has
no right or power to demand or receive Property other than cash from the
Company. If the assets of the Company remaining after payment or discharge of
the Debts or liabilities of the Company are insufficient to return such
investment, the Members shall have no recourse against the Company or any other
Member or Director.
14.4 NOTICE OF DISSOLUTION/TERMINATION.
(a) In the event a Dissolution Event occurs, the Liquidator shall,
within thirty (30) days thereafter, provide written notice thereof to each of
the Members and to all other parties with whom the Company regularly conducts
business (as determined in the discretion of the Liquidator) and shall publish
notice thereof in a newspaper of general circulation in each place in which the
Company regularly conducts business (as determined in the discretion of the
Liquidator).
(b) Upon completion of the distribution of the Company's Property as
provided in this Section 14, the Company shall be terminated, and the
Liquidator shall cause the filing of the Certificate of Cancellation pursuant
to Section 18-203 of the Act and shall take all such other actions as may be
necessary to terminate the Company.
14.5 THE LIQUIDATOR.
(a) DEFINITION. The "LIQUIDATOR" shall mean a Person appointed by
the Governing Board to oversee the dissolution of the Company and shall have
the power of attorney granted to the Directors pursuant to Section 13.
(b) FEES. The Company is authorized to pay a reasonable fee to the
Liquidator for its services performed pursuant to this Section 14 and to
reimburse the Liquidator for its reasonable
<PAGE> 53
53
costs and expenses incurred in performing those services, other than a
Liquidator that is also a Member or Director.
(c) INDEMNIFICATION. The Company shall indemnify, save harmless, and
pay all judgments and claims against such Liquidator or any officers,
directors, stockholders, agents or employees of the Liquidator relating to any
liability or damage incurred by reason of any act performed or omitted to be
performed by the Liquidator, or any officers, directors, stockholders, agents
or employees of the Liquidator in connection with the winding up of the
Company, including reasonable attorneys' fees incurred by the Liquidator,
officer, director, stockholder, agent or employee in connection with the
defense of any action based on any such act or omission, which attorneys' fees
may be paid as incurred, except to the extent such liability or damage is
caused by the fraud, intentional misconduct of, or a knowing violation of the
laws by the Liquidator which was material to the cause of action.
14.6 FORM OF LIQUIDATING DISTRIBUTIONS.
For purposes of making distributions required by Section 14.2 hereof,
the Liquidator may determine whether to distribute all or any portion of the
Property in-kind or to sell all or any portion of the Property and distribute
the proceeds therefrom.
SECTION 15.
MANAGEMENT DEADLOCK
15.1 EXISTENCE OF A DEADLOCK
A deadlock of the Governing Board (a "DEADLOCK") shall be deemed to
exist if the Governing Board shall be unable to reach agreement by the
required vote on (i) a Major Decision, (ii) a decision involving the
expenditure of more than $____ million or (iii) a decision relating to the
election of Executive Officers, provided that any matter referred to in (i),
(ii) or (iii) has been submitted for consideration at two successive meetings.
15.2 DISCUSSIONS BY CHIEF EXECUTIVE OFFICERS
If a Deadlock exists, the Members or Governing Board, as appropriate,
shall negotiate in good faith and use their respective best efforts to resolve
such Deadlock. If, however, after 20 Business Days such Deadlock remains, any
Member, by giving notice to the other Members, may request that such Deadlock
be referred for resolution to the Chief Executive Officer of Magellan and the
Chief Executive Officer of New Crescent (the "Chief Executive Officers") (or,
if a Member's Chief Executive Officer is on the Company's Governing Board,
another senior officer or director designated by the Member). The Chief
Executive Officers shall meet within 20 Business Days thereafter and shall
attempt in good faith to resolve such Deadlock. Any resolution agreed to in
writing by the Chief Executive Officers shall be final and binding on the
Company and the Members, so long as the resolution is not inconsistent with any
provision of this Agreement.
<PAGE> 54
54
15.3 BUY/SELL OPTION
In the event of a failure to resolve a Deadlock pursuant to Section 15.2
within forty (40) Business Days after a Member makes the request for resolution
by the Chief Executive Officers (an "UNRESOLVED DEADLOCK"), either Member, at
any time thereafter, shall be authorized to offer to purchase all of the
Interest of the other Member pursuant to the procedures set forth in the
following provisions:
(a) Either New Crescent or Magellan (the initiating party being
hereinafter referred to as the "OFFERING PARTY") may by written notice to the
other party (the "RESPONDING PARTY") state the aggregate fair value of all of
the outstanding Interests in the Company (the "STATED VALUE"). The giving of
such notice of Stated Value by the Offering Party shall constitute the
irrevocable offer of such party to purchase all of the Responding Party's
Interest in the Company or to sell to the Responding Party all of the Offering
Party's Interest in the Company for the respective purchase price provided for
hereinafter.
(b) Within thirty (30) days after receipt of said notice, the
Responding Party shall determine whether it shall sell its Interest or purchase
the Offering Party's Interest in the Company as provided herein and shall give
written notice to the Offering Party of its decision and shall designate in
that notice which party will be the "SELLING PARTY" and which party shall be
the "PURCHASING PARTY." If the Responding Party shall fail to give notice of
its election within the said 15-day period, then the Responding Party shall be
deemed to have given notice of its election to sell all of its Interest in the
Company pursuant to the provisions hereof.
(c) Within forty-five (45) days after the date on which the
Responding Party receives the notice of Stated Value from the Offering Party,
New Crescent and Magellan shall close the purchase of all of the Interest in
the Company then owned by the Selling Party. The purchase price for such
Interest shall be the product obtained by multiplying the Stated Value times
the Percentage Interest owned by the Selling Party. The Purchasing Party shall
pay the purchase price for such Interest in cash or by certified check at the
closing. The Selling Party shall deliver to the Purchasing Party at the
closing such documents and instruments as may be necessary or desirable, in the
opinion of counsel for the Purchasing Party, to effect the transfer of the
Selling Party's Interest to the Purchasing Party, which Interest shall be free
and clear of all Encumbrances.
(d) If the Selling Party is Magellan and, after the close of the
purchase of Magellan's Interest by New Crescent, the Company fails to pay to
Magellan all amounts due Magellan under the Franchise Agreement, New Crescent
acknowledges that Magellan shall have the rights granted to Magellan under
Section 15 of the Franchise Agreement.
<PAGE> 55
55
15.4 CONTINUATION OF BUSINESS
During the pendency of any Deadlock relating to the approval of any
Annual Budget for an ensuing Fiscal Year, the Governing Board and the President
shall conduct the Business of the Company in accordance with Section 8.3(c) of
this Agreement.
SECTION 16.
MISCELLANEOUS
16.1 TIME.
In computing any period of time pursuant to this Agreement, the day of
the act, event or default from which the designated period of time begins to
run shall not be included, but the time shall begin to run on the next
succeeding day. The last day of the period so computed shall be included,
unless it is a Saturday, Sunday or legal holiday, in which event the period
shall run until the end of the next day which is not a Saturday, Sunday or
legal holiday.
16.2 NOTICES.
Any notice, payment, demand, or communication required or permitted to
be given by any provision of this Agreement shall be in writing and shall be
deemed to have been delivered, given, and received for all purposes (i) if
delivered personally to the Person or to an officer of the Person to whom the
same is directed or (ii) when the same is actually received, if sent either by
registered or certified mail, postage and charges prepaid, or by facsimile, if
such facsimile is followed by a hard copy of the facsimile communication sent
promptly thereafter by registered or certified mail, postage and charges
prepaid, addressed as follows, or to such other address as such Person may from
time to time specify by notice to the Members and Governing Board:
(a) If to the Governing Board or Company, to the address determined
pursuant to Section 2.4(a) hereof;
(b) If to the Directors, to the addresses set forth in Section 8.1
hereto and thereafter at such address notified by such Director to the Company
in writing; and
(c) If to a Member, to the appropriate address set forth in Section
2.4(b) or 2.4(c) hereof and thereafter at such address notified by such Member
to the Company in writing.
<PAGE> 56
56
16.3 BINDING EFFECT
Except as otherwise provided in this Agreement, every covenant, term,
and provision of this Agreement shall be binding upon and inure to the benefit
of the Members and their respective successors, transferees, and assigns.
16.4 CONSTRUCTION.
Every covenant, term, and provision of this Agreement shall be construed
simply according to its fair meaning and not strictly for or against any
Member.
16.5 HEADINGS.
Section and other headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement or any provision hereof.
16.6 SEVERABILITY.
Except as otherwise provided in the succeeding sentence, every provision
of this Agreement is intended to be severable, and, if any term or provision of
this Agreement is illegal or invalid for any reason whatsoever, such illegality
or invalidity shall not affect the validity or legality of the remainder of
this Agreement. The preceding sentence of this Section 16.6 shall be of no
force or effect if the consequence of enforcing the remainder of this Agreement
without such illegal or invalid term or provision would be to cause any Member
to lose the material benefit of its economic bargain.
16.7 INCORPORATION BY REFERENCE.
No exhibit, schedule, or other appendix attached to this Agreement and
referred to herein is incorporated in this Agreement by reference unless this
Agreement expressly otherwise provides.
16.8 VARIATION OF TERMS.
All terms and any variations thereof shall be deemed to refer to
masculine, feminine, or neuter, singular or plural, as the identity of the
Person or Persons may require.
16.9 GOVERNING LAW.
The laws of the State of Delaware (other than the choice of law
provisions thereof) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights and duties
arising hereunder.
<PAGE> 57
57
16.10 WAIVER OF JURY TRIAL.
Each of the Members irrevocably waives, to the extent permitted by law,
all rights to trial by jury and all rights to immunity by sovereignty or
otherwise in any action, proceeding or counterclaim arising out of or relating
to this Agreement.
16.11 COUNTERPART EXECUTION.
This Agreement may be executed in any number of counterparts with the
same effect as if all of the Members had signed the same document. All
counterparts shall be construed together and shall constitute one agreement.
16.12 NO MATERIAL IMPAIRMENT.
No Member shall take any action that could impair materially such
Member's ability to perform its duties and obligations under this Agreement.
<PAGE> 58
58
IN WITNESS WHEREOF, the parties have executed and entered into this
Operating Agreement of the Company as of the day first above set forth.
MAGELLAN HEALTH SERVICES, INC.
---------------------------------------
Name:
Title:
NEW CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
FORM OF
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of April ____,
1997, between Crescent Opportunity Corp., a [Delaware corporation] (the
"Company"), and Magellan Health Services, Inc., a Delaware corporation (the
"Buyer").WHEREAS, the Company desires to sell to Buyer, and Buyer desires to
purchase from the Company, warrants to purchase shares of common stock of the
Company, par value [$__] per share ("Common Stock");
WHEREAS, the Company, Buyer and Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership ("Crescent"), have agreed to
certain related transactions pursuant to the Transaction Documents (as defined
in that certain Real Estate Purchase and Sale Agreement, dated January __,
1997, by and between Buyer and Crescent (the "REIT Purchase Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Buyer hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Sale and Purchase of Warrants. On the terms and subject to the
conditions set forth in this Agreement, the Company hereby sells to Buyer, and
Buyer hereby purchases from the Company, warrants (collectively, the
"Warrants") to purchase shares of Common Stock. The Warrants shall be
exercisable as set forth on Annex 1 and shall constitute the right to purchase
that number of shares of Common Stock set forth on Annex 1, which number
represents two and one-half percent (2.5%) of the Common Stock of the Company
outstanding on the date hereof, on a fully diluted basis (subject to adjustment
from time to time as provided in the Warrants). The Warrants shall be in
substantially the form set forth as Exhibit A hereto (except for the number of
shares and the exercise period which shall be in accordance with Annex 1).
1.2 Purchase Price and Payment. The parties hereto acknowledge that
the Purchase Price for the Warrants was made by them in arm's length
negotiation. The aggregate purchase price for the Warrants is Ten and No/100
Dollars ($10.00) (the "Purchase Price").
1.3 Defined Terms. A list of terms used in this Agreement is set
forth in Article XI.
<PAGE> 2
ARTICLE II
CLOSING AND CLOSING DATE
The Closing of the transactions contemplated hereby shall occur at the
time of the closing of the REIT Purchase Agreement and upon satisfaction of the
conditions to Closing set forth herein and therein. The date on which the
Closing is required to take place is herein referred to as the "Closing Date."
The closing of all of the transactions contemplated hereby shall be deemed to
have occurred simultaneously.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer, as of the date hereof,
that:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority in all material
respects to own, lease, and operate its properties and to carry on its business
as now being conducted. No actions or proceedings to dissolve the Company are
pending or, to the best knowledge of the Company, are threatened.
3.2 Capitalization of the Company.
(a) The authorized [capital stock] of the Company consists of
(i) ___________ shares of Common Stock, of which, as of the date hereof
___________ shares are outstanding and ___________ shares are held in the
Company's treasury, and (ii) 10,000,000 shares of Preferred Stock, without par
value, of which, as of the date hereof, no shares are outstanding. All
outstanding shares of capital stock of the Company have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of the Company
are subject to, nor have any been issued in violation of, preemptive or similar
rights. As of the date hereof, no shares of Common Stock are reserved for
issuance.
(b) Except as set forth above in subparagraph (a) of this
Section 3.2 and as contemplated by this Agreement, there are outstanding (i) no
shares of capital stock or other voting securities of the Company; (ii) no
securities of the Company convertible into or exchangeable for shares of
capital stock or other voting securities of the Company; (iii) no options or
other rights to acquire from the Company, and no obligation of the Company to
issue or sell, any shares of capital stock or other voting securities of the
Company or any securities of the Company convertible into or exchangeable for
such capital stock or voting securities; and (iv) other than employee
compensation plans based on the Company's earnings and executive officer
employment agreements, no equity equivalents, interests in the ownership or
earnings, or other similar rights of or with respect to the Company. There are
no outstanding contractual
-2-
<PAGE> 3
obligations of the Company to repurchase, redeem or otherwise acquire any
shares of Common Stock or any other securities of the type described in clauses
(i)-(iv) of the preceding sentence.
3.3 Authority Relative to This Agreement. The Company has full
corporate power and authority to execute, deliver, and perform this Agreement
to which it is a party and to consummate the transactions contemplated hereby.
The execution, delivery, and performance by the Company of this Agreement, and
the consummation by it of the transactions contemplated hereby, have been duly
authorized by all necessary corporate action of the Company. This Agreement
has been duly executed and delivered by the Company and constitutes, and the
Warrant, when executed by the Company will be, a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting
creditors' rights generally or by general principles of equity.
3.4 Noncontravention. The execution, delivery, and performance by
the Company of this Agreement and the Warrants and the consummation by it of
the transactions contemplated hereby do not and will not (i) conflict with or
result in a violation of any provision of the Company's Certificate of
Incorporation or the Company's Bylaws, as amended, or the charter, bylaws or
other governing instruments of any Subsidiary, (ii) conflict with or result in
a violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, agreement, or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound, (iii) result in
the creation or imposition of any Encumbrance upon the properties of the
Company or any Subsidiary, or (iv) assuming compliance with the matters
referred to in Section 3.5, violate any Applicable Law binding upon the Company
or any Subsidiary, except, in the case of clauses (ii), (iii), and (iv) above,
for any such conflicts, violations, defaults, terminations, cancellations,
accelerations, or Encumbrances which would not, individually or in the
aggregate, have a material adverse effect on the business, assets, results of
operations, or financial condition of the Company and the Subsidiaries taken as
a whole or the ability of the Company to consummate the transactions
contemplated hereby.
3.5 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by the Company or any
Subsidiary in connection with the execution, delivery, or performance by the
Company of this Agreement or the consummation by it of the transactions
contemplated hereby, other than (i) compliance with any applicable requirements
of the HSR Act; (ii) compliance with any applicable requirements of the
Securities Act; (iii) compliance with any applicable requirements of the
Exchange Act; (iv) compliance with any applicable state securities laws; and
(v) such consents, approvals, orders, or authorizations which, if not obtained,
and such declarations, filings, or registrations which, if not made, would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, results of operations, or financial condition of the Company
or on the ability of the Company to consummate the transactions contemplated
hereby. The representations and warranties of the Company contained in this
-3-
<PAGE> 4
Section 3.5, insofar as such representations and warranties pertain to
compliance by the Company with the requirements of the Securities Act and
applicable state securities laws, are based on the representations and
warranties of Buyers contained in Section 4.5.
3.6 Authorization of Issuance: Reservation of Shares. When issued
and delivered pursuant to this Agreement against payment therefor, the Warrants
will have been duly authorized, issued and delivered and will constitute valid
and legally binding obligations of the Company entitled to the benefits
provided therein. During the period within which the Warrants may be
exercised, the Company will at all times have authorized and reserved for the
purpose of issue upon exercise of the Warrants, a sufficient number of shares
of Common Stock to provide for the exercise of the Warrants. All shares of
Common Stock which are issuable upon exercise of the Warrants (the "Warrant
Shares") will, when issued, be validly issued, fully paid and nonassessable.
Upon exercise of the Warrants the issuance of the Warrant Shares will not be
subject to any preemptive or similar rights.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
4.1 Organization. Buyer is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its formation.
4.2 Authority Relative to This Agreement. Buyer has full power and
authority to execute, deliver, and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance by
Buyer of this Agreement, and the consummation by it of the transactions
contemplated hereby, have been duly authorized by all necessary action of
Buyer. This Agreement has been duly executed and delivered by Buyer and
constitutes a valid and legally binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except that such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally or by general principles
of equity.
4.3 Noncontravention. The execution, delivery, and performance by
Buyer of this Agreement and the consummation by it of the transactions
contemplated hereby do not and will not (i) conflict with or result in a
violation of any provision of the charter, bylaws, or similar organizational
documents of Buyer, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, agreement, or other instrument or obligation to which Buyer
is a party or by which Buyer or any of its properties may be bound, (iii)
result in the creation or imposition of any Encumbrance upon the properties of
Buyer, or (iv) violate any Applicable Law binding upon Buyer, except, in the
case of clauses (ii), (iii), and (iv) above, for any such conflicts,
violations, defaults,
-4-
<PAGE> 5
terminations, cancellations, accelerations, or Encumbrances which would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, results of operations, or financial condition of Buyer or on
the ability of Buyer to consummate the transactions contemplated hereby.
4.4 Governmental Approvals. Other than any HSR Act filing, no
consent, approval, order, or authorization of, or declaration, filing, or
registration with, any Governmental Entity is required to be obtained or made
by Buyer in connection with the execution, delivery, or performance by Buyer of
this Agreement or the consummation by it of the transactions contemplated
hereby.
4.5 Purchase for Investment. Buyer has been furnished with all
information that it has requested for the purpose of evaluating the proposed
acquisition of the Warrants pursuant hereto, and Buyer has had an opportunity
to ask questions of and receive answers from the Company regarding the Company
and its business, assets, results of operations, and financial condition and
the terms and conditions of the issuance of the Warrants. Buyer is acquiring
the Warrants to be purchased by it for its own account for investment and not
for distribution in any manner that would violate applicable securities laws.
Buyer can bear the risk of an investment in the Warrants, and has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of a prospective investment in the Warrants.
The acquisition of such Warrants by Buyer at Closing shall constitute Buyer's
confirmation of the foregoing representations. Buyer understands that such
Warrants are being sold to it in a transaction which is exempt from the
registration requirements of the Securities Act, and that, in making the
representations and warranties contained in Section 3.5 pertaining to
compliance by the Company with the requirements of the Securities Act and
applicable securities laws, the Company is relying, to the extent applicable,
upon Buyer's representations set forth herein.
4.6 No Other Shares. Except for such rights as may be conferred on
Buyer by this Agreement, as of the date hereof, Buyer does not beneficially
own, directly or indirectly through any subsidiary or through any affiliate of
Buyer in which Buyer directly or indirectly owns stock or equity interests, any
shares of capital stock of the Company.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Press Releases. Except as may be required by Applicable Law,
neither Buyer, on the one hand, nor the Company, on the other, shall issue any
press release with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party (which consent
shall not be unreasonably withheld under the circumstances). Any such press
release required by Applicable Law shall only be made after reasonable notice
to the other party.
5.2 Stock Exchange Listing. The Company shall use its commercially
reasonable best efforts to cause the Warrant Shares to be approved for listing
on a national securities exchange, subject to official notice of issuance, or
traded in the over-the-counter market and quoted
-5-
<PAGE> 6
on the NASDAQ Stock Market, prior to any exercise by the Company or Crescent of
its rights to acquire shares of common stock of Buyer under that certain
Warrant Purchase Agreement from the Company (the "Magellan Warrant").
5.3 Registration Rights.
(a) Registration of Warrant Shares. On or before the date
that the Company or Crescent first exercises its rights to acquire shares of
common stock under the Magellan Warrant, the Company will use its commercially
reasonable best efforts to obtain effectiveness of a registration statement
under the Securities Act with respect to the issuance of the Warrant Shares
upon exercise of the Warrants and the resale of the Registrable Warrant Shares.
(b) Registration Procedures. With respect to each
registration statement filed in accordance with this Section 5.3 (the
"Registration Statement"), the Company shall:
(i) cause the Registration Statement and the related
prospectus and any amendment or supplement, (A) to comply in all
material respects with the applicable requirements of the Securities Act
and under the rules and regulations promulgated thereunder, and (B) not
to contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(ii) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith, and upon the mandatory
expiration of the Registration Statement, one or more additional
registration statements, as may be necessary to keep the Registration
Statement effective on a continual basis for so long as the Buyer or its
permitted transferee owns any Underlying Warrant Shares; provided that
the Company shall not be required to maintain the effectiveness of any
Registration Statement filed hereunder for a period in excess of twelve
years and ninety (90) days from the Closing Date;
(iii) furnish, upon written request, to Buyer a copy of
any amendment or supplement to the Registration Statement or prospectus
prior to filing it after effectiveness and not file any such amendment
or supplement to which Buyer shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations promulgated thereunder;
(iv) furnish to Buyer such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus used in connection therewith (including, without limitation,
each preliminary prospectus and final prospectus) and such other
document as Buyer may reasonably request in order to facilitate the
disposition of the Registrable Warrant Shares owned by Buyer;
-6-
<PAGE> 7
(v) use its best efforts to register or qualify all
Registrable Warrant Shares covered by the Registration Statement under
such other securities or blue sky laws of the states of the United
States as may be required for the issuance and sale of the Registrable
Warrant Shares, to keep such registration or qualification in effect for
so long as the Registration Statement remains in effect except that the
Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction in which it
is not and would not, but for the requirements of this Section 5.3, be
obligated to be so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(vi) prior to any sale of the Registrable Warrant Shares
effected on a national securities exchange, deliver to such national
securities exchange copies of the prospectus to be used in connection
with the offering to be conducted pursuant to the Registration
Statement;
(vii) upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in the Registration
Statement, as then in effect, includes or in the judgment of the Company
may include an untrue statement of a material fact or omits or may omit
to state any material fact required to be stated in such prospectus or
necessary to make the statements in such prospectus not misleading in
the light of the circumstances in which they were made, which
circumstance requires amendment of the Registration Statement or
supplementation of the prospectus, prepare and file as promptly as
reasonably possible a supplement to or an amendment of such prospectus
as may be necessary so that, as when delivered (if required by the
Securities Act) to a purchaser of Registrable Warrant Shares, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated in such prospectus
or necessary to make the statements in such prospectus not misleading in
the light of the circumstances in which they were made;
(viii) otherwise use its commercially reasonable best
efforts to comply with all applicable rules and regulations under the
Securities Act and, in its discretion, to make available to its
securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first month of the first fiscal
quarter after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of section 11(a) of the
Securities Act;
(ix) provide and cause to be maintained a transfer agent
and registrar for all Registrable Warrant Shares covered by the
Registration Statement from and after a date not later than the
effective date of the Registration Statement;
(x) use its commercially reasonable best efforts to
list all Registrable Warrant Shares covered by the Registration
Statement on any national securities
-7-
<PAGE> 8
exchange on which securities of the same class as the Registrable
Warrant Shares are then listed;
(xi) after any sale of the Registrable Warrant Shares
pursuant to this Section 5.3, to the extent not prohibited by law, cause
any restrictive legends to be removed and any transfer restrictions to
be rescinded with respect to the Registrable Warrant Shares;
(xii) enter into such customary agreements (including,
without limitation, underwriting agreements in customary form,
substance, and scope) and take all such other actions as the holders of
a majority of the Registrable Warrant Shares being sold or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Warrant Shares;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of the Registration Statement, or of any
order suspending or preventing the use of any related prospectus or
suspending the disqualification of any Common Stock included in the
Registration Statement for sale in any jurisdiction, the Company will
use its commercially reasonable best efforts promptly to obtain the
withdrawal of such order; and
(xiv) use its commercially reasonable best efforts to
cause such Registrable Warrant Shares covered by the Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the Buyer thereof
to consummate the disposition of such Warrant Shares.
(c) Obligations of Buyer. The Buyer holding Registrable
Warrant Shares shall furnish to the Company such information regarding the
Buyer as the Company may from time to time reasonably request in writing (and
will notify the Company of any changes in such information) and as shall be
required by the Securities Act in connection with such registration.
(d) Delay of Sales. During any period in which the Company is
maintaining the effectiveness of a Registration Statement for the Registrable
Warrant Shares pursuant to this Section 5.3, the Company shall have the right,
upon giving notice to the Buyer holding Registrable Warrant Shares of the
exercise of such right, to require the Buyer not to sell any Registrable
Warrant Shares pursuant to such Registration Statement for a period of time the
Company deems reasonably necessary, which time shall be specified in such
notice but in no event longer than a period of 90 days, if (i) the Company is
engaged in an offering of shares by the Company for its own account or is
engaged in or proposes to engage in discussions or negotiations with respect
to, or has proposed or taken a substantial step to commence, or there otherwise
is pending, any merger, acquisition, other form of business combination,
divestiture, tender offer, financing or other transaction, or there is an event
or state of facts relating to the Company, in each case which is material to
the Company (any such negotiation, step, event or state of facts being herein
called a "Material Activity"), (ii) such Material Activity would, in the
opinion of counsel for the Company reasonably acceptable to Buyer, require
disclosure so as to permit the Registrable
-8-
<PAGE> 9
Warrant Shares to be sold in compliance with applicable law, and (iii) such
disclosure would, in the reasonable judgment of the Company, be adverse to its
interests in any material respect. The Company shall have no obligation to
include in any notice contemplated by this subparagraph (f) any reference to or
description of the facts based upon which the Company is delivering such
notice.
(e) Indemnification.
(i) The Company shall indemnify and hold harmless the
Buyer holding Registrable Warrant Shares and its directors, Affiliates
and officers, and each other person, if any, who controls the Buyer
within the meaning of the Securities Act against any losses, claims,
damages, liabilities or expenses (including reasonable fees and expenses
of counsel), joint or several, to which the Buyer or any such director,
Affiliate or officer or participating or controlling person may become
subject under the Securities Act or otherwise in connection with or as a
result of a sale by the Buyer of the Registrable Warrant Shares, insofar
as such losses, claims, damages, liabilities or expenses (or related
actions or proceedings) arise out of or are based upon (i) any untrue
statement of any material fact contained in the Registration Statement,
any preliminary prospectus, final prospectus or summary prospectus
contained in the Registration Statement, or any amendment or supplement
to the Registration Statement, or any document incorporated by reference
in the Registration Statement, or (ii) any omission to state in any such
document a material fact required to be stated in any such document or
necessary to make the statements in any such document not misleading,
and the Company will reimburse the Buyer and each such director,
Affiliate, officer, participating person and controlling person for any
legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability
or expense (or action or proceeding in respect of any such loss, claim,
damage, liability or expense) which arises out of or is based upon an
untrue statement or omission made in the Registration Statement, any
such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement except for any untrue statement or omission made
in reliance upon and in conformity with written information furnished to
the Company by the Buyer or any such director, Affiliate, officer,
participating person or controlling person for use in the preparation of
the Registration Statement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Buyer or any such director, Affiliate, officer, participating person or
controlling person and shall survive the transfer of Registrable Warrant
Shares by the Buyer.
(ii) The Buyer shall indemnify and hold harmless (in the
same manner and to the same extent as set forth in clause (i) of this
subparagraph (f)) the Company, each director of the Company, each
officer of the Company who shall sign the Registration Statement and
each other person, if any, who controls the Company within the meaning
of the Securities Act, with respect to any untrue statement in or
omission from the Registration Statement, any preliminary prospectus,
final prospectus or summary prospectus included in the Registration
Statement, or any amendment or supplement to the Registration Statement,
but only to the extent that such statement or omission was made
-9-
<PAGE> 10
in direct reliance upon and in conformity with written information
furnished to the Company by the Buyer for use in the preparation of the
Registration Statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of the Registrable Warrant Shares
by the Buyer.
(iii) Indemnification under this Section 5.3 shall be
made as set forth in Article IX hereof.
(f) Registration Expenses. All expenses incident to the
Company's registration of the Registrable Warrant Shares pursuant to the
provisions of this Section 5.3, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or [blue sky
laws], printing and engraving expenses, messenger and delivery expenses and
fees and disbursements of counsel for the Company and all independent certified
public accountants, underwriters (excluding underwriting discounts and any
selling commissions) and any persons retained by the Company (all such expenses
being herein called "Registration Expenses"), will be paid by the Company;
provided, that, all expenses incurred by the Buyer holding Registrable Warrant
Shares to retain any counsel, accountant or other advisor will not be deemed to
be Registration Expenses and will be paid by the Buyer. The underwriting
discounts or commissions and any selling commissions together with any stock
transfer or similar taxes attributable to sales of the Registrable Warrant
Shares will be paid by the Buyer.
5.4 Fees and Expenses. The parties shall each pay their own fees and
expenses and those of their agents, advisors, attorneys and accountants with
respect to the negotiation and execution of this Agreement.
5.5 Restrictions on Transfers: Restrictions on Exercise of Warrants.
(a) Restrictions on Transfer of Warrants and Warrant Shares.
Subject to the provisions of subsections (b) and (c), without having obtained
the prior written consent of the Company, the Buyer shall not:
(i) sell or transfer any of the Warrants held by it to
any other person, except for Excluded Transfers (as defined below) or to
a wholly owned Subsidiary; and
(ii) prior to the twelfth anniversary of the Closing
Date, except for an Excluded Transfer, sell or transfer in a privately
negotiated transaction to a single purchaser and its Affiliates, or any
"Group" (as such term is defined in Rule 13d-5(b)(1) under the Exchange
Act) any combination of Warrants and/or Warrant Shares, if the aggregate
number of Warrant Shares and Underlying Warrant Shares to be so
transferred equals 5% or more of the Common Stock then outstanding on a
fully-diluted basis (i.e. including all shares of Common Stock issuable
under the terms of any options, warrants and similar rights).
-10-
<PAGE> 11
(b) Exceptions to Transfer Restrictions. Notwithstanding
subsection (a), the Buyer may sell or transfer any of the Warrants and/or
Warrant Shares to any person pursuant to, as a result of, or in connection with
(i) a tender offer or an exchange offer approved by the Board of Directors of
the Company; (ii) the consummation of a merger (provided the Company is not the
surviving corporation in such merger), consolidation, or a sale of all or
substantially all the assets of the Company; or (iii) any other "Fundamental
Change Transaction" (as such term is defined in the Warrant).
(c) Transferees. During the period in which the restrictions
set forth in this Section 5.5 remain applicable, neither Buyer nor any
transferee shall be entitled to, directly or indirectly, sell or transfer any
of the Warrants and/or Warrant Shares in an Excluded Transfer to any person who
is not a party to this Agreement, unless the purported transferee executes an
instrument acknowledging that it is bound by the terms of this Section 5.5 and
such instrument is delivered to the Company.
5.6 Indemnification of Brokerage. Each of the parties hereto agrees
to indemnify and hold harmless each other party from and against any claim or
demand for a commission or other compensation by any financial advisor, broker,
agent, finder, or similar intermediary claiming to have been employed by or on
behalf of such indemnifying party and to bear the cost of legal fees and
expenses incurred in defending against any such claim or demand.
5.7 Delivery of Information. The Company will deliver to the Buyer
promptly upon the filing thereof, copies of all registration statements (other
than the exhibits thereto and any registration statements on Form S-8 or its
equivalent) and reports on Forms 10-K (or their equivalents) which the Company
shall have filed with the Commission or any similar reports filed with any
state securities commission or office.
5.8 Rule 144 and Rule 144A Information. With a view to making
available to the Buyer the benefits of Rule 144 and Rule 144A promulgated under
the 1933 Act and any other rule or regulation of the Commission that may at any
time permit the Buyer to sell Common Stock of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Exchange Act; and
(iii) furnish to Buyer forthwith upon request (A) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (B) a
copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company under the
Securities Act and the Exchange Act and (C) such other information as
may be
-11-
<PAGE> 12
reasonably requested by each Buyer in availing itself of any rule or
regulation of the Commission which permits the selling of any such
securities without registration; and
(iv) comply with all rules and regulations of the
Commission applicable to the Company in connection with use of Rule 144A
(or any successor thereto); and
(v) within five business days of the Company's receipt
of a request made by, or on behalf of, any prospective transferee who is
a Qualified Institutional Buyer (as defined in Rule 144A) and would be
purchasing Common Stock of the Company in reliance upon Rule 144A),
provide to such prospective transferee copies of annual audited and
quarterly unaudited financial statements of the Company for it to comply
with Rule 144A.
5.9 Standstill.
(a) General. Buyer agrees that during the four year period
ending on the anniversary of the Closing Date, it will not, and it will cause
its Affiliates and employees not to, purchase additional shares of the
Company's Common Stock (or other Equity Securities) so that Buyer and its
Affiliates and employees collectively own 20% or more of the Company's Common
Stock then outstanding; provided, however, that Buyer and its Affiliates and
employees shall not be deemed to own 20% or more of the Common Stock then
outstanding solely by reason of the Company's purchase of any Common Stock
unless thereafter Buyer and its Affiliates and employees purchase any
additional shares of Common Stock (excluding any acquisition of Warrant Shares
upon exercise of the Warrants, which shall not be restricted hereunder).
(b) Additional Standstill Obligations. Buyer further agrees
that during the twelve year period ending on the anniversary of the Closing
Date, it will not, and it will cause its Affiliates and employees not to,
without prior Company consent, (i) effect or cause to be effected any (A)
"solicitation" of "proxies" (as such terms are used in the proxy rules of the
Commission) with respect to the Company or any action resulting in such person
becoming a "participant" in any "election contest" (as such terms are used in
the proxy rules of the Commission) with respect to the Company, or (B) any
tender or exchange offer or offer for a merger, consolidation, share exchange
or business combination involving the Company or substantially all of its
assets, (ii) propose any matter for submission to a vote of the stockholders of
the Company, or (iii) sell any shares of the Company's Common Stock (or other
Equity Securities) short.
5.10 Notices. The Company agrees to give the Buyer notice of any of
the events referred to in Section 4(g) of the Warrants at least five (5)
Business Days prior to any record date established or related to any such event
which the Buyer agrees to keep strictly confidential unless and until any such
event has been publicly announced.
5.11 Survival of Covenants. Except for any covenant or agreement
which by its terms expressly terminates as of a specific date, the covenants
and agreements of the parties hereto contained in this Agreement shall survive
the Closing without contractual limitation.
-12-
<PAGE> 13
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
6.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement shall be true and correct on
and as of the Closing Date in all material respects, except to the extent that
any such representation or warranty is made as of a specified date, in which
case such representation or warranty shall have been true and correct as of
such specified date, except to the extent contemplated by this Agreement.
6.2 Covenants and Agreements Performed. Buyer shall have performed
and complied with all covenants and agreements required by this Agreement, if
any, to be performed or complied with by it on or prior to the Closing Date in
all material respects.
6.3 HSR Act. To the extent that the HSR Act is applicable to the
transaction contemplated herein, all waiting periods (and any extensions
thereof) applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.
6.4 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
6.5 Certificate. The Company shall have received a certificate
executed by a duly authorized person on behalf of Buyer dated the Closing Date,
representing and certifying, in such detail as the Company may reasonably
request, that the conditions set forth in Sections 6.1, 6.2 and 6.4 have been
fulfilled.
6.6 Satisfaction of Conditions. All conditions to closing set forth
in the REIT Purchase Agreement have been satisfied or waived.
6.7 Other Transactions. All Transactions under the other Transaction
Documents (as defined in the REIT Purchase Agreement) have been consummated
contemporaneously herewith.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
-13-
<PAGE> 14
7.1 Representations and Warranties True. All the representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the Closing Date in all material respects, except to the extent
that any such representation or warranty is made as of a specified date, in
which case such representation or warranty shall have been true and correct as
of such specified date, except to the extent contemplated by this Agreement.
7.2 Covenants and Agreements Performed. The Company shall have
performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date in all material respects.
7.3 Legal Proceeding. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
7.4 Certificates. Buyer shall have received a certificate or
certificates representing the Warrants, in definitive form representing the
Warrants purchased by it, ( in substantially the form set forth in Exhibit A
hereto) registered in the name of Buyer and duly executed by the Company.
7.5 Satisfaction of Conditions. All conditions to closing the REIT
Purchase Agreement have been satisfied or waived.
7.6 Other Transactions. All Transactions under the other Transaction
Documents (as defined in the REIT Purchase Agreement) have been consummated
contemporaneously herewith.
ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
8.1 Termination. This Agreement shall be terminated and the
transactions contemplated hereby abandoned if the REIT Purchase Agreement is
terminated.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall become void and have no
effect, except that the agreements contained in this Section and in Sections
5.1, 5.4 and 5.6 and Article IX shall survive the termination hereof. Nothing
contained in this Section shall relieve any party from liability for any breach
of this Agreement.
8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
8.4 Waiver. No failure or delay by a party hereto in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
provisions of this Agreement may not be waived except by an instrument in
writing signed by or on behalf of the party against whom such waiver is sought
to be enforced.
-14-
<PAGE> 15
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party, until the first anniversary of
the Closing Date (the "Survival Date"). No action may be brought with respect
to a breach of any representation after the Survival Date unless, prior to such
time, the party seeking to bring such an action has notified the other party of
such claim, specifying in reasonable detail the nature of the loss suffered.
The provisions of this Section 9.1 shall have no effect upon any of the
covenants of the parties set forth in Article V or any of the other obligations
of the parties hereto under the Agreement, whether to be performed later, at or
after the Closing.
9.2 Indemnification by Company. The Company shall indemnify, defend,
and hold harmless Buyer from and against any and all claims, actions, causes of
action, demands, losses, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by Buyer, directly or
indirectly, by reason of or resulting from any breach by the Company of any of
its representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto. Notwithstanding anything to the contrary contained herein, the
Company's indemnity obligations hereunder (i) will not extend to Damages
arising out of negligence, willful misconduct or fraud of the Buyer, and (ii)
with respect to indemnification claims under this Section 9.2 (other than, for
each of (i) and (ii), Damages related to the ability of the Buyer to exercise
the Warrants, receive the Warrant Shares, effect the registration of the
Warrant Shares or sell the Warrant Shares), the Company's indemnification
obligations (x) for a period of two (2) years following the Closing, shall not
arise until the aggregate claims resulting from the breach exceed $1,000,000,
at which time such indemnity obligations shall cover all claims, and (y) after
two (2) years following the Closing, shall not arise until the aggregate claims
during such period resulting from the breach exceed $10,000,000, at which time
such indemnity obligations shall cover all claims.
9.3 Indemnification by Buyer. Buyer shall indemnify, defend, and
hold harmless the Company from and against any and all Damages asserted
against, resulting to, imposed upon, or incurred by the Company, directly or
indirectly, by reason of or resulting from any breach by Buyer of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto. Notwithstanding anything to the contrary contained herein, Buyer's
indemnity obligations hereunder (i) will not extend to Damages arising out of
negligence, willful misconduct or fraud of the Company, and (ii) with respect
to indemnification claims under this Section 9.3, the Buyer's indemnification
obligations (x) for a period of two (2) years following the Closing, shall not
arise until the aggregate claims resulting from the breach exceed $1,000,000,
at which time such indemnity obligations shall cover all claims, and (y) after
two (2) years following the Closing, shall not
-15-
<PAGE> 16
arise until the aggregate claims during such period resulting from the breach
exceed $10,000,000, at which time such indemnity obligations shall cover all
claims.
9.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 9.2 or 9.3 of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such Section, give written notice to
the indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it may
have to any indemnified party except to the extent the indemnifying party
demonstrates that the defense of such action is prejudiced thereby. In case
any such action shall be brought against an indemnified party and it shall give
written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right
to employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to assume)
the defense of such action, the indemnified party shall be entitled to assume
the defense of such action with counsel of its own choice, at the expense of
the indemnifying party. If the action is asserted against both the
indemnifying party and the indemnified party and there is a conflict of
interests which renders it inappropriate for the same counsel to represent both
the indemnifying party and the indemnified party, the indemnifying party shall
be responsible for paying for separate counsel for the indemnified party;
provided, however, that if there is more than one indemnified party, the
indemnifying party shall not be responsible for paying for more than one
separate firm of attorneys to represent the indemnified parties, regardless of
the number of indemnified parties. The indemnifying party shall have no
liability with respect to any compromise or settlement of any action effected
without its written consent (which shall not be unreasonably withheld).
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests, demands, and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing and shall be deemed to have been duly given or made
if delivered personally, or transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, or sent by prepaid overnight
delivery service, or sent by cable, telegram, or telefax, to the parties at the
addresses and telefax numbers set forth opposite their names on the signature
page hereof (or at such other addresses and telefax numbers as shall be
specified by the parties by like notice).
10.2 Entire Agreement. This Agreement, together with the Transaction
Agreements, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
10.3 Binding Effect; Assignment; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective legal
-16-
<PAGE> 17
representatives, successors, and permitted assigns. Except as otherwise
expressly provided in this Agreement, neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Except
as provided in Article IX, nothing in this Agreement, express or implied, is
intended to or shall confer upon any person other than the parties hereto, and
their respective legal representatives, successors, and permitted assigns, any
rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
10.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
10.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, without
regard to the principles of conflicts of laws thereof.
10.6 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
ARTICLE XI
DEFINITIONS
11.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Article:
"Affiliate" has the meaning specified in Rule 12b-2 promulgated
under the Exchange Act.
"Applicable Law" means any statute, law, rule, or regulation or
any judgment, order, writ, injunction, or decree of any Governmental
Entity to which a specified person or property is subject.
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in Atlanta, Georgia or
Dallas, Texas are authorized or obligated by law or executive order to
close.
"Encumbrances" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition, or otherwise), easements, and other
encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise.
-17-
<PAGE> 18
"Equity Ownership Interests" shall mean, with respect to the
Buyer, at any time, the fraction (a) having as its numerator the number
of shares of Common Stock and Underlying Warrant Shares held
beneficially by the Buyer at such time, and (b) having as its
denominator the aggregate number of shares of Common Stock (calculated
on a fully diluted basis) issued and outstanding at such time.
"Equity Securities" means any capital stock of the Company, and
any securities directly or indirectly convertible into, or exercisable
or exchangeable for any capital stock of the Company, or any right,
option, warrant or other security which, with the payment of additional
consideration, the expiration of time or the occurrence of any event
shall give the holder thereof the right to acquire any capital stock of
the company or any security convertible into or exercisable or
exchangeable for, any capital stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or other
authority or instrumentality (domestic or foreign).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, suits,
investigations, and inquiries by or before any arbitrator or
Governmental Entity.
"Registrable Warrant Shares" means the Warrant Shares and any
Common Stock or other Equity Securities issued with respect thereto by
way of stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Rights Agreement" means that certain Rights Agreement, dated as
of July 21,1992 between the Company and First Union National Bank of
North Carolina, as rights agent.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any general partnership, joint
venture, or similar entity more than 50% of whose total equity
interests, is owned, directly or indirectly, by the Company, or any
limited partnership of which the Company or any Subsidiary is a general
partner.
-18-
<PAGE> 19
"Underlying Warrant Shares" shall mean, at any time, all shares
of Common Stock which may be acquired upon exercise of the Warrants.
For purposes hereof, any person who holds Warrants shall be deemed to be
the holder of the Underlying Warrant Shares obtainable upon exercise of
such Warrants.
11.2 Certain Additional Defined Terms. In addition to such terms as
are defined in the opening paragraph of and the recitals to this Agreement and
in Section 11.1, the following terms are used in this Agreement as defined in
the Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Closing . . . . . . . . . . . . . . . . . . . . . . . . . Article II
Closing Date . . . . . . . . . . . . . . . . . . . . . . Article II
Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
Excluded Transfer . . . . . . . . . . . . . . . . . . . . . . . 5.5
Material Activity . . . . . . . . . . . . . . . . . . . . . . . 5.3
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Registration Expenses . . . . . . . . . . . . . . . . . . . . . 5.3
Registration Statement . . . . . . . . . . . . . . . . . . . . 5.3
Survival Date . . . . . . . . . . . . . . . . . . . . . . . . . 9.1
Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . 3.6
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
</TABLE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
MAGELLAN HEALTH SERVICES, INC.
Address:
3414 Peachtree Road, N.E.
Suite 1400 By:
Atlanta, Georgia 30326 -----------------------------------
Fax: (404) 814-5717 E. Mac Crawford, Chairman and
and Chief Executive Officer
[CRESCENT OPPORTUNITY CORP.]
By:
-----------------------------------
Name:
Title:
-19-
<PAGE> 20
ANNEX I
<TABLE>
<CAPTION>
Number of Warrant
Date First Shares Issuable Upon End of Exercise
Warrant [Number] Exercisable(1) Exercise of Warrants(1) Period
- ---------------- -------------- ----------------------- ---------------
<S> <C> <C>
[1] April 30, 1998 May 30, 2001
[2] April 30, 1999 May 30, 2002
[3] April 30, 2000 May 30, 2003
[4] April 30, 2001 May 30, 2004
[5] April 30, 2003 May 30, 2005
[6] April 30, 2003 May 30, 2006
[7] April 30, 2004 May 30, 2007
[8] April 30, 2005 May 30, 2008
[9] April 30, 2006 May 30, 2009
[10] April 30, 2007 May 30, 2009
[11] April 30, 2008 May 30, 2009
</TABLE>
- ---------------
(1) Notwithstanding anything to the contrary in this Annex I, (i) as to each
numbered Warrant, no exercise shall be allowed until either the Company or
Crescent exercises its corresponding numbered warrant under the Magellan
Warrant and (ii) the number of Warrant Shares issuable upon exercise of each
Warrant shall be limited to the number of Warrant Shares that bears the same
relationship to the number of Warrant Shares listed above for such Warrant as
the number of shares of common stock of Buyer issued to Crescent and the
Company, pursuant to the Magellan Warrant, in connection with the corresponding
numbered warrants, bears to the number of shares of Common Stock of Buyer
issuable under such numbered warrants.
-20-
<PAGE> 1
EXHIBIT 10.5
Execution Copy
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT (as it may be
modified, supplemented or amended from time to time, this "Agreement") is made
and entered into as of May 21, 1997 between CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership (the "Lender"), and
CRESCENT OPERATING, INC., a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower has requested that the Lender extend a credit
facility (the "Loan") in the maximum aggregate principal amount of $30,400,000
for the purpose of permitting the Borrower to make certain investments
identified herein;
WHEREAS, the Lender is willing to extend the Loan for such purpose on
the terms and conditions set forth herein;
WHEREAS, the parties entered into that Credit and Security Agreement
dated as of May 8, 1997 (the "Original Agreement");
WHEREAS, the parties desire to amend and restate the Original
Agreement in its entirety to modify certain of the terms and provisions
thereof;
NOW, THEREFORE, in consideration of the foregoing and of the
agreements, covenants and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
(a) The following terms which are defined in the Uniform
Commercial Code in effect in the State of Texas on the date
hereof are used herein as so defined: Accounts, Chattel
Paper, Documents, Equipment, Farm Products, General
Intangibles, Instruments, Inventory and Proceeds.
(b) The following terms, as used herein, have the following
meanings:
-1-
<PAGE> 2
"Agreement" has the meaning set forth in the initial paragraph hereof.
"Application for Advance" has the meaning set forth in Section 2.1(a)
hereof.
"Bankruptcy Event of Default" has the meaning set forth in Section
7.1.
"Borrower" means Crescent Operating, Inc., and its permitted
successors and assigns.
"Business Day" means any day except a Saturday, Sunday, or other day
on which commercial banks in Texas are authorized by law to close.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank or investment bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper issued in the United
States which is rated at least A-2 by Standard and Poor's Services or P-2 by
Moody's Investors Service, (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government are rated at least A by
Standard and Poor's Services or A by Moody's Investors Service, (f) securities
with maturities of one year or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition, or (g) shares of money market
mutual or similar funds which invest substantially exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"Closing Date" means the date this Agreement becomes effective in
accordance with Section 3.1, and each other date on which an advance is made by
the Lender to the Borrower.
"Code" means the Uniform Commercial Code as from time to time in
effect in the State of Texas.
"Collateral" has the meaning set forth in Section 4.1.
"Collateral Account" has the meaning set forth in Section 4.2.
-2-
<PAGE> 3
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal
period, means the amount which, in conformity with GAAP, would be set forth
opposite the caption "net income" (or any like caption), as the case may be, on
a consolidated statement of earnings of the Borrower and its Subsidiaries, if
any, for such fiscal period.
"Debt" of any Person means at any date, (i) all obligations of such
Person which in accordance with GAAP would be classified on a balance sheet of
such Person as liabilities of such Person ("debt"), (ii) all debt of others
secured by a Lien on any asset of such Person, whether or not such debt is
assumed by such Person, and (iii) all debt of others guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.3(b).
"EBITDA" means for any fiscal period, the Consolidated Net Income or
Consolidated Net Loss, as the case may be, for such fiscal period, after
restoring thereto amounts deducted for (a) extraordinary losses (or deducting
therefrom any amounts included therein on account of extraordinary gains) and
special charges, (b) depreciation and amortization (including write-offs or
write-downs) and special charges, (c) the amount of interest expense of the
Borrower and its Subsidiaries, if any, determined on a consolidated basis in
accordance with GAAP, for such period on the aggregate principal amount of
their consolidated indebtedness, (d) the amount of tax expense of the Borrower
and its Subsidiaries, if any, determined on a consolidated basis in accordance
with GAAP, for such period and (e) the aggregate amount of fixed and contingent
rentals payable by the Borrower and its Subsidiaries, if any, determined on a
consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property.
"Event of Default" has the meaning set forth in Section 7.1.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"Interest Rate" has the meaning set forth in Section 2.3(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Lender" means Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership, and its successors and assigns.
-3-
<PAGE> 4
"Lien" means, with respect to any asset, any mortgage, deed of trust,
lien pledge, charge, security interest, or encumbrance of any kind in respect
of such asset.
"Line of Credit Credit Agreement" means the Line of Credit Credit and
Security Agreement between the Borrower and the Lender of even date herewith
relating to the loan evidenced by the Line of Credit Term Loan.
"Line of Credit Note" means the Line of Credit Note from the Borrower
to the Lender of even date herewith in the maximum principal amount of Twenty
Million Dollars ($20,000,000.00).
"Loan" has the meaning set forth in the recitals hereto.
"Loan Commitment" has the meaning set forth in Section 2.1.
"Loan Documents" means this Agreement, the Note, the Pledge Agreement
and all other documents, agreements, and instruments referred to in or required
to be delivered or actually delivered in connection herewith or therewith, as
any of them may be modified, supplemented, or amended from time to time.
"Material Debt" means Debt (other than the Note) of the Borrower,
arising in one or more related or unrelated transactions, in an aggregate
principal amount exceeding $50,000.
"Maturity Date" means May 8, 2002.
"Note" means the promissory note of the Borrower payable to the order
of the Lender under the terms of this Agreement dated as of May 8, 1997, as the
same may be modified, supplemented, or amended from time to time, and any note
or notes issued in substitution or replacement therefor or in addition thereto,
substantially in the form of Exhibit B hereto, in the maximum principal amount
from time to time outstanding of up to Thirty Million Four Hundred Thousand
Dollars ($30,400,000.00), evidencing the obligation of the Borrower to repay
the Loan, as modified, supplemented or amended from time to time.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement to be executed and
delivered by the Borrower, substantially in the form of Exhibit C hereto, as
the same may be amended, supplemented or otherwise modified from time to time.
-4-
<PAGE> 5
"Secured Obligations" means the collective reference to the unpaid
principal of and interest on the Note, the Line of Credit Note and all other
obligations and liabilities of the Borrower to the Lender whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Line of Credit Credit Agreement, the Note, the Line of Credit
Note, the Pledge Agreement or any other document, made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which such Person owns
directly or indirectly through one or more intermediaries 50% or more of the
voting stock, partnership interests or other interests thereof or which is
controlled or capable of being controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Termination Date" shall mean the date 95 days from the date upon
which the Loan has been satisfied in full.
SECTION 1.2 Rules of Construction.
(a) Words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders.
Unless the context shall otherwise indicate, words importing
the singular number shall include the plural and vice versa.
(b) Reference to a section number, such as this Section 1.2, shall
mean and include all provisions within that section of this
Agreement, unless a particular subsection, paragraph or
subparagraph is specified.
(c) Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared in accordance with
GAAP as in effect from time to time, except as otherwise
specified herein, applied on a basis consistent (except for
changes concurred in by the Borrower's independent public
accountants) with the most recent audited consolidated
financial statements of the Borrower delivered to the Lender.
-5-
<PAGE> 6
ARTICLE II
COMMITMENT, ADVANCE PROCEDURE, AND NOTES
SECTION 2.1 Commitment and Advance Procedure.
(a) The Lender agrees, on and subject to the terms and conditions
set forth in this Agreement, to make advances to the Borrower
during the term hereof (each, an "Advance") in up to five
installments (not more often than once per month), up to an
aggregate amount of Thirty Million Four Hundred Thousand
Dollars ($30,400,000.00) (the "Loan Commitment"), following
the Lender's receipt of a written request from the Borrower
made to the Lender in the form set forth in Exhibit A hereto
(an "Application for Advance"), and delivered in accordance
with this Section 2.1 and Section 8.1 hereof.
(b) On the date that this Agreement becomes effective in
accordance with Section 3.1, the Lender shall advance to the
Borrower the principal amount of Fifteen Million Four Hundred
Thousand Dollars ($15,400,000.00).
(c) Other than the advance provided for in (b) of this Section
2.1, the Borrower shall provide the Lender with an Application
for Advance, specifying (i) the amount of the Advance
requested, and (ii) the requested date of such Advance (which
shall be at least that number of Business Days after delivery
of such Application for Advance as specified in (e) below).
(d) Notwithstanding any provision hereof to the contrary, the
Lender shall have no obligation at any time to make any
Advances to the Borrower hereunder unless, on the date of the
Lender's receipt of a properly completed and executed
Application for Advance, the Borrower shall have certified to
the Lender in writing that the Borrower is not in Default
hereunder.
(e) The Lender shall have the obligation to make an advance in
accordance with the provisions hereof, including the
provisions of this Section 2.1, within five (5) Business Days
after its receipt of a properly completed and executed
Application for Advance that, together with all other advances
and Applications for Advance, requests advances totaling no
more than the Loan Commitment.
SECTION 2.2 The Note.
(a) The Loan will be evidenced by the Note. The outstanding
principal amount of the Loan shall be payable as follows:
twenty consecutive quarterly
-6-
<PAGE> 7
installments of principal, each consisting of the Amortization
Amount (as defined below) and payable on the first Business
Day of August 1997 and on the first Business Day of each
November, February, May and August thereafter. The
"Amortization Amount" shall be determined by dividing the
outstanding principal amount of the loan on the payment date
in question by the number of payment dates occurring prior to
the Maturity Date. The Amortization Amount shall be
recalculated each time an advance of the Loan is made, but not
when accrued but unpaid interest is added to principal as
provided herein.
(b) Notwithstanding Section 2.2(a), if the amount of principal and
interest to be paid by the Borrower to the Lender exceeds the
amount of EBITDA of the Borrower for the immediately preceding
calendar quarter (ending the last day of September, December,
March, or June), the Borrower shall not be obligated to repay
the amount of principal and interest in excess of EBITDA of
the Borrower for such period. Any such amount of principal
shall continue to be outstanding principal and accrue interest
thereon; any such amount of unpaid interest shall be added to
principal and shall accrue interest thereon. Payments under
the Note shall be applied first to any fees, costs or expenses
due under the Note or hereunder, then to interest, and then to
principal.
(c) Notwithstanding any other provision of this Section 2.2, all
outstanding principal and interest of the Loan and all other
amounts payable hereunder, if not sooner paid, shall be due
and payable on the Maturity Date.
SECTION 2.3 Interest Rate and Payments.
(a) Unless an Event of Default shall have occurred and be
continuing, the Loan shall bear interest on the outstanding
principal amount thereof until paid in full, at a rate per
annum equal to Twelve Percent (12%) (the "Interest Rate").
(b) Upon and after an Event of Default, the Loan shall accrue
interest on the outstanding principal balance of the Loan and,
to the extent permitted by applicable law, on the unpaid
interest, at a rate per annum equal to the Interest Rate plus
an additional 5.0% per annum (the "Default Rate"), provided
that in no event shall the Default Rate exceed the maximum
rate of interest permitted by applicable law.
(c) Subject to the provisions of Section 2.2(b), interest shall be
due during the term hereof on the first Business Day of each
August, November, February and May, or such other date as the
Borrower and the Lender may mutually agree in writing.
-7-
<PAGE> 8
(d) Accrued interest not paid when due shall be compounded
quarterly and added to the outstanding principal amount of the
Loan.
(e) On the Maturity Date, the Borrower shall repay in full all
accrued but unpaid interest and the entire unpaid principal
amount of the Loan.
SECTION 2.4 General Provisions as to Payments.
The Borrower shall make each payment of principal of, and interest on,
the Loan not later than 11:00 A.M. Fort Worth, Texas time on the date when due,
to the Lender at the Lender's office at 777 Main Street, Suite 2100, Fort
Worth, Texas 76102 in same day or other immediately available funds. Whenever
any payment of principal of, or interest on, any Loan shall be due on a day
which is not a Business Day, the date for payment thereof shall be extended to
the next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable
for such extended time. All such payments shall be made without setoff or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or political
subdivision or taking authority thereof (but excluding any taxes imposed on or
measured by the overall net income of the Lender).
SECTION 2.5 Computation of Interest.
All interest shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day, but
excluding the last day).
SECTION 2.6 Use of Proceeds.
The proceeds of the Loan shall be used solely to enable the Borrower
to invest in (i) Moody-Day, Inc., (ii) Dallas Basketball, Ltd, (iii) Hicks Muse
Tate & Furst Equity Fund II, LP, (iv) Charter Behavioral Health Systems, LLC
and (v) such other investments as the Lender may consent to in writing, which
consent may be withheld in the Lender's sole discretion.
SECTION 2.7 Evidence of Debt.
(a) The Lender shall record (i) the amount of each advance made
hereunder, (ii) the amount of any principal or interest due
and payable or to become due and payable from the Borrower to
the Lender hereunder and (iii) the amount of any sum received
by the Lender hereunder from the Borrower.
(b) The entries recorded by the Lender shall, to the extent
permitted by applicable law, be prima facie evidence of the
existence and amounts of the
-8-
<PAGE> 9
obligations of the Borrower therein recorded; provided,
however, that the failure of the Lender to record or any error
in any record shall not in any manner affect the obligation of
the Borrower to repay (with applicable interest) the Loans
made to such Borrower in accordance with the terms of this
Agreement.
ARTICLE III
CONDITIONS TO BORROWING
SECTION 3.1 Conditions to Effectiveness and Further Borrowings.
(a) This Agreement shall become effective on the date that each of
the conditions set forth below shall have been satisfied (or
waived in accordance with Section 8.3):
(i) The Lender shall have received this Agreement, duly
executed by the Borrower;
(ii) The Lender shall have received from the Borrower a
certificate that each of the representations and
warranties of the Borrower contained in this
Agreement is true, correct, and complete as of the
Closing Date;
(iii) The Lender shall have received a duly executed Note
dated as of the Closing Date;
(iv) The Lender shall have received a duly executed Pledge
Agreement dated as of the Closing Date and such other
documents relating to the Pledge Agreement as
reasonably required by the Lender;
(v) The Lender shall have received proper financing
statements (Forms UCC-1 or the appropriate
equivalent) necessary to perfect the security
interest in the Borrower's interest in the Collateral
(or such part thereof in which a security interest
can be perfected thereby);
(vi) The Lender shall have received the following: (A)
the articles of incorporation of the Borrower as in
effect on the Closing Date, certified as of a recent
date by the Secretary of State of Delaware, (B) the
bylaws of the Borrower as in effect on the Closing
Date, certified as of a recent date by the Secretary
of the Borrower, (C) resolutions of the board of
directors of the Borrower authorizing the execution,
delivery and performance of this Agreement, certified
as of the Closing Date
-9-
<PAGE> 10
by its corporate secretary, (D) certificates as to
the incumbency of the officers of the Borrower,
certified by its corporate secretary, and (E)
certificates of good standing of the Borrower issued
as of a recent date by the Secretary of State of
Delaware; and
(vii) No event, which, after execution of this Agreement,
would constitute an Event of Default hereunder shall
have occurred and be continuing.
(b) As of any other Closing Date, each of the conditions set forth
below shall have been satisfied (or waived in accordance with
Section 8.3):
(i) The Lender shall have received from the Borrower a
certificate that each of the representations and
warranties of the Borrower contained in this
Agreement is true, correct and complete as of the
Closing Date;
(ii) The Lender shall have received a certificate in the
form of Exhibit D hereto enclosing the following:
(A) a representation that there has been no change in
the articles of incorporation of the Borrower since
the Closing Date, or if changes have occurred since
the Closing Date, the articles of incorporation of
the Borrower as in effect , certified as of a recent
date by the Secretary of State of Delaware, (B) a
representation that there has been no change in the
bylaws of the Borrower since the Closing Date, or if
changes have occurred since the Closing Date, the
bylaws of the Borrower as in effect, certified as of
a recent date by the Secretary of the Borrower, (C)
resolutions of the board of directors of the Borrower
authorizing the execution, delivery and performance
of the Application for Advance, certified as of the
Closing Date by its corporate secretary, (D)
certificates as to the incumbency of the officers of
the Borrower, certified by its corporate secretary,
and (E) certificates of good standing of the Borrower
issued as of a recent date by the Secretary of State
of Delaware; and
(iii) No event which constitutes an Event of Default
hereunder shall have occurred and be continuing.
ARTICLE IV
SECURITY INTEREST
SECTION 4.1 Grant of Security Interest.
(a) As security for the prompt payment, performance, and
observance in full of the Loan, the Borrower hereby pledges
and assigns to the Lender, and grants
-10-
<PAGE> 11
to the Lender a continuing security interest in and lien on
all of the following property now owned or at any time
hereafter acquired by the Borrower or in which the Borrower
now has or at any time in the future may acquire any right,
title or interest (the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all books and recordings pertaining to the
Collateral; and
(ix) to the extent not otherwise included, all Proceeds
and products of any of the foregoing, in any form
(whether cash or non-cash) and all collateral
security and guarantees given by any Person with
respect to any of the foregoing.
SECTION 4.2 Collateral Account
(a) Establishment of Collateral Account. Upon the execution
hereof, there shall be established and at all times thereafter
there shall be maintained by the Borrower, a non-interest
bearing cash collateral account with a financial institution
approved by the Lender (the "Collateral Account") subject to
the terms of this Agreement.
(b) Rights, Title and Interest of Collateral Account. All right,
title and interest in and to the Collateral Account shall vest
exclusively in the Lender. The Borrower shall have no rights
with respect to the Collateral Account and the Lender shall
have sole dominion and control over the Collateral Account and
the monies deposited therein. Monies deposited in the
Collateral Account shall constitute security for the Secured
Obligations. The Borrower hereby pledges and assigns to the
Lender and hereby grants to the Lender a security interest in,
all right, title or interest (if any) which the Borrower
-11-
<PAGE> 12
now has or may hereafter have or purport or claim to have in
or to the Collateral Account and all monies held therein, any
investments made with such monies and any and all certificates
or instruments from time to time representing or evidencing
such investments (and all proceeds thereof).
(c) Maintaining the Collateral Account. Until the Termination
Date of this Agreement:
(i) The Borrower will maintain the Collateral Account
with a financial institution approved by the Lender.
(ii) All monies received by the Lender while a Default or
an Event of Default has occurred and is continuing,
and any monies received as a result of investments
made as contemplated by subsection 4.2(c)(iii)
hereof, shall be deposited in the Collateral Account.
(iii) Pending the disbursement thereof pursuant to the
terms of this Agreement, all monies in the Collateral
Account shall (to the extent it is practical to do
so) be invested by the Lender in Cash Equivalents.
All such investments shall be evidenced either (a) by
negotiable certificates or instruments which are held
by or for the account of the Lender or (b) by book
entries maintained in a State in which the Lender may
be granted by book entries a security interest in the
securities relating thereto. In the absence of its
gross negligence or willful misconduct, the Lender
shall not have any liability out of or in connection
with any investment made in accordance with the
provisions herein or for any loss or decline in value
of any investment or from any loss resulting directly
or indirectly from any investment made pursuant to
and in accordance with the provisions hereof.
SECTION 4.3 Remedies.
(a) Proceeds to be Turned Over To the Lender. When a Default or
an Event of Default has occurred and is continuing all
Proceeds (as defined in the Code) received by the Borrower
consisting of cash, checks and other near-cash items shall be
held by the Borrower in trust for the Lender, segregated from
other funds of the Borrower, and shall, forthwith upon receipt
by the Borrower, be turned over to the Lender in the exact
form received by the Borrower (duly indorsed by the Borrower
to the Lender, if required) and held by the Lender in the
Collateral Account. All Proceeds while held by the Lender in
the Collateral Account (or by the Borrower in trust for the
Lender) shall continue to be held as collateral security for
all the Secured
-12-
<PAGE> 13
Obligations and shall not constitute payment thereof until
applied as provided in subsection 4.3(b).
(b) Application of Proceeds. At such intervals as may be agreed
upon by the Borrower and the Lender, or, if an Event of
Default has occurred and is continuing at any time at the
Lender's election, the Lender may apply all or any part of
Proceeds held in any Collateral Account in payment of the
Secured Obligations in such order as the Lender may elect, and
any part of such funds which the Lender elects not so to apply
and deems not required as collateral security for the Secured
Obligations shall be paid over from time to time by the Lender
to the Borrower or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining
after the Secured Obligations shall have been paid in full and
the Commitment shall have expired or otherwise been terminated
shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive the same.
(c) Code Remedies. If an Event of Default has occurred and is
continuing, the Lender may exercise, in addition to all other
rights and remedies granted to it in this Agreement and in any
other instrument or agreement securing, evidencing or relating
to the Secured Obligations, all rights and remedies of a
secured party under the Code. Without limiting the generality
of the foregoing, the Lender, without demand of performance or
other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below)
to or upon the Borrower or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option
or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of
the foregoing), in one or more parcels at public or private
sale or sales, at any exchange, broker's board or office of
the Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any
such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity
is hereby waived or released. The Borrower further agrees, at
the Lender's request, to assemble the Collateral and make it
available to the Lender at places which the Lender shall
reasonably select, whether at the Borrower's premises or
elsewhere. To the extent permitted by applicable law, the
Borrower
-13-
<PAGE> 14
waives all claims, damages and demands it may acquire against
the Lender arising out of the exercise by them of any rights
hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least
10 days before such sale or other disposition.
(d) The exercise by the Lender of or failure or refusal to so
exercise any right, remedy or power granted under this
Agreement or available to the Lender at law or in equity or
under statute shall in no manner affect the Borrower's
liability to the Lender, and the Lender shall be under no
obligation or duty to exercise any of the rights, remedies or
powers conferred upon it hereby or by applicable law, and it
shall incur no liability for any act or failure to act in
connection with the collection of, or the preservation of any
rights under, any of the Collateral.
SECTION 4.4 Lender Appointment as Attorney-in-Fact; Lender Performance of
Borrower's Obligations.
(a) Powers. The Borrower hereby irrevocably constitutes and
appoints the Lender and any officer or agent thereof, with
full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the
Borrower or in its own name, for the purpose of carrying out
the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes
of this Agreement, and, without limiting the generality of the
foregoing, the Borrower hereby gives the Lender the power and
right, on behalf of the Borrower, without notice to or assent
by the Borrower, to do any or all of the following:
(i) at any time when an Event of Default has occurred and
is continuing in the name of the Borrower or its own
name, or otherwise, take possession of and indorse
and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due with
respect to any Collateral and file any claim or take
any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender
for the purpose of collecting any and all such moneys
due with respect to any Collateral whenever payable;
(ii) pay or discharge taxes and Liens levied or placed on
or threatened against the Collateral, effect any
repairs or any insurance called for by
-14-
<PAGE> 15
the terms of this Agreement and pay all or any part
of the premiums therefor and the costs thereof;
(iii) execute, in connection with any sale provided for in
subsection 4.3(c), any endorsements, assignments or
other instruments of conveyance or transfer with
respect to the Collateral; and
(iv) at any time when an Event of Default has occurred and
is continuing (1) direct any party liable for any
payment under any of the Collateral to make payment
of any and all moneys due or to become due thereunder
directly to the Lender or as the Lender shall direct;
(2) ask or demand for, collect, receive payment of
and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect
of or arising out of any Collateral; (3) sign and
indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, notices
and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits,
actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other
right in respect of any Collateral; (5) defend any
suit, action or proceeding brought against the
Borrower with respect to any Collateral (other than
any such suit, action or proceeding brought by the
Lender); (6) settle, compromise or adjust any such
suit, action or proceeding (other than any such suit,
action or proceeding brought by the Lender) and, in
connection therewith, to give such discharges or
releases as the Lender may deem appropriate; (7)
generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though
the Lender were the absolute owner thereof for all
purposes, and do, at the Lender's option and the
Borrower's expense, at any time, or from time to
time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the
Collateral and the Lender's security interests
therein and to effect the intent of this Agreement,
all as fully and effectively as the Borrower might
do.
(b) Ratification; Power Coupled With An Interest. The Borrower
hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof in accordance with the terms
of this Agreement, absent gross negligence or willful
misconduct on the part of the Lender. All powers,
authorizations and agencies contained in this Agreement are
coupled with an
-15-
<PAGE> 16
interest and are irrevocable until this Agreement is
terminated and the security interests created hereby are
released.
SECTION 4.5 Performance by Lender of Borrower's Obligations. If the
Borrower fails to perform or comply with any of its agreements contained in
this Article IV, the Lender, at its option, but without any obligation so to
do, may perform or comply, or otherwise cause performance or compliance, with
such agreement.
SECTION 4.6 Borrower's Reimbursement Obligation. The expenses of the
Lender incurred in connection with actions undertaken as provided in this
Article IV, together with interest thereon at a rate equal to the rate per
annum at which interest would then be payable on past due Loans under this
Agreement, from the date of payment by the Lender to the date reimbursed by the
Borrower, shall be payable by the Borrower to the Lender on demand.
SECTION 4.7 Duty of the Lender. The Lender's sole duty with respect to
the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Lender deals with similar property for its own
account. Neither the Lender, nor any of its respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Borrower or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon the Lender to exercise any such powers. The
Lender shall be accountable only for amounts that its actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Borrower for any act
or failure to act hereunder, except for their own gross negligence or willful
misconduct.
SECTION 4.8 Execution of Financing Statements. Pursuant to Section 9-402
of the Code, the Borrower authorizes the Lender to file financing statements
with respect to the Collateral without the signature of the Borrower in such
form and in such filing offices as the Lender reasonably determines appropriate
to perfect the security interests of the Lender under this Agreement. The
Lender shall provide the Borrower with copies of any such financing statements.
A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
SECTION 4.9 The Pledge Agreement.
In addition to the security interest granted hereunder, the Borrower
shall grant to the Lender a security interest in the Pledged Partnership
Interests and the Pledged Stock (as those terms are defined in the Pledge
Agreement) pursuant to the Pledge Agreement.
SECTION 4.10 Pledged Notes.
With respect to any promissory notes now or hereinafter owned by or
owing to the Borrower, including, without limitation, the promissory note from
Charter Behavioral Health Systems, LLC, such notes shall be promptly endorsed
in blank and delivered to the Lender.
-16-
<PAGE> 17
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.1 Existence and Power.
The Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has all corporate
power and authority, and all material governmental licenses, authorizations,
consents, and approvals required to carry on its business as now conducted.
SECTION 5.2 Corporate and Government Authorization; No Contravention.
The execution, delivery, and performance by the Borrower of this
Agreement, the Pledge Agreement and the Note are within the scope of the
Borrower's power and authority, have been duly authorized by all necessary
corporate action of the Borrower, require no action by or in respect of, or
filing with any governmental body, agency, or official and do not contravene,
or constitute a default under, the Certificate of Incorporation or By-Laws of
the Borrower or under any provision of applicable law or regulation to which
the Borrower is subject, or of any judgment, injunction, order, or decree,
binding upon the Borrower, except for such contraventions as will not, singly
or in the aggregate, have a material adverse effect on the ability of the
Borrower to perform its obligations under this Agreement, the Pledge Agreement
or the Note.
SECTION 5.3 Binding Effect.
This Agreement constitutes the legal, valid, binding, and enforceable
agreement of the Borrower, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 5.4 Litigation.
There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower, threatened against or affecting the Borrower before
any court or arbitrator or any governmental body, agency or official which
could materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or which could materially adversely
affect the ability of the Borrower to perform its obligations under this
-17-
<PAGE> 18
Agreement, the Pledge Agreement or the Note or which in any manner draws into
question the validity of this Agreement, the Pledge Agreement or the Note.
SECTION 5.5 Taxes.
The Borrower has filed all material tax returns and reports required
by law to have been filed and has paid all taxes and governmental charges
thereby shown to be due and payable.
SECTION 5.6 Debt.
Except as set forth in the financial statements delivered to the
Lender pursuant to Section 5.10, the Borrower has and will have no Debt
outstanding on a Closing Date other than (i) the Debt outstanding hereunder,
(ii) Debt that has previously been disclosed to the Lender in writing, and
(iii) Debt that will not, in the aggregate, have a material adverse effect on
the business, operations, or prospects of the Borrower.
SECTION 5.7 Title to Assets.
(a) The Borrower has legal title to or a legal and valid leasehold
interest in all property and assets owned by it on the date
hereof, and will have legal title to all property and assets
acquired by it at any time subsequent to the date hereof, free
and clear of all Liens, except Liens in favor of the Lender.
(b) Except for the security interest granted to the Lender
pursuant to this Agreement, the Borrower owns each item of the
Collateral free and clear of any and all Liens or claims of
others. No financing statement or other public notice with
respect to all or any part of the Collateral is on file or of
record in any public office, except such as have been filed in
favor of the Lender pursuant to this Agreement or the Pledge
Agreement.
SECTION 5.8 Perfected First Priority Liens.
The security interests granted pursuant to this Agreement (a)
constitute perfected security interests in the Collateral in favor of the
Lender, as collateral security for the Secured Obligations and (b) are prior to
all other Liens on the Collateral in existence on the date hereof.
SECTION 5.9 Inventory and Equipment.
The Inventory and the Equipment are kept at the locations listed on
Schedule 1.
-18-
<PAGE> 19
SECTION 5.10 Chief Executive Office.
The Borrower's chief executive office is located at 777 Main St.,
Fort Worth, Texas 76102.
SECTION 5.11 Farm Products.
None of the Collateral constitutes, or is the Proceeds of, Farm
Products.
SECTION 5.12 No Subsidiaries.
The Borrower has no Subsidiaries on the date hereof.
SECTION 5.13 Financial Information.
All financial information which has been or shall hereafter be
furnished by or on behalf of the Borrower or by any other Person at the
Borrower's direction to the Lender for the purposes of or in connection with
this Agreement present fairly the financial condition as at the dates thereof
(subject to normal year end adjustments in the case of unaudited financial
statements).
SECTION 5.14 No Material Adverse Change.
There has been no material adverse change in the business, financial
condition, operations, assets, revenues, properties, or prospects of the
Borrower taken as a whole from the financial information previously provided to
Lender.
ARTICLE VI
COVENANTS
The Borrower agrees that, so long as any amount payable hereunder
remains unpaid:
SECTION 6.1 Conduct of Business and Maintenance of Existence.
The Borrower will perform an intercompany agreement to be entered into
between the Lender and the Borrower and such activities as are necessary or
incidental thereto, and will preserve, renew and keep in full force and effect
its existence.
SECTION 6.2 Financial Information.
The Borrower will deliver to the Lender:
-19-
<PAGE> 20
(a) as soon as available, but in no event more than one hundred
twenty (120) days after the end of each fiscal year of the
Borrower, financial statements of the Borrower containing a
balance sheet and the related statements of operations and
cash flows, showing the financial condition of the Borrower at
the close of and for such year; and
(b) as soon as available, but in no event more than sixty (60)
days after the end of each of the first three quarters of each
fiscal year of the Borrower, financial statements of the
Borrower, containing a balance sheet and the related
statements of income prepared or a cash basis, showing the
financial condition of the Borrower at the close of and for
such period.
The financial statements delivered pursuant to subsections (a) and (b)
of this Section 6.2 shall be certified by the president or chief financial
officer of the Borrower as true, complete, and correct and, as to the financial
statements delivered pursuant to subsection (a) of this Section 6.2, as having
been prepared in accordance with generally accepted accounting principles.
SECTION 6.3 Compliance with Laws.
The Borrower will comply with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply therewith will not materially
adversely affect the business, operations, or financial condition of the
Borrower or the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note.
SECTION 6.4 Incurrence of Debt.
The Borrower will not issue, assume, guarantee, incur, or otherwise be
or become liable in respect of Debt, other than (i) Debt expressly approved by
the Lender in writing, which approval may be withheld in the Lender's sole
discretion, or (ii) non-recourse Debt financing secured by property of the
Borrower not constituting Collateral prior to or as of June 30, 1997 (the
Lender hereby agreeing to cooperate with the Borrower to subordinate or release
its Lien on such property to permit any lender of such financing to obtain a
first lien thereon).
SECTION 6.5 Limitation on Liens.
The Borrower will not create, incur, assume or suffer to exist any
Lien upon or with respect to any of its assets, whether now or hereafter
acquired, or assign or otherwise convey any right to receive income, except (i)
Liens in favor of the Lender; (ii) Liens expressly approved by the Lender,
which approval shall not be unreasonably withheld; (iii) Liens imposed by any
governmental authority for taxes, assessments or charges not yet due or which
-20-
<PAGE> 21
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Borrower in
accordance with generally accepted accounting principles, and (iv) Liens
disclosed to the Lender on or before the Closing Date that would not, in the
aggregate, have a material adverse effect on the business, operations, or
prospects of the Borrower.
SECTION 6.6 Consolidations, Mergers, and Sales of Assets.
The Borrower will not wind up, liquidate or dissolve its affairs or
convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time), whether in one or a series of transactions, all
or any substantial part of its assets, unless such transaction or series of
transactions are expressly approved by the Lender, which approval shall not be
unreasonably withheld.
SECTION 6.7 Books and Records.
The Borrower will keep books and records which accurately reflect all
of its business affairs and transactions in all material respects. The Borrower
will permit the Lender at reasonable times and intervals during normal business
hours to examine and photocopy extracts from any of its books or other
corporate records.
SECTION 6.8 Lien on Collateral.
The Borrower shall, at its sole cost and expense, perform all acts and
execute all documents requested by the Lender at any time to evidence, perfect,
maintain and enforce the Lender's security interest and the first priority
thereof in the Collateral. Upon the Lender's request, at any time and from
time to time, the Borrower shall, at its sole cost and expense, execute and
deliver to the Lender one or more financing statements (in form and substance
satisfactory to the Lender) pursuant to the Code and, where permitted by law,
the Borrower hereby authorizes the Lender to execute and file one or more
financing statements signed only by the Lender or to file a copy of this
Agreement as a financing statement.
SECTION 6.9 Restriction on Dividends.
The Borrower will not make dividend distributions to its shareholders
at any time when there exists an outstanding balance on the Loan.
SECTION 6.10 Restriction on Certain Amendments.
The Borrower will not amend its organizational documents without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld.
-21-
<PAGE> 22
SECTION 6.11 Delivery of Instruments and Chattel Paper.
If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper,
such Instrument or Chattel Paper shall be immediately delivered to the Lender,
duly indorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Agreement.
SECTION 6.12 Maintenance of Insurance.
The Borrower will maintain, with financially sound and reputable
companies, insurance policies (1) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Lender, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Lender, with
losses payable to the Borrower and the Lender as their respective interests may
appear.
(a) All such insurance shall (1) provide that no cancellation,
material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after
receipt by the Lender of written notice thereof, (2) name the
Lender as an insured party and (3) be reasonably satisfactory
in all other respects to the Lender.
(b) The Borrower shall deliver to the Lender a report of a
reputable insurance broker with respect to such insurance in
each calendar year and such supplemental reports with respect
thereto as the Lender may from time to time reasonably
request.
SECTION 6.13 Changes in Locations, Name, etc.
The Borrower will not unless it shall have given the Lender at least
30 days prior written notice of such change (or, in the case of Inventory and
Equipment, at least 10 days prior written notice, to the extent that the
Borrower has taken such action as reasonably may be required of it to maintain
the continuous perfection of the Lender's security interest in such Inventory
or Equipment, as the case may be):
(a) permit any of the Inventory (other than goods-in-transit and
immaterial amounts of goods in temporary locations in the
ordinary course of business) or Equipment to be kept at a
location other than those listed on Schedule 1;
(b) change the location of its chief executive office from that
specified in subsection 5.10; or
-22-
<PAGE> 23
(c) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Lender in
connection with this Agreement would become seriously
misleading.
SECTION 6.14 Further Identification of Collateral.
The Borrower will furnish to the Lender from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.
SECTION 6.15 Notices.
The Borrower will advise the Lender promptly, in reasonable detail, of
(a) any Lien (other than security interests created hereby or Liens permitted
under this Agreement) on any of the Collateral and (b) the occurrence of any
other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the security interests
created hereby.
SECTION 6.16 Additional Collateral.
With respect to any Person other than Charter Behavioral Health
Systems, LLC (being specifically excluded) that, subsequent to the Closing
Date, becomes a Subsidiary, the Borrower will promptly cause such new
Subsidiary to (i) execute and deliver to the Lender a guaranty of the Loan in
form and substance satisfactory to the Lender, and a new pledge agreement or
such amendments to the existing Pledge Agreement as the Lender shall deem
necessary or reasonably advisable to grant to the Lender, for the benefit of
the Lender, a Lien on the capital stock of such Subsidiary which is owned by
the Borrower or any of its Subsidiaries, (ii) deliver to the Lender the
certificates representing such capital stock, together with undated stock
powers executed and delivered in blank by a duly authorized officer of the
Borrower or such Subsidiary, as the case may be, (iii) take all actions
necessary or advisable to grant a security interest to the Lender in the
property and assets of such Subsidiary, including, without limitation, the
filing of financing statements in such jurisdictions as may be requested by the
Lender and the execution and delivery by such Subsidiary of a security
agreement in a form acceptable to the Lender.
ARTICLE VII
DEFAULTS
SECTION 7.1 Events of Default.
If one or more of the following events ("Events of Default") shall
have occurred and be continuing:
-23-
<PAGE> 24
(a) except as permitted pursuant to Section 2.2(b), the Borrower
shall fail to pay within five Business Days of the due date
any principal or interest on the Loan;
(b) any representation or warranty made by the Borrower hereunder
or in any certificate furnished by or on behalf of the
Borrower shall be incorrect when made in any material respect;
(c) the Borrower shall fail to observe or perform the provisions
of Section 6.9 hereof for five Business Days;
(d) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement, the Pledge Agreement,
the Note (other than those covered by clause (a), (b) or (c)
above), or any other Loan Document for 30 days (or, with
respect to Section 6.2 of this Agreement, for 30 days after
written notice thereof has been given to the Borrower by the
Lender); provided however, if such default is capable of cure
and the Borrower is diligently proceeding to cure such
default, the cure period in this subsection (d) shall be
extended for such additional time, not to exceed 30 days, as
is reasonably necessary to complete such cure;
(e) the Borrower shall fail to make any payment in respect of any
Material Debt other than the Debt of the Borrower under this
Agreement and the Note when due or within any applicable grace
period;
(f) the Borrower shall commence a voluntary case or other
proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any
substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action to
authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower seeking liquidation, reorganization,
rehabilitation, conservation, or other relief with respect to
it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian,
rehabilitator, conservator, or other similar official of it or
any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed
for a period of 120 days; or an order for relief shall be
entered against the Borrower
-24-
<PAGE> 25
under the federal bankruptcy laws or any state insolvency laws
as now or hereafter in effect;
(h) judgment or order for the payment of money in excess of
$500,000 shall be rendered against the Borrower and such
judgment or order shall continue unsatisfied, unstayed and
unbonded for a period of 30 days; provided, however that a
judgment or order fully covered by insurance, which coverage
has not been disputed by the insurer, shall not be considered
a Default;
then, and in every such event, the Lender may, by notice to the
Borrower declare the Note (together with accrued interest thereon) to
be, and the Note shall thereupon become, immediately due and payable
without presentment, demand, protest, or other notice of any kind, all
of which are hereby waived by the Borrower; provided that in the case
of any of the Events of Default specified in clause (e) or (f) above
(each, a "Bankruptcy Event of Default"), without any notice to the
Borrower or any other act by the Lender, the Note (together with
accrued interest thereon) shall become immediately due and payable
without presentment, demand, protest, or other notice of any kind, all
of which are hereby waived by the Borrower.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (i) in the case of the
Borrower or the Lender at their respective addresses, telex numbers or
facsimile numbers set forth on the signature pages hereof or (ii) in the case
of any party, such other address, telex number or facsimile number as such
party may hereafter specify for the purpose by notice to the other party in
accordance with this Section. All notices shall be effective when received.
SECTION 8.2 Expenses; Indemnification.
(a) The Borrower shall pay (i) all out-of-pocket expenses
reasonably incurred by the Lender, including reasonable fees
and disbursements of counsel in connection with any waiver or
consent hereunder or any amendment hereof or any Default or
alleged Default hereunder, and (ii) if an Event of Default
occurs, all out-of-pocket expenses incurred by the Lender,
including reasonable fees and disbursements of counsel in
connection with such Event of Default and collection,
bankruptcy, insolvency, and other enforcement proceedings
-25-
<PAGE> 26
resulting therefrom. The Borrower shall indemnify the Lender
against any transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the
execution and delivery of this Agreement, the Pledge Agreement
or the Note.
(b) The Borrower agrees to indemnify the Lender and hold the
Lender harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (other than
general overhead and administrative expenses), including,
without limitation, the reasonable fees and disbursements of
counsel, which may be incurred by the Lender in connection
with any investigative, administrative, or judicial proceeding
(whether or not the Lender shall be designated a party
thereto) relating to or arising out of this Agreement, the
Pledge Agreement or the Note or any actual or proposed use of
proceeds of the Loan hereunder; provided that the Lender shall
not have the right to be indemnified hereunder for (i) any
proceeding against the Lender by any governmental authority
charged with the supervision of the Lender or (ii) its own
gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
SECTION 8.3 Amendments and Waivers.
Any provision of this Agreement, the Pledge Agreement, the Note or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Lender and the Borrower.
SECTION 8.4 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Lender. The
purchaser, assignee, transferee, or pledgee of any of the Lender's rights under
the Lender's security interest hereunder shall forthwith become vested with and
entitled to exercise all the rights, powers, and remedies given under this
Agreement to the Lender, as if said purchaser, assignee, transferee, or pledgee
were originally named as secured party herein.
SECTION 8.5 Governing Law; Submission to Jurisdiction.
THIS AGREEMENT, THE PLEDGE AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW RULES THEREOF. The Borrower
hereby submits to the
-26-
<PAGE> 27
nonexclusive jurisdiction of the United States District Court for the Northern
District of Texas and of any Texas state court for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Borrower irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
SECTION 8.6 Counterparts; Integration.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement constitutes the
entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
SECTION 8.7 WAIVER OF JURY TRIAL.
THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. This waiver of right to a
trial by jury is separately given, knowingly and voluntarily, by the Borrower
and the Lender, and this waiver is intended to encompass individually each
instance and each issue as to which the right to a trial by jury would
otherwise accrue. The Borrower and the Lender are hereby authorized and
requested to submit this Agreement to any court having jurisdiction over the
subject matters and the parties hereto, so as to serve as conclusive evidence
of the parties' herein contained waiver of the right to trial by jury.
Further, the Borrower and the Lender hereby certify that no representative,
attorney or agent of any other party has represented, expressly or otherwise,
to the Borrower, or the Lender that any other party will not seek to enforce
this waiver of right to trial by jury provision.
SECTION 8.8 Termination; Release.
Until the Termination Date, this Agreement shall be a continuing
agreement, shall remain in full force and effect. After the Termination Date,
this Agreement shall terminate, and the Lender, at the request and expense of
the Borrower, will execute and deliver to Borrower a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Borrower (without recourse
and without any representation or warranty) at the expense of the Lender the
Collateral if in the possession of the Lender or its agents and not theretofore
sold or otherwise applied or released pursuant to this Agreement).
-27-
<PAGE> 28
SECTION 8.9 Effect of Headings.
The Article and Section headings herein are for convenience of
reference only and shall not affect the construction hereof.
SECTION 8.10 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall not invalidate the remaining provisions hereof or
affect the validity or enforceability of such provisions in any other
jurisdiction.
SECTION 8.11 Application of Proceeds.
The parties agree that the Lender shall have the right to apply the
proceeds of any Collateral under this Agreement or the Line of Credit Credit
Agreement, in its sole discretion, against the Secured Obligations under this
Agreement or the Secured Obligations under the Line of Credit Credit Agreement.
-28-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CRESCENT OPERATING, INC.
By:
-----------------------------------
Name:
Title:
Notice Address:
--------------------------------------
--------------------------------------
--------------------------------------
Facsimile:
----------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities,
Ltd., its general partner
By:
-----------------------------------
Name:
Title:
Notice Address:
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
-29-
<PAGE> 30
Exhibits and Schedules:
Exhibit A: Application for Advance
Exhibit B: Note
Exhibit C: Pledge Agreement
Exhibit D: Certificate
Schedule 1: Location of the Inventory and Equipment
<PAGE> 31
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to
Crescent Real Estate Equities Limited Partnership (the "Lender") pursuant to
that certain Amended and Restated Credit and Security Agreement, dated as of
May 21, 1997, between the Lender and the undersigned (the "Credit Agreement").
Each capitalized term used herein and not otherwise defined shall have the
respective meaning ascribed to such term in the Credit Agreement.
1. The undersigned hereby requests an Advance under the Credit
Agreement in the amount of: ($________________.00).
2. The undersigned hereby requests that such Advance be made on:
_______________, 199_.
3. The undersigned hereby represents and warrants to the Lender
as follows:
(a) The undersigned is not in Default under the Credit Agreement.
(b) No Event of Default has occurred or is continuing.
(c) Both before and after giving effect to the advance requested
hereby, the representations and warranties set forth in
Section 3.1(b) of the Credit Agreement are true and correct,
with the same effect as if made on the date hereof.
Unless the undersigned has otherwise notified the Lender in
writing prior to the Closing Date and the making of the advance requested
hereby, each of such representations and warranties is true and correct as of
the date hereof and as of the Closing Date.
CRESCENT OPERATING, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 32
May 8, 1997
NOTE
$30,400,000.00
FOR VALUE RECEIVED, CRESCENT OPERATING, INC.., a Delaware corporation
("Borrower") promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Thirty Million Four
Hundred Thousand and No/100 Dollars ($30,400,000.00), with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Credit and
Security Agreement, dated as of May 8, 1997, between the Borrower and the
Lender (as the same may be amended, modified or supplemented from time to time,
the "Credit Agreement"). The Borrower promises to pay the aggregate
outstanding principal amount of the Loan together with interest thereon, on the
dates, in the amounts and at the rate or rates provided in the Credit
Agreement; provided that the interest payable shall not exceed the maximum rate
permitted by applicable law (the "Maximum Rate"). Interest on the principal
hereof from time to time remaining unpaid and, to the extent permitted by
applicable law, interest on the unpaid interest, shall bear interest from and
after an Event of Default at the Default Rate provided that in no event shall
the Default Rate be more than the Maximum Rate.
This note is the Note referred to in the Credit Agreement. This Note
and the holder hereof are entitled to all of the benefits provided for thereby
or referred to therein. Reference is hereby made to the Credit Agreement for a
statement of such benefits. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.
This Note shall be payable as provided in the Credit Agreement.
Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents. The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
Default hereunder shall not constitute a waiver of the right with respect to
such uncured
-1-
<PAGE> 33
default or any other event of uncured default hereunder or under any other of
the Loan Documents. The remedies of the holder hereof, as provided in the Note
and in any other of the Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together, as often as occasion
therefor shall arise, at the sole discretion of the holder. The acceptance by
the holder hereof of any payment under this Note which is less than payment in
full of all amounts due and payable at the time of such shall not constitute a
waiver of or impair, reduce, release, or extinguish any of the rights or
remedies of the holder hereof to exercise the foregoing option or any other
option granted to the holder in this Note or in any other of the Loan
Documents, at that time or at any subsequent time, or nullify any prior
exercise of any such option.
The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided
in the Credit Agreement, severally waive demand, presentment, notice of
dishonor, notice of intention to accelerate the indebtedness evidenced hereby,
notice of the acceleration of the maturity hereof, diligence in collecting,
grace, notice and protest, and consent to all extensions which from time to
time may be granted by the holder hereof and to all partial payments hereon,
whether before or after maturity.
If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy, or other court,
whether before or after maturity, the undersigned agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees and
expenses incurred by the holder hereof.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the maximum
amount permissible under applicable law. If from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excess interest
shall be applied to the reduction of the principal hereof and not to the
payment of interest, or if such excess interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to the undersigned. All
interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full period until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
-2-
<PAGE> 34
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
CRESCENT OPERATING, INC.
By:
-----------------------------------
Name:
Title:
-3-
<PAGE> 1
LINE OF CREDIT
CREDIT AND SECURITY AGREEMENT
THIS LINE OF CREDIT CREDIT AND SECURITY AGREEMENT (as it may be
modified, supplemented or amended from time to time, this "Agreement") is made
and entered into as of May 21, 1997 between CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership (the "Lender"), and
CRESCENT OPERATING, INC., a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower has requested that the Lender extend a credit
facility (the "Loan") in the maximum aggregate principal amount of $20,000,000
for the purpose of permitting the Borrower to make certain investments
identified herein;
WHEREAS, the Lender is willing to extend the Loan for such purpose on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the
agreements, covenants and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions,
(a) The following terms which are defined in the Uniform Commercial
Code in effect in the State of Texas on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, Farm Products, General Intangibles, Instruments,
Inventory and Proceeds.
(b) The following terms, as used herein, have the following meanings:
"Agreement" has the meaning set forth in the initial paragraph hereof.
"Application for Advance" has the meaning set forth in Section 2.1(a)
hereof.
-1-
<PAGE> 2
"Bankruptcy Event of Default" has the meaning set forth in Section 7.1.
"Borrower" means Crescent Operating, Inc., and its permitted successors and
assigns.
"Business Day" means any day except a Saturday, Sunday, or other day on
which commercial banks in Texas are authorized by law to close.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank or investment bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper issued in the United
States which is rated at least A-2 by Standard and Poor's Services or P-2 by
Moody's Investors Service, (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government are rated at least A by
Standard and Poor's Services or A by Moody's Investors Service, (f) securities
with maturities of one year or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition, or (g) shares of money market
mutual or similar funds which invest substantially exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"Closing Date" means the date this Agreement becomes effective in
accordance with Section 3.1, and each other date on which an advance is
made by the Lender to the Borrower.
"Code" means the Uniform Commercial Code as from time to time in effect in
the State of Texas.
"Collateral" has the meaning set forth in Section 4.1.
"Collateral Account" has the meaning set forth in Section 4.2.
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal period,
means the amount which, in conformity with GAAP, would be set forth
opposite the caption "net income" (or any like caption), as the case may
be, on a consolidated statement of earnings of the Borrower and its
Subsidiaries, if any, for such fiscal period.
-2-
<PAGE> 3
"Debt" of any Person means at any date, (i) all obligations of such Person
which in accordance with GAAP would be classified on a balance sheet of such
Person as liabilities of such Person ("debt"), (ii) all debt of others secured
by a Lien on any asset of such Person, whether or not such debt is assumed by
such Person, and (iii) all debt of others guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.3(b).
"EBITDA" means for any fiscal period, the Consolidated Net Income or
Consolidated Net Loss, as the case may be, for such fiscal period, after
restoring thereto amounts deducted for (a) extraordinary losses (or deducting
therefrom any amounts included therein on account of extraordinary gains) and
special charges, (b) depreciation and amortization (including write-offs or
write-downs) and special charges, (c) the amount of interest expense of the
Borrower and its Subsidiaries, if any, determined on a consolidated basis in
accordance with GAAP, for such period on the aggregate principal amount of
their consolidated indebtedness, (d) the amount of tax expense of the Borrower
and its Subsidiaries, if any, determined on a consolidated basis in accordance
with GAAP, for such period and (e) the aggregate amount of fixed and contingent
rentals payable by the Borrower and its Subsidiaries, if any, determined on a
consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property.
"Event of Default" has the meaning set forth in Section 7.1.
"GAAP" means generally accepted accounting principles in effect from time
to time.
"Interest Rate" has the meaning set forth in Section 2.3(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Lender" means Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership, and its successors and assigns.
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien
pledge, charge, security interest, or encumbrance of any kind in respect of
such asset.
"Loan" has the meaning set forth in the recitals hereto.
-3-
<PAGE> 4
"Loan" Commitment" has the meaning set forth in Section 2.1.
"Loan" Documents" means this Agreement, the Note, the Pledge Agreement and
all other documents, agreements, and instruments referred to in or required to
be delivered or actually delivered in connection herewith or therewith, as any
of them may be modified, supplemented, or amended from time to time.
"Material Debt" means Debt (other than the Note) of the Borrower, arising
in one or more related or unrelated transactions, in an aggregate
principal amount exceeding $50,000.
"Maturity Date" means the later to occur of (a) May 8, 2002 or (b) the
fifth anniversary of the date of the last Application for Advance funded
by the Lender hereunder; provided, however, that in no event shall the Maturity
Date be later than May 8, 2007.
"Note" means the promissory note of the Borrower payable to the order of
the Lender under the terms of this Agreement, as the same may be modified,
supplemented, or amended from time to time, and any note or notes issued in
substitution or replacement therefor or in addition thereto, substantially in
the form of Exhibit B hereto, in the maximum principal amount from time to time
outstanding of up to Twenty Million Dollars ($20,000,000.00), evidencing the
obligation of the Borrower to repay the Loan, as modified, supplemented or
amended from time to time.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or
political subdivision or any agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement dated May 8, 1997 executed
and delivered by the Borrower, as the same may be amended, supplemented or
otherwise modified from time to time.
"Secured Obligations" means the collective reference to the unpaid
principal of and interest on the Note and all other obligations and liabilities
of the Borrower to the Lender whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, the Note, the
Pledge Agreement or any other document, made, delivered or given in connection
therewith, in each case whether on account of principal, interest reimbursement
obligations, fees, indemnities, costs, expenses or otherwise.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which such Person owns
directly or indirectly through one or more intermediaries 50% or more of the
voting stock, partnership interests or other interests thereof or which is
controlled or capable of being controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
-4-
<PAGE> 5
"Term Loan Credit and Security Agreement" means the Credit and Security
Agreement dated as of May 8, 1997 between the Borrower and the Lender, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"Termination Date" shall mean the date 95 days from the date upon which the
"Loan" has been satisfied in full.
SECTION 1.2 Rules of Construction.
(a) Words of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders. Unless the
context shall otherwise indicate, words importing the singular number
shall include the plural and vice versa.
(b) Reference to a section number, such as this Section 1.2, shall mean
and include all provisions within that section of this Agreement,
unless a particular subsection, paragraph or subparagraph is
specified.
(c) Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP as in effect from
time to time, except as otherwise specified herein, applied on a
basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited
consolidated financial statements of the Borrower delivered to the
Lender.
ARTICLE II
COMMITMENT, ADVANCE PROCEDURE, AND NOTES
SECTION 2.1 Commitment and Advance Procedure.
(a) The Lender agrees, on and subject to the terms and conditions set
forth in this Agreement, to make advances to the Borrower during the
term hereof ((each, an "Advance") each such Advance to be a minimum
amount of $1,000,000.00), not more than once per month, up to an
aggregate amount of Twenty Million Dollars ($20,000,000.00) (the
"Loan Commitment"), following the Lender's receipt of a written
request from the Borrower made to the Lender in the form set forth in
Exhibit A hereto (an "Application for Advance"), and delivered in
accordance with this Section 2.1 and Section 8.1 hereof.
-5-
<PAGE> 6
(b) Within the limits of this Section 2.1, during the term hereof, the
Borrower may borrow, repay, and reborrow in accordance with the terms
and conditions of this Agreement.
(c) For each Advance, the Borrower shall provide the Lender with an
Application for Advance, specifying (i) the amount of the Advance
requested, and (ii) the requested date of such Advance (which shall
be at least that number of Business Days after delivery of such
Application for Advance as specified in (e) below).
(d) Notwithstanding any provision hereof to the contrary, the Lender
shall have no obligation at any time to make any Advances to the
Borrower hereunder unless, on the date of the Lender's receipt of a
properly completed and executed Application for Advance, the Borrower
shall have certified to the Lender in writing that the Borrower is
not in Default hereunder.
(e) The Lender shall have the obligation to make an advance in accordance
with the provisions hereof, including the provisions of this Section
2.1, within five (5) Business Days after its receipt of a properly
completed and executed Application for Advance that, together with
all other advances and Applications for Advance, requests advances
totaling no more than the Loan Commitment.
(f) The Borrower shall have the right to make requests for Advances
during the period beginning on the date hereof and continuing through
May 1, 2002. The Lender shall have no obligation to fund any
Applications for Advance submitted after such date.
SECTION 2.2 The Note.
(a) The Loan will be evidenced by the Note. Payments under the Note shall
be applied first to any fees, costs or expenses due under the Note or
hereunder, then to interest, and then to principal.
(b) Notwithstanding any other provision of this Agreement, all outstanding
principal and interest of the Loan and all other amounts payable
hereunder, if not sooner paid, shall be due and payable on the
Maturity Date.
SECTION 2.3 Interest Rate and Payments.
(a) Unless an Event of Default shall have occurred and be continuing, the
Loan shall bear interest on the outstanding principal amount thereof
until paid in full, at a rate per annum equal to Twelve Percent (12%)
(the "Interest Rate").
(b) Upon and after an Event of Default, the Loan shall accrue interest on
the outstanding principal balance of the Loan and, to the extent
permitted by applicable law, on the unpaid interest, at a rate per
annum equal to the Interest
-6-
<PAGE> 7
Rate plus an additional 5.0% per annum (the "Default Rate"), provided
that in no event shall the Default Rate exceed the maximum rate of
interest permitted by applicable law.
(c) Interest shall be due during the term hereof on the first Business Day
of each August, November, February and May, or such other date as the
Borrower and the Lender may mutually agree in writing.
(d) Notwithstanding Section 2.3(c), if the sum of (i) the amount of
interest to be paid by the Borrower to the Lender pursuant to this
Agreement and (ii) the amount of principal and interest to be paid by
the Borrower to the Lender pursuant to the Term Loan Credit and
Security Agreement, exceeds the amount of EBITDA of the Borrower for
the immediately preceding calendar quarter (ending the last day of
September, December, March, or June), the Borrower shall not be
obligated to repay the amount of interest otherwise due pursuant to
the terms hereof in excess of the amount of EBITDA of the Borrower
for the immediately preceding calendar quarter.
(e) Accrued interest not paid when due shall be compounded quarterly and
added to the outstanding principal amount of the Loan.
(f) On the Maturity Date, the Borrower shall repay in full all accrued but
unpaid interest and the entire unpaid principal amount of the Loan.
SECTION 2.4 General Provisions as to Payments.
The Borrower shall make each payment of principal of, and interest on, the
Loan not later than 11:00 A.M. Fort Worth, Texas time on the date when due, to
the Lender at the Lender's office at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 in same day or other immediately available funds. Whenever any
payment of principal of, or interest on, any Loan shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable
for such extended time. All such payments shall be made without setoff or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or political
subdivision or taking authority thereof (but excluding any taxes imposed on or
measured by the overall net income of the Lender).
-7-
<PAGE> 8
SECTION 2.5 Computation of Interest.
All interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day, but excluding
the last day).
SECTION 2.6 Use of Proceeds.
The proceeds of the Loan shall be used solely to enable the Borrower to
invest in (i) Moody-Day, Inc., Dallas Basketball, Ltd, Hicks Muse Tate & Furst
Equity Fund II, LP, Charter Behavioral Health Systems, LLC (including the
satisfaction of obligations to make ongoing investments in such entities), and
(ii) such other investments as the Lender may consent to in writing, which
consent may be withheld in the Lender's sole discretion.
SECTION 2.7 Evidence of Debt.
(a) The Lender shall record (i) the amount of each Advance made hereunder,
(ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to the Lender hereunder and
(iii) the amount of any sum received by the Lender hereunder from the
Borrower.
(b) The entries recorded by the Lender shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts
of the obligations of the Borrower therein recorded; provided,
however, that the failure of the Lender to record or any error in any
record shall not in any manner affect the obligation of the Borrower
to repay (with applicable interest) the Loans made to such Borrower
in accordance with the terms of this Agreement.
ARTICLE III
CONDITIONS TO BORROWING
SECTION 3.1 Conditions to Effectiveness and Further Borrowings.
(a) This Agreement shall become effective on the date that each of the
conditions set forth below shall have been satisfied (or waived in
accordance with Section 8.3):
(i) The Lender shall have received this Agreement, duly executed
by the Borrower;
(ii) The Lender shall have received from the Borrower a certificate
that each of the representations and warranties of the Borrower
contained in this Agreement is true, correct, and complete as
of the Closing Date;
-8-
<PAGE> 9
(iii) The Lender shall have received a duly executed Note dated as
of the Closing Date;
(iv) The Lender shall have received a duly executed Pledge
Agreement dated as of the Closing Date and such other
documents relating to the Pledge Agreement as reasonably
required by the Lender;
(v) The Lender shall have received proper financing statements
(Forms UCC-1 or the appropriate equivalent) necessary to
perfect the security interest in the Borrower's interest in
the Collateral (or such part thereof in which a security
interest can be perfected thereby);
(vi) The Lender shall have received the following: (A) the
articles of incorporation of the Borrower as in effect on
the Closing Date, certified as of a recent date by the
Secretary of State of Delaware, (B) the bylaws of the
Borrower as in effect on the Closing Date, certified as of
a recent date by the Secretary of the Borrower, (C)
resolutions of the board of directors of the Borrower
authorizing the execution, delivery and performance of this
Agreement, certified as of the Closing Date by its
corporate secretary, (D) certificates as to the incumbency
of the officers of the Borrower, certified by its corporate
secretary, and (E) certificates of good standing of the
Borrower issued as of a recent date by the Secretary of
State of Delaware; and
(vii) No event, which, after execution of this Agreement, would
constitute an Event of Default hereunder shall have
occurred and be continuing.
(b) As of any other Closing Date, each of the conditions set forth below
shall have been satisfied (or waived in accordance with Section 8.3):
(i) The Lender shall have received from the Borrower a
certificate that each of the representations and warranties
of the Borrower contained in this Agreement is true,
correct and complete as of the Closing Date;
(ii) The Lender shall have received a certificate in the form of
Exhibit C hereto enclosing the following: (A) a
representation that there has been no change in the
articles of incorporation of the Borrower since the Closing
Date, or if changes have occurred since the Closing Date,
the articles of incorporation of the Borrower as in effect,
certified as of a recent date by the Secretary of State of
Delaware, (B) a representation that there has been no
change in the bylaws of the Borrower since the Closing
Date, or if changes have occurred since the Closing Date,
-9-
<PAGE> 10
the bylaws of the Borrower as in effect, certified as of a
recent date by the Secretary of the Borrower, (C)
resolutions of the board of directors of the Borrower
authorizing the execution, delivery and performance of the
Application for Advance, certified as of the Closing Date
by its corporate secretary, (D) certificates as to the
incumbency of the officers of the Borrower, certified by
its corporate secretary, and (E) certificates of good
standing of the Borrower issued as of a recent date by the
Secretary of State of Delaware; and
(iii) No event which constitutes an Event of Default hereunder
shall have occurred and be continuing.
ARTICLE IV
SECURITY INTEREST
SECTION 4.1 Grant of Security Interest.
(a) As security for the prompt payment, performance, and observance in
full of the Loan, the Borrower hereby pledges and assigns to the
Lender, and grants to the Lender a continuing security interest in
and lien on all of the following property now owned or at any time
hereafter acquired by the Borrower or in which the Borrower now has
or at any time in the future may acquire any right, title or interest
(the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all books and recordings pertaining to the Collateral; and
(ix) to the extent not otherwise included, all Proceeds and
products of any of the foregoing, in any form (whether cash
or non-cash) and all collateral security and guarantees
given by any Person with respect to any of the foregoing.
-10-
<PAGE> 11
SECTION 4.2 Collateral Account
(a) Establishment of Collateral Account. Upon the execution hereof, there
shall be established and at all times thereafter there shall be
maintained by the Borrower, a non-interest bearing cash collateral
account with a financial institution approved by the Lender (the
"Collateral Account") subject to the terms of this Agreement.
(b) Rights, Title and Interest of Collateral Account. All right, title
and interest in and to the Collateral Account shall vest exclusively
in the Lender. The Borrower shall have no rights with respect to the
Collateral Account and the Lender shall have sole dominion and
control over the Collateral Account and the monies deposited therein.
Monies deposited in the Collateral Account shall constitute security
for the Secured Obligations. The Borrower hereby pledges and assigns
to the Lender and hereby grants to the Lender a security interest in,
all right, title or interest (if any) which the Borrower now has or
may hereafter have or purport or claim to have in or to the
Collateral Account and all monies held therein, any investments made
with such monies and any and all certificates or instruments from
time to time representing or evidencing such investments (and all
proceeds thereof).
(c) Maintaining the Collateral Account. Until the Termination Date of this
Agreement:
(i) The Borrower will maintain the Collateral Account with a
financial institution approved by the Lender.
(ii) All monies received by the Lender while a Default or an
Event of Default has occurred and is continuing, and any
monies received as a result of investments made as
contemplated by subsection 4.2(c)(iii) hereof, shall be
deposited in the Collateral Account.
(iii) Pending the disbursement thereof pursuant to the terms of
this Agreement, all monies in the Collateral Account shall
(to the extent it is practical to do so) be invested by the
Lender in Cash Equivalents. All such investments shall be
evidenced either (a) by negotiable certificates or
instruments which are held by or for the account of the
Lender or (b) by book entries maintained in a State in
which the Lender may be granted by book entries a security
interest in the securities relating
-11-
<PAGE> 12
thereto. In the absence of its gross negligence or willful
misconduct, the Lender shall not have any liability out of
or in connection with any investment made in accordance
with the provisions herein or for any loss or decline in
value of any investment or from any loss resulting directly
or indirectly from any investment made pursuant to and in
accordance with the provisions hereof.
SECTION 4.3 Remedies.
(a) Proceeds to be Turned Over To the Lender. When a Default or an Event
of Default has occurred and is continuing all Proceeds (as defined in
the Code) received by the Borrower consisting of cash, checks and
other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall,
forthwith upon receipt by the Borrower, be turned over to the Lender
in the exact form received by the Borrower (duly indorsed by the
Borrower to the Lender, if required) and held by the Lender in the
Collateral Account. All Proceeds while held by the Lender in the
Collateral Account (or by the Borrower in trust for the Lender) shall
continue to be held as collateral security for all the Secured
Obligations and shall not constitute payment thereof until applied as
provided in subsection 4.3(b).
(b) Application of Proceeds. At such intervals as may be agreed upon by
the Borrower and the Lender, or, if an Event of Default has occurred
and is continuing at any time at the Lender's election, the Lender
may apply all or any part of Proceeds held in any Collateral Account
in payment of the Secured Obligations in such order as the Lender may
elect, and any part of such funds which the Lender elects not so to
apply and deems not required as collateral security for the Secured
Obligations shall be paid over from time to time by the Lender to the
Borrower or to whomsoever may be lawfully entitled to receive the
same. Any balance of such Proceeds remaining after the Secured
Obligations shall have been paid in full and the Commitment shall
have expired or otherwise been terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the
same.
(c) Code Remedies. If an Event of Default has occurred and is continuing,
the Lender may exercise, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the
Code. Without limiting the generality of the foregoing, the Lender,
without demand of performance or other demand,
-12-
<PAGE> 13
presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Borrower or
any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or
office of the Lender or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in the
Borrower, which right or equity is hereby waived or released. The
Borrower further agrees, at the Lender's request, to assemble the
Collateral and make it available to the Lender at places which the
Lender shall reasonably select, whether at the Borrower's premises or
elsewhere. To the extent permitted by applicable law, the Borrower
waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by them of any rights hereunder.
If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other
disposition.
(d) The exercise by the Lender of or failure or refusal to so exercise any
right, remedy or power granted under this Agreement or available to
the Lender at law or in equity or under statute shall in no manner
affect the Borrower's liability to the Lender, and the Lender shall
be under no obligation or duty to exercise any of the rights,
remedies or powers conferred upon it hereby or by applicable law, and
it shall incur no liability for any act or failure to act in
connection with the collection of, or the preservation of any rights
under, any of the Collateral.
SECTION 4.4 Lender Appointment as Attorney-in-Fact; Lender Performance of
Borrower's Obligations.
(a) Powers. The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the
Borrower and in the name of the Borrower or in
-13-
<PAGE> 14
its own name, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable
to accomplish the purposes of this Agreement, and, without limiting
the generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without notice to or
assent by the Borrower, to do any or all of the following:
(i) at any time when an Event of Default has occurred and is
continuing in the name of the Borrower or its own name, or
otherwise, take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for
the payment of moneys due with respect to any Collateral
and file any claim or take any other action or proceeding
in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any
and all such moneys due with respect to any Collateral
whenever payable;
(ii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or
any insurance called for by the terms of this Agreement and
pay all or any part of the premiums therefor and the costs
thereof;
(iii) execute, in connection with any sale provided for in
subsection 4.3(c), any endorsements, assignments or other
instruments of conveyance or transfer with respect to the
Collateral; and
(iv) at any time when an Event of Default has occurred and is
continuing (1) direct any party liable for any payment
under any of the Collateral to make payment of any and all
moneys due or to become due thereunder directly to the
Lender or as the Lender shall direct; (2) ask or demand
for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due
at any time in respect of or arising out of any Collateral;
(3) sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the
Collateral; (4) commence and prosecute any suits, actions
or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any
thereof and to enforce any other right in respect of any
Collateral; (5) defend any suit, action or
-14-
<PAGE> 15
proceeding brought against the Borrower with respect to any
Collateral (other than any such suit, action or proceeding
brought by the Lender); (6) settle, compromise or adjust
any such suit, action or proceeding (other than any such
suit, action or proceeding brought by the Lender) and, in
connection therewith, to give such discharges or releases
as the Lender may deem appropriate; (7) generally, sell,
transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner
thereof for all purposes, and do, at the Lender's option
and the Borrower's expense, at any time, or from time to
time, all acts and things which the Lender deems necessary
to protect, preserve or realize upon the Collateral and the
Lender's security interests therein and to effect the
intent of this Agreement, all as fully and effectively as
the Borrower might do.
(b) Ratification; Power Coupled With An Interest. The Borrower hereby
ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof in accordance with the terms of this Agreement,
absent gross negligence or willful misconduct on the part of the
Lender. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this
Agreement is terminated and the security interests created hereby are
released.
SECTION 4.5 Performance by Lender of Borrower's Obligations.
If the Borrower fails to perform or comply with any of its agreements
contained in this Article IV, the Lender, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
SECTION 4.6 Borrower's Reimbursement Obligation.
The expenses of the Lender incurred in connection with actions undertaken
as provided in this Article IV, together with interest thereon at a rate equal
to the rate per annum at which interest would then be payable on past due Loans
under this Agreement, from the date of payment by the Lender to the date
reimbursed by the Borrower, shall be payable by the Borrower to the Lender on
demand.
SECTION 4.7 Duty of the Lender.
The Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender, nor
any of its respective officers, directors, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
-15-
<PAGE> 16
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Lender hereunder are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that its actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
SECTION 4.8 Execution of Financing Statements.
Pursuant to Section 9-402 of the Code, the Borrower authorizes the Lender
to file financing statements with respect to the Collateral without the
signature of the Borrower in such form and in such filing offices as the Lender
reasonably determines appropriate to perfect the security interests of the
Lender under this Agreement. The Lender shall provide the Borrower with copies
of any such financing statements. A carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
SECTION 4.9 The Pledge Agreement.
In addition to the security interest granted hereunder, the Borrower shall
grant to the Lender a security interest in the Pledged Partnership Interests
and the Pledged Stock (as those terms are defined in the Pledge Agreement)
pursuant to the Pledge Agreement.
SECTION 4.10 Pledged Notes.
With respect to any promissory notes now or hereinafter owned by or
owing to the Borrower, including, without limitation, the promissory note from
Charter Behavioral Health Systems, LLC, such notes shall be promptly endorsed
in blank and delivered to the Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.1 Existence and Power.
The Borrower is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and has all corporate power
and authority, and all material governmental licenses, authorizations,
consents, and approvals required to carry on its business as now conducted.
-16-
<PAGE> 17
SECTION 5.2 Corporate and Government Authorization; No Contravention.
The execution, delivery, and performance by the Borrower of this Agreement,
the Pledge Agreement and the Note are within the scope of the Borrower's power
and authority, have been duly authorized by all necessary corporate action of
the Borrower, require no action by or in respect of, or filing with any
governmental body, agency, or official and do not contravene, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Borrower or
under any provision of applicable law or regulation to which the Borrower is
subject, or of any judgment, injunction, order, or decree, binding upon the
Borrower, except for such contraventions as will not, singly or in the
aggregate, have a material adverse effect on the ability of the Borrower to
perform its obligations under this Agreement, the Pledge Agreement or the Note.
SECTION 5.3 Binding Effect.
This Agreement constitutes the legal, valid, binding, and enforceable
agreement of the Borrower, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 5.4 Litigation.
There is no action, suit or proceeding pending against, or to the knowledge
of the Borrower, threatened against or affecting the Borrower before any court
or arbitrator or any governmental body, agency or official which could
materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or which could materially adversely
affect the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note or which in any manner draws into
question the validity of this Agreement, the Pledge Agreement or the Note.
SECTION 5.5 Taxes.
The Borrower has filed all material tax returns and reports required by law
to have been filed and has paid all taxes and governmental charges thereby
shown to be due and payable.
SECTION 5.6 Debt.
Except as set forth in the financial statements delivered to the Lender
pursuant to Section 5.10, the Borrower has and will have no Debt outstanding on
a Closing Date other than (i) the Debt outstanding hereunder, (ii) Debt that
has previously been disclosed to the Lender in writing, and (iii) Debt that
will not, in the aggregate, have a material adverse effect on the business,
operations, or prospects of the Borrower.
-17-
<PAGE> 18
SECTION 5.7 Title to Assets.
(a) The Borrower has legal title to or a legal and valid leasehold
interest in all property and assets owned by it on the date hereof,
and will have legal title to all property and assets acquired by it
at any time subsequent to the date hereof, free and clear of all
Liens, except Liens in favor of the Lender.
(b) Except for the security interest granted to the Lender pursuant to
this Agreement, the Borrower owns each item of the Collateral free
and clear of any and all Liens or claims of others. No financing
statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Lender pursuant to this
Agreement or the Pledge Agreement.
SECTION 5.8 Perfected First Priority Liens.
The security interests granted pursuant to this Agreement (a) constitute
perfected security interests in the Collateral in favor of the Lender, as
collateral security for the Secured Obligations and (b) are prior to all other
Liens on the Collateral in existence on the date hereof.
SECTION 5.9 Inventory and Equipment.
The Inventory and the Equipment are kept at the locations listed on
Schedule 1.
SECTION 5.10 Chief Executive Office.
The Borrower's chief executive office is located at 777 Main St.,
Fort Worth, Texas 76102.
SECTION 5.11 Farm Products.
None of the Collateral constitutes, or is the Proceeds of, Farm Products.
SECTION 5.12 No Subsidiaries.
The Borrower has no Subsidiaries on the date hereof.
SECTION 5.13 Financial Information.
All financial information which has been or shall hereafter be
furnished by or on behalf of the Borrower or by any other Person at the
Borrower's direction to the Lender for the
-18-
<PAGE> 19
purposes of or in connection with this Agreement present fairly the financial
condition as at the dates thereof (subject to normal year end adjustments in
the case of unaudited financial statements).
SECTION 5.14 No Material Adverse Change.
There has been no material adverse change in the business, financial
condition, operations, assets, revenues, properties, or prospects of the
Borrower taken as a whole from the financial information previously provided to
Lender.
ARTICLE VI
COVENANTS
The Borrower agrees that, so long as any amount payable hereunder remains
unpaid:
SECTION 6.1 Conduct of Business and Maintenance of Existence.
The Borrower will perform an intercompany agreement to be entered into
between the Lender and the Borrower and such activities as are necessary or
incidental thereto, and will preserve, renew and keep in full force and effect
its existence.
SECTION 6.2 Financial Information.
The Borrower will deliver to the Lender:
(a) soon as available, but in no event more than one hundred twenty (120)
days after the end of each fiscal year of the Borrower, financial
statements of the Borrower containing a balance sheet and the related
statements of operations and cash flows, showing the financial
condition of the Borrower at the close of and for such year; and
(b) as soon as available, but in no event more than sixty (60) days after
the end of each of the first three quarters of each fiscal year of
the Borrower, financial statements of the Borrower, containing a
balance sheet and the related statements of income prepared or a cash
basis, showing the financial condition of the Borrower at the close
of and for such period.
The financial statements delivered pursuant to subsections (a) and (b) of
this Section 6.2 shall be certified by the president or chief financial officer
of the Borrower as true, complete, and correct and, as to the financial
statements delivered pursuant to subsection (a) of this Section 6.2, as having
been prepared in accordance with generally accepted accounting principles.
-19-
<PAGE> 20
SECTION 6.3 Compliance with Laws.
The Borrower will comply with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply therewith will not materially
adversely affect the business, operations, or financial condition of the
Borrower or the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note.
SECTION 6.4 Incurrence of Debt.
The Borrower will not issue, assume, guarantee, incur, or otherwise be or
become liable in respect of Debt, other than (i) Debt expressly approved by the
Lender in writing, which approval may be withheld in the Lender's sole
discretion, or (ii) non-recourse Debt financing secured by property of the
Borrower not constituting Collateral prior to or as of June 30, 1997 (the
Lender hereby agreeing to cooperate with the Borrower to subordinate or release
its Lien on such property to permit any lender of such financing to obtain a
first lien thereon).
SECTION 6.5 Limitation on Liens.
The Borrower will not create, incur, assume or suffer to exist any Lien
upon or with respect to any of its assets, whether now or hereafter acquired,
or assign or otherwise convey any right to receive income, except (i) Liens in
favor of the Lender; (ii) Liens expressly approved by the Lender, which
approval shall not be unreasonably withheld; (iii) Liens imposed by any
governmental authority for taxes, assessments or charges not yet due or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Borrower in
accordance with generally accepted accounting principles, and (iv) Liens
disclosed to the Lender on or before the Closing Date that would not, in the
aggregate, have a material adverse effect on the business, operations, or
prospects of the Borrower.
SECTION 6.6 Consolidations, Mergers, and Sales of Assets.
The Borrower will not wind up, liquidate or dissolve its affairs or convey,
sell, lease or otherwise dispose of (or agree to do any of the foregoing at any
future time), whether in one or a series of transactions, all or any
substantial part of its assets, unless such transaction or series of
transactions are expressly approved by the Lender, which approval shall not be
unreasonably withheld.
-20-
<PAGE> 21
SECTION 6.7 Books and Records.
The Borrower will keep books and records which accurately reflect all of
its business affairs and transactions in all material respects. The Borrower
will permit the Lender at reasonable times and intervals during normal business
hours to examine and photocopy extracts from any of its books or other
corporate records.
SECTION 6.8 Lien on Collateral.
The Borrower shall, at its sole cost and expense, perform all acts and
execute all documents requested by the Lender at any time to evidence, perfect,
maintain and enforce the Lender's security interest and the first priority
thereof in the Collateral. Upon the Lender's request, at any time and from time
to time, the Borrower shall, at its sole cost and expense, execute and deliver
to the Lender one or more financing statements (in form and substance
satisfactory to the Lender) pursuant to the Code and, where permitted by law,
the Borrower hereby authorizes the Lender to execute and file one or more
financing statements signed only by the Lender or to file a copy of this
Agreement as a financing statement.
SECTION 6.9 Restriction on Dividends.
The Borrower will not make dividend distributions to its shareholders at
any time when there exists an outstanding balance on the Loan.
SECTION 6.10 Restriction on Certain Amendments.
The Borrower will not amend its organizational documents without the prior
written consent of the Lender, which consent shall not be unreasonably
withheld.
SECTION 6.11 Delivery of Instruments and Chattel Paper.
If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be immediately delivered to the Lender, duly
indorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Agreement.
SECTION 6.12 Maintenance of Insurance.
The Borrower will maintain, with financially sound and reputable
companies, insurance policies (1) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Lender, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Lender, with
losses payable to the Borrower and the Lender as their respective interests may
appear.
-21-
<PAGE> 22
(a) All such insurance shall (1) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Lender of
written notice thereof, (2) name the Lender as an insured party and
(3) be reasonably satisfactory in all other respects to the Lender.
(b) The Borrower shall deliver to the Lender a report of a reputable
insurance broker with respect to such insurance in each calendar year
and such supplemental reports with respect thereto as the Lender may
from time to time reasonably request.
SECTION 6.13 Changes in Locations, Name, etc.
The Borrower will not unless it shall have given the Lender at least 30
days prior written notice of such change (or, in the case of Inventory and
Equipment, at least 10 days prior written notice, to the extent that the
Borrower has taken such action as reasonably may be required of it to maintain
the continuous perfection of the Lender's security interest in such Inventory
or Equipment, as the case may be):
(a) permit any of the Inventory (other than goods-in-transit and
immaterial amounts of goods in temporary locations in the ordinary
course of business) or Equipment to be kept at a location other than
those listed on Schedule 1;
(b) change the location of its chief executive office from that specified
in subsection 5.10; or
(c) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Lender in connection with
this Agreement would become seriously misleading.
SECTION 6.14 Further Identification of Collateral.
The Borrower will furnish to the Lender from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.
SECTION 6.15 Notices.
The Borrower will advise the Lender promptly, in reasonable detail, of (a)
any Lien (other than security interests created hereby or Liens permitted under
this Agreement) on any of the Collateral and (b) the occurrence of any other
event which could reasonably be
-22-
<PAGE> 23
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
SECTION 6.16 Additional Collateral.
With respect to any Person other than Charter Behavioral Health Systems,
LLC (being specifically excluded) that, subsequent to the Closing Date, becomes
a Subsidiary, the Borrower will promptly cause such new Subsidiary to (i)
execute and deliver to the Lender a guaranty of the Loan in form and substance
satisfactory to the Lender, and a new pledge agreement or such amendments to
the existing Pledge Agreement as the Lender shall deem necessary or reasonably
advisable to grant to the Lender, for the benefit of the Lender, a Lien on the
capital stock of such Subsidiary which is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Lender the certificates representing such
capital stock, together with undated stock powers executed and delivered in
blank by a duly authorized officer of the Borrower or such Subsidiary, as the
case may be, (iii) take all actions necessary or advisable to grant a security
interest to the Lender in the property and assets of such Subsidiary,
including, without limitation, the filing of financing statements in such
jurisdictions as may be requested by the Lender and the execution and delivery
by such Subsidiary of a security agreement in a form acceptable to the Lender.
ARTICLE VII
DEFAULTS
SECTION 7.1 Events of Default.
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
(a) except as permitted pursuant to Section 2.2(b), the Borrower shall
fail to pay within five Business Days of the due date any principal
or interest on the Loan;
(b) any representation or warranty made by the Borrower hereunder or in
any certificate furnished by or on behalf of the Borrower shall be
incorrect when made in any material respect;
(c) the Borrower shall fail to observe or perform the provisions of
Section 6.9 hereof for five Business Days;
(d) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement, the Pledge Agreement, the Note
(other than those covered by clause (a), (b) or (c) above), or any
other Loan Document for 30 days (or, with respect to Section 6.2 of
this Agreement, for 30 days after written notice thereof has been
given to the Borrower by the Lender); provided however, if such
default is capable of cure and the Borrower is diligently proceeding
to cure such default, the cure period in this subsection (d)
-23-
<PAGE> 24
shall be extended for such additional time, not to exceed 30 days, as
is reasonably necessary to complete such cure;
(e) the Borrower shall fail to make any payment in respect of any Material
Debt other than the Debt of the Borrower under this Agreement and the
Note when due or within any applicable grace period;
(f) any Default or Event of Default shall have occurred and be continuing
under the Term Loan Credit and Security Agreement.
(g) the Borrower shall commence a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect to
itself or its debts under any bankruptcy, insolvency, or other
similar law now or hereafter in effect or seeking the appointment of
a trustee, receiver, liquidator, custodian, or other similar official
of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become
due, or shall take any action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against the
Borrower seeking liquidation, reorganization, rehabilitation,
conservation, or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian, rehabilitator, conservator, or other similar official of
it or any substantial part of its property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a
period of 120 days; or an order for relief shall be entered against
the Borrower under the federal bankruptcy laws or any state
insolvency laws as now or hereafter in effect;
(i) a judgment or order for the payment of money in excess of $500,000
shall be rendered against the Borrower and such judgment or order
shall continue unsatisfied, unstayed and unbonded for a period of 30
days; provided, however that a judgment or order fully covered by
insurance, which coverage has not been disputed by the insurer, shall
not be considered a Default;
then, and in every such event, the Lender may, by notice to the Borrower
declare the Note (together with accrued interest thereon) to be, and the
Note shall thereupon become, immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which
are hereby waived by the
-24-
<PAGE> 25
Borrower; provided that in the case of any of the Events of Default
specified in clause (f) or (g) above (each, a "Bankruptcy Event of
Default"), without any notice to the Borrower or any other act by the
Lender, the Note (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (i) in the case of the
Borrower or the Lender at their respective addresses, telex numbers or
facsimile numbers set forth on the signature pages hereof or (ii) in the case
of any party, such other address, telex number or facsimile number as such
party may hereafter specify for the purpose by notice to the other party in
accordance with this Section. All notices shall be effective when received.
SECTION 8.26 Expenses; Indemnification.
(a) The Borrower shall pay (i) all out-of-pocket expenses reasonably
incurred by the Lender, including reasonable fees and disbursements
of counsel in connection with any waiver or consent hereunder or any
amendment hereof or any Default or alleged Default hereunder, and
(ii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Lender, including reasonable fees and disbursements
of counsel in connection with such Event of Default and collection,
bankruptcy, insolvency, and other enforcement proceedings resulting
therefrom. The Borrower shall indemnify the Lender against any
transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of
this Agreement, the Pledge Agreement or the Note.
(b) The Borrower agrees to indemnify the Lender and hold the Lender
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (other than general overhead and
administrative expenses), including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred
by the Lender in connection with any investigative, administrative,
or judicial proceeding (whether or not the Lender shall be designated
a party thereto) relating to or arising out of this Agreement, the
Pledge Agreement or the Note or any actual or proposed use of
proceeds of
-25-
<PAGE> 26
the Loan hereunder; provided that the Lender shall not have the right
to be indemnified hereunder for (i) any proceeding against the Lender
by any governmental authority charged with the supervision of the
Lender or (ii) its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
SECTION 8.3 Amendments and Waivers.
Any provision of this Agreement, the Pledge Agreement, the Note or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Lender and the Borrower.
SECTION 8.4 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Lender. The
purchaser, assignee, transferee, or pledgee of any of the Lender's rights under
the Lender's security interest hereunder shall forthwith become vested with and
entitled to exercise all the rights, powers, and remedies given under this
Agreement to the Lender, as if said purchaser, assignee, transferee, or pledgee
were originally named as secured party herein.
SECTION 8.5 Governing Law; Submission to Jurisdiction.
THIS AGREEMENT, THE PLEDGE AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW RULES THEREOF. The Borrower
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Northern District of Texas and of any Texas state court for
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 8.6 Counterparts; Integration.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement constitutes the entire
agreement and understanding among the
-26-
<PAGE> 27
parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.
SECTION 8.7 WAIVER OF JURY TRIAL.
THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. This waiver of right to a
trial by jury is separately given, knowingly and voluntarily, by the Borrower
and the Lender, and this waiver is intended to encompass individually each
instance and each issue as to which the right to a trial by jury would
otherwise accrue. The Borrower and the Lender are hereby authorized and
requested to submit this Agreement to any court having jurisdiction over the
subject matters and the parties hereto, so as to serve as conclusive evidence
of the parties' herein contained waiver of the right to trial by jury. Further,
the Borrower and the Lender hereby certify that no representative, attorney or
agent of any other party has represented, expressly or otherwise, to the
Borrower, or the Lender that any other party will not seek to enforce this
waiver of right to trial by jury provision.
SECTION 8.8 Termination; Release.
Until the Termination Date, this Agreement shall be a continuing
agreement, shall remain in full force and effect. After the Termination Date,
this Agreement shall terminate, and the Lender, at the request and expense of
the Borrower, will execute and deliver to Borrower a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Borrower (without recourse
and without any representation or warranty) at the expense of the Lender the
Collateral if in the possession of the Lender or its agents and not theretofore
sold or otherwise applied or released pursuant to this Agreement).
-27-
<PAGE> 28
SECTION 8.9 Effect of Headings.
The Article and Section headings herein are for convenience of reference
only and shall not affect the construction hereof.
SECTION 8.10 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof or affect
the validity or enforceability of such provisions in any other jurisdiction.
SECTION 8.11 Application of Proceeds.
The parties agree that the Lender shall have the right to apply the
proceeds of any Collateral under this Agreement or the Term Loan Credit and
Security Agreement, in its sole discretion, against the Secured Obligations
under the Term Loan Credit and Security Agreement or the Secured Obligations
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CRESCENT OPERATING, INC.
By:
--------------------------------
Name:
Title:
Notice Address:
-----------------------------------
-----------------------------------
-----------------------------------
Facsimile:
------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities,
Ltd., its general partner
By:
--------------------------------
Name:
Title:
Notice Address:
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
-28-
<PAGE> 29
Exhibits and Schedules:
Exhibit A: Application for Advance
Exhibit B: Note
Exhibit C: Certificate
Schedule 1: Location of the Inventory and Equipment
-29-
<PAGE> 30
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to Crescent
Real Estate Equities Limited Partnership (the "Lender") pursuant to that
certain Line of Credit Credit and Security Agreement, dated as of May 21, 1997,
between the Lender and the undersigned (the "Credit Agreement"). Each
capitalized term used herein and not otherwise defined shall have the
respective meaning ascribed to such term in the Credit Agreement.
1. The undersigned hereby requests an Advance under the Credit Agreement
in the amount of: ($____________.00).
2. The undersigned hereby requests that such Advance be made on:_______,
199___.
3. The undersigned hereby represents and warrants to the Lender as
follows:
(a) The undersigned is not in Default under the Credit Agreement.
(b) No Event of Default has occurred or is continuing.
(c) Both before and after giving effect to the advance requested hereby,
the representations and warranties set forth in Section 3.1(b) of
the Credit Agreement are true and correct, with the same effect as
if made on the date hereof.
Unless the undersigned has otherwise notified the Lender in writing prior
to the Closing Date and the making of the advance requested hereby, each of
such representations and warranties is true and correct as of the date hereof
and as of the Closing Date.
CRESCENT OPERATING, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 31
May 21, 1997
LINE OF CREDIT NOTE
$20,000,000.00
FOR VALUE RECEIVED, CRESCENT OPERATING, INC., a Delaware corporation
("Borrower") promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Twenty Million and
No/100 Dollars ($20,000,000.00), with interest on the principal balance from
time to time remaining unpaid at the rates hereinafter provided.
The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Line of Credit
Credit and Security Agreement, dated as of May 21, 1997, between the Borrower
and the Lender (as the same may be amended, modified or supplemented from time
to time, the "Credit Agreement"). The Borrower promises to pay the aggregate
outstanding principal amount of the Loan together with interest thereon, on the
dates, in the amounts and at the rate or rates provided in the Credit
Agreement; provided that the interest payable shall not exceed the maximum rate
permitted by applicable law (the "Maximum Rate"). Interest on the principal
hereof from time to time remaining unpaid and, to the extent permitted by
applicable law, interest on the unpaid interest, shall bear interest from and
after an Event of Default at the Default Rate provided that in no event shall
the Default Rate be more than the Maximum Rate.
This note is the Note referred to in the Credit Agreement. This Note
and the holder hereof are entitled to all of the benefits provided for thereby
or referred to therein. Reference is hereby made to the Credit Agreement for a
statement of such benefits. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.
This Note shall be payable as provided in the Credit Agreement.
Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents. The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
Default hereunder shall not constitute a waiver of the right with respect to
such uncured
-1-
<PAGE> 32
default or any other event of uncured default hereunder or under any other of
the Loan Documents. The remedies of the holder hereof, as provided in the Note
and in any other of the Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together, as often as occasion
therefor shall arise, at the sole discretion of the holder. The acceptance by
the holder hereof of any payment under this Note which is less than payment in
full of all amounts due and payable at the time of such shall not constitute a
waiver of or impair, reduce, release, or extinguish any of the rights or
remedies of the holder hereof to exercise the foregoing option or any other
option granted to the holder in this Note or in any other of the Loan
Documents, at that time or at any subsequent time, or nullify any prior
exercise of any such option.
The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided
in the Credit Agreement, severally waive demand, presentment, notice of
dishonor, notice of intention to accelerate the indebtedness evidenced hereby,
notice of the acceleration of the maturity hereof, diligence in collecting,
grace, notice and protest, and consent to all extensions which from time to
time may be granted by the holder hereof and to all partial payments hereon,
whether before or after maturity.
If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy, or other court,
whether before or after maturity, the undersigned agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees and
expenses incurred by the holder hereof.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the maximum
amount permissible under applicable law. If from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excess interest
shall be applied to the reduction of the principal hereof and not to the
payment of interest, or if such excess interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to the undersigned. All
interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full period until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
-2-
<PAGE> 33
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS
-3-
<PAGE> 34
EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY LAWS), THIS NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE
UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH STATE.
CRESCENT OPERATING, INC.
By:
--------------------------------
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 10.7
ACQUISITION AGREEMENT
BY AND AMONG
CARTER-CROWLEY PROPERTIES, INC.,
HI CAPITAL CORP.,
METROPORT REALTY CORPORATION,
HI PRODUCTION COMPANY, INC. AND
DALLAS MAVERICKS, INC.
("SELLER")
AND
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
("PURCHASER")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
ASSETS . . . . . . . . . . . . . . . . 1
1.1 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2.1 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2.2 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.3 Personal Property . . . . . . . . . . . . . . . . . . . . . . 2
1.2.4 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.5 Ground Leases . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.6 Operating Agreements . . . . . . . . . . . . . . . . . . . . . 2
1.2.7 Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.8 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3.1 Number not used . . . . . . . . . . . . . . . . . . . . . . . 3
1.3.2 Rising Star Partnership Interests . . . . . . . . . . . . . . 3
1.3.3 Hicks Muse Partnership Interests . . . . . . . . . . . . . . . 3
1.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5.1 Leases, Royalty Interests, Contract Rights . . . . . . . . . . 3
1.5.2 Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5.3 Contracts and Agreements . . . . . . . . . . . . . . . . . . . 4
1.6 Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Citation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Texas Stadium Suite . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12 Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.12.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
PURCHASE PRICE . . . . . . . . . . . . . . 6
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Adjustments to Purchase Price . . . . . . . . . . . . . . . . . . . . 6
2.2.1 Partnership Interests . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
2.2.2 Dispositions of Marketable Securities and Municipal Bonds . . 6
2.2.3 Redemption Pursuant to Any Municipal Bonds . . . . . . . . . . 6
2.2.4 The Addison . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2.5 Flower Mound And Other Undeveloped Land . . . . . . . . . . . 7
2.2.6 Radovir Obligation . . . . . . . . . . . . . . . . . . . . . . 7
2.2.7 Promissory Note Payments . . . . . . . . . . . . . . . . . . . 7
2.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . 7
2.4 Adjustment Based on DBL Partnership Interest . . . . . . . . . . . . . 8
ARTICLE III
EARNEST MONEY . . . . . . . . . . . . . . . 8
3.1 Earnest Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
DUE DILIGENCE AGREEMENTS . . . . . . . . . . . . 8
4.1 Due Diligence Deliveries . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Real Property Deliveries . . . . . . . . . . . . . . . . . . . . . . . 9
4.2.1 Miscellaneous Agreements . . . . . . . . . . . . . . . . . . . 9
4.2.2 Operating Agreements . . . . . . . . . . . . . . . . . . . . . 9
4.2.3 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . 9
4.2.4 Plans and Specifications . . . . . . . . . . . . . . . . . . . 9
4.2.5 Tax Statements . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2.6 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . 9
4.2.9 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.10 Ground Leases . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.11 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.12 Operational Documents . . . . . . . . . . . . . . . . . . . . 10
4.2.13 Authorization for Interviews . . . . . . . . . . . . . . . . . 10
4.2.14 Maintenance Records . . . . . . . . . . . . . . . . . . . . . 10
4.2.15 Projected Expenditures . . . . . . . . . . . . . . . . . . . . 10
4.2.16 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 10
4.2.17 Utility Bills . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.18 Disputes; Major Repairs . . . . . . . . . . . . . . . . . . . 10
4.2.19 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2.20 Confidential Information Concerning Value . . . . . . . . . . 11
4.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3.1 Number not used . . . . . . . . . . . . . . . . . . . . . . . 11
4.3.2 Rising Star Partnership Interests . . . . . . . . . . . . . . 11
4.3.2.1 Rising Star Partnership Agreements . . . . . . . . . 11
4.3.2.2 Investments . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
4.3.2.2.1 Division Orders; Title Information . . . 11
4.3.2.2.2 Operating Agreements . . . . . . . . . . 11
4.3.2.2.3 Transfer Orders; Purchase/Sale
Agreements . . . . . . . . . . . . . . 11
4.3.2.2.4 Oil and Gas Leases; Assignment . . . . . 11
4.3.2.2.5 Pooling and Unitization Documents . . . 12
4.3.2.2.6 Well Files . . . . . . . . . . . . . . . 12
4.3.2.2.7 Engineering and Environmental
Reports . . . . . . . . . . . . . . . 12
4.3.2.2.8 Ad Valorem Tax Information . . . . . . . 12
4.3.2.2.9 Maps and Surveys . . . . . . . . . . . . 12
4.3.2.2.10 Lease Records . . . . . . . . . . . . . 12
4.3.2.2.11 Other Oil and Gas Information . . . . . 12
4.3.2.3 Capital Contributions . . . . . . . . . . . . . . . 12
4.3.2.4 Unfunded Commitments . . . . . . . . . . . . . . . . 13
4.3.2.5 Rising Star Financial Information . . . . . . . . . 13
4.3.2.6 Other Information . . . . . . . . . . . . . . . . . 13
4.3.2.7 Tax Records . . . . . . . . . . . . . . . . . . . . 13
4.3.3 Hicks Muse Partnership Interests . . . . . . . . . . . . . . . 13
4.3.3.1 Hicks Muse Partnership Agreements . . . . . . . . . 13
4.3.3.2 Capital Contributions . . . . . . . . . . . . . . . 13
4.3.3.3 Hicks Muse Financial Information . . . . . . . . . . 13
4.3.3.4 Other Information . . . . . . . . . . . . . . . . . 14
4.3.3.5 Tax Information . . . . . . . . . . . . . . . . . . 14
4.4 Moody-Day Stock Deliveries . . . . . . . . . . . . . . . . . . . . . . 14
4.4.1 Organizational Documents; Books and Records . . . . . . . . . 14
4.4.2 Moody-Day Financial Statements . . . . . . . . . . . . . . . . 14
4.4.3 Receivables and Payables . . . . . . . . . . . . . . . . . . . 14
4.4.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4.5 Agreements, Contracts and Commitments . . . . . . . . . . . . 15
4.4.6 Descriptions of Property . . . . . . . . . . . . . . . . . . . 15
4.4.7 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5.1 Division Orders and Title Opinions . . . . . . . . . . . . . . 15
4.5.2 Operating Agreements . . . . . . . . . . . . . . . . . . . . . 15
4.5.3 Production Agreements . . . . . . . . . . . . . . . . . . . . 15
4.5.4 Service Documents . . . . . . . . . . . . . . . . . . . . . . 16
4.5.5 Documents Affecting Title or Value . . . . . . . . . . . . . . 16
4.5.6 Well Files . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5.7 Reports, Studies . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
4.5.8 Taxes and Documents . . . . . . . . . . . . . . . . . . . . . 16
4.5.9 Maps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5.10 Records and Data . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8.1 Notes and Security Documents . . . . . . . . . . . . . . . . . 17
4.8.2 Payments Received . . . . . . . . . . . . . . . . . . . . . . 17
4.8.3 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Citation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9.1 Lease and Purchase Agreements . . . . . . . . . . . . . . . . 17
4.9.2 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Records in Possession of Seller . . . . . . . . . . . . . . . . . . . 17
ARTICLE V
TITLE REVIEW PERIOD . . . . . . . . . . . . . 17
5.1 Real Property Assets Title Review . . . . . . . . . . . . . . . . . . 17
5.2 Real Property Assets Permitted Exceptions . . . . . . . . . . . . . . 18
5.3 Oil and Gas Interests Title Review . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
INSPECTION PERIOD . . . . . . . . . . . . . . 19
6.1 Inspection Period . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Purchaser's Right to Review Books . . . . . . . . . . . . . . . . . . 20
6.3 Sellers' Cooperation Regarding Partnerships and Moody-Day . . . . . . 21
6.4 Continuing Access Prior to Closing . . . . . . . . . . . . . . . . . . 21
ARTICLE VII
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 21
7.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . 21
7.1.1 Organization, Existence and Good Standing . . . . . . . . . . 22
7.1.2 Authorization; Enforceability . . . . . . . . . . . . . . . . 22
7.1.3 No Violation of Laws or Agreements . . . . . . . . . . . . . . 22
7.1.4 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1.5 No Rights of First Refusal . . . . . . . . . . . . . . . . . . 23
7.1.6 Accuracy of Documents . . . . . . . . . . . . . . . . . . . . 23
7.1.7 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1.8 Shareholder Consent . . . . . . . . . . . . . . . . . . . . . 23
7.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2.2 Rent Roll . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
7.2.3 Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2.4 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2.5 No Rent Prepayments . . . . . . . . . . . . . . . . . . . . . 24
7.2.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . 24
7.2.7 RSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2.8 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2.9 Operating Agreements . . . . . . . . . . . . . . . . . . . . . 24
7.2.10 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2.11 Effective Contracts . . . . . . . . . . . . . . . . . . . . . 24
7.2.12 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 25
7.2.13 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . 25
7.2.14 Insurance Compliance . . . . . . . . . . . . . . . . . . . . . 25
7.2.15 Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2.16 Agreements Affecting Properties . . . . . . . . . . . . . . . 25
7.2.17 Status of Leases . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.18 Assessments . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.19 Books and Records; Financial Information . . . . . . . . . . . 26
7.2.20 Number not used . . . . . . . . . . . . . . . . . . . . . . . 26
7.2.21 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.22 Undeveloped Land . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.23 Tenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2.24 Soil Conditions . . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3.1 General Representations and Warranties as to Partnership
Interests . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3.1.1 Ownership . . . . . . . . . . . . . . . . . . . . . 27
7.3.1.2 Organization, Existence and Good Standing 27
7.3.1.3 Partnership Agreements; Amendments . . . . . . . . . 27
7.3.1.4 No Default; No Litigation . . . . . . . . . . . . . 28
7.3.1.5 No Obligations . . . . . . . . . . . . . . . . . . . 28
7.3.1.6 Right to Transfer; Right to Become Substitute
Limited Partner . . . . . . . . . . . . . . . . . 28
7.3.2 Number not used . . . . . . . . . . . . . . . . . . . . . . . 28
7.3.3 Rising Star Partnership Interests . . . . . . . . . . . . . . 28
7.3.3.1 Related Agreements and Rights . . . . . . . . . . . 28
7.3.3.2 Approvals; Consents . . . . . . . . . . . . . . . . 28
7.3.3.3 Partners . . . . . . . . . . . . . . . . . . . . . . 28
7.3.4 Hicks Muse Partnership Interests . . . . . . . . . . . . . . . 29
7.3.4.1 Related Agreements and Rights . . . . . . . . . . . 29
7.3.4.2 Approvals; Consents . . . . . . . . . . . . . . . . 29
7.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4.1 Shares of Moody-Day Stock . . . . . . . . . . . . . . . . . . 29
7.4.2 Consents and Approvals; No Violation . . . . . . . . . . . . . 29
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C> <C>
7.4.3 Moody-Day Financial Statements . . . . . . . . . . . . . . . . 30
7.4.4 Books and Records . . . . . . . . . . . . . . . . . . . . . . 30
7.4.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 30
7.4.6 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4.7 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . 31
7.4.9 Agreements, Contracts and Commitments . . . . . . . . . . . . 32
7.4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.4.11 Title to Properties and Related Matters . . . . . . . . . . . 33
7.4.12 Condition and Sufficiency of Assets . . . . . . . . . . . . . 33
7.4.13 Leasehold Interests . . . . . . . . . . . . . . . . . . . . . 33
7.4.14 Personal Property . . . . . . . . . . . . . . . . . . . . . . 34
7.4.15 Compensation and Benefit Plans . . . . . . . . . . . . . . . . 34
7.4.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . 35
7.4.19 Intellectual Property . . . . . . . . . . . . . . . . . . . . 35
7.4.20 Bank Accounts; Powers of Attorney . . . . . . . . . . . . . . 35
7.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 35
7.5.1 Defensible Title . . . . . . . . . . . . . . . . . . . . . . . 35
7.5.2 Seller's Interest in Production and Expenses . . . . . . . . . 35
7.5.3 Compliance with Legal Requirements . . . . . . . . . . . . . . 35
7.5.4 Ad Valorem Taxes . . . . . . . . . . . . . . . . . . . . . . . 36
7.5.5 No Excess Production; Volume Imbalance . . . . . . . . . . . . 36
7.5.6 No Hazardous Substances . . . . . . . . . . . . . . . . . . . 36
7.5.7 Rights to Dispose of Interest . . . . . . . . . . . . . . . . 36
7.5.8 Petroleum Engineering Report . . . . . . . . . . . . . . . . . 36
7.5.9 Sales Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5.10 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 36
7.5.11 Agreements Valid and Enforceable . . . . . . . . . . . . . . . 37
7.5.12 Payment of Rentals and Royalties . . . . . . . . . . . . . . . 37
7.5.13 No Commitments . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5.14 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5.15 Use of Oil and Gas Interests . . . . . . . . . . . . . . . . . 37
7.5.16 No Encumbrances . . . . . . . . . . . . . . . . . . . . . . . 37
7.6 Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 37
7.7 Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8.2 No Additional Agreements . . . . . . . . . . . . . . . . . . . 38
7.8.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 38
7.8.4 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
-vi-
<PAGE> 8
<TABLE>
<S> <C> <C>
7.8.5 No Advances . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8.6 Principal Balances . . . . . . . . . . . . . . . . . . . . . . 38
7.8.7 Valid Liens . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8.8 No Defenses, Setoffs, Counterclaims . . . . . . . . . . . . . 38
7.9 Citation Interest/Texas Stadium License . . . . . . . . . . . . . . . 38
7.9.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.9.2 No Modification . . . . . . . . . . . . . . . . . . . . . . . 39
7.9.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 39
7.9.4 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.9.5 No Defenses, Setoffs, Counterclaims . . . . . . . . . . . . . 39
7.10 Representations and Warranties of Purchaser . . . . . . . . . . . . . 39
7.10.1 Organization, Existence and Good Standing . . . . . . . . . . 39
7.10.2 Authorization; Enforceability . . . . . . . . . . . . . . . . 39
7.10.3 No Violation of Laws or Agreements . . . . . . . . . . . . . . 39
7.10.4 No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10.5 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VIII
SELLER'S AGREEMENTS PRIOR TO CLOSING . . . . . . . . . 40
8.1 Seller's Agreements prior to Closing . . . . . . . . . . . . . . . . . 40
8.1.1 Untrue Representations . . . . . . . . . . . . . . . . . . . . 40
8.1.2 Notice of Proceedings . . . . . . . . . . . . . . . . . . . . 40
8.1.3 Commercially Reasonable Efforts . . . . . . . . . . . . . . . 40
8.1.4 Notification of Certain Matters . . . . . . . . . . . . . . . 41
8.1.5 Operation Prior to the Closing Date . . . . . . . . . . . . . 41
8.1.6 Performance of Obligations . . . . . . . . . . . . . . . . . . 41
8.1.7 No Transfer or Encumbrances . . . . . . . . . . . . . . . . . 41
8.1.8 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1.9 Compliance with Legal Requirements . . . . . . . . . . . . . . 42
8.1.10 Affiliate Indebtedness . . . . . . . . . . . . . . . . . . . . 42
8.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2.1 Further Conveyances . . . . . . . . . . . . . . . . . . . . . 42
8.2.2 Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2.4 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2.5 New Contracts . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2.6 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 43
8.2.7 Sale of Personal Property . . . . . . . . . . . . . . . . . . 43
8.2.8 Trade Accounts . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2.9 Performance Under Leases . . . . . . . . . . . . . . . . . . . 43
8.2.10 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2.11 Defects Repair . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
-vii-
<PAGE> 9
<TABLE>
<S> <C> <C>
8.2.12 Number not used . . . . . . . . . . . . . . . . . . . . . . . 44
8.2.13 Ground Leases . . . . . . . . . . . . . . . . . . . . . . . . 44
8.2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.2.15 Seller's Lease at Meridian . . . . . . . . . . . . . . . . . . 44
8.2.16 CompUSA Right of First Refusal . . . . . . . . . . . . . . . . 44
8.2.17 Approved Sale Contracts . . . . . . . . . . . . . . . . . . . 45
8.2.18 Ohio Drive I . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3.1.1 Notices; Participation . . . . . . . . . . . . . . . 45
8.3.1.2 Contributions and Distributions . . . . . . . . . . 46
8.3.1.3 Consents from Partners and Third Parties . . . . . . 46
8.3.2 Number not used . . . . . . . . . . . . . . . . . . . . . . . 46
8.3.3 Rising Star Partnership Interests . . . . . . . . . . . . . . 47
8.3.4 Hicks Muse Partnership Interests . . . . . . . . . . . . . . . 47
8.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.4.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . 47
8.4.2 Restricted Activities . . . . . . . . . . . . . . . . . . . . 48
8.4.3 Moody-Day Corporate Matters . . . . . . . . . . . . . . . . . 49
8.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.1 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.2 Performance; No Violations . . . . . . . . . . . . . . . . . . 49
8.5.3 Number not used . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.4 Additional Information . . . . . . . . . . . . . . . . . . . . 49
8.5.5 Number not used . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.6 Number not used . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.7 Number not used . . . . . . . . . . . . . . . . . . . . . . . 49
8.5.8 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 49
8.5.9 No New Commitments; Modification . . . . . . . . . . . . . . . 49
8.5.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 50
8.5.11 No Additional Undertakings . . . . . . . . . . . . . . . . . . 50
8.5.12 Environmental Assessment . . . . . . . . . . . . . . . . . . . 50
8.6 Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 50
8.7 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.8.1 Notice of Proceedings . . . . . . . . . . . . . . . . . . . . 50
8.8.2 No Encumbrances . . . . . . . . . . . . . . . . . . . . . . . 51
8.8.4 No Amendments or Modifications . . . . . . . . . . . . . . . . 51
8.8.5 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.8.6 No Releases . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.8.7 Collateral for Allied Note . . . . . . . . . . . . . . . . . . 51
8.9 Citation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
-viii-
<PAGE> 10
<TABLE>
<S> <C> <C>
8.9.1 No Encumbrances . . . . . . . . . . . . . . . . . . . . . . . 51
8.9.2 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.9.3 No Amendments or Modifications . . . . . . . . . . . . . . . . 52
8.10 Purchaser's General Agreements Prior to Closing . . . . . . . . . . . 52
8.10.1 Untrue Representations . . . . . . . . . . . . . . . . . . . . 52
8.10.2 Notice of Proceedings . . . . . . . . . . . . . . . . . . . . 52
8.10.3 Commercially Reasonable Efforts . . . . . . . . . . . . . . . 52
8.10.4 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX
DELIVERY OF CONSENTS AND ESTOPPELS . . . . . . . . . 53
9.1 Consents and Estoppels . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2.1 Tenant Estoppels . . . . . . . . . . . . . . . . . . . . . . . 53
9.2.2 Ground Lessor Estoppels . . . . . . . . . . . . . . . . . . . 54
9.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 54
9.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 55
9.6 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE X
CONDITIONS . . . . . . . . . . . . . . . 55
10.1 Purchaser's Conditions . . . . . . . . . . . . . . . . . . . . . . . . 55
10.1.1 Representations, Warranties and Covenants . . . . . . . . . . 55
10.1.2 No Material Adverse Change . . . . . . . . . . . . . . . . . . 55
10.1.3 No Pending Litigation . . . . . . . . . . . . . . . . . . . . 56
10.1.4 Closing Documents . . . . . . . . . . . . . . . . . . . . . . 56
10.1.5 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 56
10.1.6 No Prohibition of Transaction . . . . . . . . . . . . . . . . 56
10.1.7 Documentation . . . . . . . . . . . . . . . . . . . . . . . . 56
10.1.8 Affiliate Indebtedness . . . . . . . . . . . . . . . . . . . . 56
10.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.2.1 Closing Title Commitments . . . . . . . . . . . . . . . . . . 57
10.2.2 Rent Roll . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.2.3 Material Change . . . . . . . . . . . . . . . . . . . . . . . 57
10.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 57
10.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 58
10.5.1 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 58
10.5.2 Number not used . . . . . . . . . . . . . . . . . . . . . . . 58
10.5.3 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . 58
10.6. Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
-ix-
<PAGE> 11
<TABLE>
<S> <C> <C>
10.7 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.8.1 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.8.2 Principal Balance . . . . . . . . . . . . . . . . . . . . . . 58
10.9 Citation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.9.1 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.9.2 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.10 Texas Stadium Suite . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.11 Failure of Consent Conditions . . . . . . . . . . . . . . . . . . . . 59
10.12 Seller's Conditions to Closing . . . . . . . . . . . . . . . . . . . . 59
10.12.1 Representations, Warranties and Covenants . . . . . . . . . . 59
10.12.2 No Pending Litigation . . . . . . . . . . . . . . . . . . . . 59
10.12.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 59
10.12.4 No Prohibition of Transaction . . . . . . . . . . . . . . . . 59
10.13 Failure of Seller's Conditions to Closing . . . . . . . . . . . . . . 60
10.14 Evaluation of Liabilities Associated with Oil and Gas Interests . . . 60
10.15 Fairness Opinion Condition . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE XI
CLOSING . . . . . . . . . . . . . . . . 61
ARTICLE XII
SELLER'S OBLIGATIONS AT CLOSING . . . . . . . . . . 61
12.1 Seller's Obligations at Closing . . . . . . . . . . . . . . . . . . . 61
12.1.1 General Closing Obligations of Seller . . . . . . . . . . . . 61
12.1.2 Affiliate Indebtedness . . . . . . . . . . . . . . . . . . . 61
12.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.6 Number not used . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.7 Number not used . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.2.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
12.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 63
12.4 Moody-Day Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 63
12.5.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
-x-
<PAGE> 12
<TABLE>
<S> <C> <C>
12.5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.6 Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . 63
12.7 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.8 Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.8.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.8.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
12.8.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.8.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.8.5 Number not used . . . . . . . . . . . . . . . . . . . . . . . 64
12.8.6 Number not used . . . . . . . . . . . . . . . . . . . . . . . 64
12.8.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.8.8 Number not used . . . . . . . . . . . . . . . . . . . . . . . 64
12.9 Citation Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.9.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.9.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.10 Texas Stadium Suite . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.10.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.10.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XIII
PURCHASER'S OBLIGATIONS AT CLOSING . . . . . . . . . 64
13.1 Purchaser's Obligations at Closing . . . . . . . . . . . . . . . . . . 64
13.1.1 General Closing Obligations of Purchaser . . . . . . . . . . 65
13.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.3 Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 65
13.4 Texas Stadium Suite . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.5 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.6 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE XIV
COSTS AND ADJUSTMENTS . . . . . . . . . . . . . 66
14.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.2 Real Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.2.1 Rents and Expenses . . . . . . . . . . . . . . . . . . . . . 66
14.2.2 Ordinary Expenses . . . . . . . . . . . . . . . . . . . . . . 66
14.2.3 Lease Payments . . . . . . . . . . . . . . . . . . . . . . . 67
14.2.4 Security Deposits . . . . . . . . . . . . . . . . . . . . . . 67
14.2.5 Operating Expense Rent . . . . . . . . . . . . . . . . . . . 67
14.2.6 Recording Costs . . . . . . . . . . . . . . . . . . . . . . . 68
14.2.7 Tenant Improvements; Commissions . . . . . . . . . . . . . . 68
</TABLE>
-xi-
<PAGE> 13
<TABLE>
<S> <C> <C>
14.3 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.4 Moody-Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.5 Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . . . 69
14.6 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.7 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.8 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.9 Citation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.10 Texas Stadium Suite . . . . . . . . . . . . . . . . . . . . . . . . . 69
14.11 Recording of Documents . . . . . . . . . . . . . . . . . . . . . . . . 69
14.12 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE XV
AS IS PROVISION . . . . . . . . . . . . . . 70
ARTICLE XVI
INDEMNITY OBLIGATIONS . . . . . . . . . . . . . 71
16.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . 71
16.2 Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . . . 71
16.3 Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
16.4 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 72
16.5 Good Faith Efforts to Settle Disputes . . . . . . . . . . . . . . . . 72
16.6 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
16.7 Survival and Limitation of Indemnities . . . . . . . . . . . . . . . . 72
ARTICLE XVII
CONDEMNATION, DAMAGE OR DESTRUCTION PRIOR TO CLOSING . . . . . 73
17.1 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
17.2 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
17.2.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 73
17.2.2 Loss and Restoration Estimates . . . . . . . . . . . . . . . 73
17.2.3 Restoration Not Completed by Closing Date . . . . . . . . . . 74
17.2.4 Maintenance of Insurance Prior to Closing . . . . . . . . . . 74
ARTICLE XVIII
POSSESSION OF ASSETS FOLLOWING CLOSING . . . . . . . . 75
ARTICLE XIX
NOTICES . . . . . . . . . . . . . . . . 75
ARTICLE XX
REMEDIES . . . . . . . . . . . . . . . . 76
20.1 Default by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
-xii-
<PAGE> 14
<TABLE>
<S> <C> <C>
20.2 Default by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 77
20.3 Adjustment Events . . . . . . . . . . . . . . . . . . . . . . . . . . 77
20.3.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 77
20.3.2 Adjustment Floor Not Exceeded . . . . . . . . . . . . . . . . 77
20.3.3 Adjustment Floor Exceeded . . . . . . . . . . . . . . . . . . 77
20.3.4 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 78
20.3.5 Effect of Closing . . . . . . . . . . . . . . . . . . . . . . 78
20.3.6 Sole Remedies . . . . . . . . . . . . . . . . . . . . . . . . 79
20.4 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
20.5 Incidental and Consequential Damages . . . . . . . . . . . . . . . . . 80
20.6 Survival of Sections 17.1, 17.2, 20.3 and 20.4 . . . . . . . . . . . . 80
20.7 Termination of DMI Agreement . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE XXI
MISCELLANEOUS . . . . . . . . . . . . . . . 81
21.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
21.2 Interpretation and Applicable Law . . . . . . . . . . . . . . . . . . 81
21.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
21.4 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.5 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.8 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
21.9 Commissions and Finders Fees . . . . . . . . . . . . . . . . . . . . . 82
21.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
21.11 Rule of Construction . . . . . . . . . . . . . . . . . . . . . . . . . 85
21.12 Number not used . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
21.13 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
21.14 Notice of Intent to Sell Moody-Day . . . . . . . . . . . . . . . . . . 85
21.15 Access to Records after Closing . . . . . . . . . . . . . . . . . . . 85
21.16 Special Non-Disclosure Agreement . . . . . . . . . . . . . . . . . . . 86
21.17 Retention by CCP . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE XXII
DEFINITIONS . . . . . . . . . . . . . . . 86
</TABLE>
-xiii-
<PAGE> 15
ACQUISITION AGREEMENT
This Acquisition Agreement ("Agreement") is entered into by and among CARTER-
CROWLEY PROPERTIES, INC., a Texas corporation ("CCP"), HI CAPITAL CORP., a
Texas corporation ("HCC"), METROPORT REALTY CORPORATION, a Texas corporation
("MRC"), HI PRODUCTION COMPANY, INC., a Texas corporation ("HPC"), DALLAS
MAVERICKS, INC., a Texas corporation ("DMI") (CCP, HCC, MRC, HPC, and DMI are
collectively referred to as "Seller" in accordance with Section 1.12) and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Purchaser"), as of the 10th day of February, 1997 (the "Effective
Date").
R E C I T A L S :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions.
ARTICLE I
ASSETS
1.1 Assets. Each respective Seller (as more particularly described in
Section 1.12) agrees to sell and Purchaser agrees to purchase in accordance
with the terms of this Agreement the assets (the "Assets" and each an "Asset")
described in Sections 1.2 through 1.10.
1.2 Real Property Assets. The phrase "Real Property Assets" shall
collectively mean the Land, Improvements, Personal Property, Leases, Ground
Leases, Operating Agreements, Intangibles and Permits as more particularly
defined below in Sections 1.2.1 through 1.2.9.
1.2.1 Land. (i) Seller's fee simple interest in those thirty-two
(32) certain tracts or parcels of land more particularly described as Parcels
1-10, Parcels 12-16, and Parcels 20-35 on Exhibit 1.2.1(i); (ii) all of
Seller's right, title and interest as lessee in that certain leasehold estate
("Airport Leasehold") covering certain land located in Dallas County, Texas,
and more specifically described as Parcel 19 in Exhibit 1.2.1(ii) (the lease
described on Exhibit 1.2.1(ii) is called the "Airport Ground Lease"); (iii) all
of Seller's right, title and interest as lessee in that certain leasehold
estate ("Stemmons Leasehold") covering certain land located in Dallas County,
Texas, and more specifically described as Parcel 11 in Exhibit 1.2.1(iii) (the
lease described on Exhibit 1.2.1(iii) is called the "Stemmons Ground Lease")
together with Seller's option to purchase the Stemmons Leasehold as described
on Exhibit 1.2.1(ii); and (iv) together with any right right, title and
interest of Seller in and to adjacent strips or gores, streets, alleys or
rights-of-way and all rights of ingress and egress thereto (Parcels 1-16 and
19-35 are each referred to individually as a Parcel and collectively as the
"Land").
<PAGE> 16
1.2.2 Improvements. All buildings, improvements and structures
[including hangers ("Hangers")] (collectively "Improvements") now or hereafter
situated on any part of the Land, including but not limited to all non-
building site improvements and all facilities and installations thereon owned
by Seller.
1.2.3 Personal Property. All personal property owned by Seller upon
the Properties (including, but not limited to, the personal property situated
in Suite 400 of the Meridian), including specifically, without limitation,
heating, ventilation and air conditioning systems and equipment, appliances,
furniture, carpeting, draperies and curtains, tools and supplies, and other
items of personal property (excluding cash) used in connection with the
operation of the Properties, excluding those items of personal property
identified on Exhibit 1.2.3 (collectively, the "Personal Property").
1.2.4 Leases. All of Seller's right, title and interest in all oral
or written agreements pursuant to which any portion of any Parcel is used or
occupied by anyone other than Seller (collectively the "Leases") together with
all security deposits and letters of credit delivered as security deposits not
forfeited or refunded ("Security Deposits") of tenants occupying any portion of
the Properties. The Security Deposits shall not include any security deposits
returned to tenants following lease expiration or applied against rent
following tenant default in the ordinary course of Seller's business.
1.2.5 Ground Leases. All of Seller's right, title and interest in
all ground leases (including but not limited to, the Stemmons Ground Lease and
the Airport Ground Lease) ("Ground Leases") affecting the Properties.
1.2.6 Operating Agreements. All of Seller's right, title and
interest in and to those contracts and agreements relating to the upkeep,
repair, maintenance or operation of the Properties which will extend beyond the
date of closing and all other agreements to which Seller is a party relating to
any of the Parcels, including specifically, without limitation, all assignable
equipment leases (collectively, the "Operating Agreements").
1.2.7 Intangibles. All assignable warranties and guaranties
(express or implied) relating to any of the Properties, all utility deposits,
the use of trade names or trademarks (other than Carter-Crowley Properties, HI
Capital, HI Production, and Dallas Mavericks, Inc.) used in connection with any
of the Properties, and any goodwill related to each Property (collectively, the
"Intangibles").
1.2.8 Permits. All assignable building permits, certificates of
occupancy, consents, permits, approvals, and utility rights issued in
connection with or appurtenant to any of the Properties (collectively,
"Permits").
-2-
<PAGE> 17
Each Parcel and the Improvements and Personal Property situated therein is
called each a "Property" and collectively "Properties."
1.3 Partnership Interests. The phrase "Partnership Interests" shall
collectively mean the Rising Star Partnership Interests and the Hicks Muse
Partnership Interests, as more particularly defined below in Sections 1.3.2 and
1.3.3.
1.3.1 Number not used.
1.3.2 Rising Star Partnership Interests. The interests of Seller in
(i) RSE Partners-I, L.P., a Texas limited partnership ("RSE-I"), and (ii) RSE
Partners-II, L.P., a Texas limited partnership ("RSE-II"), as more particularly
described in Exhibit 1.3.2 (collectively, the "Rising Star Partnership
Interests").
1.3.3 Hicks Muse Partnership Interests. The interests of Seller in
Hicks, Muse, Tate & Furst Equity Fund II, L.P., a Delaware limited partnership
("Hicks Muse Equity Fund II"), and as a Class A Limited Partner in its general
partner HM2/GP Partners, L.P., a Delaware limited partnership ("HM2/GP") as
more particularly described in Exhibit 1.3.3 (collectively, the "Hicks Muse
Partnership Interests").
RSE-I, RSE-II, Hicks Muse Equity Fund II and HM2/GP are referred to herein as a
"Partnership" or the "Partnerships," as the case may be, and the agreements
described in Exhibits 1.3.2 and 1.3.3 describing and evidencing the Partnership
Interests, including amendments thereto, are referred to herein as a
"Partnership Agreement" or the "Partnership Agreements," as the case may be.
1.4 Moody-Day Stock. All of the issued and outstanding shares of capital
stock of Moody-Day, Inc., a Texas corporation ("Moody-Day"), which stock
consists of 12,500 shares, no par value per share, of common stock of Moody-Day
("Moody-Day Stock"). (The assets of Moody-Day include certain real property
("Moody-Day Tracts") more particularly described in Exhibit 1.4.
1.5 Oil and Gas Interests. The following interests of Seller
(collectively, the "Oil and Gas Interests"):
1.5.1 Leases, Royalty Interests, Contract Rights. The interest of
Seller in the oil and gas leases, leasehold estates, mineral and royalty
interests, overriding royalty interests, contractual rights, and other
interests owned by Seller described in Exhibit 1.5.
1.5.2 Wells. The interest of Seller in the oil and gas wells
described in Exhibit 1.5 (said interest being described in Exhibit 1.5 by
reference to Seller's leasehold or cost burden interest and Seller's net
revenue interest).
-3-
<PAGE> 18
1.5.3 Contracts and Agreements. Seller's interest in contracts and
agreements that benefit or burden the items listed in Sections 1.5.1 and 1.5.2
including, but not limited to, operating, tax partnership, unitization,
pooling, farmout, gas sale, and gas processing agreements, and all personal
property and fixtures listed in Sections 1.5.1 and 1.5.2 appurtenant thereto
or used or obtained in connection therewith or with the production, treatment,
sale or disposal of hydrocarbons or water produced therefrom, including, but
not limited to wells, tanks, lease equipment, saltwater disposal systems, water
flood facilities, gathering and flowlines, pipelines, processing plants, and
compressor facilities.
1.6 Marketable Securities. 1,000,000 shares of Common Stock of Masco
Corporation (the "Masco Stock"), 29,500 shares of Common Stock of Banc One
Corporation (the "Banc One Stock"), and any and all distributions of cash,
property or securities thereon or additional or other securities, cash, or
other property into which any of the foregoing are converted or for which they
may be exchanged received by Seller on or after the Closing Date (collectively
referred to herein as the "Marketable Securities").
1.7 Bonds. The municipal and other bonds or debt instruments ("Municipal
Bonds") listed on Exhibit 1.7-A and the bonds ("Arena Bonds") listed on Exhibit
1.7-B.
1.8 Promissory Notes. The promissory notes (the "Promissory Notes"), and
all documents securing their payment (the "Security Documents"), and the
guaranty agreements (the "Guaranty Agreements") described on Exhibit 1.8. The
security for the Allied Note (as defined on Exhibit 1.8) includes a deed of
trust ("Allied Deed of Trust") encumbering certain real estate and the
improvements and personal property situated thereon (collectively, the "Allied
Tract") and described as Parcel 17 on Exhibit 1.2.1(i).
1.9 Citation Interest. All of Seller's right, title and interest in and
to (i) that certain Lease Agreement (the "Cessna Citation Lease") dated
November 22, 1996 between Executive Jet Sales, Inc., and CCP, relating to an
undivided 12.5% interest in a Cessna Citation SII and (ii) that certain
Citation V Purchase Agreement (the "Cessna V Ultra PA") dated November 22, 1996
between Executive Jet Sales, Inc., and CCP, relating to an undivided 12.5%
interest in a Cessna Citation V Ultra, and all agreements related thereto, as
more particularly described in Exhibit 1.9 (including but not limited to any
down payments or deposits previously paid) (collectively, the "Citation
Interest").
1.10 Texas Stadium Suite. All of Seller's right, title and interest in
that certain luxury skybox ("Stadium Suite") commonly known as Suite #212,
Texas Stadium Circle Suites, Irving, Dallas County, Texas and more particularly
described in Exhibit 1.10 (the license agreement described on Exhibit 1.10 is
called the "Stadium License Agreement"), together with (i) all improvements,
fixtures and personal property ("Stadium Improvements") situated in the Stadium
Suite and owned by Seller; (ii) those bonds (collectively "Stadium Bonds")
described on Exhibit 1.10, and (iii) those season ticket options ("Ticket
Options") described on Exhibit 1.10. The
-4-
<PAGE> 19
phrase "Texas Stadium Suite" shall include the Stadium Suite, Stadium
Improvements, Ticket Options and the Stadium Bonds.
1.11 Assets. The Real Property Assets, Partnership Interests, Moody-Day
Stock, Oil and Gas Interests, Marketable Securities, Municipal Bonds, Arena
Bonds, Promissory Notes, Citation Interest, and Texas Stadium Suite are
hereinafter sometimes referred to individually as an "Asset" or collectively as
the "Assets." Each Property may hereafter be referred to by the common name
indicated in parenthesis at the beginning of description of each parcel on
Exhibit 1.2.1(i). The Properties described as Parcels 21-35 on Exhibit
1.2.1(i) are collectively called "Undeveloped Land." The Properties described
as Parcels 1-10 and 12-14 on Exhibit 1.2.1(i) together with the Stemmons
Leasehold ("Parcel") and the Improvements situated thereon are collectively
called the "Office Properties" and the Improvements thereon are called "Office
Buildings." The Properties described as Parcels 15-16 of Exhibit 1.2.1(i) are
called the "Apartments." Each of the Promissory Notes may hereafter be
referred to by the name indicated on Exhibit 1.8. When used in Section 4.2.1
through 4.2.20, 7.2.1 through 7.2.21, Sections 5.1 and 5.2, the term
"Properties" includes the Moody-Day Tracts. When used in Sections 4.2.1
through 4.2.20, the term "Properties" includes the Texas Stadium Suite.
1.12 Seller. The respective Seller for each of the Assets are as follows:
1.12.1 CCP is the owner of (i) all Real Property Assets except for
those Parcels which are owned by the other Sellers as otherwise indicated in
this Section 1.12; (ii) the Hicks Muse Partnership Interests; (iii) the Moody-
Day Stock; (iv) the Kosmeo Note and related Security Documents and Guaranty;
(v) the Citation Interest; and (vi) the Promissory Notes, Security Documents
and Guaranty Agreements except the Williams Note.
1.12.2 HCC is the owner of the Marketable Securities.
1.12.3 HPC is the owner of the (i) Rising Star Partnership Interests
and (ii) Oil and Gas Interests.
1.12.4 DMI is the owner of the Williams Note and the Arena Bonds..
1.12.5 MRC is the owner of (i) the Breckenridge Apartments, (ii)
Woodwind Apartments, (iii) the Addison Air Terminal, (iv) the Addison Hangars,
and (v) the Addison Airport Land, Austin Land and Lancaster Tract.
When used herein, "Seller" shall refer to collectively all Sellers but all
covenants, representations and warranties made by each Seller shall be limited
to the Asset or Assets owned by the respective Seller; provided, however, CCP
shall be liable (to the extent provided herein) for any breach of this
Agreement by any of the other Sellers or itself.
-5-
<PAGE> 20
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price ("Purchase Price") to be paid by
Purchaser to Seller for the Assets shall be the sum of Three Hundred Thirteen
Million Five Hundred Twenty-Five Thousand and No/100 Dollars ($313,525,000.00).
The Purchase Price shall be paid all in cash at the Closing.
2.2 Adjustments to Purchase Price. The Purchase Price may be adjusted in
accordance with the provisions of this Section 2.2:
2.2.1 Partnership Interests. The Purchase Price shall be increased
by an amount equal to any capital contributions made by Seller with respect to
the Partnership Interests from and after January 1, 1997 through the Closing
Date; provided, however, that there shall be no increase to the Purchase Price
for any contribution made by Seller with regard to the Rising Star Partnership
Interests except to the extent such contributions exceed $43,000.00 (any
contribution made with respect to the Rising Star Partnership Interests in
excess of $43,000.00 shall result in an increase to the Purchase Price only if
such contribution has been approved in writing by Purchaser). The Purchase
Price shall be reduced by an amount equal to any distributions made to Seller
from the Partnerships from and after January 1, 1997 through Closing.
2.2.2 Dispositions of Marketable Securities and Municipal Bonds. As
used in this Section 2.2.2 the term: (i) "Disposition Notice" means a written
notice from Purchaser to Seller requesting Seller to sell any of the Marketable
Securities or Municipal Bonds therein described in accordance with the
provisions of this Section 2.2.2, (ii) "Net Sales Proceeds" means the gross
proceeds from the sale of any Marketable Securities or Municipal Bonds pursuant
to this Section less reasonable expenses of sale, and (iii) "Trading Day" is
any day on which securities are traded on the New York Stock Exchange. On the
first Trading Day after Purchaser delivers a Disposition Notice to Seller
(except as hereafter provided for the Masco Stock), Seller shall dispose of any
of the Marketable Securities or Municipal Bonds designated in the Disposition
Notice. Provided, however, with respect to a Disposition Notice for the Masco
Stock, Seller shall have ten (10) Trading Days thereafter to complete its
disposition of the Masco Stock. In the event any Marketable Securities or
Municipal Bonds are disposed of pursuant to this Section, the Marketable
Securities or Municipal Bonds so disposed of shall be excluded from the
purchase and sale of the Assets, and the Purchase Price shall be reduced by an
amount equal to the Net Sales Proceeds.
2.2.3 Redemption Pursuant to Any Municipal Bonds. There will be a
reduction to the Purchase Price in the aggregate amount of principal payments
or redemptions of principal pursuant to the Municipal Bonds during the period
from the Effective Date through the Closing Date.
-6-
<PAGE> 21
2.2.4 The Addison. If prior to Closing Seller sells The Addison to
Comp USA in accordance with the provisions of Section 8.2.16, the Purchase
Price shall be reduced by the amount of the Purchase Price allocated to The
Addison on Exhibit 2.3 less reasonable expenses of sale incurred by Seller in
connection with said transaction, including any brokerage commissions which
Seller is currently legally obligated to pay to third parties.
2.2.5 Flower Mound And Other Undeveloped Land. If prior to Closing
Seller closes the sale of Flower Mound or any other undeveloped Land in
accordance with the provisions of Section 8.2.17, the Purchase Price shall be
reduced by the proceeds from the sale less the reasonable expenses of sale
incurred by Seller in connection with said transaction.
2.2.6 Radovir Obligation. As used herein the term "Radovir
Obligation" means the remaining unpaid purchase price obligation of HCC owing
pursuant to that certain letter agreement dated June 25, 1996, addressed to HCC
from Radovir Pharmaceutical Incorporated, a copy of which has been delivered to
Purchaser prior to the execution of this Agreement. Provided this transaction
closes in accordance with its terms, as an addition to the Purchase Price,
Purchaser agrees to pay HCC a sum ("Radovir Payment") not to exceed
$3,313,409.19. The Radovir Payment shall be made in installments ("Radovir
Installments") as requested by HCC by delivering a written notice ("Radovir
Installment Request") to Purchaser. The Radovir Installment Request shall
contain HCC's certification that the amount requested has been paid pursuant to
the Radovir Obligation. Provided the Radovir Installment Request is proper,
subject to the provisions of the last sentence of this Section 2.2.6, Purchaser
shall pay to Seller the amount set forth in the Radovir Installment Request
within fifteen (15) days following Purchaser's receipt of the respective
Radovir Installment Request. Purchaser acknowledges that the first Radovir
Installment Request will include all Radovir Obligations paid by Seller after
January 1, 1997 and will be paid at Closing. Provided however, Purchaser shall
not be required to pay more than one (1) Radovir Installment during any
calendar month and shall not be required to pay any amount of a Radovir
Installment which would cause the total amount paid pursuant to this Section to
exceed the Radovir Payment.
2.2.7 Promissory Note Payments. The Purchase Price shall be reduced
by any payments of principal received by Seller subsequent to January 1, 1997
with respect to any of the Promissory Notes.
2.3 Allocation of Purchase Price. Seller and Purchaser agree that the
Purchase Price is allocated among certain of the Assets as set forth on Exhibit
2.3. Exhibit 2.3 is sometimes called "Asset Allocation." If pursuant to the
further provisions of this Agreement there is a reference to the amount of the
Purchase Price allocated to an Asset and there is no allocation set forth on
Exhibit 2.3 the appropriate allocation shall be agreed to by the parties (each
acting reasonably) and if they fail to agree, resolved in accordance with the
resolution procedures set forth in Sections 20.3 and 20.4 (but disagreement as
to the Purchase Price allocated to an Asset is not an Adjustment Event).
-7-
<PAGE> 22
2.4 Adjustment Based On DBL Partnership Interest Simultaneously with the
execution of this Agreement Purchaser and DMI have entered into a certain
agreement ("DMI Agreement") regarding the purchase and sale of the DBL
Partnership Interests (as defined in the DMI Agreement) in Dallas Basketball
Limited ("DBL"), among other assets. Seller and Purchaser acknowledge that the
Partnership Agreement (as defined in the DMI Agreement and herein called the
"DBL Partnership Agreement") (a) requires that the general partner ("DBL GP")
approve the assignment of the DBL Partnership Interests in accordance with the
DMI Agreement ("DMI Assignment") and (b) grants to the other partners ("Other
Partners") of DBL a right of first refusal to purchase the DBL Partnership
Interests. The Purchase Price shall be increased by Two Million and No/100
Dollars ($2,000,000.00) ("DBL Adjustment") if on or before the Closing Date (i)
DBL GP disapproves the assignment of the DBL Partnership Interests in
accordance with the provisions of the DMI Agreement and (ii) none of the Other
Partners purchases the DBL Partnership Interests. Provided however, if during
the period ("Restricted Period") ending one (1) year after the Closing Date the
DBL Partnership Interests are sold by DMI or any Affiliate of DMI any time
during the Restricted Period, Seller shall pay Purchaser within three (3)
business days following the funding of such sale the lesser of an amount per
each one percent (1%) of DBL Partnership Interests sold equal to (1)
$161,550.00 or (2) the amount of the proceeds from said sale (less reasonable
expenses of sale) in excess of $1,100,000.00.
ARTICLE III
EARNEST MONEY
3.1 Earnest Money. On the day of execution of this Agreement by all
parties hereto (or if such execution occurs after 12:00 p.m., Dallas, Texas
time on the subject day, then on the first business day following such
execution), Purchaser shall deliver Four Million One Hundred Twenty-Five
Thousand and No/100 Dollars ($4,125,000.00) (the "Earnest Money") by wire
transfer to Republic Title of Texas, Inc., 300 Crescent Court, Suite 100,
Dallas, Texas 75201, Attn: Rhenda Addison (the "Title Company"). The Title
Company shall immediately deposit the Earnest Money in an interest bearing
account, the earnings from which shall accrue to the benefit of Purchaser. In
the event that this Agreement is closed, all Earnest Money shall be applied to
the Purchase Price. In the event that this Agreement is not closed for any
reason whatsoever, then the Earnest Money shall be disbursed to Seller except
as otherwise specifically provided herein.
ARTICLE IV
DUE DILIGENCE AGREEMENTS
4.1 Due Diligence Deliveries. On and after the Effective Date, Seller
shall make those items described in Article IV ("Due Diligence Items")
available to Purchaser and its representatives at the offices of Seller set
forth in Article XIX or at the current location of such items. Additionally,
Seller will cooperate with Purchaser and its representatives in making
-8-
<PAGE> 23
copies of said items, at the expense of Purchaser, including but not limited to
allowing said items to be temporarily removed from Seller's offices for
copying, making space available for Purchaser and its representatives to review
and copy said items and providing electrical power and space for copying on
site. Notwithstanding the generality of the provisions of this Article IV,
Seller shall not be obligated to provide to Purchaser or its representatives
any information of or related to any pending or threatened litigation if
providing such information would jeopardize the attorney/client privilege.
4.2 Real Property Deliveries.
4.2.1 Miscellaneous Agreements. Copies of all warranties,
management, employment, or other similar type agreements affecting the
Properties, if any.
4.2.2 Operating Agreements. Copies of all Operating Agreements
including: (i) the name of the parties to each Operating Agreement, (ii) the
service rendered or to be rendered or the goods supplied or to be supplied
under such Operating Agreement, and (iii) notations as to which Operating
Agreements are oral.
4.2.3 Licenses and Permits. Copies of all licenses, permits,
applications, authorizations, certificates of occupancy, governmental approvals
and other entitlements relating to the Properties and the operation thereof in
the possession of Seller, if any.
4.2.4 Plans and Specifications. All site plans, drawings,
environmental, mechanical, electrical, structural, soils and similar reports
and/or audits and plans and specifications relative to the Properties in the
possession of Seller, if any.
4.2.5 Tax Statements. Copies of the tax statements covering any
Real Property Assets or any part thereof for each of 1995 and 1996 and, if
available, for 1997.
4.2.6 Contracts. Copies of any existing option contracts,
construction contracts and architectural contracts relating to all or any
portion of the Real Property Assets.
4.2.7 Litigation. A schedule of all current or pending litigation
with respect to any of the Properties or any part thereof, if any, together
with a brief description of each such proceeding.
4.2.8 Financial Statements. The financial statements and the
unaudited operating statements (including capital expenditures) prepared by
Seller for any of the Real Property Assets for the years ended December 31,
1993 (or from the date of acquisition of any specific Real Property Asset, if
later than December 31, 1993) through 1996.
-9-
<PAGE> 24
4.2.9 Leases. Copies of all Leases, rental applications, occupancy
inspections, rental deposit agreements, lease guaranties, estoppels, and
subordination, nondisturbance and attornment agreements, and all amendments and
correspondence with respect thereto, relating to the Properties, including any
reports and information in Seller's possession reflecting the total rentable
area of the Properties.
4.2.10 Ground Leases. Copies of all Ground Leases, and all
amendments and correspondence with respect thereto relating to the Properties.
4.2.11 Inventory. A complete, itemized and detailed inventory of the
Personal Property indicating the location of each item.
4.2.12 Operational Documents. Such other items relating to
construction, ownership, management and operation of the Properties as
reasonably requested by Purchaser.
4.2.13 Authorization for Interviews. Written authorization from
Seller to Purchaser allowing Purchaser to interview the tenants of each of the
Office Buildings; provided, however, said authorization may be subject to
attendance at such interview by a representative of Seller.
4.2.14 Maintenance Records. Copies of all maintenance records for
each of the Properties.
4.2.15 Projected Expenditures. All information relating to 1997
projected expenditures for each of the Properties.
4.2.16 Insurance Policies. Copies of all existing liability,
property, rental value and other insurance policies pertaining to the
Properties.
4.2.17 Utility Bills. Copies of all utility bills received during
Seller's ownership of the Properties.
4.2.18 Disputes; Major Repairs. Copies of any and all written
claims, demands or notices from any third party which concern or otherwise
affect the Properties received by Seller during its ownership of the Properties
and which relate to disputes about one or more Properties which have not been
resolved at the date hereof, including, without limitation, written notice of
potential litigation, written notices from any governmental or quasi-
governmental body, copies of any reports issued by the local fire marshall
regarding inspection of the Improvements during Seller's ownership of the
Properties and a list of major repairs (excluding tenant improvements) and
major casualties occurring during Seller's ownership of the Properties.
-10-
<PAGE> 25
4.2.19 Employees. Copies of all employee benefit and/or pension
plans, any actuarial evaluations thereof, and a list of all employees covered
by such plans and their interests therein.
4.2.20 Confidential Information Concerning Value. Notwithstanding
any other provision of this Section 4.2, Seller shall not make available to
Purchaser, and Purchaser shall not be entitled to review or copy any appraisals
or other materials specifically addressing valuation (prepared by Seller or
third parties, for example, internal memoranda relating to value estimates) of
any Real Property Assets (other than ad valorem tax statements). The foregoing
does not prevent Purchaser obtaining information relating to the income and
expenses of any the Assets or reports (other than appraisals) reflecting the
physical condition of any of the Assets.
4.3 Partnership Interests.
4.3.1 Number not used.
4.3.2 Rising Star Partnership Interests.
4.3.2.1 Rising Star Partnership Agreements. Copies of the
documents and agreements listed in Exhibit 1.3.2, together with any and all
amendments thereto and restatements thereof (the "Rising Star Partnership
Agreements").
4.3.2.2 Investments. A list (described in Exhibit 4.3.2.2)
of all investments, properties and interests (the "Rising Star Oil and Gas
Interests") held by each of the Rising Star Partnerships, which shall indicate
whether Seller has elected to participate in each such investment. Seller
shall provide Purchaser with access to the following:
4.3.2.2.1 Division Orders; Title Information.
Division orders and title opinions relating to each of the Rising Star Oil and
Gas Interests.
4.3.2.2.2 Operating Agreements. Copies of all
operating agreements to which the Rising Star Oil and Gas Interests are
subject.
4.3.2.2.3 Transfer Orders; Purchase/Sale
Agreements. Copies of all division or transfer orders and hydrocarbon
sale/purchase agreements with purchasers of hydrocarbons or other production
from the Rising Star Oil and Gas Interests which are in the possession of the
Rising Star Partnerships or Seller.
4.3.2.2.4 Oil and Gas Leases; Assignment. Copies
of all oil and gas leases, prior assignments of the Rising Star Oil and Gas
Interests and other agreements which are in the possession of the Rising Star
Partnerships or Seller which are a source of a Rising Star Partnership's title
to the Rising Star Oil and Gas Interests.
-11-
<PAGE> 26
4.3.2.2.5 Pooling and Unitization Documents.
Copies of all instruments, pooling, unitization or other agreements or orders
which are in the possession of the Rising Star Partnerships or Seller to which
the Rising Star Oil and Gas Interests are subject or which affect title to or
the value of the Rising Star Oil and Gas Interests.
4.3.2.2.6 Well Files. Copies of the well files of
the Rising Star Partnerships (or the general partner thereof) and/or records
for each of the wells included in the Rising Star Oil and Gas Interests,
including, but not limited to, copies of all billings and correspondence
received from each operator of such wells, any correspondence with state or
federal, oil and gas, environmental or other regulatory authorities, and, to
the extent Seller may do so without violating any obligation of confidence or
contractual commitment to a third party, production reports, well logs, core
analyses, drilling records and all other material in possession of Rising Star
Partnerships related to such wells.
4.3.2.2.7 Engineering and Environmental Reports.
Copies of all oil and gas engineering or environmental reports or studies
covering the Rising Star Oil and Gas Interests and all other estimates of the
environmental condition of the Rising Star Oil and Gas Interests which are in
the possession of the Rising Star Partnerships or Seller.
4.3.2.2.8 Ad Valorem Tax Information. All
documents relating to the payment of ad valorem, property, and similar taxes
and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Rising
Star Oil and Gas Interests which are in the possession of the Rising Star
Partnerships or Seller.
4.3.2.2.9 Maps and Surveys. Ownership maps and
land surveys relating to the Rising Star Oil and Gas Interests which are in the
possession of the Rising Star Partnerships or Seller.
4.3.2.2.10 Lease Records. All lease records and
data sheets relating to the Rising Star Oil and Gas Interests which are in the
possession of the Rising Star Partnerships or Seller.
4.3.2.2.11 Other Oil and Gas Information. Such
other documents, records and information which are in the possession of the
Rising Star Partnerships or Seller as Purchaser may reasonably request in order
to verify the accuracy of the Seller Representations with respect to the Rising
Star Partnership Interests and the Rising Star Oil and Gas Interests.
4.3.2.3 Capital Contributions. A schedule of the total
capital contributions and distributions relating to each of the Rising Star
Partnership Interests from inception through the Effective Date.
-12-
<PAGE> 27
4.3.2.4 Unfunded Commitments. A schedule of any unfunded
capital commitment obligations of Seller to each of the Rising Star
Partnerships, specifically identifying the dates and manner on or in which the
funding obligations arose.
4.3.2.5 Rising Star Financial Information. The financial
statements, reports, budgets and other financial information regarding each
Rising Star Partnership or the Rising Star Partnership Interests which have
been provided to Seller by or on behalf of the Rising Star Partnership or which
have been prepared by or at the direction or request of Seller in connection
with the ownership of the Rising Star Partnership Interests.
4.3.2.6 Other Information. Copies of all notices received by
Seller pursuant to a Rising Star Partnership Agreement, together with
reasonable access to the records in Seller's possession relating to the Rising
Star Partnership Interests including, but not limited to, correspondence,
memoranda and other information.
4.3.2.7 Tax Records. Copies of all federal income tax
returns filed by or on behalf of the Rising Star Partnership including Schedule
K-1 thereto provided to Seller, together with such information as is reasonably
available to Seller regarding the federal income tax attributes of Seller's
interest in the Rising Star Partnerships.
4.3.3 Hicks Muse Partnership Interests.
4.3.3.1 Hicks Muse Partnership Agreements. Copies of the
documents and agreements listed on Exhibit 1.3.3, together with any and all
amendments thereto and restatements thereof (the "Hicks Muse Partnership
Agreements").
4.3.3.2 Capital Contributions. Schedules of the total
capital contributions made or agreed to be made by Seller to the Hicks Muse
Partnerships (including the dates thereof), the total distributions made to
Seller from the Hicks Muse Partnerships (including the dates thereof), the
investments in which Seller has opted to participate or is participating in the
Hicks Muse Partnerships and the relative percentage of its participation in the
specific investments of the Hicks Muse Partnership in which Seller has opted to
participate or is participating, evidence of Seller's election to withdraw from
any of the potential investments and the amount of management fees paid by or
charged to Seller in connection with the Hicks Muse Partnership Interests.
4.3.3.3 Hicks Muse Financial Information. The financial
statements, reports, budgets and other financial information regarding the
Hicks Muse Partnerships or the Hicks Muse Partnership Interests which have been
provided to Seller by or on behalf of the Hicks Muse Partnerships or which have
been prepared by or at the direction or request of Seller in connection with
its ownership of the Hicks Muse Partnership Interests.
-13-
<PAGE> 28
4.3.3.4 Other Information. Copies of all notices given or
received by Seller pursuant to a Hicks Muse Partnership Agreement, together
with reasonable access to the records in Seller's possession relating to the
Hicks Muse Partnership Interests including, but not limited to, correspondence,
memoranda and other information.
4.3.3.5 Tax Information. Copies of all federal income tax
returns filed for taxable years after January 1, 1995 by or on behalf of the
Hicks Muse Partnerships to which Seller has access, including all Schedules K-1
regarding Seller, together with such information as is reasonably available to
Seller regarding the federal income tax attributes of Seller's interest in the
Hicks Muse Partnerships.
4.4 Moody-Day Stock Deliveries.
4.4.1 Organizational Documents; Books and Records. Copies of Moody-
Day's Articles of Incorporation, Bylaws, other organizational or governing
documents or instruments, and all amendments thereto ("Moody-Day Governing
Documents"), books of account, minute books, stock record books and other
records of Moody-Day.
4.4.2 Moody-Day Financial Statements. Copies of the following
audited financial statements of Moody-Day ("Moody-Day Audited Financial
Statements"): (i) balance sheet as of December 31, 1995 and 1994; and (ii)
statements of income, changes in shareholder's equity and cash flow for the
years then ended. Copies of the following unaudited financial statements of
Moody-Day ("Moody-Day Interim Financial Statements"): (i) balance sheet as of
December 31, 1996; and (ii) statements of income, changes in shareholder's
equity and cash flow for the year then ended. Copies of unaudited balance
sheets for Moody-Day as of the end of each month subsequent to December 31,
1996 and prior to Closing and the related unaudited statements of income for
the periods then ended ("Moody-Day 1997 Financial Statements"). The Moody-Day
Audited Financial Statements, Moody-Day Interim Financial Statements and the
Moody-Day 1997 Financial Statements are collectively referred to as the "Moody-
Day Financial Statements." As soon as the Moody-Day Interim Financial
Statements have been audited, Seller will deliver to Purchaser an audit report
with respect to, and the audited version of, the Moody-Day Interim Financial
Statements; at and after such audit report has been delivered to Purchaser (if
prior to the Closing Date), the Moody-Day Interim Financial Statements as
presented with the audit report thereon shall be included in the definition of
Moody-Day Audited Financial Statements.
4.4.3 Receivables and Payables. Aged listing as of December 31,
1996 of all accounts receivable, and copies of all notes receivable by Moody-
Day and notes payable by Moody-Day, and renewals, extension or modifications
thereof.
4.4.4 Tax Returns. Any return (including information return),
report, statement, declaration, schedule, notice, notification, form,
certificate or other document or information
-14-
<PAGE> 29
filed with or submitted to any Governmental Authority by Moody-Day after
December 31, 1992 regarding Taxes.
4.4.5 Agreements, Contracts and Commitments. Copies of all
contracts, agreements or commitments (whether written or oral, and whether or
not legally binding or enforceable) described in Section 7.4.9 relating to
Moody-Day.
4.4.6 Descriptions of Property. Copies of all agreements,
contracts, mortgages, concessions, leases and commitments relating to or
affecting any real property, leaseholds or other interests in real property,
including improvements thereon, owned or operated by Moody-Day. Copies of all
contracts, agreements, mortgages, leases and commitments or forms thereof
relating to or affecting any interest in such tangible personal property to
which Moody-Day is a party or by which such property is in any way bound or
affected, together with all amendments and supplements thereto and
modifications thereof.
4.4.7 Benefit Plans. Copies of any deferred compensation plan,
bonus and incentive arrangement, stock option plan, restricted stock
arrangement and any other "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) and any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) maintained or required to be maintained by Moody-Day or
to which it contributes or is required to contribute, or for which it has any
existing obligation or liability, financial or otherwise (the "Moody-Day
Benefits Plans").
4.4.8 Insurance. Copies of all policies of property, fire and
casualty, product liability, worker's compensation, liability and other forms
of insurance owned or held by Moody-Day ("Moody-Day Insurance Policies").
4.4.9 Litigation. Listing of each and every Proceeding to which
Moody-Day is a party in any capacity whatsoever, or to which any of its assets
are subject ("Moody-Day Litigation").
4.5 Oil and Gas Interests.
4.5.1 Division Orders and Title Opinions. Division orders and other
title opinions relating to each of the producing oil and gas wells described in
Exhibit 1.5.
4.5.2 Operating Agreements. Copies of all operating agreements in
Seller's possession to which Seller's interest in the Oil and Gas Interests is
subject.
4.5.3 Production Agreements. Copies of all division or transfer
orders and hydrocarbon sale/purchase agreements with purchasers of hydrocarbons
or other production from the Oil and Gas Interests in Seller's possession.
-15-
<PAGE> 30
4.5.4 Service Documents. Copies of all oil and gas leases, prior
assignments of the Oil and Gas Interests and other agreements which are a
source of Seller's title to the Oil and Gas Interests in Seller's possession.
4.5.5 Documents Affecting Title or Value. Copies of all
instruments, pooling, unitization or other agreements or orders to which the
Oil and Gas Interests are subject or which affect title to or the value of the
Oil and Gas Interests in Seller's possession.
4.5.6 Well Files. Copies of Seller's well files and/or records for
each of the wells included in the Oil and Gas Interests, including, but not
limited to, copies of all billings and correspondence received from each
operator of such wells, any correspondence with state or federal, oil and gas,
environmental or other regulatory authorities, and, to the extent Seller may do
so without violating any obligation of confidentiality or contractual
commitment to a third party, production reports, well logs, core analyses,
drilling records and all other material in possession of Seller related to such
wells.
4.5.7 Reports, Studies. Copies of all oil and gas engineering or
environmental reports or studies covering the Oil and Gas Interests and all
other estimates of the environmental condition of the Oil and Gas Interests, to
the extent Seller may do so without violating any obligation of confidentiality
or contractual commitment to a third party.
4.5.8 Taxes and Documents. All documents relating to the payment of
ad valorem, property, and similar taxes and assessments based on or measured by
the ownership of property or the production of hydrocarbons or the receipt of
proceeds therefrom on the Oil and Gas Interests in Seller's possession.
4.5.9 Maps. Ownership maps and surveys in Seller's possession,
relating to the Oil and Gas Interests in Seller's possession.
4.5.10 Records and Data. All lease records and data sheets relating
to the Oil and Gas Interests in Seller's possession.
4.6 Marketable Securities. Copies of any instruments or certificates
evidencing the Marketable Securities and any and all agreements or other
documentation relating to them and statements or other confirmation of
ownership of uncertificated securities or brokerage accounts.
4.7 Municipal Bonds. Copies of any instruments or certificates evidencing
the Municipal Bonds, any and all agreements or other documentation relating to
them and statements or other confirmation of ownership of uncertificated
securities or brokerage accounts.
4.8 Promissory Notes.
-16-
<PAGE> 31
4.8.1 Notes and Security Documents. Copies of the Promissory Notes,
Security Documents and UCC filings.
4.8.2 Payments Received. Copies of all documents showing payments
of principal and interest received on the Promissory Notes, together with
summary schedules thereof for each Promissory Note.
4.8.3 Documents. Copies of all documents of every kind and nature
related to the Promissory Notes and the Security Documents including all
correspondence received from the makers of the Promissory Notes, all
correspondence to the makers of the Promissory Notes, Mortgagee Title Policy
and the survey covering the Allied Tract to the extent available, stock
Certificate No. 002 evidencing the ownership of 10,000 shares of Kosmeo
Cosmetics, Inc. by Harry and Martha Hersey, and all files related to the
Promissory Notes and Security Documents.
4.9 Citation Interest.
4.9.1 Lease and Purchase Agreements. Copies of the Citation Lease
Agreement, the Citation Purchase Agreement, the Citation V Ultra Bill of Sale
and Assignment, the Citation V Ultra Master Interchange Agreement, the Citation
V Ultra Management Agreement, the Citation V Ultra Owners Agreement, and all
amendments to the foregoing agreements.
4.9.2 Documents. Copies of all documents of every kind and nature
related to the Citation Agreements including all correspondence to and received
from Executive Jet Sales, Inc., Executive Jet Aviation, Inc., all
correspondence to and received from the FAA and all files related to the
Citation Agreements.
4.10 Other Documents. Such other documents, records and information as
Purchaser shall reasonably request and are reasonably accessible to Seller in
order to verify the accuracy of the Seller Representations.
4.11 Records in Possession of Seller. Purchaser acknowledges that Seller
may not have some of the items described in Article IV as regards the
Partnership Interests and Oil and Gas Interests and agrees that, to the extent
Seller does not have said items, Seller shall only be required to use
commercially reasonable efforts to cause the persons who have said items to
make them available to Purchaser and its representatives.
ARTICLE V
TITLE REVIEW PERIOD
5.1 Real Property Assets Title Review. Seller acknowledges that Purchaser
intends to obtain: (a) three (3) title commitments (each a "Pre-Closing Title
Commitment") each issued by Title Company as agent for one or more title
underwriters acceptable to Purchaser pursuant
-17-
<PAGE> 32
to which Title Company agrees to issue an owner's policy of title insurance in
the amounts set forth in Section 10.2.1, one insuring title to the Properties,
a second insuring title to the Moody-Day Tracts, and the third insuring the
lien created by the Allied Deed of Trust as a first and superior lien against
the Allied Tract, each commitment to insure subject to only those schedule "B"
exceptions listed in the Pre-Closing Title Commitment, (b) surveys (each a
"Survey" and collectively "Surveys") of each Parcel, the Moody-Day Tracts and
the Allied Tract, and (c) a search of the Uniform Commercial Code Records of
the appropriate counties in Texas and the Secretary of State of Texas under the
name of each Seller, Moody-Day, RSE I and RSE-II and any predecessor in
interest to the Properties ("UCC Searches"). The Schedule B exceptions listed
in each Pre-Closing Title Commitment are hereafter called "Exceptions." If any
of the Exceptions are objectionable to Purchaser (an "Objectionable
Exception"), Purchaser may deliver written notice ("Objection Notice") to
Seller listing each Objectionable Exception. Objectionable Exceptions shall be
limited to (i) liens or other monetary Encumbrances other than those for ad
valorem taxes for 1997 and subsequent years and subsequent assessments for
prior years due to changes in land usage or ownership, (ii) encroachments of
improvements situated on other property upon any of the Parcels or by
Improvements over boundaries, set back lines, easements or right-of-ways, (iii)
restrictions or covenants (collectively "Restrictions") only if (A) the current
or Purchaser's anticipated use of the Improvements violate or would violate the
Restrictions or (B) compliance with the Restrictions cannot be confirmed, or
the economic obligations of Purchaser thereunder cannot be determined, (iv)
oil, gas or other mineral interests (other than royalty or other non-executory
interests) unless the Title Company provides affirmative coverage to the effect
that said owner cannot disturb the surface to exploit said minerals, (v)
easements if the use of the easement might endanger or damage any Parcel or
persons entering upon that parcel or if the same restricts the use of the
parcel in a manner which is not acceptable to Purchaser (which acceptance shall
not be unreasonably withheld), (vi) flood plain/flood prone area conditions, or
(vii) any other matter to which a reasonably prudent and experienced purchaser
of the respective Parcel with adequate legal counsel would object. Promptly
following the delivery of the Objection Notice, Seller shall use commercially
reasonable efforts to cause the Title Company to remove the Objectionable
Exception. Additionally, Seller shall cause any Encumbrances (other than tax
liens for 1997 and subsequent years and subsequent assessments for prior years
due to change in land usage or ownership) affecting any of the Properties to be
fully discharged on or before the Closing Date. If Seller is unable despite
its commercially reasonable efforts to cause any Objectionable Exception to be
removed prior to the Closing Date, it shall be an Adjustment Event and the
rights and obligations of the parties shall be governed by the provisions of
Section 20.3.
5.2 Real Property Assets Permitted Exceptions. Except as provided in the
next sentence, the term "Permitted Exceptions" for each Property shall include
and be specifically limited to: (i) all applicable Exceptions not objected to
by Purchaser in accordance with Section 5.1; (ii) the printed Schedule B
exceptions modified in the manner allowed by applicable regulations; (iii)
exceptions relating to rights of tenants, as tenants only under the Leases; and
(iv) any Objectionable Exceptions which are waived pursuant to Section 5.1.
Provided,
-18-
<PAGE> 33
however, the term "Permitted Exceptions" when used in connection with the Deeds
shall not include paragraphs 2 through 8 of the standard pre-printed Schedule B
exceptions in the form of commitment for title insurance promulgated by the
Texas Board of Insurance.
5.3 Oil and Gas Interests Title Review. Purchaser shall have a period
ending upon expiration of the Inspection Period (the "Oil and Gas Title Review
Period") in which to review and approve each such item. If the information or
any other information or data shall reflect the existence of any encumbrance,
encroachment, defect in or objection to title which shall render title to the
Oil and Gas Interests, or any portion thereof, inferior to Defensible Title,
and which Purchaser does not waive (all of which are herein called the "Oil and
Gas Title Defects"), written notice of the Oil and Gas Title Defects shall be
given to Seller not later than the end of the Oil and Gas Title Review Period.
Such notice shall include a description of the Oil and Gas Title Defect and the
basis for the defect that Purchaser believes causes such Oil and Gas Interest
not to have Defensible Title. For purposes of this Agreement, the term
"Defensible Title" shall mean that Seller owns such Oil and Gas Interest free
and clear of all claims, liens and encumbrances, except statutory liens for
taxes not yet delinquent, mechanics' and materialmen's liens with respect to
expenses which have not yet become delinquent, operators' liens under operating
agreements with respect to expenses which have not yet become delinquent,
consents and preferential rights to purchase with respect to which waivers have
been obtained or as to which the consent is not necessary for valid assignment
or the applicable time periods have expired, rights of consent by or filings
with Governmental Authorities in connection with the conveyance of any Oil and
Gas Interest customarily obtained after a sale, right of re-assignment in the
event of a release or surrender of an Oil and Gas Interest, routine operational
agreements which do not provide for material future commitments and which are
the type customarily accepted in oil and gas property purchase transactions and
minor irregularities or imperfections in title and other minor matters which do
not (a) materially interfere with the occupation, use and enjoyment of the Oil
and Gas Interests in the normal course of the oil and gas business, (b)
materially impair the value thereof for such business, with due regard being
given such factors as the potential economic loss created by the irregularity
or imperfection, the cost of obtaining curative materials to correct the
irregularity or imperfection and the acceptability of such irregularities and
imperfections in oil and gas property purchase transactions, (c) reduce
Seller's net revenue interest to less than that shown on Exhibit 1.5, and/or
(d) obligate Seller to bear more than the working interest shown on Exhibit
1.5, except for an increase that also results in a proportionate increase in
Seller's net revenue interest. An Oil and Gas Title Defect shall be an
Adjustment Event and the rights and obligations of the parties shall be
governed by the provisions of Section 20.3.
ARTICLE VI
INSPECTION PERIOD
6.1 Inspection Period. Purchaser, at Purchaser's sole expense, shall have
the right to conduct a feasibility, environmental, engineering and physical
study of the Assets for a period
-19-
<PAGE> 34
of time commencing on the Effective Date and expiring on the date which is
sixty (60) days after the Effective Date (the "Inspection Period"). Purchaser
and Purchaser's duly authorized agents or representatives shall be permitted to
enter upon the Properties and, subject to Section 6.3, the location
constituting the principal place of business of each Seller, Moody-Day and to
the extent Seller is able to obtain such access for Purchaser, the Allied Tract
and the offices of the Partnerships, at all reasonable times during the
Inspection Period in order to conduct engineering studies, soil tests and any
other inspections, reviews and/or tests that Purchaser may deem reasonably
necessary or advisable. In the event that the review and/or inspection
conducted by this Section shows any fact, matter or condition to exist with
respect to the Assets that is unacceptable to Purchaser, in Purchaser's sole
discretion, or if for any reason Purchaser determines that purchase of the
Assets is not feasible, then Purchaser shall be entitled, as Purchaser's sole
remedy, to cancel this Agreement by providing written notice of cancellation to
Seller prior to the expiration of the Inspection Period. If Purchaser shall
provide written notice of cancellation prior to the expiration of the
Inspection Period, then this Agreement shall be canceled, all Earnest Money
shall be immediately paid to Seller by the Title Company, Purchaser shall
return to Seller all of the Due Diligence Items, and thereafter neither Seller
nor Purchaser shall have any continuing obligations one unto the other except
as provided in Section 21.10. Purchaser shall indemnify and hold Seller
harmless from and against any and all claims, causes of action or expenses
asserted against or incurred by Seller and arising out of the acts or failures
to act of Purchaser or its representatives in connection with their inspections
of any of the Assets. Notwithstanding any provision of this Agreement to the
contrary, the foregoing indemnity shall survive any termination of this
Agreement.
6.2 Purchaser's Right to Review Books. Following the Effective Date,
Seller, at Purchaser's sole cost and expense, shall furnish to Purchaser and
Purchaser's accountants and other representatives full and reasonable access to
the books and records of Seller relating to the Assets and to all financial
information or other information known or possessed by each Seller with respect
to the Assets which Purchaser or Purchaser's accountants or other
representatives may reasonably request in connection with any financial audits
Purchaser elects to conduct with respect to the Assets, and, at Purchaser's
sole cost and expense, shall cooperate fully, and shall instruct their
accountants, attorneys and other representatives to cooperate fully with
Purchaser and Purchaser's accountants and other representatives in obtaining
all financial or other information which Purchaser or its accountants or other
representatives may reasonably request in connection with any financial audits
conducted with respect to the Assets, including without limitation providing to
Purchaser's accountants such management representation letters or legal
representation letters which Purchaser's accountants are required to obtain in
order to issue financial audits. Notwithstanding anything herein, nothing in
this Agreement shall require Seller to disclose any information regarding cash
of Seller (other than cash owned by Moody-Day) or other assets of Seller not
being acquired by Purchaser hereunder. The obligations of this Section 6.2
shall survive Closing and continue until Purchaser and/or Purchaser's
accountants have completed any and all audits of or with respect to the Assets,
which Purchaser, in its sole discretion, determines are reasonably needed.
-20-
<PAGE> 35
6.3 Sellers' Cooperation Regarding Partnerships and Moody-Day. Seller, at
Purchaser's sole cost and expense, agrees to cooperate with Purchaser in
obtaining information from the Partnerships and Moody-Day. Seller and
Purchaser shall endeavor to meet with representatives of such entities and
shall seek to allow Purchaser and Purchaser's agents and representatives such
access to information regarding the entities which Purchaser deems reasonably
necessary or appropriate and which is available to Seller. Purchaser agrees to
review and, where appropriate, execute and deliver to such entity or entities
such confidentiality or non-disclosure agreements as may be reasonably
necessary to allow Purchaser access to the records or information sought.
Seller, at Purchaser's sole cost and expense, shall cooperate with Purchaser in
obtaining consents from each entity or participant therein which is required to
give its consent including arranging meeting(s) with representatives of such
entities or participants therein and providing, prior to any such meetings,
reasonable background information and support to Purchaser which Seller
reasonably believes may be important in obtaining the required consent.
6.4 Continuing Access Prior to Closing. If this Agreement is not
terminated on or before the end of the Inspection Period, Seller and Purchaser
contemplate that Purchaser will have continuing access to the Properties and
Assets after the termination of the Inspection Period but prior to Closing.
Seller, at Purchaser's sole cost and expense, will cooperate with Purchaser and
Purchaser's agents and representatives to allow such access and to provide
continuing updates to information regarding the Assets as may be reasonable to
assure that Purchaser has all of the material information regarding the Assets
that Seller has been given from and after the Effective Date but prior to
Closing.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of Seller. Seller represents and
warrants that the statements set forth in Sections 7.1 through 7.9 are true
and correct in all material respects as of the Effective Date. Said statements
are herein called "Seller Representations." When used in this Agreement: (i)
"knowledge" or "actual knowledge" means the current actual knowledge of any of
the Principal Officers or the existence of any information in the records or
files of the Seller at the time the respective Seller Representation was made,
and (ii) "Principal Officers" means Donald J. Carter, Ronald Carter, Jeff Fink,
B.G. Moore, Frank Babb and Virginia Mulkey. Notwithstanding the foregoing, or
any other provision of this Agreement to the contrary (other than this Section
7.1), Seller shall have no liability whatsoever to Purchaser or any Affiliate
of Purchaser for any breach of any Seller Representation, except that such a
breach may constitute an Adjustment Event and thus serve as the basis for
adjustment to the Purchase Price in accordance with Section 20.3. Purchaser
acknowledges that (i) the Seller Representations, are in many cases, made
without current actual knowledge of any of the Principal Officers as to whether
they are true or false, (ii) that, due to lack of current actual knowledge of
any of the Principal Officers, some Seller Representations may be false when
-21-
<PAGE> 36
made, and (iii) Seller Representations are made by Seller solely to allocate
the risk between the parties of certain matters prior to Closing and to serve
as the basis for determining the existence of an Adjustment Event. Purchaser
(for itself and its Affiliates) agrees that it shall have no basis for any
claim of fraud in the inducement or otherwise relating to any of the Seller
Representations set forth herein being false when made; however, Purchaser may
seek actual damages suffered by it as a result of any Seller Representation
herein having been false when made if Purchaser establishes that such Seller
Representation was known by one or more of the Principal Officers of Seller to
be false when made and was made by Seller with intent to mislead Purchaser.
None of the Seller Representations shall survive Closing.
7.1.1 Organization, Existence and Good Standing. Each entity
included as a Seller is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has all requisite
corporate power and authority to carry on its business as now being conducted,
to own or lease and operate its Assets as now owned, leased or operated, and to
perform all its obligations under the agreements and instruments to which it is
a party or by which it is bound.
7.1.2 Authorization; Enforceability. This Agreement, and each other
agreement to which Seller is to become a party pursuant to the provisions
hereof, when executed and delivered by Seller, and, if applicable, approved by
the shareholders of Seller, shall constitute the legal, valid and binding
obligations of Seller, enforceable against it in accordance with their
respective terms, except to the extent limited by bankruptcy, reorganization
and other moratorium laws generally affecting the rights of creditors and the
availability of equitable remedies. All actions contemplated by this Section
have been or after necessary shareholder approval will have been duly and
validly authorized by all necessary proceedings by Seller.
7.1.3 No Violation of Laws or Agreements. Neither the execution and
delivery of this Agreement or any other agreement to which Seller is or is to
become a party pursuant to the provisions hereof, the consummation of the
transactions contemplated hereby or thereby nor the compliance with or
fulfillment of the terms, conditions or provisions hereof or thereof by Seller
will except for the need to obtain the consents contemplated by this Agreement:
(i) conflict with, result in a breach of, constitute a default (or an event
that might, with the passage of time or the giving of notice or both,
constitute a default or event of default) under any of the terms of, result in
termination of, result in the loss of any right under, or give to any other
Person the right to cause such a termination of or loss under any Asset or any
contract, agreement or instrument to which Seller is a party or by which any of
the Assets may be bound or affected, or (ii) violate any Legal Requirement to
which Seller is subject or by which any of the Assets may be bound or affected.
7.1.4 No Proceedings. Except as set forth on Part A of Exhibit
7.1.4, no Proceeding is pending or, to the knowledge of Seller, threatened
against or affecting Seller, any of the Assets, the ability of Seller to
perform its obligations under this Agreement or any of the
-22-
<PAGE> 37
transactions contemplated hereby. Except as set forth on Part B of Exhibit
7.1.4, Seller has not received any notice of any violation of any Legal
Requirement pertaining to any of the Assets.
7.1.5 No Rights of First Refusal. Except as set forth on Exhibit
7.1.5 or disclosed in other provisions of this Agreement, and except for
preferential purchase rights in favor of joint lease owners pursuant to
operating agreements related to Oil and Gas Interests, there are no existing
options, rights, warrants, commitments, agreements or instruments of any type
to which Seller is bound, or to which any Asset is subject, under or pursuant
to which any Person shall be given, provided or otherwise afforded the right,
option, occasion, possibility or opportunity to purchase any Asset.
7.1.6 Accuracy of Documents. All documents, records, listings and
schedules delivered to Seller pursuant to Article IV are in all material
respects true, correct and complete copies of all the documents and records
delivered or to be delivered.
7.1.7 Disclosure. No Seller Representation or statement in the
Exhibits or in any items delivered pursuant to Article IV contains any untrue
statement of a material fact.
7.1.8 Shareholder Consent. CCP represents and warrants to Purchaser
that the undersigned Consenting Shareholders collectively hold and have
authority to exercise voting rights for at least a majority of the votes
represented by the outstanding voting securities of CCP.
7.2 Real Property Assets.
7.2.1 Title. Seller owns good and indefeasible fee simple title to
the Real Property Assets, except the Airport Ground Lease and Stemmons
Leasehold free and clear of any Encumbrances that would have a material adverse
effect on the value of the Asset. Seller owns all of the rights of the tenant
pursuant to the Airport Ground Lease and Stemmons Leasehold, free and clear of
any Encumbrances which would have a material adverse effect on the value of the
Asset.
7.2.2 Rent Roll. The rent roll ("First Rent Roll") which is
attached and marked as Exhibit 7.2.2 is true and correct in all material
respects as of February 4, 1997.
7.2.3 Defects. Except as set forth on Exhibit 7.2.3, there are no
material structural, physical, mechanical or other defects, faults or
inadequacies in, affecting or relating to the Real Property Assets or any part
thereof (including, without limitation, the heating, air conditioning,
ventilating, plumbing, life safety and electrical systems of the Improvements,
all of which are in good operating condition and repair) which would materially
adversely affect the condition of the Real Property Assets or the insurability
of the Real Property Assets or the premiums for the insurance therefor.
-23-
<PAGE> 38
7.2.4 Leases. There are no leases (or any other oral or written
agreements pursuant to which any portion of the Properties is used or occupied
by anyone other than Seller), other than the Leases described on the First Rent
Roll, in effect as of the date of the First Rent Roll with respect to the
Properties. Purchaser acknowledges that there are temporary storage agreements
(terminable on thirty (30) days' notice or less) at various Office Buildings
which are contained in the lease files, but may not be reflected in the First
Rent Roll.
7.2.5 No Rent Prepayments. No Existing Tenant has prepaid rent
under any Lease by more than thirty (30) days.
7.2.6 Environmental Matters. Except as set forth on Exhibit 7.2.6,
there are no set of circumstances or conditions resulting from or arising out
of the introduction, spillage, discharge, disposal or release (including any
"release" as defined in CERCLA), or threat thereof, of any Hazardous Substance
into or onto the surface water, ground water, soil, surface or subsurface of
any of the Properties or, to Seller's knowledge, land adjacent to any of the
Properties and by reason of which might or could result in any Proceeding based
on any Environmental Law.
7.2.7 RSF. The total rentable square feet of each Office Building
currently utilized by Seller, including adjustments for shortfalls, is
reflected on the First Rent Roll.
7.2.8 Condemnation. Except as set forth on Exhibit 7.2.8, no
condemnation, eminent domain or similar proceedings have been instituted or, to
Seller's knowledge, threatened against the Properties.
7.2.9 Operating Agreements. Except as set forth on Exhibit 7.2.9,
all Operating Agreements are cancelable without cause upon not more than thirty
(30) days' notice.
7.2.10 Bankruptcy. Seller does not have knowledge of any
attachments, executions, assignments for the benefit of creditors, or voluntary
or involuntary bankruptcy proceedings, or proceedings under any debtor relief
laws, contemplated by or pending or threatened against Seller or the
Properties.
7.2.11 Effective Contracts. Except for the Operating Agreements and
any continuing guaranties and warranties benefitting the owner of any of the
Properties in connection with the Personal Property and Improvements, there are
no contracts of construction, employment, management, service, or supply which
will affect the Properties or operations of the Properties after Closing,
except for contracts related to repairs or restoration of damage as
contemplated by this Agreement and contracts relating to tenant improvements
and architectural and engineering services.
-24-
<PAGE> 39
7.2.12 Compliance with Laws. Except as set forth on Part B of
Exhibit 7.1.4, the Improvements and Personal Property and the current operation
thereof comply in all material respects with all Legal Requirements of all
Governmental Authorities having jurisdiction over the Properties or affecting
all or any part thereof or bearing on their construction or operation, and with
all private covenants or restrictions.
7.2.13 Licenses and Permits. Seller has acquired all licenses,
permits, easements, rights-of-way, including, without limitation, all building
and occupancy permits from all governmental authorities having jurisdiction
over each Property or from private parties for the normal use, maintenance,
occupancy, and operation of each Property and to ensure unimpeded access,
ingress and egress to and from each Property as required to permit normal usage
of the respective Improvements, except where the failure to do so would not
have a material adverse effect on such Property.
7.2.14 Insurance Compliance. Seller currently has in place the
public, liability, casualty and other insurance coverage with respect to the
Properties in the amounts reflected on Exhibit 7.2.14. Each of such policies
is in full force and effect, and all premiums due and payable thereunder have
been, and on the Closing Date will be, fully paid when due. No notice of
cancellation has been received or, to Seller's knowledge, threatened with
respect thereto. No insurance company insuring either the Improvements or the
Personal Property or Board of Fire Underwriters has delivered to Seller oral or
written notice (i) that any insurance policy now in effect would not be
renewed, or (ii) that Seller or a tenant under the Leases has failed to comply
with insurance requirements or (iii) that defects or inadequacies exist in the
Properties, or in any part thereof, which could adversely affect the
insurability thereof or the cost of such insurance.
7.2.15 Zoning. Except as set forth in Exhibit 7.2.15, present zoning
regulations permit the use of the Properties for the uses to which each is
presently used, each Property complies in all material respects with all
applicable parking regulations, and there are no legal requirements or private
regulations, orders, agreements or instruments restricting in any material
respect the current use and operation of the Properties other than those to be
reflected in the Pre-Closing Title Commitments all of which are being fully
complied with in all material respects.
7.2.16 Agreements Affecting Properties. There are no contracts or
other material obligations, other than the Operating Agreements and Leases, and
other than those to be reflected in the Pre-Closing Title Commitments
outstanding (i) for the sale, exchange or transfer of the Properties or any
portion thereof or the business operated thereon by Seller except for an
Approved Sale Contract or the CompUSA Agreement, or (ii) creating or imposing
any material burdens, obligations or restrictions on the use or operation of
the Properties and the business conducted thereon.
-25-
<PAGE> 40
7.2.17 Status of Leases. Neither the Leases nor any other contract
or agreement delivered by Seller to Purchaser has been amended, modified or
supplemented in any way that will not be disclosed to Purchaser in writing at
the time of delivery to Purchaser pursuant to Article IV. There are no written
or oral agreements of any kind that could constitute a lease or contract
relating to the Properties (including any agreements for free rent, rent
reduction or abatement, expense reimbursement, construction or remodeling
allowance, lease takeover or rent reimbursement, or other agreements of a
tenant inducement nature). There exists no circumstance or state of facts that
constitutes a default by Seller or, to Seller's knowledge, any tenant under the
Leases, or that would, with the passage of time or the giving of notice, or
both, constitute a default on the part of Seller or, to Seller's knowledge, by
any tenant under any of the Leases, or that entitles any tenant under the
Leases defenses against the prompt, current payment and performance of rent
and/or other payments and obligations thereunder. Except as shown on Part A of
Exhibit 7.1.4, Seller has no knowledge of any pending or threatened litigation
by any tenant against Seller with regard to any Lease. Except for lease
commissions that will be paid by Seller in accordance with the terms of this
Agreement, or as shown on Exhibit 7.2.17, there do not exist any unpaid leasing
commissions due with regard to any of the Leases. Seller is the owner of the
entire lessor's interest in and to each of the Leases. Seller has performed,
in all material respects, all of the duties, liabilities and obligations
imposed upon Seller by the terms, provisions and conditions contained in the
Leases and accruing on or prior to the date hereof.
7.2.18 Assessments. There are no unpaid assessments for public
improvements against any Properties. The Properties are not subject to
assessments for any street paving or curbing heretofore laid. All sewer,
water, gas, electric, telephone and drainage lines and facilities required by
law and for the normal operation of the Properties are fully installed,
function properly and are adequate to service the Properties and there are no
unpaid assessments or charges for the installation of such utilities or for
making connection thereto.
7.2.19 Books and Records; Financial Information. All books and
records relating to operating income and expenses of the Properties furnished
or made available to Purchaser by Seller have been maintained by Seller in
regard to the Properties in the normal course of business. The operating
statements covering the Properties furnished by Seller to Purchaser are, in all
material respects, accurate, complete and have been prepared in accordance with
the books and records of Seller and present fairly the financial position of
the operations of the Properties for the periods then ended. Without limiting
the generality of the foregoing, all of the financial statements referred to
above fully reflect all material costs of operations of the Properties. Since
December 31, 1996, there has been no material adverse change in the Properties.
7.2.20 Number not used.
-26-
<PAGE> 41
7.2.21 Employees. None of the employees of the Properties is covered
by a union contract or collective bargaining agreement or is represented by a
union.
7.2.22 Undeveloped Land. Each Parcel of Undeveloped Land is zoned to
allow the uses set forth on Exhibit 7.2.22 and no Undeveloped Land is subject
to any governmental or regulatory restrictions or encumbrances which would
restrict the development or use other than (a) those restrictions and
encumbrances which are typical in the zoning class applicable to the respective
Parcel, and (b) the requirement that any unsubdivided Parcel must be legally
subdivided.
7.2.23 Tenants. Seller makes no representation or warranty
whatsoever regarding the financial condition of any tenant of any of the Real
Property Assets.
7.2.24 Soil Conditions. The soil conditions of each Parcel of
Undeveloped Land is not materiality less suitable for construction of
commercial, retail or multi-family facilities than the soil conditions of
substantially all other properties situated within a five (5) mile radius of
the respective Parcel.
7.3 Partnership Interests.
7.3.1 General Representations and Warranties as to Partnership
Interests.
7.3.1.1 Ownership. Seller is the record and beneficial owner
of the Partnership Interests and has good, valid and indefeasible record and
beneficial title to the Partnership Interests free and clear of any adverse
claim of any Person, including any Encumbrances (except as set forth in the
Partnership Agreements). The transfer and assignment documents to be delivered
to Purchaser on the Closing Date will transfer to and vest in Purchaser good,
valid and indefeasible title to the Partnership Interests, free and clear of
any adverse claims of any Person, including any Encumbrance (except as set
forth in the Partnership Agreements).
7.3.1.2 Organization, Existence and Good Standing. Each
Partnership is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and is, to the extent necessary,
qualified to do business in each jurisdiction in which it operates, it has all
requisite partnership power and authority to carry on its business as now being
conducted, to own or lease and operate its properties and assets as now owned,
leased or operated, and to perform all of its obligations under the agreements
and instruments to which it is a party or by which it is bound.
7.3.1.3 Partnership Agreements; Amendments. Seller has
delivered to Purchaser true and correct copies of all of the Partnership
Agreements which are listed on Exhibits 1.3.2 and 1.3.3, and such Partnership
Agreements have not been amended or modified
-27-
<PAGE> 42
in any way, except for amendments copies of which have been delivered to Seller
prior to the Effective Date.
7.3.1.4 No Default; No Litigation. There has been no default
by Seller or, to Seller's knowledge, no default by any other partner, under or
pursuant to the Partnership Agreements. To Seller's knowledge, no Partnership
is a party to any material litigation not fully covered by insurance, and there
is no litigation affecting the rights of a Partnership in any of its assets or
business that would, if determined adversely to the Partnership, have a
material adverse affect on the value of those assets or that business. There
is no litigation involving Seller's interest in a Partnership or any of the
rights related thereto.
7.3.1.5 No Obligations. Except as provided in the
Partnership Agreements or schedules delivered to Purchaser pursuant to Section
4.3, Seller is not and, upon acquisition of the Partnership Interests,
Purchaser will not be, obligated to make any capital contributions or return
any capital or otherwise pay any amounts with regard to the Partnership
Interests. This Section 7.3.1.5 does not relate to capital contribution
obligations arising after the Closing pursuant to the terms of the respective
Partnership Agreements.
7.3.1.6 Right to Transfer; Right to Become Substitute Limited
Partner. Except as specifically set forth in the Partnership Agreements,
Seller has the full power and authority to transfer and assign the Partnership
Interests to Purchaser or Purchaser's assignee (as permitted hereunder) and,
upon such transfer, Purchaser (or Purchaser's permitted assignee) shall have
the right to become a substitute limited partner in the applicable Partnership,
subject only to the specific conditions set forth in the Partnership
Agreements.
7.3.2 Number not used.
7.3.3 Rising Star Partnership Interests.
7.3.3.1 Related Agreements and Rights. The only rights and
agreements related to or associated with the rights of Seller in or to the
Rising Star Partnerships are contained in the documents set forth in Exhibit
1.3.2.
7.3.3.2 Approvals; Consents. The only consents and/or
approvals required to be obtained in connection with the transfer of the Rising
Star Partnership Interests to Purchaser or to Purchaser or Purchaser's
permitted assignee (and the admission of such Person to the Rising Star
Partnerships as a substitute limited partner) are parties to the Rising Star
Partnership Agreements.
7.3.3.3 Partners. The only partners in the Rising Star
Partnership are those listed in the Rising Star Partnership Agreements.
-28-
<PAGE> 43
7.3.4 Hicks Muse Partnership Interests.
7.3.4.1 Related Agreements and Rights. The only rights and
agreements related to or associated with the rights of Seller in or to the
Hicks Muse Partnerships are contained in the documents set forth in Exhibit
1.3.3.
7.3.4.2 Approvals; Consents. The only consents and/or
approvals required to be obtained in connection with the transfer of the Hicks
Muse Partnership Interests to Purchaser or Purchaser's permitted assignee (and
the admission of such Person to the Hicks Muse Partnerships as a substitute
limited partner) is that of HM2/GP.
7.4 Moody-Day Stock.
7.4.1 Shares of Moody-Day Stock. The Moody-Day Stock consists of
12,500 shares, no par value per share, of issued and outstanding common stock
of Moody-Day, and no shares are held in treasury. Seller is and will be on the
Closing Date the record and beneficial owner and holder of, and has, and on the
Closing Date will have, good, valid and indefeasible record and beneficial
title to, the Moody-Day Stock, free and clear of any adverse claim of any
Person, including any Encumbrance. All of the shares of the Moody-Day Stock
have been duly authorized and are validly issued, fully paid and nonassessable.
The Moody-Day Stock represents and will represent as of the Closing Date all
outstanding capital stock or other equity interest of any nature of Moody-Day.
All dividends and other distributions declared with respect to the issued and
outstanding shares of capital stock of Moody-Day have been paid or distributed.
There are no existing subscriptions, rights, warrants, calls, options,
irrevocable proxies, commitments or agreements of any character relating to the
capital stock of Moody-Day which is authorized but unissued or held in the
treasury or related to the purchase or redemption of Moody-Day's capital stock,
and there are no outstanding securities or other instruments convertible into
or exchangeable for shares of such capital stock and no commitments to issue
such securities or instruments. The stock certificates, endorsements, stock
powers and other documents to be delivered to Purchaser on the Closing Date
will transfer to and vest in the Purchaser good, valid and indefeasible title
to the Moody-Day Stock, free and clear of any adverse claims of any other
Person or any Encumbrance. No stock transfer taxes are or will be required to
be paid by Purchaser or Seller with respect to the transfer of the Moody-Day
Stock as provided herein.
7.4.2 Consents and Approvals; No Violation. Except as set forth on
Exhibit 7.4.2, no filing or registration with, no notice to and no Governmental
Authorization, consent, or approval of any Governmental Authority, creditor or
other Person in a contractual relationship with Moody-Day is necessary in
connection with Seller's execution and delivery of this Agreement, the
performance of its obligations hereunder, or the consummation of the transfer
of the Moody-Day Stock hereunder. Except as set forth on Exhibit 7.4.2,
neither the execution and delivery of this Agreement nor the transfer of the
Moody-Day Stock will, as of the Closing
-29-
<PAGE> 44
Date: (i) conflict with or violate any provision of the Moody-Day Governing
Documents, (ii) be in conflict with, result in a violation, breach or
termination of, or constitute a default under any of the material terms,
conditions or provisions of any note, contract, agreement, commitment, bond,
mortgage, license, lease, pledge agreement or other instrument or obligation to
which Moody-Day is a party or by which it or any of its properties or assets
may be bound; (iii) violate (with or without due notice or lapse of time or
both) or conflict with any material provision of any Legal Requirement binding
on Moody-Day; or (iv) result in or require the creation or imposition of any
Encumbrance upon or with respect to any of the properties or assets owned or
used by Moody-Day.
7.4.3 Moody-Day Financial Statements. The Moody-Day Financial
Statements fairly present, and will fairly present on the Closing Date, the
financial condition and results of operations of Moody-Day as of the respective
dates thereof and for the periods therein referred to, all in accordance with
GAAP, subject, in the case of the Moody-Day Interim Financial Statements and
Moody-Day 1997 Financial Statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be a material
adverse change) and the absence of notes (which, if presented, would not differ
materially from those included in the Moody-Day Audited Financial Statements).
The Moody-Day Financial Statements reflect the consistent application of such
accounting principles throughout the period involved, except as disclosed in
the notes to such Moody-Day Financial Statements and except as set forth in
Exhibit 7.4.8. To the extent that any representations and warranties or
assurances contained herein either specify or could be considered to specify a
method of accounting for any item which is not consistent with the presentation
in the Moody-Day Financial Statements (e.g., accounts receivable, inventory,
liabilities), Seller shall identify the inconsistency to Purchaser on or before
twenty (20) days from the Effective Date and will deliver to Purchaser a
summary of changes to the Moody-Day Financial Statements that would result from
utilizing such different methods).
7.4.4 Books and Records. The books of account, minute books, stock
record books and other records of Moody-Day are complete and correct in all
material respects and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal
controls. The minute books of Moody-Day contain accurate and complete records
of all meetings held, and corporate action taken by, the shareholders and board
of directors of Moody-Day and no meeting of such shareholders or board of
directors has been held for which minutes or other appropriate documentation
has not been prepared and placed in such minute book. At Closing, all of those
books and records will be delivered to Purchaser.
7.4.5 Absence of Undisclosed Liabilities. Except as and to the
extent (i) fully reflected or reserved against on the balance sheet of the
Moody-Day Interim Financial Statements, including the subsequent audited
version thereof ("Moody-Day Balance Sheet"), or (ii) disclosed on Exhibit
7.4.5, as of December 31, 1996, Moody-Day did not have any
-30-
<PAGE> 45
liabilities including, without limitation, any liabilities arising out of any
transaction entered into or any state of facts existing, on or before December
31, 1996. With respect to Moody-Day, "liabilities" includes all debts,
liabilities and obligations of Moody-Day of any nature or kind whatsoever,
whether or not due or to become due, accrued, fixed, absolute, matured,
determined, determinable or contingent and whether or not incurred directly by
Moody-Day or by a predecessor of Moody-Day, and whether or not arising out of
any act, omission, transaction, circumstance, sale or lease of goods or service
or otherwise. Except as specifically referenced on Exhibit 7.4.5 or reflected
in or reserved against the Moody-Day Balance Sheet, as of December 31, 1996,
there was no transaction previously entered into or any state of facts or
circumstances existing which might reasonably be expected to give rise to,
cause or result in any liability of Moody-Day. Except as specifically
referenced on Exhibit 7.4.5, there is no basis for any assertion against Moody-
Day, as of December 31, 1996, of any liabilities of any nature or in any amount
not fully reflected or reserved against on the Moody-Day Balance Sheet or
specifically referred to in the notes thereto. As of the Closing Date, there
will be no basis for any assertion against Moody-Day of any liability of any
nature or in any amount not fully reflected or reserved against on, or referred
to in the notes to, any balance sheet of Moody-Day delivered to Purchaser
pursuant to this Agreement or specifically referenced in Exhibit 7.4.5. Since
December 31, 1996, Moody-Day has not incurred any liabilities except in the
ordinary course of business consistent with past practice.
7.4.6 Receivables. All accounts and notes receivable of Moody-Day
that are reflected in the Moody-Day Balance Sheet or on the accounting records
of Moody-Day as of the Closing Date represent or will represent valid
obligations arising from sales actually made in the ordinary course of
business.
7.4.7 Customers. Except as set forth on Exhibit 7.4.7, no customer
accounted for more than 10% of Moody-Day's gross sales for the twelve month
period ended December 31, 1996. Since December 31, 1996, no material customer
has stopped or materially decreased, or has given notice to Moody-Day that it
will stop or materially decrease, the rate of business done with Moody-Day.
7.4.8 Absence of Changes. Except as disclosed on Exhibit 7.4.8,
since December 31, 1996, there has not been (i) any material adverse change of
the business or financial condition of Moody-Day or any event, condition or
contingency that is likely to result in such a material adverse change; (ii)
any damage, destruction or loss, whether covered by insurance or not,
materially and adversely affecting the properties or business of Moody-Day;
(iii) except for those in the ordinary course of business, any increase in or
creation of compensation payable or to become payable by Moody-Day to any of
its directors, officers, employees or agents or in any stock option, bonus
payment, service award, pension, retirement, severance, savings, insurance,
expense allowance or other plan or arrangement made to or with any of them;
(iv) any sale, assignment, lease, transfer, license, abandonment or other
disposition by Moody-Day of any interest in its assets, except in the ordinary
course of business; (v) any
-31-
<PAGE> 46
declaration, setting aside or payment of any dividend or other distribution on
or in respect of shares of the capital stock of Moody-Day, or any direct or
indirect redemption, retirement, purchase or other acquisition by Moody-Day of
any such shares; (vi) any stock dividend, stock split, reorganization,
recapitalization or other change of any type whatsoever in the outstanding
capital stock of Moody-Day; (vii) any amendment to the Moody-Day Governing
Documents; (viii) any change in the accounting methods followed by Moody-Day;
(ix) any entry into, termination or receipt of notice of termination of any
material agreement or commitment; or (x) any commitment, obligation or
agreement to do any of the foregoing.
7.4.9 Agreements, Contracts and Commitments. Seller has previously
provided Purchaser with copies of all contracts, agreements, mortgages,
concessions, leases and commitments relating to or affecting any business
facilities, real property or personal property or interests therein of Moody-
Day, including leasehold interests, to which Moody-Day is a party or by which
Moody-Day or any property of Moody-Day is in any way bound or affected,
together with all amendments and supplements thereto and modifications thereof
("Moody-Day Contracts"). Except as set forth on Exhibit 7.4.9, all Moody-Day
Contracts are legally valid and binding and in full force and effect, except to
the extent limited by bankruptcy, reorganization and other moratorium laws
generally affecting the rights of creditors and the availability of equitable
remedies and Seller has no knowledge of defaults thereunder. Other than
contracts, agreements or commitments previously provided to Purchaser, there
are no contracts, agreements or commitments which would materially and
adversely affect the financial condition, business, assets or liabilities of
Moody-Day. Except as set forth on Exhibit 7.4.9, there are no defaults under
or breaches of Moody-Day Contracts by Moody-Day or defaults or breaches thereof
known to exist on the part of the other party, and neither Seller nor Moody-Day
knows of any condition that exists or event that has occurred which, with
notice or lapse of time or both, would constitute a default or a basis for
force majeure or other claim of excusable delay or non-performance thereunder.
Except as set forth on Exhibit 7.4.9, the terms and conditions of all Moody-Day
Contracts are reasonable and customary in the business in which Moody-Day
operates, and there are no extraordinary terms contained therein.
7.4.10 Tax Matters. "Tax" means any tax (including any income,
franchise, capital gains, gross receipts, value-added, excise, ad valorem,
transfer, stamp, sales, use, property, inventory, occupancy, withholding,
payroll, gift, estate or inheritance tax), levy, assessment, tariff, impost,
imposition, toll, duty, deficiency or fee, and any related charge or amount
(including any fine, penalty or interest) imposed assessed or collected by or
under the authority of any Governmental Authority or payable pursuant to any
tax-sharing agreement or pursuant to any other contract relating to the sharing
or payment of any such tax, levy, assessment, tariff, impost, imposition, toll,
duty, deficiency or fee. Moody-Day has filed or caused to be filed on a timely
basis each and every return (including any information return), report,
statement, declaration, schedule, notice, notification, form, certificate or
other document or information in connection with the determination, assessment,
collection or payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance
-32-
<PAGE> 47
with any Legal Requirement relating to any Tax ("Tax Return") that is or was
required to be filed by or with respect to it, either separately or as a member
of a group of corporations, pursuant to the Legal Requirements of each
Governmental Authority with taxing power over it or its assets. Moody-Day has
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns, or otherwise, or pursuant to any
assessment received by Moody-Day, except such Taxes, if any, as are set forth
on Exhibit 7.4.10 and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in
the Moody-Day Financial Statements. Except as set forth on Exhibit 7.4.10,
Moody-Day has not given or been requested to give waivers or extensions (or is
or would be subject to a waiver or extension given by any other entity) of any
statute of limitations relating to the payment of Taxes of Moody-Day or for
which Moody-Day may be liable. The charges, accruals and reserves with respect
to Taxes on the books of Moody-Day are adequate (determined in accordance with
GAAP) and are at least equal to its liability for Taxes. There exists no
proposed Tax assessment against Moody-Day except as disclosed in the Moody-Day
Financial Statements. All Taxes that Moody-Day is or was required by any Legal
Requirement to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Authority or
other Person. All Tax Returns filed by Moody-Day are true, correct and complete
in all material respects. Moody-Day's tax benefit is limited as described on
Exhibit 7.4.10. There is no tax sharing agreement that will require any
payment by Moody-Day after the date of this Agreement.
7.4.11 Title to Properties and Related Matters. Except as set forth
on the Pre-Closing Title Commitments or the Moody-Day Financial Statements,
Moody-Day has good title to, or valid, binding and enforceable leasehold
interests in, and the right of possession to, all properties (whether real,
personal, mixed, tangible or intangible) reflected in the Moody-Day Balance
Sheet or purported to have been acquired or leased by it since the date thereof
(except property sold or otherwise disposed of since December 31, 1996 in the
ordinary course of business), free and clear of all Encumbrances, except for
statutory liens for Taxes not delinquent and such other Encumbrances as are not
individually or in the aggregate materially adverse to the business, results of
operations, financial condition, assets or liabilities of Moody-Day and which
do not materially interfere with or impair the present and continued use of
such property by Moody-Day.
7.4.12 Condition and Sufficiency of Assets. The equipment of Moody-
Day is in good operating condition and repair and is adequate for the uses to
which it is being put, and none of such equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
7.4.13 Leasehold Interests. Moody-Day does not purport to have any
leasehold interests in real property except as described on Exhibit 7.4.13.
None of the rights of Moody-Day under any such leasehold in real property will
be impaired by the consummation of the transactions contemplated this
Agreement, and all of such rights will be enforceable by Moody-
-33-
<PAGE> 48
Day after Closing without the consent or agreement of any other party, except
for consents and agreements specifically described on Exhibit 7.4.2.
7.4.14 Personal Property. The inventory of personal property
previously delivered to Purchaser is complete in all material respects, except
for dispositions in the ordinary course of business. No leasehold or other
interest of Moody-Day in tangible personal property is subject or subordinate
to any Encumbrance, whether or not the same constitutes a lien or renders the
title to such tangible personal property unmarketable, except as described on
Exhibit 7.4.5 and 7.4.14. None of the rights of Moody-Day under any such
leasehold or other interest in tangible personal property will be impaired by
the consummation of the transactions contemplated by this Agreement, and all of
such rights will be enforceable by Moody-Day after Closing without the consent
or agreement of any other party, except for consents and agreements
specifically described on Exhibit 7.4.2.
7.4.15 Compensation and Benefit Plans. Moody-Day has no liability
or, except for its 401(k) plan, any other obligation (financial or otherwise)
whatsoever under any Moody-Day Benefit Plans, the last of such Moody-Day
Benefits Plans (except for its 401(k) plan) having been completely terminated
effective December 31, 1995.
7.4.16 Labor Matters. There has not been, and there is not presently
pending or, to Seller's knowledge, threatened, any Proceeding against Moody-Day
under the Fair Labor Standards Act, the Occupational Safety and Health Act, or
any other Legal Requirement governing the conditions of Moody-Day's employment,
or, to Seller's knowledge, any basis or ground for any such claim. Moody-Day
has not been nor is a party to any collective bargaining agreement or other
labor contract. Except as set forth on Exhibit 7.4.16, Moody-Day has complied
in all material respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
Taxes, occupational safety and health and plant closings ("Employment Laws").
Moody-Day is not liable for the payment of taxes, fines, penalties, damages or
other amounts, however designated, for failure to comply with any Employment
Laws.
7.4.17 Insurance. Set forth on Exhibit 7.4.17 is a list of all
Moody-Day Insurance Policies. Such description provides reasonably complete
details concerning such policies, identifying among other things: (i) the
issuer of each such policy, (ii) the amount of coverage still available and
outstanding under each such policy, (iii) whether each such policy is a "claims
made" or an "occurrences" policy, and (iv) any retrospective premium
adjustments of which Seller or Moody-Day has knowledge. Except as set forth on
Exhibit 7.4.17, neither Seller nor Moody-Day has received: (x) any notice of
cancellation of any policy described in Exhibit 7.4.17 or refusal of coverage
thereunder, (y) any notice that any issuer of such policy has filed for
protection under applicable bankruptcy or other insolvency laws or is otherwise
in the process of liquidating or has been liquidated, or (z) to Seller's
knowledge, any other
-34-
<PAGE> 49
indication that such policies are no longer in full force or effect or that the
issuer of any such policy is no longer willing or able to perform its
obligations thereunder.
7.4.18 Environmental Matters. Except as set forth in Exhibit
7.4.18, there are no set of circumstances or conditions resulting from or
arising out of the introduction, spillage, discharge, disposal or release
(including any "release" as defined in CERCLA), or threat thereof, of any
Hazardous Substance into or onto the surface water, ground water, soil, surface
or subsurface of any property owned, leased or operated by Moody-Day, or, to
Seller's knowledge, any property adjacent thereto, and by reason of which might
or could result in any Proceeding based on any Environmental Law.
7.4.19 Intellectual Property. The term "Intellectual Property
Assets" shall include Moody-Day's names, all fictitious business names, trade
names, brand names, registered and unregistered trademarks, service marks,
applications, all patents and patent applications, all copyrights in both
published works and unpublished works, and all inventions, processes, formulas,
patterns, designs, know-how, trade secrets, confidential information, software,
technical information, process technology, plans, drawings and blue prints
owned, used or licensed by Moody-Day as licensee or licensor. The Intellectual
Property Assets are all those necessary for the operation of Moody-Day's
business as it is currently conducted. Moody-Day is the owner of all right,
title and interest in and to each of the Intellectual Property Assets free and
clear of all Encumbrances and has the right to use without payment to a third
party all the Intellectual Property Assets.
7.4.20 Bank Accounts; Powers of Attorney. Set forth on Exhibit
7.4.20 is: (i) the name of each bank, savings and loan or other financial
institution in which Moody-Day has any account or safe deposit box, the style
and number of each such account or safe deposit box and the names of all
persons authorized to draw thereon or have access thereto, and (ii) the name of
each Person holding a general or special power of attorney from Moody-Day and a
summary of the terms thereof.
7.5 Oil and Gas Interests.
7.5.1 Defensible Title. Seller owns Defensible Title to the Oil and
Gas Interests free and clear of all Encumbrances.
7.5.2 Seller's Interest in Production and Expenses. Seller's
interest in net production from and obligation to bear expenses as to the Oil
and Gas Interests is as described in Exhibit 1.5.
7.5.3 Compliance with Legal Requirements. The Oil and Gas Interests
have been operated in compliance, in all material respects, with all Legal
Requirements.
-35-
<PAGE> 50
7.5.4 Ad Valorem Taxes. All ad valorem, property and similar taxes
and assessments based on or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom on the Oil and
Gas Interests for all years prior to 1997 have been properly paid.
7.5.5 No Excess Production; Volume Imbalance. The Oil and Gas
Interests have not been produced in excess of regulatory allowables and are not
subject to penalty or adjustment. There do not exist any volume imbalances for
gas production which would limit Seller's ability in the future to sell gas
attributable to Seller's interest in the Oil and Gas Properties.
7.5.6 No Hazardous Substances. There are no set of circumstances or
conditions resulting from or arising out of the introduction, spillage,
discharge, disposal or release (including any "release" as defined in CERCLA),
or threat thereof, of any Hazardous Substance into or onto the surface water,
ground water, soil, surface or subsurface of any Oil and Gas Interest, or any
property adjacent thereto, and by reason of which might or could result in any
Proceeding based on any Environmental Law.
7.5.7 Rights to Dispose of Interest. Seller's right to dispose of
its interest in production from the Oil and Gas Interests is not subject to any
limitation, restriction or dedication (whether by contract, governmental
regulation or otherwise), except as provided in the agreements described in
Exhibit 1.5 or as otherwise disclosed in Exhibit 1.5.
7.5.8 Petroleum Engineering Report. The petroleum engineering
reports provided to Purchaser pursuant to Section 4.5.7, if any, and all other
estimates of reserves, future net revenues and present value of future revenues
of the Oil and Gas Interests which have been provided to Purchaser (i) are
accurate and complete as to the Oil and Gas Interests covered thereby in all
material respects, (ii) have been prepared in accordance with all professional
standards applicable to such reports, and (iii) utilize assumptions which are
reasonable.
7.5.9 Sales Proceeds. The proceeds of the sale of Seller's interest
in production from the Oil and Gas Interests is currently being paid to Seller
at prices called for in the applicable sales contracts.
7.5.10 Consents and Approvals. Except as described in Exhibit 1.5
and except for preferential rights in favor of joint lease owners pursuant to
operating agreements related to Oil and Gas Interests, (i) there exists no
preferential rights to purchase any of the Oil and Gas Interests, and (ii) no
consent or approval is required to be obtained from any Person in order for
Seller to transfer the Oil and Gas Interests to Purchaser.
-36-
<PAGE> 51
7.5.11 Agreements Valid and Enforceable. All oil and gas leases,
contracts, licenses, easements, permits and other rights and interests
comprising any portion of the Oil and Gas Interests are in full force and
effect according to their respective terms and provisions and all rights
granted thereby are valid and subsisting except to the extent limited by
bankruptcy, reorganization and other moratorium laws generally affecting the
rights of creditors and the availability of equitable remedies; Seller is not
subject to express requirements for the drilling of additional wells or other
material development operations in respect to the Oil and Gas Interests; Seller
has received no notices or demands affecting or relating to such rights, except
those described in Exhibit 1.5.
7.5.12 Payment of Rentals and Royalties. All payment of rentals,
royalties and other charges, if any, required by the terms and provisions of
the oil, gas and mineral leases, contracts, licenses, permits and easements
comprising any portion of the Oil and Gas Interests required to be made to
prevent forfeiture or termination have been fully and finally paid.
7.5.13 No Commitments. Except as described in Exhibit 1.5, the Oil
and Gas Interests are not subject to any commitments or requests to make any
expenditures other than (i) normal operating expenses and (ii) expenditures
which would not result in a reduction in the Oil and Gas Interest if not paid
by the owner of such interest.
7.5.14 Equipment. The equipment and other personal property included
in the Oil and Gas Interests are in good working order and suitable and
adequate for the purposes for which they are utilized.
7.5.15 Use of Oil and Gas Interests. Seller has (i) used the Oil and
Gas Interests solely for oil and gas and related operations and not as a
landfill or waste disposal site, other than the disposal of ordinary drilling
and production wastes; and (ii) has not stored or disposed of Hazardous
Substances on the Oil and Gas Interests in violation of Environmental Laws.
There are no underground storage tanks on the Oil and Gas Interests and no
lease equipment or improvements contain any asbestos or contain any
polychlorinated biphenyls.
7.5.16 No Encumbrances. The Oil and Gas Interests are not subject to
any liabilities which would become an Encumbrance on the Oil and Gas Interests
or become a liability of Purchaser other than those disclosed in Exhibit 1.5
and other than those arising by operation of law or under guaranty agreements
relating to obligations or payments for which Seller is not in default.
7.6 Marketable Securities. The Marketable Securities constitute less than
a five percent (5%) interest of the respective issues, and Seller has no
knowledge of any material adverse change regarding any issue or issuer of the
Marketable Securities not generally known by or reported to financial markets.
-37-
<PAGE> 52
7.7 Municipal Bonds. Seller has no knowledge of any material adverse
changes regarding any issue or issuer of the Municipal Bonds not generally
known by or reported to financial markets.
7.8 Promissory Notes.
7.8.1 Ownership. Seller is the legal and beneficial owner of the
Promissory Notes, the Security Documents, Guaranty Agreements and all liens and
security interests securing payment of the Promissory Notes and the obligations
under the Security Documents free and clear of all Encumbrances, except as
contemplated by Section 7.8.3.
7.8.2 No Additional Agreements. Seller is not a party to any
contract, agreement, instrument, document or written or oral understanding
which amends, modifies or rearranges the Promissory Notes, the Security
Documents or the Guaranty Agreements.
7.8.3 Consents and Approvals. Seller has the authority to convey
the Promissory Notes, the liens and security interests securing their payment,
the Security Documents and Guaranty Agreements without the joinder of, or
consent or approval from, any other Person.
7.8.4 No Default. Seller has no knowledge that any event has
occurred or with the passage of time or the giving of notice will occur which
is or would be an event of default under the Promissory Notes, the Security
Documents or the Guaranty Agreements. During its ownership thereof, Seller has
not modified the Promissory Notes.
7.8.5 No Advances. There are no further obligations to make any
advances under the Promissory Notes or the Security Documents.
7.8.6 Principal Balances. The outstanding principal balances due
under the Promissory Notes as of December 31,1996 are as set out on Exhibit
1.8.
7.8.7 Valid Liens. The Security Documents create valid and
enforceable first liens and first security interests in the property described
therein, and upon consummation of the transaction contemplated hereby,
Purchaser will be the owner and holder of such liens and security interests.
7.8.8 No Defenses, Setoffs, Counterclaims. To Seller's knowledge,
no defenses, setoffs or counterclaims exist with respect to the Promissory
Notes, the Security Documents or Guaranty Agreements.
7.9 Citation Interest/Texas Stadium License.
-38-
<PAGE> 53
7.9.1 Ownership. Seller is the legal and beneficial owner of its
interest in the Citation Agreements, the Stadium Bonds and the Stadium License
Agreement as described therein free and clear of any Encumbrances.
7.9.2 No Modification. Seller is not a party to any contract,
agreement, instrument, document or written or oral understanding which amends,
modifies or rearranges the Citation Agreements, the Stadium Bonds or the
Stadium License Agreement.
7.9.3 Consents and Approvals. Seller has the authority to convey
its interest in the Citation Agreements without the joinder of, or consent or
approval from, any other Person, other that Executive Jet Sales, Inc. and
Executive Jet Aviation, Inc., with respect to the Citation Agreements, which
consent shall be obtained ("Citation Consents").
7.9.4 No Default. Seller has no knowledge that any event has
occurred or with the passage of time or giving of notice will occur which is or
would be an event of default under the Citation Agreements, the Stadium Bonds
or the Stadium License Agreement.
7.9.5 No Defenses, Setoffs, Counterclaims. To Seller's knowledge,
no defenses, setoffs or counterclaims exist with respect to the Citation
Agreements.
7.10 Representations and Warranties of Purchaser. Purchaser represents and
warrants that the statements set forth in this Section 7.10 are true and
correct in all material respects as of the Effective Date.
7.10.1 Organization, Existence and Good Standing. Each entity
included as a Purchaser is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has all
requisite corporate power and authority to carry on its business as now being
conducted, to own or lease and operate its properties and assets as now owned,
leased or operated, and to perform all its obligations under the agreements and
instruments to which it is a party or by which it is bound.
7.10.2 Authorization; Enforceability. This Agreement, and each other
agreement to which Purchaser is to become a party pursuant to the provisions
hereof, when executed and delivered by Purchaser shall constitute the legal,
valid and binding obligations of Purchaser, enforceable against it in
accordance with their respective terms. All actions contemplated by this
Section have been duly and validly authorized by all necessary proceedings by
Purchaser.
7.10.3 No Violation of Laws or Agreements. Neither the execution and
delivery of this Agreement or any other agreement to which Purchaser is or is
to become a party, the consummation of the transactions contemplated hereby or
thereby nor the compliance with or fulfillment of the terms, conditions or
provisions hereof or thereof by Purchaser will: (i) conflict
-39-
<PAGE> 54
with, result in a breach of, constitute a default (or an event that might, with
the passage of time or the giving of notice or both, constitute a default or
event of default) under any of the terms of, result in termination of, result
in the loss of any right under, or give to any other Person the right to cause
such a termination of or loss under, any contract, agreement or instrument to
which Purchaser is a party, or (ii) violate any Legal Requirement to which
Purchaser is subject.
7.10.4 No Proceedings. Except as set forth on Exhibit 7.10.4, no
Proceeding is pending or, to the knowledge of Purchaser, threatened against or
affecting the ability of Purchaser to perform its obligations under this
Agreement or any of the transactions contemplated hereby; and there is no basis
for any such Proceeding.
7.10.5 Investment. Purchaser is acquiring the Partnership Interests,
Stadium Bonds, Arena Bonds and Moody-Day Stock for business and investment
purposes and not with a view toward the distribution thereof (other than a
possible sale of all or substantially all of the Moody-Day Stock to one buyer
who is an accredited investor).
ARTICLE VIII
SELLER'S AGREEMENTS PRIOR TO CLOSING
8.1 Seller's Agreements prior to Closing. Seller agrees to perform those
agreements set forth in this Sections 8.1 through 8.9 during the period
commencing on the Effective Date and ending on the Closing Date.
8.1.1 Untrue Representations. Seller will notify Purchaser promptly
in writing if it becomes aware of any fact or condition which makes untrue, or
shows to have been untrue, in any material respect, any Exhibit, schedule or
listing furnished to Purchaser pursuant to the terms of this Agreement or any
Seller Representation. Seller will notify Purchaser within a reasonable period
of time in writing if it becomes aware of any fact or condition which makes
untrue, or shows to have been untrue, in any material respect, any
representation or warranty made herein by Purchaser.
8.1.2 Notice of Proceedings. If Seller obtains knowledge of (i) any
investigation or inquiry being made or commenced by any Governmental Authority
in connection with this Agreement or the transactions contemplated hereby, or
(ii) the institution of any Proceeding against Seller or that could any way
have a material adverse affect on any of the Assets, Seller shall promptly
notify Purchaser.
8.1.3 Commercially Reasonable Efforts. Upon the terms and subject
to the conditions set forth in this Agreement, Seller agrees to use its
commercially reasonable efforts to take or cause to be taken all actions, and
to do, or cause to be done, and to assist and cooperate with Purchaser and any
third parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the purchase of
-40-
<PAGE> 55
the Assets by Purchaser and all other transactions contemplated by this
Agreement and not to take, commit, or agree in writing or otherwise to take,
any action which would make any Seller Representation untrue or incorrect in
any material respect as of the date when made or as of the Closing Date.
8.1.4 Notification of Certain Matters. Seller shall give Purchaser
prompt notice of: (i) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior to the
Closing Date, under any note, license, agreement or other instrument or
obligation, (ii) any material adverse change or the occurrence of any event
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in a material adverse change on Seller or any of
the Assets, or (iii) any written notice or other written communication from any
third party received by Seller alleging that the consent of such third party is
or may be required in connection with transactions contemplated by this
Agreement.
8.1.5 Operation Prior to the Closing Date. Seller shall not engage
in any practice, take any action or enter into any transaction, with regard to
the Assets and the operation of any business related thereto, other than in the
customary and ordinary course of business without the consent of Purchaser, and
Seller shall use its commercially reasonable efforts to keep its business,
properties and business relationships relating to the Assets substantially
intact.
8.1.6 Performance of Obligations. Seller shall pay or cause to be
paid, and perform or cause to be performed, all debts, liabilities and
obligations relating to the Assets as and when due, except to the extent being
contested in good faith.
8.1.7 No Transfer or Encumbrances. Seller shall not: (i) solicit
any offers to purchase any of the Assets, or (ii) sell, lease, transfer or
otherwise dispose of, or cause the sale, lease, transfer or other disposal of,
any of the Assets, or allow any Encumbrance to be placed on any of the Assets,
except as provided in Sections 8.2.16 or 8.2.17.
8.1.8 No Breach. Seller agrees that (i) Seller will not take any
action and will endeavor in good faith not to permit any event to occur, which
would cause or constitute a material breach of this Agreement; (ii) Seller
will, in the event, and promptly after the occurrence of, or promptly after
becoming aware of the occurrence of or the impending or threatened occurrence
of, any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or constituted a
material breach of any of the Seller Representations, give notice thereof to
Purchaser; and (iii) Seller shall use its commercially reasonable efforts to
prevent or promptly to remedy such breach.
-41-
<PAGE> 56
8.1.9 Compliance with Legal Requirements. Seller shall comply, or
cause compliance, in all material respects with all Legal Requirements
applicable to Seller and its businesses with respect to the Assets subject to
Seller's right to contest the same in good faith.
8.1.10 Affiliate Indebtedness. Any indebtedness (other than Moody-
Day Equipment Debt) of a Partnership or Moody-Day to Seller or any Affiliate of
Seller will, at Closing, be transferred to Purchaser or, at the option of
Purchaser, be forgiven by Seller (with such transfer or forgiveness to include
a transfer or release, as applicable, of all Encumbrances securing same).
"Moody-Day Equipment Debt" means indebtedness of Moody-Day owed to Seller which
results from Moody-Day's purchase or commitment to purchase the equipment set
forth on Exhibit 8.4.2. Purchaser will pay the Moody-Day Equipment Debt at
Closing.
8.2 Real Property Assets.
8.2.1 Further Conveyances. Seller shall not sell, assign, or convey
any right, title, or interest whatsoever in or to the Properties, except for
The Addison, the land under contract to Studio Plus Hotels, Flower Mound and
any other tract of Undeveloped Land pursuant to an Approved Sale Contract in
accordance with Sections 8.2.16 and 8.2.17, respectively, or create or permit
to exist any Encumbrance affecting the Properties (other than Encumbrances
allowed by Section 7.2.1) without promptly discharging the same prior to
Closing.
8.2.2 Operation. Seller shall continue to maintain the Properties
in their present condition, subject to ordinary wear and tear hereof, and shall
continue to manage the Properties in the same manner as it is currently being
managed; Seller shall not remove any fixtures, equipment, furnishings or other
personal property from the Properties unless replaced with items of equal or
greater quality and quantity, nor shall Seller in any manner neglect the
Properties.
8.2.3 Insurance. Seller shall cause to be maintained in force fire
and extended coverage insurance upon the Properties and public liability
insurance with respect to damage or injury to person or property occurring on
the Properties in at least such amounts as are set forth on Exhibit 7.2.14.
8.2.4 Leases. Except as provided in the next sentence, Seller will
not enter into any new lease of any portion of the Properties or modify any
Lease covering space in any of the Properties without first obtaining the
written consent of James M. Eidson, Jr. on behalf of Purchaser, which consent
shall not be unreasonably withheld or delayed. Such consent shall be requested
on the form attached hereto as Exhibit 8.2.4-A. Without limiting the
foregoing, Purchaser hereby approves of Seller entering into the Leases
described on Exhibit 8.2.4-B provided the economic terms of such Leases are no
less favorable than those described in such Exhibit.
-42-
<PAGE> 57
8.2.5 New Contracts. Except for tenant finish and architectural and
engineering service contracts necessary to permit Seller to perform its
obligations under approved Leases, Seller will not enter into any additional
contracts, warranties or agreements which would be binding on Purchaser and
which cannot be canceled by Purchaser upon thirty (30) days written notice
without cost, penalty, or obligation unless such service contracts or other
agreements are approved in writing by Purchaser.
8.2.6 Capital Expenditures. Seller will not make any capital
expenditures in regard to any of the Properties except in the case of an
emergency whereby Seller will notify Purchaser of such expenditure by telephone
within 24 hours after such emergency and by written notice within two (2)
business days after such emergency. At Closing, Purchaser shall reimburse
Seller for any capital expenditures made in connection with the Office
Buildings, Apartments or the Hangars subsequent to January 1, 1997, provided
the capital expenditures (if made after the Effective Date) were approved in
writing by Purchaser or were made on an emergency basis in accordance with the
preceding sentence.
8.2.7 Sale of Personal Property. Seller will not transfer or
dispose of, or permit to be sold, transferred or otherwise disposed of, any
item or group of items constituting Personal Property, except for the use and
consumption of inventory, office and other supplies and spare parts, and the
replacement of worn out, obsolete and defective tools, equipment and
appliances, in the ordinary course of business.
8.2.8 Trade Accounts. Subject to proration in accordance with
Section 14.2.2, Seller will cause to be paid in the normal course of business
all normal trade accounts and costs and expenses of operation and maintenance
of the Properties incurred or attributable to the period prior to Closing.
8.2.9 Performance Under Leases. Seller will perform all obligations
of landlord or lessor under the Leases, including any condition for a tenant's
or lessee's occupancy of the Property (which shall include entering into tenant
finish contracts and engaging architectural and engineering services), except
that Seller will not take any action against any of the tenants under the
Leases after routine delivery of default letters, without Purchaser's consent,
which consent will not be unreasonably withheld or delayed.
8.2.10 Consents. Seller will promptly file or submit and diligently
prosecute any and all applications or notices with Governmental Authorities and
all other requests with Persons for consents, approvals, authorizations and
permissions which are reasonably considered necessary or appropriate for
consummation of this transaction by Seller or to prevent the termination of any
Lease, Operating Agreement or Permit.
-43-
<PAGE> 58
8.2.11 Defects Repair. On or before Closing Seller shall take all
actions and pay all sums necessary to complete the work necessary to correct
those conditions described in paragraphs 2, 4 (excluding garage structural
repairs), and 12 on page 1 of Exhibit 7.2.3. If Seller fails to complete same
before Closing, at the option of Purchaser, Purchaser shall be entitled to a
credit in the amount necessary to complete same and Seller shall assign to
Purchaser all contracts and agreements relating to said work. Notwithstanding
any provision of Section 8.2.6 to the contrary, Purchaser shall not be required
to reimburse Seller for expenditures made to pay the cost of the repairs
described pursuant to this Section 8.2.11.
8.2.12 Number not used.
8.2.13 Ground Leases. Seller will (i) not modify, amend or terminate
the Ground Leases, (ii) perform all obligations of lessee under the Ground
Leases and (iii) promptly following its receipt, deliver to Purchaser copies of
all notices or other communications relating to the Ground Leases.
8.2.14 Litigation. Seller will not commence or prosecute any
judicial or non-judicial action against any tenant of any of the Properties
without the consent of Purchaser, which consent will not be unreasonably
withheld or delayed.
8.2.15 Seller's Lease at Meridian. At Closing, Seller and Purchaser
shall enter into a lease ("Seller's Lease") to be dated the Closing Date
pursuant to which Purchaser will lease to Seller Suite 426, consisting of
approximately 4,000 rentable square feet in the Meridian (commonly called Mr.
Ron Carter's office) for a term of six (6) months following the Closing Date.
The Seller's Lease shall (i) be on the form currently used by Seller for
leases of approximately 4,000 rentable square feet, (ii) provide for the
payment of base rent (and no additional rent related to the expenses of the
building) monthly calculated on the basis of an annual rental of $6.00 per
rentable square foot within the premises and (iii) include provisions allowing
Seller to terminate Seller's Lease by delivering written notice of termination
at least thirty (30) days prior to the effective date of termination.
8.2.16 CompUSA Right of First Refusal. Seller and Purchaser
acknowledge that Seller's ability to sell The Addison is subject to a right of
first refusal in favor of CompUSA, Inc. ("CompUSA") to purchase The Addison
created pursuant to that certain Office Lease Agreement ("CompUSA Lease") dated
September 1,1992 between Seller and CompUSA. Upon execution of this Agreement,
Seller shall deliver written notice ("Offer Letter") to CompUSA of its intent
to sell The Addison in the form attached as Exhibit 8.2.16. If CompUSA timely
exercises its right of first refusal under the CompUSA Lease, Seller shall not
enter into an agreement ("CompUSA Agreement") to sell The Addison to CompUSA,
except upon the terms as set forth in the Offer Letter. If CompUSA purchases
The Addison pursuant to the CompUSA Agreement, The Addison and the related Real
Property Assets shall not to be conveyed pursuant to this Agreement and the
Purchase Price shall be adjusted in accordance with
-44-
<PAGE> 59
Section 2.2.4; otherwise The Addison and the related Real Property Assets shall
remain a part of the Assets subject to the terms of this Agreement for all
purposes. If CompUSA enters into a CompUSA Agreement but does not acquire the
Addison within thirty (30) days following the Closing Date, Seller agrees to
sell and Purchaser agrees to buy the Assets related to the Addison in
accordance with the terms of this Agreement with the following provisions: (i)
the Closing Date shall be seventy (70) days after the date Seller delivers a
written notice ("Addison Notice") to Purchaser advising it of the failure of
CompUSA to acquire the Addison; (ii) the Inspection Period shall be sixty (60)
days from the date of the delivery of the Addison Notice and (iii) the Purchase
Price shall be the amount allocated to the Addison set forth on Exhibit 2.3.
8.2.17 Approved Sale Contracts. As used herein the term "Approved
Sale Contract" shall be a contract which has terms and provisions proposed by
Seller and approved by Purchaser in its sole discretion. Notwithstanding any
provision of this Agreement to the contrary, Seller may sell either Flower
Mound or any other parcel of Undeveloped Land (each an "Exempt Tract") pursuant
to an Approved Sale Contract. Purchaser shall not unreasonably withhold or
delay its consent to any sale of Flower Mound. If prior to Closing, Seller
enters into an Approved Sale Contract to sell an Exempt Tract which (i) closes
prior to the Closing Date, the respective Exempt Tract shall not be a part of
the Real Property Assets subject to the terms of this Agreement and the
Purchase Price shall be adjusted in accordance with the terms of Section 2.2.5,
or (ii) does not close prior to the Closing Date, Seller shall assign its
rights thereto, Purchaser shall reimburse Seller for all reasonable costs paid
by Seller in connection therewith, and Purchaser shall perform the obligations
of Seller pursuant to the respective Approved Sale Contract and be entitled to
all proceeds from the sale of the Exempt Tract.
8.2.18 Ohio Drive I. As used herein the term "Ohio Drive I
Reclamation Project" means the work and materials needed to satisfy Federal
Emergency Management Agency ("FEMA") to amend the flood plain map which
includes Ohio at Plano Parkway Parcel in accordance with the flood control
plans submitted to and approved by the City of Plano and FEMA. On or before
March 30, 1997, Seller shall commence and thereafter diligently pursue the
completion of the Ohio Drive I Reclamation Project and shall pay all of the
costs and expenses incurred in connection therewith. If the provisions of this
Section are not fully performed prior thereto this Section shall survive
Closing.
8.3 Partnership Interests.
8.3.1 General.
8.3.1.1 Notices; Participation. Seller shall promptly give
Purchaser notice of any notices or other communication received by Seller from
any Partnership and, in any event, within three (3) days of the date on which
any such notice is received, will give Purchaser prior written notice of
Seller's intent to send any notices to a Partnership or another partner of a
Partnership as soon as reasonably possible and, in any event, within such time
-45-
<PAGE> 60
period as will allow Purchaser to consult with Seller regarding the contents of
the notice and any response to a notice received by Seller. Purchaser will
respond within the time period required for Seller to act or respond. Seller
shall promptly give Purchaser such other information as Seller receives in
connection with a Partnership and allow Purchaser to participate with Seller in
connection with Seller's responsibilities to the Partnerships. Seller will not
take any action or fail to take any action that could have a material adverse
change on Seller's interest in a Partnership during the pendency of this
Agreement; provided, Seller will not participate in any meetings with partners
of the Partnerships (whether called or informal) regarding Partnership Matters
or consent or object to any action by a Partnership unless Seller has given
Purchaser notice of the meetings, consent or objection together with all
material information concerning the matter being considered, and afforded
Purchaser an opportunity to participate in the meeting and/or decision if
permitted by the other partners.
8.3.1.2 Contributions and Distributions. Seller shall not
make any capital contributions to a Partnership other than those scheduled in
the documents delivered to Purchaser pursuant to Section 4.3 without obtaining
the prior written consent of Purchaser unless the failure to make such
contribution would adversely affect Seller's interest in the Partnership and
Seller has complied with Section 8.3.1.1 regarding any notices Seller has
received with regard to such contribution. Seller shall promptly give
Purchaser notice of the amount and timing of any distributions from a
Partnership together with any supporting documentation therefor which has been
delivered or made available by the Partnership to Seller.
8.3.1.3 Consents from Partners and Third Parties. Seller and
Purchaser will cooperate in obtaining the consent and/or approval to the
transfer of each Partnership Interest and admission of the transferee as a
substitute limited partner and in obtaining any other consent deemed reasonably
necessary or appropriate by Purchaser including, without limitation, filing
applications therefor, with Purchaser paying reasonable or generally applicable
fees and expenses (up to a maximum of $10,000.00 including, for this purpose,
any fees and expenses paid in connection with the DMI Agreement, the "DMI
Agreement Expenses") in connection therewith which are customary for such
purpose, providing information regarding Seller and/or Purchaser that may be
required to be provided in connection with the transfer and otherwise using
their reasonable good faith effort to obtain any consents and/or approvals
required in connection with the transfers contemplated hereby. Any expenses
incurred by Purchaser under this Section in excess of $10,000.00 (including the
DMI Agreement Expenses) shall be an Adjustment Event and the rights and
obligations of the parties relating thereto shall be governed by the provisions
of Section 20.3. Any consents or approvals shall be in such form as Purchaser
may reasonably require.
8.3.2 Number not used.
-46-
<PAGE> 61
8.3.3 Rising Star Partnership Interests. Seller shall keep
Purchaser informed regarding the progress of any proposed merger of RSE-I and
RSE-II (the "Rising Star Merger") including, without limitation, the substance
of the material terms of such merger and any proposed closing date and
documentation thereof. Seller shall give Purchaser an opportunity to review
and comment on any Rising Star Merger and agrees not to consent thereto without
first obtaining the written consent of Purchaser which consent may be withheld
by Purchaser only in the event Purchaser determines, in its reasonable
discretion, that the Rising Star Merger would have a material adverse effect on
the Rising Star Partnership Interests. In the event there is a dispute as to
whether or not the Rising Star Merger would have such an effect, such dispute
shall be an Arbitration Event. Seller and Purchaser agree to use commercially
reasonable efforts to cause the partners of RSE-I and RSE-II to amend the
respective partnerships agreements (or, if applicable the partnership agreement
of the Rising Star Merger) in a manner reasonably acceptable to Seller,
Purchaser and the other partners to prohibit the use of funds generated from
existing activities (other than Azelea or El Gato Grande) to fund new
activities..
8.3.4 Hicks Muse Partnership Interests. Seller will consult with
Purchaser prior to opting in or out of any investment in the Hicks Muse
Partnerships which Seller is permitted to opt out of. In the event of a
disagreement between Seller and Purchaser regarding whether or not to opt in or
out of an investment, such disagreement shall be an Arbitration Event;
provided, however, that in the event the parties do not have sufficient time to
arbitrate the dispute in the reasonable discretion of Seller, Seller may make
the decision to opt in or out and Purchaser shall then have the right, at its
election, to propose an adjustment to the Purchase Price attributable to the
action of Seller. The failure to agree on an adjustment to the Purchase Price
shall be an Arbitration Event.
8.4 Moody-Day Stock.
8.4.1 Affirmative Covenants. Seller shall cause Moody-Day to: (i)
operate, conduct its business and maintain its books of account in a manner
consistent with past practice in its usual manner; (ii) preserve intact Moody-
Day's existence, business organization, assets and business opportunities;
(iii) properly perform all of its contractual obligations in accordance with
the terms thereof; (iv) give prompt written notice to the Purchaser of any
written notice received by Seller of any material default or breach or alleged
material default or breach under any instrument or agreement to which Moody-Day
is a party or by which it is bound and take all reasonable steps to cure any
such default or breach; (v) use commercially reasonable efforts to preserve the
goodwill of, and its relationships with, its suppliers, customers, landlords
and others having business relations with it; (vi) maintain and keep all its
assets, properties and facilities in good condition and working order, except
for ordinary wear and tear; (vii) use commercially reasonable efforts to retain
the services of its present officers, employees and agents which Moody-Day
believes is necessary or desirable to retain; and (viii) maintain in full force
and effect the Moody-Day Insurance Policies.
-47-
<PAGE> 62
8.4.2 Restricted Activities. Seller shall take actions as are
necessary to prevent Moody-Day from doing the following: (i) enter into any
employment agreement or increase the rate of compensation or benefits payable
or to become payable by Moody-Day to any of its directors, officers, employees
or agents (other than in the ordinary course of business); (ii) enter into any
contract for capital expenditures aggregating in excess of $10,000.00 (except
as allowed by Clause (viii)); (iii) incur or become liable for, any
indebtedness for money borrowed other than purchases of Ingersoll-Rand
equipment on its floor plan at no interest; (iv) loan or advance any funds to,
or borrow or take down any funds from, any Person, whether under an existing
agreement or not, except for extensions of credit in the usual and ordinary
course of business for merchandise purchases, customary advances to salesmen
against commissions and receipt of advances from Seller to fund the purchases
allowed by clause (viii); (v) incur any commitment, obligation or liability,
absolute or contingent, other than in the usual and ordinary course of
business; (vi) except in the usual and ordinary course of business, enter into,
become a party to, waive any material right under or cancel any contract,
lease, commitment, option or agreement, or make or permit to be made any
amendment or termination of any contract, lease, commitment, option or
agreement; (vii) make or permit any material change in its assets, liabilities
or financial condition; (viii) with the exception of the purchase and
acquisition of equipment set forth on Exhibit 8.4.2 dispose of or acquire
assets with an aggregate book value or purchase price, respectively, exceeding
$10,000.00; (ix) enter into or assume any mortgage, pledge, conditional sale or
other title retention agreement, or cause or permit any Encumbrance upon any of
its assets, whether now owned or hereafter acquired, except for capital leases
and liens for taxes which are not delinquent; (x) amend its articles of
incorporation or bylaws or other charter documents; (xi) issue, sell, transfer
or otherwise dispose of any shares of capital stock of Moody-Day (xii) declare,
set aside, pay or make any distribution in respect of, or purchase, cancel,
retire, redeem or otherwise acquire, any capital stock or other securities of
Moody-Day; (xiii) declare or effect any stock dividend or stock split,
dissolve, liquidate, reorganize or otherwise make any change in its capital
stock, capital structure, corporate structure or existence; (xiv) except as
provided for herein, enter into any business dealing or transaction, directly
or indirectly, with Seller or any other Affiliate of Seller or Moody-Day, make
any payments to Seller (other than payments made to Seller in repayment of
inter-company indebtedness, to the extent consistent with past practice) or any
Affiliate of Seller or Moody-Day or conduct or account for any existing
transaction with Seller or any Affiliate of Seller or Moody-Day on other than
an arms-length basis (Purchaser agrees that Moody-Day may continue to pay its
debt service to Seller in the ordinary course of business and in accordance
with the terms of the inter-company debt); (xv) except for renewals of leases
of premises now occupied and used by Moody-Day, enter into any lease of real
property; (xvi) use any of its assets for other than proper corporate purposes
and in the usual and ordinary course of business; (xvii) change the banking
arrangements and signature authorities currently in effect or grant any general
or special power of attorney; (xviii) waive any material right without
receiving fair consideration; or (xix) agree, commit or create any obligation
to do any of the foregoing of this Section 8.4.2.
-48-
<PAGE> 63
8.4.3 Moody-Day Corporate Matters. Seller shall maintain Moody-
Day's corporate existence and good standing, and shall maintain its
qualification to do business in its state of incorporation and each other
jurisdiction in which Moody-Day owns or leases property or conducts business.
Minutes of all annual and special meetings and proceedings of the directors and
shareholders of Moody-Day held on or after the date hereof and prior to the
Closing Date will be delivered to Purchaser within three (3) days after such
meetings or proceedings are held, but in no event later than the day prior to
the Closing Date.
8.5 Oil and Gas Interests.
8.5.1 Insurance. Seller shall maintain the insurance now in effect,
if any, with respect to the Oil and Gas Interests with such insurers in such
amounts, and covering such risks as shall be customary in the industry,
including, but not limited to, worker's compensation insurance, and insurance
against loss or damage by fire, lightning, hail windstorm, explosion, hazards,
casualties and other contingencies.
8.5.2 Performance; No Violations. Seller shall timely perform all
obligations under, and not violate any material term or provision of, the
leases, the contracts, easements or other agreements included in or affecting
the Oil and Gas Interests.
8.5.3 Number not used.
8.5.4 Additional Information. From time to time, upon request of
Purchaser, Seller shall promptly furnish to Purchaser such additional
information and reports relating to the Oil and Gas Interests in Seller's
possession or which Seller can obtain as Purchaser may request.
8.5.5 Number not used.
8.5.6 Number not used.
8.5.7 Number not used.
8.5.8 Consents and Approvals. Seller shall use commercially
reasonable efforts to obtain all necessary consents, approvals or waivers in
order to convey to Purchaser at Closing title to the Oil and Gas Interests free
of any Title Defects and satisfy all other conditions of Closing with respect
to the Oil and Gas Interests.
8.5.9 No New Commitments; Modification. Without the prior written
consent of Purchaser, Seller will not (i) enter into any new agreements or
commitments with respect to the Oil and Gas Interests which extend beyond the
Closing, (ii) make any expenditures other than operating expenses incurred in
the normal course of business on any Oil and Gas Interests
-49-
<PAGE> 64
or expenditures which Seller is currently obligated to pay, or (iii) make a
material modification of or terminate any of the existing agreements relating
to the Oil and Gas Interests.
8.5.10 Confidentiality. Seller shall exercise due diligence in
safeguarding and maintaining secure all engineering, geological and geophysical
data, reports and maps, and all other confidential data in the possession of
Seller relating to the Oil and Gas Interests.
8.5.11 No Additional Undertakings. Anything in this Section 8.5 to
the contrary notwithstanding, with respect to those Oil and Gas Interests which
are operated by operators other than Seller, Seller shall not itself be or
become obligated to perform undertakings performable only by such operators and
which are beyond the control of Seller. In each such case, however, Seller
will promptly take all actions available to it, under applicable operating
arrangements or otherwise, to bring about the performance of any such
undertakings required to be performed under this Section 8.5.
8.5.12 Environmental Assessment. Seller shall permit Purchaser to
make any environmental assessment of the Oil and Gas Interests during the
Inspection Period. Subject to the approval rights, if any, of the applicable
operator, Purchaser and its agents shall have the right to enter upon the Oil
and Gas Interests and all buildings and improvements thereon, inspect the same,
conduct soil and water tests and borings, and generally conduct such tests,
examinations, investigations and studies as may be necessary or appropriate for
the preparation of appropriate engineering and other reports and judgments
relating to the Oil and Gas Interests, their condition, and the presence of
waste or contaminants. If during the Inspection Period Purchaser discovers a
Hazardous Substance located on the Oil and Gas Interests in violation of any
Environmental Law, then Purchaser shall so notify Seller in writing and the Oil
and Gas Interests affected shall be treated in the same manner as an Oil and
Gas Title Defect is treated under Section 5.3 with the environmental defect
either being cured by Seller or the Purchase Price for the affected Oil and Gas
Interests being reduced in accordance with Section 5.3 and Section 20.3.
8.6 Marketable Securities. All cash dividends or interest, as the case
may be, paid by the issuer of any of the Marketable Securities or Bonds prior
to the Closing Date shall be paid to Seller, and there shall be no adjustment
to the Purchase Price relating thereto.
8.7 Number not used.
8.8 Promissory Notes.
8.8.1 Notice of Proceedings. Seller will advise Purchaser promptly
of any Proceeding concerning or affecting the Promissory Notes, the Security
Documents, the Guaranty Agreements or any of the collateral described in the
Security Documents.
-50-
<PAGE> 65
8.8.2 No Encumbrances. Seller will not by act or omission, without
the prior written consent of Purchaser, create or place, permit to be created
or placed, acquiesce in the placing of or allow to remain, any Encumbrance or
conditional sale or other title retention encumbrance on the Promissory Notes,
the Guaranty Agreements or the Security Documents. Should any of the foregoing
become attached in any manner to any of the Promissory Notes, the Guaranty
Agreements or the Security Documents without the prior written consent of
Purchaser, Seller will cause the same to be discharged promptly and released at
its cost prior to Closing.
8.8.3 Number not used.
8.8.4 No Amendments or Modifications. Seller will not amend, modify
or rearrange any of the Promissory Notes, Guaranty Agreements or Security
Documents without the prior written consent of Purchaser.
8.8.5 Prepayments. Seller will not accept a prepayment of principal
or interest due under any of the Promissory Notes unless required by the terms
of a Promissory Note, and in the event Seller is required to and does accept a
prepayment, Seller will immediately notify Purchaser in writing of the identity
of the Promissory Note, of the amount of the prepayment, of the application of
the prepayment to interest and principal and of the amount of unpaid principal
and accrued interest due after application of the prepayment.
8.8.6 No Releases. Seller will not release any lien, security
interest or guaranty securing payment of any of the Promissory Notes.
8.8.7 Collateral for Allied Note. In the event Purchaser reasonably
determines that there may be Hazardous Substances situated on or under the
Allied Tract or there is a structural or mechanical problem with any of the
improvements situated on the Allied Tract and Purchaser in good faith believes
that such determination impairs the value of the Allied Note, the same shall be
an Adjustment Event and the rights and obligations of the parties shall be
governed by the provisions of Section 20.3.
8.9 Citation Interest.
8.9.1 No Encumbrances. Seller will not by act or omission, without
the prior written consent of Purchaser, create or place, permit to be created
or placed, acquiesce in the placing of, or allow to remain, any Encumbrance or
conditional sale or other title retention encumbrance on Seller's interest in
the Citation Agreements. Should any of the foregoing become attached in any
manner to any of the Citation Agreements without the prior written consent of
Purchaser, Seller will cause the same to be discharged promptly and released at
its cost.
-51-
<PAGE> 66
8.9.2 No Transfers. Seller will not sell, exchange, assign,
transfer, convey or otherwise dispose of its interest in the Citation
Agreements.
8.9.3 No Amendments or Modifications. Seller will not amend or
modify any of the Citation Agreements without the prior written consent of
Purchaser.
8.10 Purchaser's General Agreements Prior to Closing. Purchaser agrees to
perform those agreements set forth in this Section 8.10 during the period
commencing on the Effective Date and ending on the Closing Date.
8.10.1 Untrue Representations. Purchaser will notify Seller promptly
in writing if it becomes aware of any fact or condition which makes untrue, or
shows to have been untrue, in any material respect, any representation or
warranty made by Purchaser in this Agreement. Purchaser will notify Seller
within a reasonable period of time in writing if it becomes aware of any fact
or condition which makes untrue, or shows to have been untrue, in any material
respect, any Seller Representation.
8.10.2 Notice of Proceedings. If Purchaser obtains knowledge of (i)
any investigation or inquiry being made or commenced by any Governmental
Authority in connection with this Agreement or the transactions contemplated
hereby, or (ii) the institution of any Proceeding against Purchaser or that
could any way have a material adverse effect on Purchaser's ability to
consummate the transactions contemplated by this Agreement, Purchaser shall
promptly notify Seller.
8.10.3 Commercially Reasonable Efforts. Upon the terms and subject
to the conditions set forth in this Agreement, Purchaser agrees to use its
commercially reasonable efforts to take or cause to be taken all actions, and
to do, or cause to be done, and to assist and cooperate with Seller and any
third parties in doing all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the purchase of
the Assets by Purchaser and all other transactions contemplated by this
Agreement, and not to take, commit, or agree in writing or otherwise to take,
any action which would make any representation or warranty of Purchaser
contained in this Agreement untrue or incorrect in any material respect as of
the date when made or as of the Closing Date.
8.10.4 No Breach. Purchaser agrees that (i) Purchaser will not take
any action and will endeavor in good faith not to permit any event to occur,
which would cause or constitute a material breach of this Agreement; (ii)
Purchaser will, in the event, and promptly after the occurrence of, or promptly
after becoming aware of the occurrence of or the impending or threatened
occurrence of, any event which would cause or constitute a material breach or
would, if it had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties made
by Purchaser in this
-52-
<PAGE> 67
Agreement, give notice thereof to Seller; and (iii) Purchaser shall use its
best efforts to prevent or promptly to remedy such breach.
ARTICLE IX
DELIVERY OF CONSENTS AND ESTOPPELS
9.1 Consents and Estoppels. Seller shall use commercially reasonable
efforts to cause the indicated party to execute and deliver the consents or
estoppels described in Section 9.2 through 9.8 and to deliver each consent or
estoppel to Purchaser.
9.2 Real Property Assets.
9.2.1 Tenant Estoppels. On or before ten (10) days prior to the
Closing Date ("Tenant Estoppel Deadline") Seller shall deliver (at its expense)
to Purchaser estoppels in the form attached as Exhibit 9.2.1-A ("Tenant
Estoppels") executed by each Existing Tenant of any of the Office Buildings,
except as hereafter provided. Provided however, (i) Seller shall use
commercially reasonable efforts to obtain a Tenant Estoppel executed by
Publicis Bloom, Inc. ("Bloom") which currently occupies space at Reverchon
Plaza pursuant to a lease dated August 17, 1989, as amended ("Bloom Lease"),
but if Seller is unable to obtain a Tenant Estoppel from Bloom, Seller shall
not be in default pursuant to this Section; (ii) in calculating the percentage
of rentable square feet in Reverchon Plaza represented by executed Tenant
Estoppels, the number of rentable square feet leased pursuant to the Bloom
Lease shall be excluded, unless Seller is able to secure the execution of a
Tenant Estoppel by Bloom; (iii) Seller shall not be in default pursuant to this
Section if it delivers on or before the Closing Date Tenant Estoppels and
Substitute Certificates representing at least an aggregate of eighty-five
percent (85%) of the rentable square feet leased by Existing Tenants as of the
Tenant Estoppel Deadline in each Office Building (the "85% Requirement"); and
(iv) in the event Seller does not satisfy the 85% Requirement, Purchaser's sole
remedy shall be to waive the requirement and close the transactions hereunder
or terminate this Agreement in which event the Earnest Money shall be returned
to Purchaser and thereafter neither party shall have any further rights or
obligations pursuant to this Agreement except pursuant to Section 21.10.
"Substitute Certificate Condition" means that Seller executes and delivers to
Purchaser on or prior to the Closing Date a written certificate (a "Substitute
Certificate"), dated as of Closing in substantially the form of Exhibit 9.2.1-B
setting forth the information called for in the form of Tenant Estoppel, with
respect to any Lease for which Seller has not obtained a Tenant Estoppel as
shall be required to provide to Purchaser a combination of Tenant Estoppels and
Substitute Certificates with respect to Existing Leases covering not less than
eighty-five percent (85%) of the total rentable square feet of each Office
Building covered by Existing Leases (hereafter defined) as of the date of this
Agreement and including each Existing Lease listed on the First Rent Roll.
Notwithstanding any provision hereof to the contrary, the Substitute
Certificate shall survive Closing for a period of six (6) months and then lapse
except to the extent Purchaser has notified Seller in writing of any claim
related thereto. If at any time prior to or after the Closing Date Seller
obtains a Tenant
-53-
<PAGE> 68
Estoppel from any Existing Tenant (hereafter defined) with respect to an
Existing Lease as to which Seller has provided a Substitute Certificate to
Purchaser, Seller shall provide such Tenant Estoppel to Purchaser and the
corresponding Substitute Certificate shall be returned to Seller and shall be
of no force or effect whatsoever. As used herein the term: (i) "Existing
Tenant" means any tenant listed on the First Rent Roll, and (ii) "Existing
Lease" is any Lease listed on the First Rent Roll. The statements set forth in
each Tenant Estoppel or Substitute Certificate shall be as of a date no earlier
than forty (40) days prior to the Closing Date.
9.2.2 Ground Lessor Estoppels. Estoppels ("Ground Lessor
Estoppels") in the forms attached hereto and collectively identified as Exhibit
9.2.2 executed by the landlords/lessors under the Ground Leases no later than
ten (10) days prior to the Closing Date. In the event Seller is unable to
obtain a Ground Lessor Estoppel ("Stemmons Estoppel") executed by the lessor
("Stemmons Lessor") pursuant to the Stemmons Ground Lease, Seller shall
execute a substitute estoppel ("Stemmons Substitute Estoppel") having
substantially the same terms as Exhibit 9.2.2 modified to reflect that the same
is executed by Seller and to the extent the costs of this transaction to
Purchaser (including but not limited to financing costs) are increased as a
result of the failure of the Stemmons Lessor to execute a Stemmons Estoppel
shall be an Adjustment Event and the rights and obligations of the parties, the
same shall be governed by the provisions of Section 20.3. The Stemmons
Substitute Estoppel shall survive for a period of six (6) months following the
Closing Date. If Seller is unable to obtain the Ground Lessor Estoppel
("Airport Estoppel") executed by the lessor ("Airport Lessor") pursuant to the
Airport Ground Lease on or before Closing, the closing of the sale of the
Airport Ground Lease and the related Assets shall be postponed until the date
("Extended Closing Date") which is the earlier of (i) ten (10) days after the
delivery of the Airport Estoppel or (ii) thirty (30) days after the Closing
Date. If there is an extension of the Closing Date, the amount of the Purchase
Price allocated to the Airport Ground Lease (as set forth on Exhibit 2.3) shall
not be paid until the Extended Closing Date and the conveyance of the Airport
Ground Lease. If Seller is unable to deliver the Airport Estoppel executed by
the Airport Lessor on or before five (5) days prior to the Extended Closing
Date , the rights and obligations (including but not limited to Purchaser's
obligation to pay the portion of the Purchase Price allocated to the Airport
Ground Lease) of the parties with regard to the Airport Ground Lease shall
terminate and neither party shall have any further rights or obligations with
regard to the Airport Ground Lease, except as set forth in Section 21.10.
9.3 Partnership Interests. The consents required in connection with the
transfers of the Partnership Interests including, without limitation, the
consent of the partners of each of the Partnerships (the "Partnership
Consents").
9.4 Moody-Day Stock. The consents set forth on Exhibit 7.4.2. Failure to
obtain such consents shall constitute an Adjustment Event under Section 20.3.
-54-
<PAGE> 69
9.5 Oil and Gas Interests. Consents ("O&G Consents") in the form of
Exhibit 9.5 from each of the Persons who have a right to consent to the
assignment of (or a preferential right to purchase) the Oil and Gas Interests.
9.6 Promissory Notes. Estoppel Certificates executed by each maker and
guarantor (other than Lone Star Water Proofing) in the forms attached hereto
and collectively identified as Exhibit 9.6-A. Provided, however, in the event
Seller is unable, using commercially reasonable efforts, to obtain an Estoppel
Certificate for any Promissory Note, in lieu thereof, Seller shall execute and
deliver to Purchaser a Substitute Estoppel which shall survive Closing and
continue until the later of: (i) six (6) months following Closing, or (ii) the
date of the first payment after Closing due under the Promissory Note to which
the subject Substitute Estoppel applies. "Substitute Estoppel" shall mean a
written certificate dated as of Closing in substantially the form of Exhibit
9.6-B setting forth the information called for in the form of Estoppel
Certificates, with respect to any Promissory Note for which Seller is unable to
obtain an Estoppel Certificate.
ARTICLE X
CONDITIONS
10.1 Purchaser's Conditions. The conditions described in Sections 10.1
through 10.12 are referred to herein as the "Purchaser's Conditions." If any
of the Purchaser's Conditions (other than the Consent Conditions, as defined in
Section 10.11) is not fully satisfied by Closing, the failed condition shall be
an Adjustment Event and the rights and obligations of the parties shall be
governed by the provisions of Section 20.3.
10.1.1 Representations, Warranties and Covenants. The Seller
Representations shall be true and correct in all material respects as of the
Effective Date and as of the Closing Date as though made on and as of the
Closing Date, except (i) to the extent another date is contemplated by this
Agreement, (ii) any changes permitted by this Agreement, and (iii) changes in
the ordinary course of business, such Seller Representations, as modified,
shall be true and correct as of the Closing Date; and Seller shall have
performed and complied in all material respects with all of the agreements,
obligations and covenants required to be performed hereunder by Seller prior to
or at the Closing.
10.1.2 No Material Adverse Change. There shall have been no material
adverse change in the Assets (excluding fluctuations in market value of the
Marketable Securities and Municipal Bonds) since the Effective Date, and there
shall not exist any material liability or obligation of Seller, with respect to
the Assets, whether accrued or unaccrued, direct or indirect, absolute or
contingent, asserted or unasserted except (i) as reflected in this Agreement or
the Exhibits hereto, or (ii) liabilities incurred in the ordinary course of
business and consistent with past practice since the Effective Date.
-55-
<PAGE> 70
10.1.3 No Pending Litigation. No Proceeding will be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit or obtain damages or other relief as a result of or in connection with
this Agreement or the consummation of the transactions contemplated hereby.
10.1.4 Closing Documents. Purchaser shall have received each of the
documents referred to in Sections 12.1.1 through 12.10.2. All agreements,
certificates, opinions and other documents delivered by Seller to Purchaser
hereunder shall be in form and substance reasonably satisfactory to Purchaser.
10.1.5 Authorization. All corporate action necessary to authorize
the execution, delivery and performance of this Agreement by each respective
Seller and the consummation by each respective Seller of the transactions
contemplated by this Agreement shall have been duly and validly taken and each
respective Seller shall have full right and power to sell the Assets upon the
terms provided in this Agreement (collectively, "Seller's Corporate
Approvals"). Purchaser shall have received copies, certified by the
appropriate officer of each respective Seller, of (i) resolutions duly adopted
by the Board of Directors of Seller approving this Agreement and the
transactions contemplated hereby and directing the submission thereof to a vote
of Seller's shareholders, if necessary, and (ii) if applicable, resolutions
duly adopted by the holders of the necessary vote of the outstanding shares of
Seller's securities approving and adopting this Agreement and the transactions
contemplated hereby.
10.1.6 No Prohibition of Transaction. No Proceeding, regulation or
legislation shall have been instituted, threatened in writing or proposed in
writing (other than caused by the act or failure to act of Purchaser or Persons
acting on behalf of Purchaser) before, nor any order issued by, any
Governmental Authority to enjoin, restrain, prohibit or obtain substantial
damages in respect of, which is related to, or which arises out of, this
Agreement.
10.1.7 Documentation. Seller shall have delivered all assignments,
other documents, certificates and instruments in its possession or control as
required hereunder.
10.1.8 Affiliate Indebtedness. Seller shall have caused any
indebtedness owed by a Partnership or Moody-Day to Seller or any Affiliate of
Seller (other than Moody-Day Equipment Debt) to be transferred to Purchaser or,
at the option of Purchaser, forgiven by Seller (with such transfer or
forgiveness to include a transfer or release, as applicable, of all
Encumbrances securing same).
10.2 Real Property Assets. In regard to the Real Property Assets, the
obligation of Purchaser to close this Agreement shall, at the option of
Purchaser, be subject to the following conditions precedent:
-56-
<PAGE> 71
10.2.1 Closing Title Commitments. Provided Purchaser has ordered the
Pre-Closing Title Commitments from Title Company on or before ten (10) days
following the Effective Date, the Title Company shall have issued its
irrevocable commitments ("Closing Title Commitments") to issue the Title
Policies (hereafter defined) only subject to Purchaser's payment of the premium
therefor. "Title Policies" mean the following title policies issued on the
form for same promulgated by the State Board of Insurance of Texas: (i) an
owner's policy insuring title to the Properties, to be vested in Purchaser in
the amount reasonably designated by Purchaser, (ii) an owner's policy insuring
title to the Moody-Day Tracts is vested in Moody-Day in an amount up to
$731,453.00 and (iii) a mortgagee's policy in the amount of the principal
balance owing pursuant to the Allied Note as of the Closing Date, naming
Purchaser (or Purchaser's designee) as the insured and insuring the liens
encumbering the Allied Tract and securing the Allied Note as valid and superior
liens. Each Title Policy shall be issued by such companies and with such
reinsurance or co-insurance agreements as Purchaser may require and may
contain as exceptions only the Permitted Exceptions and the standard printed
exceptions except that: (a) the exception relating to restrictions against the
Properties shall be deleted, except for such restrictions as may be included in
the Permitted Exceptions; (b) the exception relating to discrepancies,
conflicts or shortages in area or boundary lines, or any encroachment or
overlapping of improvements which a survey might show shall be deleted except
for shortages in area; (c) the exception relating to standby fees and ad
valorem taxes shall except only taxes owing for the current year and subsequent
assessments for prior years due to change in land usage or ownership; and (iv)
the exception for the rights of parties in possession shall be limited to the
rights of lessees or tenants, as tenants only, under the Leases.
10.2.2 Rent Roll. There is no material adverse change in the
aggregate between the First Rent Roll and Closing Rent Roll (hereafter defined)
other than leases approved pursuant to Section 8.2.4.
10.2.3 Material Change. There is no material adverse difference
between the First Rent Roll and the Tenant Estoppels and Substitute
Certificates delivered pursuant to Section 9.2.1 other than leases approved
pursuant to Section 8.2.4.
10.3 Partnership Interests. Purchaser shall have received the Partnership
Consents each executed by the appropriate party or parties and acknowledged,
where required.
10.4 Moody-Day Stock. During the period from the date of the Moody-Day
Balance Sheet through the Closing Date, there shall not have been any material
adverse change in the financial condition or business of Moody-Day, and there
shall not have been any material loss or damage to the assets of Moody-Day,
whether or not insured, which materially affects the ability of Moody-Day to
conduct its business. Moody-Day shall have no liabilities as of the Closing
Date that are not reflected on the Moody-Day Balance Sheet, other than those
incurred since the date of the Moody-Day Balance Sheet in the ordinary course
of business and consistent with past practice or otherwise approved by
Purchaser.
-57-
<PAGE> 72
10.5 Oil and Gas Interests.
10.5.1 Consents and Approvals. Seller shall have received all
necessary consents, approvals and waivers (including the O&G Consents) in order
to convey to Purchaser the Oil and Gas Interests required to be conveyed at
Closing.
10.5.2 Number not used.
10.5.3 No Adverse Change. Purchaser shall not have received any
written reports indicating that any document has been filed of record in any of
the counties in which the Oil and Gas Interests are located since the date of
the latest title information provided to Purchaser which would adversely affect
Seller's title to the Oil and Gas Interests.
10.6 Number not used.
10.7 Number not used.
10.8 Promissory Notes.
10.8.1 No Default. No event has occurred or with the passage of
time or the giving of notice will occur which is or would be an event of
default under the Promissory Notes or the Security Documents.
10.8.2 Principal Balance. The outstanding principal balances due
under the Promissory Notes are as set out on Exhibit 1.8, except to the extent
there has been a payment of principal prior to Closing.
10.9 Citation Interest.
10.9.1 No Default. No event has occurred or with the passage of
time or the giving of notice will occur which is or would be an event of
default under any of the Citation Agreements.
10.9.2 Consent. Seller shall have delivered to Purchaser all
consents ("Citation Consents") from third parties as are required by the terms
of the Citation Agreements to allow the assignment of the Citation Agreements
in accordance with this Agreement.
10.10 Texas Stadium Suite. Seller shall have delivered to Purchaser all
consents ("Suite Consents") from third parties as are required by the terms of
the documents relating to the Texas Stadium Suite to allow the assignment of
the Texas Stadium Suite in accordance with this Agreement.
-58-
<PAGE> 73
10.11 Failure of Consent Conditions. The term "Consent Conditions" means
obtaining the Partnership Consents, the O&G Consents, Citation Consents and the
Suite Consents. If any Consent Condition is not satisfied as of the Closing,
Purchaser may either: (i) waive the receipt of the respective consent and
close, or (ii) terminate this Agreement as to the affected Asset only. If this
Agreement is terminated as to only the affected Asset pursuant to this Section
10.11, this Agreement shall be deemed to be amended to exclude the affected
Asset and all representations, warranties and covenants relating to the
excluded Asset and to reduce the Purchase Price by the amount of the Purchase
Price allocated to said Asset on the Exhibit 2.3. Provided however, if any
condition is not satisfied as the result of the act or failure to act by Seller
which constitutes Seller's failure to perform its obligations pursuant to this
Agreement and Seller fails to cure same within a reasonable period of time,
Purchaser shall be entitled to the remedies set forth in Article XX.
10.12 Seller's Conditions to Closing. Seller's obligation to perform its
agreements pursuant to this Agreement are subject to the conditions described
in this Section 10.12 being satisfied or waived by Seller as of the Closing
Date ("Seller's Conditions").
10.12.1 Representations, Warranties and Covenants. The
representations and warranties of Purchaser set forth in this Agreement shall
be true and correct in all material respects as of the Effective Date and as of
the Closing Date as though made on and as of the Closing Date, except (i) to
the extent another date is contemplated by this Agreement, (ii) for any changes
permitted by this Agreement, and (iii) for changes in the ordinary course of
business, such warranties and representations, as modified, shall be true and
correct as of the Closing Date; and Purchaser shall have performed and complied
in all material respects with all of the agreements, obligations and covenants
required to be performed hereunder by Purchaser prior to or at the Closing.
10.12.2 No Pending Litigation. No Proceeding (other than one
caused by the act or failure to act of Seller or Persons acting on behalf of
Sellers) will be pending or threatened before any court or governmental agency
seeking to restrain, prohibit or obtain damages or other relief as a result of
or in connection with this Agreement or the consummation of the transactions
contemplated hereby.
10.12.3 Authorization. All action necessary to authorize the
execution, delivery and performance of (or regarding) this Agreement by
Purchaser and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by Purchaser's General Partner and Purchaser
shall have full power and right to consummate the transactions contemplated
hereby on the terms provided herein.
10.12.4 No Prohibition of Transaction. No Proceeding or Legal
Requirement shall have been instituted, threatened or proposed (other than
caused by the act or failure to act of Seller or Persons acting on behalf of
Seller) before, nor any order issued by, any
-59-
<PAGE> 74
Governmental Authority (other than one caused by the act or failure to act of
Seller or Persons acting on behalf of Seller) to enjoin, restrain, prohibit or
obtain substantial damages in respect of, which is related to, or which arises
out of, this Agreement.
10.13 Failure of Seller's Conditions to Closing. If any of Seller's
Conditions is not fully satisfied by Closing, Seller may terminate this
Agreement by written notice to Purchaser whereupon this Agreement shall be
canceled, all Earnest Money shall be paid to Seller by the Title Company,
Purchaser shall return to Seller all of the Due Diligence Items requested by
Seller, and thereafter neither Seller nor Purchaser shall have any continuing
obligations one unto the other except as provided in Section 21.10.
10.14 Evaluation of Liabilities Associated with Oil and Gas Interests.
Without limitation of Purchaser's general inspection rights, Purchaser and its
representatives shall be entitled to review such information and make such
inspections as Purchaser determines are reasonably necessary for it to
determine: (i) the value of the Oil and Gas Interests and Rising Star
Partnership Interests (said interests hereafter called "Combined Oil and Gas
Interests"), and (ii) whether ownership of the Combined Oil and Gas Interests
imposes any actual or potential liability which exceeds the value of the
Combined Oil and Gas Interests. In the event Purchaser reasonably determines
that the liabilities associated with the ownership of the Combined Oil and Gas
Interests exceed the value of the Combined Oil and Gas Interests, Purchaser may
elect to exclude all of the Combined Oil and Gas Interests from the Assets
without any adjustment in the Purchase Price. If any dispute arises with
respect to the provisions of this Section 10.14, the same shall be an
Arbitration Event.
10.15 Fairness Opinion Condition. Notwithstanding any provision of this
Agreement to the contrary, Seller's obligations hereunder are subject to its
receipt of an opinion from Bear, Stearns & Co., Inc. ("Fairness Opinion") on or
before March 7, 1997 ("Fairness Opinion Deadline"), satisfactory to Seller,
that the transactions contemplated by this Agreement and the DMI Agreement,
collectively, are fair to the shareholders of Seller from a financial point of
view. If the Fairness Opinion is not received and approved by Seller on or
before the Fairness Opinion Deadline, Seller may deliver written notice
("Fairness Opinion Termination Notice") to Purchaser on or before 5:00 p.m. on
the second business day after the Fairness Opinion Deadline ("Fairness Opinion
Deadline"). If Seller has not delivered a Fairness Opinion Notice on or before
the Fairness Opinion Termination Deadline, Seller shall be deemed to have
waived the provisions of this Section 10.15, and, thereafter, the provisions of
this Section shall be null and void. In the event Seller timely delivers a
Fairness Opinion Termination Notice, the Earnest Money (and all interest
accrued thereon) shall be delivered to Purchaser and Purchaser shall return to
Seller all Due Diligence Items; and, thereafter, neither party shall have any
further rights or obligations hereunder except as provided in Section 21.10.
Seller agrees to use its commercially reasonable efforts to obtain the Fairness
Opinion on or before the Fairness Opinion Deadline.
-60-
<PAGE> 75
ARTICLE XI
CLOSING
The closing ("Closing") hereunder shall take place at the offices of Brown
McCarroll & Oaks Hartline, 300 Crescent Court, Suite 1400, Dallas, Texas 75201.
The Closing shall occur on or before the date ("Closing Date") which is the
earlier of (i) the tenth (10th) day after the expiration of the Inspection
Period or (ii) May 1, 1997. Purchaser shall notify Seller at least five (5)
days in advance of the exact time and date of Closing.
ARTICLE XII
SELLER'S OBLIGATIONS AT CLOSING
12.1 Seller's Obligations at Closing. At the Closing, Seller shall
execute, deliver and if required acknowledge or cause the appropriate party to
execute, deliver and if required acknowledge the documents described in
Sections 12.2 through 12.10 and shall perform those obligations described
therein.
12.1.1 General Closing Obligations of Seller. In addition to the
other documents to be delivered by Seller to Purchaser at Closing pursuant to
the terms of this Agreement, Seller shall deliver the following to Purchaser at
Closing: (i) a certificate signed by a senior executive officer of Seller dated
as of the Closing Date stating that each of Seller's Representations are true
and correct at Closing and that each obligation of Purchaser, which is a
condition to Closing, has been satisfied by Purchaser or waived by Seller, (ii)
an opinion of Seller's counsel, Gardere & Wynne, L.L.P., dated as of the
Closing Date, addressed to Purchaser, in a form reasonably satisfactory to
Purchaser, (iii) certificates of the appropriate public officials to the
effect that each Seller is a validly existing corporation in good standing in
Texas as of a date not more than ten (10) days of the Closing Date, (iv)
certificates of the secretary of Seller setting forth all resolutions of the
Board of Directors and the shareholders of Seller authorizing the execution and
delivery of this Agreement and the performance by Seller of the transactions
contemplated hereby, and (v) incumbency and specimen signature certificates
dated the Closing Date signed by the officers of Seller certified by its
Secretary.
12.1.2 Affiliate Indebtedness. Assignment of notes and liens
representing any indebtedness (or security therefor) owed by a Partnership or
Moody-Day to Seller or any Affiliate of Seller other than Moody-Day Equipment
Debt (or, if applicable, documentation reflecting forgiveness of such
indebtedness and release of all Encumbrances securing same).
-61-
<PAGE> 76
12.2 Real Property Assets.
12.2.1 Special warranty deeds ("Deeds") in the form of Exhibit
12.2.1 covering each of the Properties, duly signed and acknowledged by the
appropriate Seller, which deeds shall convey to Purchaser good and indefeasible
fee simple title to each Property, free and clear of all liens, rights-of-way,
easements, and other matters affecting title to the Property, except for the
applicable Permitted Exceptions.
12.2.2 Bill of Sale and Assignment in the form of Exhibit 12.2.2,
duly executed and acknowledged by Seller, conveying and/or assigning to
Purchaser the Personal Property, the Leases, the Ground Leases (together with
Seller's option to purchase the Stemmons Leasehold as described on Exhibit
1.2.1(ii)), the Security Deposits, the Operating Agreements, the Intangibles
and the Permits.
12.2.3 Rent roll ("Closing Rent Roll") in the same form as the
First Rent Roll dated as of the Closing Date.
12.2.4 A non-withholding statement that will satisfy the
requirements of Section 1445 of the Code so that Purchaser is not required to
withhold any portion of the Purchase Price for payment to the IRS.
12.2.5 Originals of all Leases (and all files relating to each
Lease), Ground Leases and Operating Agreements affecting the Properties.
12.2.6 Number not used.
12.2.7 Number not used.
12.2.8 Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and capacity of
Seller and the authority of the Person or Persons who are executing the various
documents on behalf of Seller in connection with the sale of the Assets.
12.2.9 Deliver to Purchaser all keys to all buildings and other
improvements located on the Properties, combinations to any safes thereon and
security devices therein in Seller's possession.
12.2.10 Execute and deliver a Special District Disclosure Notice
as required by Section 49.452 of the Texas Water Code.
-62-
<PAGE> 77
12.3 Partnership Interests. Execute and deliver to Buyer an assignment
of partnership interest ("Partnership Assignment") for each Partnership
Interest, which shall be in the form of Exhibit 12.3, together with such other
documents as may be necessary to cause the admission of Purchaser as a
substitute limited partner of each Partnership.
12.4 Moody-Day Stock. Certificates representing the Moody-Day Stock,
duly endorsed to Purchaser, which shall transfer to Purchaser good title to the
Moody-Day Stock, free and clear of all Encumbrances.
12.5 Oil and Gas Interests.
12.5.1 Assignments in substantially the form of Exhibit 12.5.1
covering the Oil and Gas Interests containing special warranties of title.
12.5.2 Transfer Orders or letters in lieu thereof for each of the
wells included in the Oil and Gas Interests.
12.5.3 Such other documents of conveyance or assignments as
Purchaser may reasonably request with respect to the Oil and Gas Interests.
12.6 Marketable Securities. Certificated securities representing the
Marketable Securities endorsed for transfer with signature guarantees or, with
respect to uncertificated book entry securities, evidence of transfers (or
orders therefor) on the books of the issuer.
12.7 Bonds. Certificated securities representing the Municipal Bonds and
Arena Bonds endorsed for transfer with signature guarantees or, with respect to
uncertificated book entry securities, evidence of transfers (or orders
therefor) on the books of the issuer.
12.8 Promissory Notes.
12.8.1 The original Promissory Notes, endorsed by Seller "Pay to
the Order of (Name of Purchaser or Partial Designee) without recourse," the
originals of all Security Documents, the originals of all Guaranty Agreements,
the originals of all UCC-1 Financing Statements, the original of the Mortgagee
Title Policy and original stock certificates for the shares of Kosmeo
Cosmetics, Inc. (issued to Harry and/or Martha Hersey and held by Seller to
secure the Promissory Note executed by Kosmeo Cosmetics, Inc. as described in
Exhibit 1.8).
12.8.2 An Assignment of Notes and Liens in the form attached as
Exhibit 12.8.2 transferring and assigning all of Seller's rights, title and
interest in and to the Promissory Notes, the Security Documents, the Guaranty
Agreements and all liens and security interests securing their payment.
-63-
<PAGE> 78
12.8.3 UCC-3 Forms as promulgated by the Texas and Florida
Secretaries of State assigning to Purchaser all of Seller's rights under any
security interests held by Seller securing the Promissory Notes and/or any
related UCC filings.
12.8.4 An executed letter addressed to each maker of a Promissory
Note in the form of Exhibit 12.8.4.
12.8.5 Number not used.
12.8.6 Number not used.
12.8.7 An endorsement to the Mortgagee Policy of Title Insurance
covering the Allied Deed of Trust in the form promulgated by the State Board of
Insurance naming the Purchaser as the "insured" under the Mortgagee Policy.
12.8.8 Number not used.
12.9 Citation Interest.
12.9.1 The originals of the Citation Agreements and all documents
and files related thereto.
12.9.2 An executed Assignment of Contract Rights in the form of
Exhibit 12.9.2 transferring and assigning all of Seller's right, title and
interest in and to the Citation Agreements.
12.10 Texas Stadium Suite.
12.10.1 Execute and deliver an Assignment and Assumption of
Stadium License Agreement (herein so called) in substantially the same form of
Exhibit 12.10.1.
12.10.2 Deliver original counterparts of the Texas Stadium
Documents.
ARTICLE XIII
PURCHASER'S OBLIGATIONS AT CLOSING
13.1 Purchaser's Obligations at Closing. At Closing, Purchaser shall
deliver to Seller the Purchase Price in cash and execute, deliver and if
required acknowledge the documents described in Sections 13.2 through 13.6 and
perform those obligations described therein.
-64-
<PAGE> 79
13.1.1 General Closing Obligations of Purchaser. In addition to
the other documents to be delivered by Purchaser to Seller at Closing pursuant
to the terms of this Agreement, Purchaser shall deliver to the Seller at
Closing: (i) a certificate signed by a senior executive officer of Purchaser
dated as of the Closing Date stating that each of the representations and
warranties made herein by Purchaser are true and correct at Closing and that
each obligation of Seller, which is a condition to Closing, has been satisfied
by Seller or waived by Purchaser, (ii) an Opinion of Purchaser's counsel, Brown
McCarroll & Oaks Hartline, dated as of the Closing Date, addressed to Seller,
in a form reasonably satisfactory to Seller, (iii) certificates of the
appropriate public officials to the effect that Purchaser is a validly existing
Delaware limited partnership and is authorized to do business in and in good
standing in Texas as of a date not more than ten (10) days of the Closing Date,
(iv) certificates of the General Partner of Purchaser setting forth that all
necessary actions have been taken by Purchaser's partners authorizing the
execution and delivery of this Agreement and the performance by Purchaser of
the transactions contemplated hereby, and (v) incumbency and specimen signature
certificates dated the Closing Date signed by the General Partner of Purchaser.
13.2 Real Property Assets.
13.2.1 Bill of Sale and Assignment in the form of Exhibit 12.2.2
whereby Purchaser accepts the assignment of and accepts all obligations under
the Personal Property, the Leases, the Ground Leases, the Security Deposits,
the Operating Agreements, the Intangibles and the Permits.
13.2.2 Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and capacity of
Purchaser and the authority of the Person or Persons who are executing the
various documents on behalf of Purchaser in connection with the sale of the
Properties.
13.3 Partnership Interests. Execute and deliver such documents as may be
reasonably required in order for Purchaser to become a substitute limited
partner in the Partnerships and assume the obligations of Sellers accruing on
and after the Closing Date.
13.4 Texas Stadium Suite. Execute and deliver the Assignment and
Assumption of Stadium License Agreement.
13.5 Other Obligations. Execute and deliver agreements to be bound by
and assume and perform the obligations accruing on or after the Closing Date
under or relating to the Oil and Gas Interests and in the agreements relating
to the Citation Interests listed on Exhibit 1.9.
13.6 Additional Agreements. Provided the rights of Seller thereunder are
assigned to Purchaser and Seller has fully performed its obligations pursuant
to same accruing prior to
-65-
<PAGE> 80
Closing, at Closing, Purchaser agrees to assume the obligations of Seller
accruing subsequent to Closing pursuant to those agreements listed on Exhibit
13.6.
ARTICLE XIV
COSTS AND ADJUSTMENTS
14.1 The parties shall make the adjustments and pay the costs in
accordance with the provisions of Sections 14.2 through 14.13. The provisions
of this Article XIV shall survive the Closing.
14.2 Real Property Assets.
14.2.1 Rents and Expenses. All prepaid rents, prepaid expenses
and obligations under the Operating Agreements or agreements set forth on
Exhibit 13.6, accrued expenses, and ad valorem taxes (real and personal) for
the Properties for the current calendar year shall be prorated as of the date
of Closing, and Seller or Purchaser, as the case may be, shall pay to the other
party hereto in cash at Closing Seller's or Purchaser's, as the case may be,
prorata portion of such prorations. Tax prorations shall be based upon taxes
actually assessed for the current calendar year or, if for any reason such
taxes for the Properties have not been actually assessed, such proration shall
be based upon the tax rates established for 1996 applied to 1997 assessed
values, and adjusted by cash settlement when exact amounts are available. The
provisions of this Section 14.2.1 shall survive the Closing. If subsequent to
Closing Purchaser receives any refund of ad valorem taxes assessed against any
of the Properties paid by Seller and attributable to the period prior to the
Closing (said refund hereafter called "Eligible Refund"), Purchaser shall
promptly pay any tenant any sum to which said tenant is entitled and pay the
balance of the Eligible Refund to Seller. Nothing in the preceding sentence
shall be construed as obligating Purchaser to pursue the determination or
collection of any refund on behalf of Seller.
14.2.2 Ordinary Expenses. All other income and ordinary
operating expenses for or pertaining to the Properties including, but not
limited to, public utility charges, maintenance, service charges, and all other
normal operating charges of the Properties shall be prorated as of the Closing
Date. Seller shall receive a credit for all utility deposits assigned to
Purchaser. The settlement of the proration of the operating expenses of the
Properties shall occur within sixty (60) days after the Closing Date in
accordance with the following provisions of this Section 14.2.2. On or before
forty-five (45) days after the Closing Date, Purchaser shall deliver to Seller
a summary of the operating expenses to be prorated and Purchaser's suggested
proration. Thereafter, Purchaser shall provide Seller such information as
Seller may reasonably require to determine the accuracy of the suggested
proration. The parties shall each act reasonably and in good faith to agree
upon the proration. If the parties cannot agree upon the proration, it shall
be an Arbitration Event and resolved in accordance with the provisions of
Section 20.4. The party owing the other shall pay the amount owed within ten
(10) days after agreement or the decision of the Arbitrators.
-66-
<PAGE> 81
14.2.3 Lease Payments. Except as provided in Section 14.2.7, all
rents, additional rents and other sums actually paid under the Leases for the
month of Closing shall be prorated between Seller and Purchaser as of the
Closing Date, provided that delinquent amounts of base rent which are more than
thirty (30) days past due and delinquent amounts of other kinds which are more
than sixty (60) days past due will not be considered in such calculation. All
rents, percentage rents, common area charges, real estate taxes and other costs
or charges paid by tenants under the Leases after the Closing will first be
applied to such charges as are then due and then applied in their reverse order
of accrual until applied in full. Any amounts that are attributable to periods
prior to Closing will be delivered by Purchaser to Seller within thirty (30)
days after receipt. Purchaser will have no obligation to incur any cost or
expense or institute any litigation to collect delinquent rents, percentage
rents, or other costs or charges owed to Seller, and Seller will not exercise
any right to collect such amounts. In any event, Seller will not institute
suit against any tenant under the Leases. The provisions of this Section
14.2.3 will survive the Closing.
14.2.4 Security Deposits. Seller shall retain the Security
Deposits and the amount thereof shall be credited to the Purchase Price. At
Closing, Seller shall assign to Purchaser any letter of credit ("Letter of
Credit") held by Seller as a security deposit. Seller shall use commercially
reasonable efforts to cause the issuer of any Letter of Credit to either
approve the assignment of same to Purchaser (with appropriate modifications to
allow Purchaser to draft upon same) or issue a new letter of credit naming
Purchaser as the beneficiary with terms reasonably satisfactory to Purchaser.
It shall be an Adjustment Event should Seller be unable to perform the
provisions of the preceding sentence as to any Letter of Credit that is not
clearly assignable.
14.2.5 Operating Expense Rent. (i) "Appropriate Expense
Information" shall mean the actual operating expenses (other than ad valorem
taxes) of the applicable Office Building for the period October 1, 1996
through September 30, 1997 and the actual ad valorem taxes which are assessed
against said Office Building for 1997; (ii) "Operating Expense Rent" means
sums paid by a tenant based upon its share of the operating expenses of a
Property or the estimated share of operating expenses (including taxes); and
(iii) "Seller's Share" shall be a fraction, the numerator of which shall be
number of days from and after January 1, 1997 through the Closing Date and the
denominator of which shall be 365. If based upon the Appropriate Expense
Information, Purchaser reasonably determines that the Operating Expense Rent
paid by any tenants of an Office Building will exceed the operating expenses to
be passed through to the tenants of that Office Building (as of the Closing
Date, hereafter called "Affected Tenants") for the calendar year 1997 and will
require a refund or credit to the Affected Tenants of the excess Operating
Expense Rent, Purchaser shall deliver written notice ("Adjustment Notice") to
Seller on or before October 31, 1997 ("Operating Expense Adjustment Deadline")
together with such information as may be reasonably required to substantiate
Purchaser's position. Unless Seller delivers written notice ("Operating
Expense Objection") to Purchaser within ten (10) days after delivery of the
Adjustment Notice, Seller shall promptly pay
-67-
<PAGE> 82
Purchaser Seller's Share of the excess Operating Expense Rent which Purchaser
reasonably thinks will have to be refunded or credited to Affected Tenants. If
Seller timely delivers an Operating Expense Objection and the parties cannot
resolve the objection, the same shall be an Arbitration Event. If based upon
the Appropriate Expense Information Purchaser reasonably determines that any of
the Existing Tenants of any Office Building will owe any Additional Operating
Expense Rent for 1997 (hereafter defined), on or before October 20, 1997,
Purchaser will pay Seller the amount of the Additional Operating Expense Rent
attributable to the period from January 1, 1997 to the Closing Date discounted
to account for the period between October 20, 1997 and the date said additional
Operating Expense Rent is to be paid by the Existing Tenant and the risk of
collection thereof. As used herein the term "Additional Operating Expense
Rent" means the additional Operating Expense Rent which Purchaser determines
any Existing Tenant owes following the end of 1997 pursuant to the relevant
Existing Leases as of result of the Existing Tenant's share of the Operating
Expenses being greater than the periodic payment of the Operating Expense Rent
during 1997. This Section shall survive Closing.
14.2.6 Recording Costs. Seller shall pay up to $10,000.00 of the
recording cost of the Deeds, the recording cost relating to the transfer of the
Promissory Notes, Security Documents and Guaranty Agreements, and any escrow
fee (such fees in excess of $10,000.00 shall be paid by Purchaser). Seller and
Purchaser shall each be responsible for the fees and expenses of their
respective attorneys.
14.2.7 Tenant Improvements; Commissions. With respect to all
Leases entered into with tenants of the Office Buildings after the Effective
Date or which constitute approved leases hereunder, Seller will receive a
credit in an amount equal to (a) all tenant improvement costs, architectural
costs and leasing commissions paid by Seller minus (b) all rent received by
Seller relating to such Leases. With respect to Leases executed prior to the
Effective Date which are not Approved Leases ("Pre-Execution Leases") , Seller
shall perform all obligations relating to the completion of tenant improvements
and payment of leasing commissions ("Pre-Execution Lease Obligations") and pay
all sums related thereto (collectively "Pre-Execution Lease Expenses") incurred
in connection with or arising out of any Pre-Execution Leases (except as
hereafter provided) when due. However, if at Closing (i) there are any unpaid
Pre-Execution Lease Expenses (whether or not accrued or owing), Purchaser shall
receive a credit ("Lease Obligation Credit") to the Purchase Price in the
amount of the unpaid Pre-Execution Lease Expenses (including but not limited to
any additional sums Purchaser reasonably determines will be incurred in order
to perform the Pre-Execution Lease Obligations on or prior to any Lease
Deadline) and (ii) if any part of the Pre-Execution Lease Obligations are not
fully performed, provided the Assumption Conditions are satisfied, Purchaser
will execute an agreement by which it assumes and agrees to perform the
unperformed Pre-Execution Lease Obligations. "Assumption Conditions" means
that Seller has delivered to Purchaser such evidence and assurances Purchaser
reasonably requests to confirm and assure Purchaser (i) that Seller has not
defaulted in the performance of the Pre-Execution Lease Obligations and (ii)
that the amount of the unpaid Pre-Execution Lease Expenses will not exceed the
Lease Obligation Credit.
-68-
<PAGE> 83
"Lease Deadline" means any date by which any Pre-Execution Lease Obligations
must be performed in accordance with a Pre-Execution Lease or if by which a
Pre-Execution Lease Obligation is not performed, the revenue from the
applicable lease will be reduced or delayed. At Closing Purchaser shall assume
the obligation pursuant to any Existing Lease to provide a refurbishment
allowance or to pay a leasing commission based upon a renewal or expansion of
an Existing Lease. Nothing in the preceding sentence shall be construed to
limit the rights of Purchaser arising out of a breach of the Seller's
Representations, including but not limited to, the Seller's Representation set
forth in Section 7.2.17.
14.3 Number not used.
14.4 Moody-Day. Purchaser shall reimburse Seller for any cash
contributions made by Seller to the stockholder's equity of Moody-Day to the
extent such contributions were utilized by Seller to fund the acquisition of
equipment set forth on Exhibit 8.4.2.
14.5 Oil and Gas Interests. Purchaser shall reimburse Seller for any
cash calls paid by Seller from the Effective Date to the extent such payments
were consented to by Purchaser, in it sole discretion. If such consent is
denied and Seller's interest in a well is forfeited as a result of failure to
pay a cash call, there will be no adjustment to the Purchase Price as a result
of such forfeiture.
14.6 Number not used.
14.7 Number not used.
14.8 Number not used.
14.9 Citation Agreements. All payments due under the Citation Agreements
for the month of Closing shall be prorated between Seller and Purchaser as of
the Closing Date.
14.10 Texas Stadium Suite. All payments due under the agreements relating
to the Texas Stadium Suite for the month of Closing shall be prorated between
Seller and Purchaser as of the Closing Date. If, prior to Closing, Seller pays
for any admission tickets (to which the Texas Stadium Suite holder is
entitled), Purchaser shall reimburse Seller for the amount so paid by Seller.
14.11 Recording of Documents. The Deeds shall be recorded by Purchaser in
each county in which the Properties are located. The Assignments of the Oil
and Gas Interests shall be recorded by Purchaser in each county in which the
Oil and Gas Interests are located. Transfer Orders or letters in lieu thereof
for the wells included in the Oil and Gas Interests shall be delivered by
Seller to Purchaser and Purchaser shall deliver same to the purchasers of
-69-
<PAGE> 84
production from such wells. The Assignment of Notes and Liens shall be
recorded by Purchaser in Dallas County, Texas and with the Office of the
Secretary of State of Texas.
14.12 Transfer Taxes. Purchaser shall pay at Closing all sales, transfer
and any other similar Taxes payable as a result of the purchase of the Assets
by Purchaser.
ARTICLE XV
AS IS PROVISION
PROPERTY CONVEYED "AS IS". PURCHASER AGREES THAT, EXCEPT FOR SELLER'S
REPRESENTATIONS SET FORTH IN THIS AGREEMENT, SELLER IS NOT MAKING AND
SPECIFICALLY DISCLAIMS ANY ADDITIONAL WARRANTIES OR REPRESENTATIONS OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE ASSETS, INCLUDING,
BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS AS TO MATTERS OF TITLE (OTHER
THAN SELLER'S WARRANTY OF TITLE SET FORTH IN THE ASSIGNMENT OR CONVEYANCE
DOCUMENTS TO BE DELIVERED AT CLOSING), ZONING, TAX CONSEQUENCES, PHYSICAL OR
ENVIRONMENTAL CONDITIONS, AVAILABILITY OF ACCESS, INGRESS OR EGRESS, OPERATING
HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, GOVERNMENTAL
REGULATIONS OR ANY OTHER MATTER OR THING RELATING TO OR AFFECTING THE ASSETS
INCLUDING, WITHOUT LIMITATION: (i) THE VALUE, CONDITION, MERCHANTABILITY,
MARKETABILITY, PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR
PURPOSE OF THE ASSETS, (ii) THE MANNER OR QUALITY OF THE CONSTRUCTION OR
MATERIALS INCORPORATED INTO ANY OF THE ASSETS, AND (iii) THE MANNER, QUALITY,
STATE OF REPAIR OR LACK OF REPAIR OF ANY OF THE ASSETS. PURCHASER AGREES THAT
WITH RESPECT TO THE ASSETS, PURCHASER HAS NOT RELIED UPON AND WILL NOT RELY
UPON, EITHER DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER
OR ANY AGENT OF SELLER OTHER THAN THOSE SET FORTH IN THIS AGREEMENT. PURCHASER
REPRESENTS THAT IT IS A KNOWLEDGEABLE PURCHASER OF REAL ESTATE AND OTHER
PROPERTY OF THE KINDS INCLUDED IN THE ASSETS AND THAT IT IS RELYING SOLELY ON
ITS OWN EXPERTISE AND THAT OF PURCHASER'S CONSULTANTS, AND PURCHASER AGREES
THAT UPON CLOSING, SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER
SHALL ACCEPT THE ASSETS "AS IS, WHERE IS," WITH ALL FAULTS, AND PURCHASER
FURTHER ACKNOWLEDGES AND AGREES THAT THERE ARE NO ORAL AGREEMENTS, WARRANTIES
OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE PROPERTY BY SELLER, ANY
AGENT OF SELLER OR ANY THIRD PARTY, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT. THE TERMS AND CONDITIONS OF THIS ARTICLE SHALL EXPRESSLY
SURVIVE THE
-70-
<PAGE> 85
CLOSING AND NOT MERGE THEREIN AND SHALL BE INCORPORATED INTO THE CONVEYANCE
DOCUMENTS RELATING TO THE ASSETS.
ARTICLE XVI
INDEMNITY OBLIGATIONS
16.1 Indemnification by Seller. Subject to the provisions of Section
16.7, Seller shall indemnify, defend, save and hold Purchaser and its partners,
employees, agents and Affiliates (collectively, "Purchaser Indemnitees")
harmless from and against all demands, claims, allegations, assertions, actions
or causes of action, assessments, losses, damages, deficiencies, liabilities,
costs and expenses (including reasonable legal fees, interest, penalties and
all reasonable amounts paid in investigation, defense or settlement of any of
the foregoing and whether or not any such demands, claims, allegations, etc.,
of third parties are meritorious) asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Purchaser Indemnitees, directly or
indirectly, in connection with or arising out of an event occurring on or
before the Closing Date and in any way related to the ownership, maintenance or
operation of the Assets.
16.2 Indemnification by Purchaser. Purchaser shall indemnify, defend,
save and hold Seller and its partners, employees, agents and Affiliates
(collectively, "Seller Indemnitees") harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs and expenses (including
reasonable legal fees, interest, penalties and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious)
asserted against, imposed upon, resulting to, required to be paid by, or
incurred by any Seller Indemnitees, directly or indirectly, in connection with
or arising out of an event occurring after the Closing Date and in any way
related to the ownership, maintenance or operation of the Assets.
16.3 Notice of Claims. If any Purchaser Indemnitee or Seller Indemnitee
(an "Indemnified Party") believes that it is or will be entitled to
indemnification pursuant to the terms of this Article XVI, such Indemnified
Party shall so notify the party or parties from whom indemnification is being
claimed (the "Indemnifying Party") with reasonable promptness and reasonable
particularity in light of the circumstances then existing. If any action at
law or suit in equity is instituted by or against a third party with respect to
which any Indemnified Party intends to claim the right to indemnification, such
Indemnified Party shall promptly notify the Indemnifying Party of such action
or suit. The failure of an Indemnified Party to give any notice required by
this Section shall not affect any of such party's rights under this Agreement
except and to the extent that such failure is actually prejudicial to the
rights or obligations of the Indemnifying Party.
-71-
<PAGE> 86
16.4 Third Party Claims. If permitted by the insurer the Indemnified
Party shall have the right to conduct and control, through counsel of its
choosing, the defense of any third party claim, action or suit, and the
Indemnified Party may compromise or settle the same, provided that the
Indemnified Party shall give the Indemnifying Party advance notice of any
proposed compromise or settlement. The Indemnified Party shall permit the
Indemnifying Party to participate in the defense of any such action or suit
through counsel chosen by the Indemnifying Party, provided that the fees and
expenses of such counsel shall be borne by the Indemnifying Party. If the
Indemnified Party permits the Indemnifying Party to undertake, conduct and
control the conduct and settlement of such action or suit, (i) the Indemnifying
Party shall not thereby permit to exist any Encumbrance upon any asset of the
Indemnified Party; (ii) the Indemnifying Party shall not consent to any
settlement that does not include as an unconditional term thereof the giving of
a complete release from liability with respect to such action or suit to the
Indemnified Party; and (iii) the Indemnifying Party shall agree promptly to
reimburse the Indemnified Party for the full amount of any damages including
fees and expenses of counsel for the Indemnified Party incurred after giving
the foregoing notice to the Indemnifying Party and prior to the assumption of
the conduct and control of such action or suit by the Indemnifying Party.
16.5 Good Faith Efforts to Settle Disputes. Purchaser and Seller agree
that, prior to commencing any litigation against the other concerning any
matter with respect to which such party intends to claim a right of
indemnification in such proceeding, the respective chief executive officers (or
officers or agents holding such authority) of such parties shall meet in a
timely manner and attempt in good faith to negotiate a settlement of such
dispute during which time such officers shall disclose to the others all
relevant information relating to such dispute.
16.6 Payment. All indemnification payments pursuant to this Agreement
shall be made promptly in cash.
16.7 Survival and Limitation of Indemnities. The provisions of Section
16.1 through this Section 16.7 shall survive Closing but the liability of each
indemnitor shall not exceed each indemnitor's Insurance Coverage. As used
herein "Insurance Coverage" shall be the indemnity provided to the respective
party by the insurance policies described on Exhibit 16.7 as to Purchaser and
those described on Exhibit 7.2.14 as to Seller. Provided, however, the
limitation of liability provided for in this Section 16.7 as it applies to
Purchaser shall not apply to Contractual Liabilities. "Contractual
Liabilities" includes any liability arising out of, or in connection with, the
Operating Agreements or the agreements set forth on Exhibit 13.6 to the extent
such liability arises out of, or in connection with, an event subsequent to the
Closing. Purchaser agrees to look solely to Seller's Insurance Coverage and
agrees that Seller has no personal liability under this Article XVI.
-72-
<PAGE> 87
ARTICLE XVII
CONDEMNATION, DAMAGE OR DESTRUCTION PRIOR TO CLOSING
17.1 Condemnation. As used herein (a) a "Taking" is the commencement of
a proceeding by any Governmental Authority or other entity having condemnation
authority exercising powers of eminent domain or the taking of any steps
preliminary thereto (including the giving of any direct or indirect notice of
intent to institute such proceedings) with regard to any of the Properties,
which is not dismissed on or before ten (10) days prior to the Closing Date,
and (b) a "Major Taking" is a Taking involving so much of a Property that after
the Taking the potential occupancy of any Improvements situated thereon in
accordance with applicable Legal Requirements is reduced by more than fifteen
percent (15%) of such potential occupancy prior to the commencement of the
Taking or in case of Undeveloped Land is involved it renders more than fifteen
percent (15%) of the applicable Parcel of Undeveloped Land commercially
unusable. If there is a Major Taking, the same shall be an Adjustment Event
and the parties rights and obligations shall be governed by the provisions of
Section 20.3. In the event of a Taking or, if as a result of the process set
forth in Section 20.3 relating to a Major Taking, Purchaser is entitled to the
condemnation proceeds, Seller will: (i) execute such documents as Purchaser may
reasonably request to evidence the assignment of condemnation proceeds to
Purchaser, (ii) cooperate with Purchaser in any proceeding relating to the
Taking or Major Taking, and (iii) notify Purchaser of all actions relating to
the Taking promptly following its receipt of information regarding same, and
(iv) upon and following Closing, deliver to Purchaser any proceeds received by
Seller (whether before or after Closing). If the parties cannot agree upon
whether a Taking is a Major Taking, the disagreement shall be an Arbitration
Event and shall be resolved in accordance with the provisions of Section 20.4.
17.2 Risk of Loss.
17.2.1 Certain Definitions. As used in this Section 17.2,
"Restoration Costs" means the reasonable costs (including but not limited to
costs of funds pending receipt of insurance proceeds) of restoring the damaged
Improvements to their condition immediately prior to the damage in compliance
with all applicable building and zoning laws, ordinances and regulations.
17.2.2 Loss and Restoration Estimates. Until Closing, Seller
alone shall bear the risk of loss should there be damage to any of the
Improvements by fire or other casualty ("Casualty"). If prior to Closing any
of the Improvements shall be damaged by fire or other Casualty, (i) Seller
shall take all action necessary to preserve and protect the affected
Improvements from further loss or damage, and (ii) within ten (10) business
days after such loss deliver to Purchaser a detailed written description of the
damages incurred and a statement ("Seller's Estimate") of Seller's reasonable
and good faith estimate of the Restoration Costs (collectively "Casualty Loss
Information"). Within a reasonable period following its receipt of the Seller's
Estimate and Casualty Loss Information relating to the damage, Purchaser shall
-73-
<PAGE> 88
deliver to Seller its reasonable and good faith estimate of Restoration Costs
("Purchaser's Estimate"). If the amount of Purchaser's Estimate is not greater
than 110% of the amount of the Seller's opinion ("Seller's Estimate") regarding
the amount of the Restoration Costs, the Restoration Costs shall be the average
of the Seller's Estimate and the Purchaser's Estimate. If the amount of the
Restoration Costs cannot be determined in accordance with the foregoing
provisions, its resolution shall be determined in accordance with the
provisions of Section 20.3 and, if necessary, Section 20.4 (but such
disagreement shall not by itself constitute an Adjustment Event). Within a
reasonable period following the damage, Seller shall commence and thereafter
prior to Closing diligently prosecute the restoration of the damaged
Improvements in accordance with plans and specifications ("Restoration Plans")
and pursuant to construction and other agreements and governmental permits (
collectively "Restoration Documents"), all of which are approved by Purchaser,
which approval will not be unreasonably withheld or delayed. The Closing Date
shall not be delayed as a result of a casualty or other damage to any
Improvements. To the extent applicable, Sections 20.3 and 20.4 shall survive
Closing until all issues arising out a casualty or other damage to any
Improvements are resolved and the parties have performed their respective
obligations.
17.2.3 Restoration Not Completed by Closing Date. If any
damaged Improvements are not fully restored to Purchaser's reasonable
satisfaction prior to Closing, at Closing (i) Seller shall deliver to Purchaser
all insurance proceeds [other than those related to rental or business
interruption ("Loss Rents Proceeds")] received by Seller and not previously
applied to the payment of Restoration Costs (collectively "Purchaser's
Insurance Proceeds"), (ii) Seller shall deliver to Purchaser Loss Rents
Proceeds attributable to the period from and after Closing, and (iii) Seller
and Purchaser shall execute an agreement (in a form reasonably satisfactory to
the parties) by which (A) Seller agrees to deliver to Purchaser all Purchaser's
Insurance Proceeds promptly following Seller's receipt thereof, (B) Seller
assigns to Purchaser all of Seller's right to the Purchaser's Insurance
Proceeds, any Restoration Plans and any Restoration Documents and Purchaser
assumes the obligations under the Restoration Documents and indemnifies Seller
for any claims or liabilities arising thereunder, (C) Seller agrees to
cooperate with Purchaser in collecting Purchaser's Insurance Proceeds,
including but not limited to, executing such authorizations, proofs of loss and
other documents required by the insurer, endorsing drafts or checks, notifying
the insurer of the interest of Purchaser, providing information or documents
required by the insurer (and Purchaser will reimburse Seller for its
out-of-pocket expenses incurred therein) and (D) Seller agrees to otherwise
cooperate and assist Purchaser in connection with the restoration of the
damaged improvements following the Closing Date (it being understood that
Purchaser shall be solely responsible for the management of the restoration
following the Closing Date). Any damage to any of the Improvements shall be an
Adjustment Event and the rights and obligations of the parties shall be
governed by Section 20.3.
17.2.4 Maintenance of Insurance Prior to Closing. From and after
the Effective Date through and including the Closing Date, Seller shall keep
all of the insurance ("Property and Liability Insurance") described on
Exhibits 7.2.14 and 7.4.17 in full force and effect, including
-74-
<PAGE> 89
but not limited to, the payment of all premiums therefor on or before the same
are due. On or before the first business day after the Effective Date, Seller
shall deliver to Purchaser evidence reasonably satisfactory to Purchaser that
Purchaser is named as an "insured" pursuant to the Property and Liability
Insurance and the insurer or insurers issuing the Property and Liability
policies agree not to cancel or modify the coverages without delivering
Purchaser written notice at least thirty (30) days prior to the effective date
of the cancellation or modification.
ARTICLE XVIII
POSSESSION OF ASSETS FOLLOWING CLOSING
Possession of the Assets shall be delivered to Purchaser at Closing in
accordance with the provisions of this Agreement.
ARTICLE XIX
NOTICES
All notices, demands, or other communications of any type given by Seller
to Purchaser, or by Purchaser to Seller, whether required by this Agreement or
in any way related to the transaction contracted for herein, shall be void and
of no effect unless given in accordance with the provisions of this Article.
All notices shall be in writing and delivered to the Person to whom the notice
is directed, either in person, by facsimile transmission or by United States
Mail, as a registered or certified item, return receipt requested. Notices
delivered in person shall be deemed delivered upon receipt, notices delivered
by facsimile transmission shall be deemed delivered the same day as sent with
confirmation received by the senders's facsimile equipment and notices
delivered by mail shall be deemed given three (3) days after being deposited in
a post office or other depository under the care or custody of the United
States Postal Service, enclosed in a wrapper with proper postage affixed,
addressed as follows:
Seller: Carter-Crowley Properties, Inc.
2711 LBJ Freeway, Suite 426
Dallas, Texas 75234
Attn: Ronald L. Carter
Telephone No.: (972) 247-8535
Facsimile No.: (972) 243-3615
-75-
<PAGE> 90
With Required Gardere & Wynne, L.L.P.
Copy (which 1601 Elm Street, Suite 3000
does not consti- Dallas, Texas 75201
tute notice) to: Attn: Alan J. Perkins, Esq.
Telephone No.: (214) 999-4683
Facsimile No.: (214) 999-4667
Purchaser: Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Attn: Mr. James M. Eidson, Jr.
Telephone No.: (817) 877-0477
Facsimile No.: (817) 878-0429
With Required Crescent Real Estate Equities Limited Partnership
Copy (which 777 Main Street, Suite 2700
does not consti- Fort Worth, Texas 76102
tute notice) to: Attn: David M. Dean, Esq.
Telephone No.: (817) 878-0442
Facsimile No.: (817) 878-0429
Brown McCarroll & Oaks Hartline
300 Crescent Court
Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy, Esq.
Telephone No.: (214) 999-6102
Facsimile No.: (214) 999-6170
ARTICLE XX
REMEDIES
20.1 Default by Seller. If Seller fails or refuses to consummate this
Agreement, or if Seller fails to perform any of Seller's other obligations
hereunder either prior to or at the Closing and Seller fails to cure same
within seven (7) days and such failure or refusal results from any reason other
than the termination of this Agreement by Purchaser pursuant to a right to
terminate expressly set forth in this Agreement or Purchaser's failure to
perform any of Purchaser's obligations under this Agreement, then Purchaser may
(i) enforce specific performance of Seller's duties and obligations under this
Agreement, or (ii) terminate this
-76-
<PAGE> 91
Agreement by giving written notice thereof to Seller prior to or at the
Closing, in which event Purchaser shall also be entitled, subject to Section
20.5, to a return of the Earnest Money (and interest thereon) and to seek its
actual damages against Seller for such default as well as such other relief as
may be available at law or in equity.
20.2 Default by Purchaser. If Purchaser fails or refuses to consummate
the purchase of the Assets pursuant to this Agreement, and such failure or
refusal results from any reason other than termination of this Agreement by
Purchaser pursuant to a right to terminate expressly set forth in this
Agreement, then Seller may as its sole remedy terminate this Agreement by
giving written notice thereof to Purchaser at the Closing, and the Title
Company shall deliver the Earnest Money to Seller as liquidated damages. The
Earnest Money is agreed upon by and between Seller and Purchaser as liquidated
damages, and not as a penalty, due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to Seller, and Seller shall accept the Earnest Money
as Seller's total damages and relief. Earnings on the Earnest Money shall be
returned to Purchaser.
20.3 Adjustment Events.
20.3.1 Definitions. "Adjustment Event" means those events
specified as an Adjustment Event in this Agreement. "Adjustment Floor" means
that the cost of curing all Adjustment Events exceeds $1,900,000.00. As used
in this Section 20.3, "cost of curing" means the reasonable cost to cure the
matter constituting the Adjustment Event or, if the Adjustment Event is either
not curable or the cure does not fully restore the value of the affected Asset
to its pre-Adjustment Event value, the reduction in the value of the affected
Asset. Without limitation of the foregoing, "costs of curing" include, to the
extent applicable (i) Restoration Costs and loss of rental income caused by a
casualty to the extent not paid from insurance proceeds and (ii) condemnation
damages to the extent not paid by the condemning authority.
20.3.2 Adjustment Floor Not Exceeded. If as of the Closing Date,
the aggregate cost of curing all then existing Adjustment Events does not
exceed the Adjustment Floor: (i) Purchaser shall not have any remedy and shall
proceed to close this transaction in accordance with the further terms of this
Agreement (except as provided in this Section 20.3.2), and (ii) Seller shall
not have any liability or obligation with regard to any Adjustment Event.
Provided however the preceding sentence shall not reduce the obligations of
Seller or impair the rights of Purchaser regarding a Taking or Casualty Loss
pursuant to Sections 17.1 or 17.2.
20.3.3 Adjustment Floor Exceeded. From and after the occurrence
of an Adjustment Event which results in the Adjustment Floor being exceeded,
Seller shall cure (or agree to an adjustment in the Purchase Price relating to
the affected Asset) all Adjustment Events, each of which shall be resolved in
accordance with the further provisions of this Section 20.3.3. Purchaser shall
deliver written notice of the Adjustment Event which results in the
-77-
<PAGE> 92
Adjustment Floor being exceeded ("First Adjustment Notice") and a proposal
("Purchaser's Adjustment Proposal") for resolving same. Within five (5)
business days after delivery of the First Adjustment Notice, Seller shall
either deliver written notice ("Second Adjustment Notice") to Purchaser
agreeing to Purchaser's Adjustment Proposal or Seller shall deliver an
alternative proposal in writing ("Seller's Adjustment Proposal"). If Seller
fails to deliver timely a Second Adjustment Notice or agrees to Purchaser's
Adjustment Proposal in its Second Adjustment Notice, Purchaser's Adjustment
Proposal shall be binding on the parties. If Seller delivers a Seller's
Adjustment Proposal, the parties shall promptly engage in good faith
negotiations to resolve the differences between the proposals. To the extent
either of the parties determines the same might facilitate resolution, each
will cause their senior officers to participate in such negotiations. If the
parties have not resolved the differences within ten (10) days after the
delivery of the Seller's Adjustment Proposal, the parties agree to promptly
engage in non-binding mediation with a mediator mutually acceptable to both
parties (both parties agree to not unreasonably withhold or delay their consent
to selection of a mediator) in order to resolve the differences. If after ten
(10) hours of mediation the parties are unable to resolve the differences,
either party may deliver an Arbitration Notice in accordance with Section 20.4
and the dispute shall be an Arbitration Event to be resolved in accordance with
the provisions of Section 20.4. Notwithstanding any provision of this Section
20.3.3 to the contrary, if the amount Purchaser asserts is necessary to cure an
Adjustment Event exceeds the amount of the Purchase Price allocated to the
affected Asset (in accordance with the Asset Allocation), Seller may (but is
not obligated to) cure the Adjustment Event by delivering written notice
("Withdrawal Notice") to Purchaser notifying Purchaser that Seller is
withdrawing the affected Asset from this Agreement. If Seller withdraws an
Asset from this Agreement in accordance with this Section 20.3.3, this
Agreement shall be deemed to be amended to exclude the affected Asset and all
representations, warranties and covenants (other than set forth in Section
21.10) relating to the withdrawn Asset, and to reduce the Purchase Price by the
amount of the Purchase Price allocated to said Asset on Exhibit 2.3 or
otherwise determined by the parties in accordance with Section 20.3 or 20.4.
20.3.4 Termination. In the event the cost of curing all
Adjustment Events exceeds $38,000,000.00, Purchaser may: (i) close in
accordance with the provisions of this Agreement or (ii) subject to the last
sentence of Section 20.3.5, terminate the entire Agreement. If Purchaser
terminates this Agreement pursuant to this Section 20.3.4, all Earnest Money
(and interest earned thereon) shall be immediately returned to Purchaser by the
Title Company, Purchaser shall return to Seller all of the Due Diligence Items
requested by Seller, and thereafter neither Seller nor Purchaser shall have any
continuing obligations one unto the other except pursuant to Section 21.10
hereof.
20.3.5 Effect of Closing. Except as otherwise provided in this
Section 20.3.5, unresolved Adjustment Events shall not delay Closing nor shall
Closing alter the rights or obligations of the parties regarding the unresolved
Adjustment Events. The parties shall continue the resolution process following
Closing (including but not limited to arbitration pursuant to Section 20.4) and
the rights and obligations of the parties with respect to the
-78-
<PAGE> 93
unresolved Adjustment Events shall be the same as if the Closing had not
occurred. Provided however, if the aggregate amount in dispute regarding any
unresolved Adjustment Events exceeds $38,000,000.00 either party may extend the
Closing Date until not later than the first business day following the
expiration of ten (10) calendar days after the originally scheduled Closing
Date, but in no event later than May 12, 1997.
20.3.6 Sole Remedies. Purchaser's only remedies arising out of
the occurrence of an Adjustment Event shall be (i) termination pursuant to
Section 20.3.4 and (ii) an adjustment of the Purchase Price to reflect the
reasonable cost to cure or Purchaser's actual (not incidental and
consequential) damages arising out of the Adjustment Event (regardless of
whether determined before or after Closing), the amount of which shall be
agreed to by the parties in accordance with the provisions of Section 20.3 or
awarded by arbitration in accordance with the provisions of Section 20.4. NO
SELLER REPRESENTATION SHALL SURVIVE CLOSING.
20.4 Arbitration. As used in this Agreement an "Arbitration Event"
means any dispute which pursuant to the further provisions of this Agreement is
designated as an Arbitration Event. In those instances in which there is a
dispute which is an Arbitration Event (other than those governed by Section
20.3.3), Seller and Purchaser shall attempt to resolve the dispute for a
period of five (5) business days following either party's delivery of a notice
("Preliminary Notice") (said period called "Settlement Period") of its intent
to submit the dispute to arbitration if not resolved prior to the expiration of
the Settlement Period. If the dispute is not resolved at the end of the
Settlement Period or, in the case of a dispute under Section 20.3.3, after the
prescribed mediation, either party may thereafter deliver a written notice
("Arbitration Notice") to the other party and the American Arbitration
Association ("AAA") (Dallas Office) notifying both of its intent to resolve the
dispute in accordance with the further provisions of this Section and the
Commercial Arbitration Rules of the AAA then in effect ("AAA Rules"). However,
the provisions of this Section shall control over any contrary provisions in
the AAA Rules. Within five (5) days after the delivery of an Arbitration
Notice, each party shall deliver a written statement of a resolution of the
dispute acceptable to it to the other party (each an "Original Resolution")
(and, if more than one Asset is the subject of an Arbitration Notice, each
Asset shall be the subject of a separate Resolution). Seller's statement is
hereafter called "Seller's Resolution" and Purchaser's statement is hereafter
called "Purchaser's Resolution." If either party fails to timely deliver its
Original Resolution, the Original Resolution of the other party shall be
binding on the parties and no further action shall be taken to resolve the
dispute. The resolution of the dispute shall be either the Seller's Resolution
or the Purchaser's Resolution based upon the determination of a panel of three
arbitrators ("Arbitrators") selected in accordance with the further provisions
of this Section. All of the Arbitrators shall be selected from the panel of
arbitrators submitted by AAA. Within ten (10) days after either party delivers
an Arbitration Notice to the other party and the AAA requesting arbitration in
accordance with the provisions of this subsection, AAA shall deliver a list
("Panel List") of qualified arbitrators to Seller and Purchaser. Within ten
(10) days after the delivery of the Panel List, each party
-79-
<PAGE> 94
shall send written notice ("Party Selection Notice") to the other party and the
AAA indicating its choice of one arbitrator and indicating up to two persons on
the Panel List to which it objects ("Objectionable Persons"). Within ten (10)
days after its receipt of both Party Selection Notices, the AAA shall select a
third arbitrator from the Panel List by delivering written notice ("AAA
Selection Notice") of its selection to both parties. The third arbitrator
shall not be an Objectionable Person. The Arbitrators shall be one person
selected by each party and one person selected by the AAA. Within five (5)
days after the date of the delivery of the AAA Selection Notice, Seller and
Purchaser shall submit their respective Resolution in writing (which may not be
different from their respective original Resolutions), together with the
supporting data and facts used to determine their Resolution, to the
Arbitrators. Within twenty (20) days after the Resolutions are submitted, the
Arbitrators shall hold a hearing during which Seller and Purchaser may present
evidence in support of their respective resolutions. Within fifteen (15) days
after the date on which the hearing is completed, the Arbitrators will
determine a resolution ("Final Resolution") based upon the parties' submissions
and evidence presented. The Final Resolution shall be either the Seller's
Resolution or the Purchaser's Resolution. The Arbitrator's determination shall
be binding on Seller and Purchaser and may be enforced by a court of competent
jurisdiction. The cost of such arbitration shall be paid by the party whose
Resolution was not selected.
20.5 Incidental and Consequential Damages. NOTWITHSTANDING ANY LEGAL
REQUIREMENT OR PROVISION HEREIN TO THE CONTRARY, NO PARTY SHALL BE ENTITLED TO
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING UNDER OR AS A RESULT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREUNDER.
20.6 Survival of Sections 17.1, 17.2, 20.3 and 20.4 If matters and
issues described in or being resolved pursuant to Sections 17.1, 17.2, 20.3 or
20.4 are not resolved (said matters and issues hereafter called "Open Issues")
prior to the Closing Date the provisions of said Sections shall survive
Closing and shall continue to govern the rights and obligations of the parties
until the Open Issues are fully resolved and all sums owing are paid and the
occurrence of Closing shall not accelerate or otherwise affect the rights or
obligations of the parties. To the extent there are Open Issues, any
adjustments to the Purchase Price determined subsequent to the Closing shall
be paid by Seller when determined in accordance with said Sections.
20.7 Termination of DMI Agreement. In the event this Agreement is
terminated either (a) by Purchaser pursuant to a right to terminate expressly
set forth in this Agreement or (b) by Seller pursuant to a right to terminate
expressly set forth in this Agreement, then (i) the rights and obligations of
Purchaser and Seller pursuant to the DMI Agreement shall terminate (except as
provided in Section 17.9 thereof), (ii) Purchaser shall be entitled to and
shall immediately receive the Earnest Money held by the Title Company pursuant
to the DMI Agreement (together with any interest earned thereon) unless Seller
is entitled, upon termination of this Agreement, to retain the Earnest Money
held by Title Company hereunder, in which event Seller shall receive the
Earnest
-80-
<PAGE> 95
Money in the manner provided in Section 16.2 of the DMI Agreement and, (iii)
Purchaser shall return to Seller all of the Due Diligence Items requested by
Seller.
ARTICLE XXI
MISCELLANEOUS
21.1 Assignment. Provided Purchaser agrees to remain primarily liable
for performance of Purchaser's obligation hereunder, Purchaser may: (i) assign
this Agreement to any Affiliate of Purchaser, and/or (ii) deliver a written
notice (each a "Closing Direction") to Seller directing Seller to convey,
transfer or assign (as appropriate) one or more of the Assets to any Partial
Designee described in the Closing Direction. Seller agrees to comply with any
Closing Direction. "Partial Designee" means (i) an Affiliate of Purchaser,
(ii) any corporation, more than 50% of the total number of shares of stock of
which are owned by Purchaser and (iii) the Spinoff Affiliate. "Spinoff
Affiliate" means that certain corporation (and its direct or indirect
partnership or corporate subsidiaries) described, in that certain press release
issued by Purchaser on January 30, 1997, as a newly formed corporation that
will be spun off to shareholders of Crescent Real Estate Equities Trust and
whose stock will be listed separately on a national exchange. In the event
that Purchaser assigns this Agreement to an Affiliate of Purchaser or Purchaser
delivers a Closing Direction to Seller with respect to one or more of the
Assets, all references in this Agreement to Purchaser shall be considered to
also constitute references to the Affiliate or Partial Designee to the extent
of the Assets affected by such assignment or Closing Direction.
21.2 Interpretation and Applicable Law. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas.
As used herein, unless the context otherwise requires: (i) references to
"Article" or "Section" are to an article or section hereof; (ii) all "Exhibits"
referred to herein are to Exhibits included in three (3) volumes of Exhibits
labeled Exhibits to the Acquisition Agreement and are incorporated herein by
reference and made a part hereof; and (iii) except where specifically qualified
by limiting language relating thereto, "include", "includes" and "including"
are deemed to be followed by "without limitation" whether or not they are in
fact followed by such words or words of like import. Where required for proper
interpretation, words in the singular shall include the plural; the masculine
gender shall include the neuter and the feminine, and vice versa. The terms
"successors and assigns" shall include the heirs, administrators, executors,
successors and permitted assigns, as applicable, of any party hereto.
21.3 Amendment. This Agreement may not be modified or amended, except
by an agreement in writing signed by Seller and Purchaser. The parties may
waive any of the conditions contained herein or any of the obligations of the
other party hereunder, but any such waiver shall be effective only if in
writing and signed by the party waiving such conditions and obligations.
-81-
<PAGE> 96
21.4 Attorneys' Fees. In the event it becomes necessary for either
party to file a suit to enforce this Agreement or any provisions contained
herein, the prevailing party shall be entitled to recover, in addition to all
other remedies or damages, reasonable attorneys' fees and costs of court
incurred in such suit.
21.5 Descriptive Headings. The descriptive headings of the several
sections or paragraphs contained in this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
21.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection therewith. No representation, warranty, covenant, agreement or
condition not expressed in this Agreement shall be binding upon the parties
hereto or shall affect or be effective to interpret, change or restrict the
provisions of this Agreement.
21.7 Counterparts. Numerous copies of this Agreement may be executed
by the parties hereto. Each such executed copy shall have the full force and
effect of an original executed instrument.
21.8 Time. Time is of the essence of this Agreement. The date of
execution of this Agreement by Seller shall be the date of execution of this
Agreement. If the final date of any period falls upon a Saturday, Sunday or
legal holiday under the laws of the State of Texas, then in such event the
expiration date of such period shall be extended to the next day which is not a
Saturday, Sunday or legal holiday under the laws of the State of Texas.
21.9 Commissions and Finders Fees. Except for Bear, Stearns & Co.,
Inc., Seller represents and warrants to Purchaser that Seller has not contacted
or entered into any agreement with any broker, investment banker, agent, finder
or any other party in connection with this transaction, and that Seller has not
taken any action which would result in any broker's, investment bank's,
finder's or other fees or commissions being due and payable to any other party
with respect to the transaction contemplated hereby or the transaction
contemplated by the DMI Agreement. Seller shall be solely responsible for all
amounts owed to Bear, Stearns & Co., Inc. resulting from or in connection with
this Agreement or DMI Agreement. Purchaser hereby represents and warrants to
Seller that Purchaser has not contracted or entered into any agreement with any
broker, investment banker, agent, finder or any other party in connection with
this transaction, and that Purchaser has not taken any action which would
result in any broker's, investment bank's, finder's or other fees or
commissions being due or payable to any other party with respect to the
transaction contemplated hereby or the transaction contemplated by the DMI
Agreement. Each party hereby indemnifies and agrees to hold the other party
harmless from any loss, liability, damage, cost or expense (including
reasonable attorneys' fees) resulting to the other party by reason of a breach
of the representation and warranty made by
-82-
<PAGE> 97
such party herein. Notwithstanding anything to the contrary contained herein,
the indemnities set forth in this Section 21.9 shall survive Closing.
21.10 Confidentiality. Purchaser agrees that, from the Effective Date
through Closing or, if this Agreement is terminated, through the date which is
six (6) months after the date of termination or, as to any Asset not purchased
by Purchaser at Closing, through the date which is six (6) months after the
Closing Date (the "Confidentiality Period"), all Asset Information shall be
kept confidential and shall not be used except as provided in this Section
21.10. Without the prior written consent of Seller, during the Confidentiality
Period the Asset Information shall not be disclosed by Purchaser or Purchaser's
Representatives, in any manner whatsoever, in whole or in part, except (i) to
Purchaser's Representatives who need to know the Asset Information for the
purpose of evaluating the Assets and who are informed by the Purchaser of the
confidential nature of the Asset Information; (ii) as may be necessary for
Purchaser or Purchaser's Representatives to comply with applicable laws,
including, without limitation, governmental regulatory, disclosure, tax and
reporting requirements; to comply with other requirements and requests of
regulatory and supervisory authorities and self-regulatory organizations having
jurisdiction over Purchaser or Purchaser's Representatives; to comply with
regulatory or judicial processes; or to satisfy reporting procedures and
inquiries of credit rating agencies in accordance with customary practices of
Purchaser or its Affiliates; provided that Seller shall give prompt notice of
any such requirement to Seller; and (iii) as otherwise permitted by this
Section 21.10. If this Agreement is terminated, Purchaser and Purchaser's
Affiliates shall not during the remainder of the Confidentiality Period use for
any purpose or for the benefit of any Person any of the Asset Information.
Except as provided otherwise in this Section 21.10, Purchaser and Seller,
for the benefit of each other, hereby agree that prior to Closing neither of
them will release or cause or permit to be released to the public any press
notices, publicity (oral or written) or advertising promotion relating to, or
otherwise publicly announce or disclose or cause or permit to be publicly
announced or disclosed, in any manner whatsoever, the terms, conditions or
substance of this Agreement or the transactions contemplated herein, without
first obtaining the consent of the other party hereto (which shall not be
unreasonably withheld or delayed). Seller, being aware of Purchaser's
affiliation with a publicly-held corporation, the securities of which are
traded on a national securities exchange, acknowledges that Purchaser and its
Affiliates may be compelled by considerations of legal obligation, fiduciary
and public responsibility, commercial pragmatism and established corporate
policy, to issue a public press release announcing that it has entered into
this Agreement and stating the material terms hereof; Purchaser will not issue
or disclose any press release without first obtaining the consent of Seller as
to the content of such press release (which acceptance shall not be
unreasonably withheld or delayed); Seller consents to all such additional
statements and disclosures Purchaser may reasonably make in responding to
inquiries arising as a result of any such press release. Purchaser agrees to
send a copy of any final press release directly to Seller not later than the
time when Purchaser issues such press release to the public.
-83-
<PAGE> 98
Purchaser acknowledges that Seller, as part of an internal restructuring,
will be required to disclose the existence and terms of this Agreement in an
Information Statement to be sent to the shareholders of CCP, and Purchaser
consents to such disclosure.
Purchaser shall indemnify and hold Seller and the Affiliates of Seller
harmless, and Seller shall indemnify and hold Purchaser and the Affiliates of
Purchaser harmless, from and against any and all actual direct claims, demands,
causes of action, losses, damages, liabilities, costs and expenses (including,
without limitation, attorneys' fees and disbursements) suffered or incurred by
the other party and proximately caused by a breach by Purchaser or Purchaser's
Representatives or Seller, as the case may be, of the provisions of this
Section 21.10; BUT THIS SECTION 21.10 WILL NOT ENTITLE EITHER PURCHASER,
SELLER, PURCHASER'S AFFILIATES OR SELLER'S AFFILIATES TO RECOVER INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
As used in this Agreement, the term "Asset Information" shall mean (i) all
information and documents in any way relating to the Assets, the operation
thereof or the sale thereof (including, without limitation, leases, contracts,
licenses and any environmental reports) furnished to, or otherwise made
available for review by, Purchaser or its directors, officers, employees,
Affiliates, partners, brokers, agents or other representatives, including,
without limitation, attorneys, accountants, contractors, consultants, engineers
and financial advisors (collectively, "Purchaser's Representatives"), under or
in connection with this Agreement by Seller or any Affiliate of Seller, or
their agents or representatives, including, without limitation, their
contractors, engineers, attorneys, accountants, consultants, brokers or
advisors, and (ii) all analyses, compilations, data, studies, reports or other
information or documents prepared or obtained by Purchaser or Purchaser's
Representatives to the extent such information or documents contain or are
based on the information or documents described in the preceding clause (i), or
otherwise reflecting their review or investigation of the Assets undertaken
with Seller's required approval; but notwithstanding the foregoing, the term
"Asset Information" shall not be deemed to include any information or document
which (1) is or becomes generally available to the public other than as a
result of a disclosure by Purchaser or Purchaser's Representatives in violation
of this Agreement, (2) is in the possession of Purchaser or Purchaser's
Representatives prior to its disclosure to Purchaser by Seller or any
Affiliates of Seller or their agents or representatives, (3) becomes available
to Purchaser from a source other than Seller or any Affiliates of Seller or
their agents or representatives without a violation of any confidentiality
obligation, or (4) is developed by Purchaser or Purchaser's Representatives
without reliance upon and independently of otherwise confidential Asset
Information.
In addition to any other remedies available to Seller and Purchaser, Seller
and Purchaser shall each have the right to seek equitable relief, including,
without limitation, injunctive relief or specific performance, against the
other party or their representatives in order to enforce the provisions of this
Section 21.10.
-84-
<PAGE> 99
The provisions of this Section 21.10 shall survive the termination of this
Agreement prior to Closing for six months following the termination date.
It is understood that the foregoing shall not preclude either party from
discussing the substance or any relevant details of the transactions
contemplated in this Agreement on a confidential basis with any of its
attorneys, accountants, professional consultants, financial advisors, rating
agencies, or potential lenders, as the case may be, or prevent either party
hereto from complying with applicable laws, including, without limitation,
governmental regulatory, disclosure, tax and reporting requirements.
21.11 Rule of Construction. The parties hereto acknowledge that they
each enter into this Agreement after having had an opportunity for thorough
review by, and on advice of, their respective legal counsel. The parties agree
that the judicial rule of construction requiring or allowing an instrument to
be construed to the detriment of or against the interest of the maker thereof
shall not apply to this Agreement.
21.12 Number not used.
21.13 Employees. At Closing, Purchaser shall employ the persons (each
an "Employee") listed on Exhibit 21.13 who elect to be employed by Purchaser
for a term ("Employment Term") ending no sooner than the earlier of: (i) the
date Purchaser terminates an Employee for cause, (ii) the date Employee
voluntarily terminates employment or (iii) six (6) months after the Closing
Date. As an employee of Purchaser, each Employee shall be paid the same level
of compensation paid to each Employee by Seller immediately prior to Closing,
and each Employee's health insurance benefits shall not be interrupted or
reduced by the change of employer resulting from this Agreement. Purchaser
shall not be responsible or liable for any Employee's pay, privileges or
benefits accrued as of the Closing Date while an employee of Seller. At
Closing, Purchaser shall cause Moody-Day to employ its employees on the same
terms prior to Closing for the Employment Term. This Section shall survive
Closing.
21.14 Notice of Intent to Sell Moody-Day. In the event Purchaser makes
a determination that it intends to sell or otherwise dispose of the Moody-Day
Stock, or substantially all of the assets of Moody-Day, within three (3) months
after the Closing Date, Purchaser shall: (i) provide written notice of such
intent to Seller, and (ii) not enter into a definitive agreement for such a
sale or disposition for a period of ten (10) days after the date of the notice
provided to Seller pursuant to this Section 21.14.
21.15 Access to Records after Closing. Following the Closing, Purchaser
shall give to Seller an unrestricted access during normal business hours with
reasonable prior notice to (and the right to make copies at the expense of
Seller) the books, files, records and Tax Returns and supporting schedules and
work papers relating to the Assets and business, operations, income, and
expenses of Purchaser relating thereto which exist on, accrue or arise after or
occur after
-85-
<PAGE> 100
the Closing. Any access pursuant to this Section 21.15 shall be conducted in
such manner as not to interfere unreasonably with the operations of the
business of Purchaser following the Closing.
21.16 SPECIAL NON-DISCLOSURE AGREEMENT. IN ADDITION TO THE AGREEMENTS
SET FORTH IN SECTION 21.10, PURCHASER UNCONDITIONALLY AGREES THAT NEITHER
PURCHASER NOR PURCHASER'S REPRESENTATIVES OR AFFILIATES WILL DISCLOSE THE TERMS
OR EXISTENCE OF THIS AGREEMENT OR THE DMI AGREEMENT PRIOR TO THE EARLIER OF:
(I) THE DATE WHICH IS SEVEN (7) DAYS AFTER THE EFFECTIVE DATE OR (II) THE DATE
("TRIGGER DATE") WHICH IS THE LATER OF (A) THE DAY AFTER THE DATE ON WHICH
DONALD J. CARTER DISCLOSES THE EXISTENCE OF THIS AGREEMENT TO ROSS PEROT, JR.
AND (B) THE DATE ON WHICH SELLER DISCLOSES THE EXISTENCE OF THE DMI AGREEMENT
TO SELLER'S EMPLOYEES AND OTHER PERSONS SELLER WISHES TO TELL BEFORE THE
EXISTENCE OF THIS AGREEMENT IS KNOWN GENERALLY. SELLER AGREES TO NOTIFY
PURCHASER OF THE TRIGGER DATE WITHIN A REASONABLE PERIOD FOLLOWING ITS
OCCURRENCE.
21.17 Retention by CCP. Until such time as all obligations of Seller to
Purchaser hereunder shall have expired, CCP or any Seller, shall retain or
place into its liquidating trust, as a reserve for contingent liabilities under
this Agreement and the DMI Agreement, an aggregate amount not to exceed
$5,000,000.00 plus one hundred twenty-five percent (125%) of the total of: (i)
all unpaid sums to which Purchaser is entitled pursuant to Section 20.3 or 20.4
of this Agreement or Sections 16.3 or 16.4 of the DMI Agreement, plus (ii) the
amount asserted by Purchaser in connection with any unresolved Adjustment Event
amount and any amount subject to arbitration in accordance with the provisions
of Section 20.4.
ARTICLE XXII
DEFINITIONS
The following terms used in this Agreement have the respective meanings
specified or referred to in this Article XXII. The "Defined Term Index"
attached hereto sets forth the Sections in this Agreement in which other terms
are defined.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. For purposes of
this definition, "control" (including "controlling", "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"Code" means the United States Internal Revenue Code of 1986, as amended,
and the applicable rulings and regulations thereunder.
-86-
<PAGE> 101
"Encumbrance" means any liability, debt, mortgage, deed of trust, pledge,
security interest, encumbrance, option, right of first refusal, agreement of
sale, adverse claim, easement, lien, assessment, restrictive covenant,
encroachment, burden or charge of any kind or nature whatsoever or any item
similar or related to the foregoing.
"Environmental Laws" means all Legal Requirements relating to injury to, or
the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements pertaining
to reporting, licensing, permitting, investigation, remediation and renewal of
emissions, discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, and including electro-magnetic fields or
discharges into the Environment, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature,
which are now or may hereafter be applicable to Seller or any of the Assets.
As used herein, the term "Environment" means the soil, surface waters, ground
waters, land, stream, sediments, surface or subsurface strata and ambient air.
"ERISA" means the United States Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor law, and all rules,
regulations, rulings and interpretations adopted by the Internal Revenue
Service or the Department of Labor thereunder.
"GAAP" means generally accepted accounting principles, in effect from time
to time in the United States (i) which are consistent with the principles
promulgated and adopted by the Financial Accounting Standards Board and it
predecessors as generally accepted accounting principles, (ii) which are
applied for all periods in a manner consistent with the manner in which such
principles and practices were applied to the most recent financial statements
furnished by Seller to Purchaser pursuant to this Agreement.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental private body exercising,
or purporting to exercise, any executive, legislative, judicial,
administrative, police, regulatory or taxing authority or power of any nature.
"Governmental Authorization" means any permit, license, franchise,
approval, certificate, consent, ratification, permission, confirmation,
endorsement, waiver, certification, registration, qualification or other
authorization issued, granted, given or otherwise made available by or under
the authority of any Governmental Authority or pursuant to any Legal
Requirement.
-87-
<PAGE> 102
"Hazardous Substances" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or remediation
under any Environmental Law; (b) which is defined as a "Hazardous Waste",
"Hazardous Material" or "Hazardous Substance" or "Pollutant" or "Contaminant"
under any applicable Environmental Law or amendments thereto, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et seq.), the
Clean Air Act, (42 U.S.C. Section 7401 et seq.) and any Environmental Law
applicable to any jurisdiction in which any of the Assets are located; (c)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is regulated by any
Governmental Authority; (d) without limitation, which contains gasoline, diesel
fuel or other petroleum hydrocarbons or volatile organic compounds; (e) without
limitation, which contains polychlorinated byphenyls ("PCBs") or asbestos or
urea formaldehyde foam insulation; or (f) without limitation, which contains or
emits radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
"IRS" means the United States Internal Revenue Service.
"Legal Requirement" means any federal, state, municipal, local or foreign
statute, law, ordinance, decree, requirement, judgment, order, treaty,
proclamation, convention, rule or regulation (or interpretation of any of the
foregoing) of any Governmental Authority or any principle, ruling or finding of
common law, including any Environmental Laws.
As used in this Agreement, "material" means a fact (e.g., an adverse
change) which it is reasonably likely that a prudent and knowledgeable
purchaser would attach importance in making a decision regarding the specific
item, in the context in which it is used. For example, in some contexts the
materiality issue relates to the entire transaction described in this Agreement
(e.g., Section 8.10.2) and in other cases it relates to a specific Asset or
group of Assets (e.g., Section 7.2.19, Section 7.4.3).
"Person" means any individual, corporation (including any non-profit
corporation), general partnership, limited partnership, joint venture, joint
stock association, estate, trust, cooperative, foundation, union, syndicate,
league, consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or entity of any nature, other than a
Governmental Authority.
"Proceeding" means any action, suit, litigation, arbitration, lawsuit,
claim, proceeding (including any civil, criminal, administrative, investigative
or appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination, investigation, challenge,
controversy or dispute commenced, brought, conducted or heard by or before, or
otherwise involving any Governmental Authority or arbitrator.
-88-
<PAGE> 103
EXECUTED on this the _________ day of __________, 1997.
SELLER:
CARTER-CROWLEY PROPERTIES, INC.,
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
HI CAPITAL CORP.,
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
METROPORT REALTY CORPORATION
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
HI PRODUCTION COMPANY, INC.
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
-89-
<PAGE> 104
EXECUTED on this the _____ day of ___________, 1997.
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS Agreement IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
REPUBLIC TITLE OF TEXAS, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
-90-
<PAGE> 105
AUTHORIZATION OF CONSENTING SHAREHOLDER
The undersigned shareholder of CCP hereby (i) approves and authorizes CCP
to execute this Agreement, and (ii) if the condition set forth in Section 10.15
is satisfied, agrees to exercise the undersigned shareholder's rights to vote
in favor of consummation of the Agreement and all transactions contemplated
hereunder.
ARDINGER FAMILY PARTNERSHIP, LTD.
By:
-----------------------------------
Horace T. Ardinger, Jr.
General Partner/Managing Partner
-91-
<PAGE> 106
AUTHORIZATION OF CONSENTING SHAREHOLDER
The undersigned shareholder of CCP hereby (i) approves and authorizes CCP
to execute this Agreement, and (ii) if the condition set forth in Section 10.15
is satisfied, agrees to exercise the undersigned shareholder's rights to vote
in favor of consummation of the Agreement and all transactions contemplated
hereunder.
-----------------------------------
Donald J. Carter
-92-
<PAGE> 107
AUTHORIZATION OF CONSENTING SHAREHOLDER
The undersigned shareholder of CCP hereby (i) approves and authorizes CCP
to execute this Agreement, and (ii) if the condition set forth in Section 10.15
is satisfied, agrees to exercise the undersigned shareholder's rights to vote
in favor of consummation of the Agreement and all transactions contemplated
hereunder.
DONALD J. AND LINDA J. CARTER
FAMILY PARTNERSHIP, LTD.
By:
-----------------------------------
Donald J. Carter
General Partner
By:
-----------------------------------
Linda J. Carter
General Partner
By: Donald J. and Linda J. Carter
Family Corporation
By:
-------------------------------
Donald J. Carter
President
-93-
<PAGE> 108
AUTHORIZATION OF CONSENTING SHAREHOLDER
The undersigned shareholder of CCP hereby (i) approves and authorizes CCP
to execute this Agreement, and (ii) if the condition set forth in Section 10.15
is satisfied, agrees to exercise the undersigned shareholder's rights to vote
in favor of consummation of the Agreement and all transactions contemplated
hereunder.
-----------------------------------
Linda J. Carter
-94-
<PAGE> 109
AUTHORIZATION OF CONSENTING SHAREHOLDER
The undersigned shareholder of CCP hereby (i) approves and authorizes CCP
to execute this Agreement, and (ii) if the condition set forth in Section 10.15
is satisfied, agrees to exercise the undersigned shareholder's rights to vote
in favor of consummation of the Agreement and all transactions contemplated
hereunder.
-----------------------------------
Ronald L. Carter
-95-
<PAGE> 110
ACQUISITION AGREEMENT
DEFINED TERM INDEX
The following terms are defined in the respective Section of the Agreement
indicated below.
<TABLE>
<CAPTION>
DEFINED TERM DEFINITION LOCATION
- ------------ -------------------
<S> <C>
AAA 20.4
AAA Rules 20.4
AAA Selection Notice 20.4
actual knowledge 7.1
Addison Air Terminal Exhibit 1.2.1(i)
Addison Hangars Exhibit 1.2.1(i)
Addison Notice 8.2.16
Additional Operating Expense Rent 14.2.5
Adjustment Event 20.3.1
Adjustment Floor 20.3.1
Adjustment Notice 14.2.5
Affected Tenants 14.2.5
Affiliate Article XXII
Agreement Introductory Paragraph
Airport Estoppel 9.2.2
Airport Leasehold 1.2.1
Airport Lessor 9.2.2
Allied Deed of Trust 1.8
Allied Note Exhibit 1.8
Allied Tract 1.8
Apartments 1.11
Appropriate Expense Information 14.2.5
Approved Sale Contract 8.2.17
Arbitration Event 20.4
Arbitration Notice 20.4
Arbitrators 20.4
Arena Bonds 1.7
Asset Allocation 2.3
Assets 1.1
Asset Information 21.10
Assumption Conditions 14.2.7
Banc One Stock 1.6
</TABLE>
-96-
<PAGE> 111
<TABLE>
<S> <C>
Bloom 9.2.1
Bloom Lease 9.2.1
Breckenridge Apartments Exhibit 1.2
Casualty 17.2.2
Casualty Loss Information 17.2.2
CCP Introductory paragraph
Cessna Citation Lease 1.9
Cessna V Ultra PA 1.9
Citation Agreements Exhibit 1.9
Citation Consents 10.9.2
Citation Interest 1.9
Closing Article XI
Closing Date Article XI
Closing Direction 21.1
Closing Rent Roll 12.2.3
Closing Title Commitments 10.2.1
Code Article XXII
Combined Oil and Gas Interests 10.14
CompUSA 8.2.16
CompUSA Agreement 8.2.16
CompUSA Lease 8.2.16
Confidentiality Period 21.10
Consent Conditions 10.11
Contractual Liabilities 16.7
costs of curing 20.3.1
DBL 2.4
DBL Adjustment 2.4
DBL GP 2.4
DBL Partnership Agreement 2.4
Deeds 12.2
Defensible Title 5.3
Disposition Notice 2.2.2
DMI Introductory paragraph
DMI Agreement 2.4
DMI Assignment 2.4
DMI Agreement Expenses 8.3.1.3
Due Diligence Items 4.1
Earnest Money 3.1
Effective Date Introductory paragraph
Eligible Refund 14.2.1
Employee 21.13
Employment Laws 7.4.16
</TABLE>
-97-
<PAGE> 112
<TABLE>
<S> <C>
Employment Term 21.13
Encumbrance Article XXII
Environmental Laws Article XXII
ERISA Article XXII
Exceptions 5.1
Exempt Tract 8.2.17
Existing Lease 9.2.1
Existing Tenant 9.2.1
Extended Closing Date 9.2.2
Fairness Opinion 10.15
Fairness Opinion Termination Deadline 10.15
Fairness Opinion Notice 10.15
FEMA 8.2.18
Final Resolution 20.4
First Adjustment Notice 20.3.3
First Rent Roll 7.2.2
GAAP Article XXII
Governmental Authority Article XXII
Governmental Authorization Article XXII
Ground Leases 1.2.5
Ground Lessor Estoppels 9.2.2
Guaranty Agreements 1.8
Hangars 1.2.2
Hazardous Substances Article XXII
HCC Introductory paragraph
Hicks Muse Equity Fund II 1.3.3
Hicks Muse Partnership Agreements 4.3.3.1
Hicks Muse Partnership Interests 1.3.3
HM2/GP 1.3.3
HPC Introductory paragraph
Improvements 1.2.2
Indemnified Party 16.3
Indemnifying Party 16.3
Inspection Period 6.1
Insurance Coverage 16.7
Intangibles 1.2.7
Intellectual Property Assets 7.4.19
IRS Article XXII
knowledge 7.1
Kosmeo Note Exhibit 1.8
Land 1.2.1
Leases 1.2.4
</TABLE>
-98-
<PAGE> 113
<TABLE>
<S> <C>
Lease Deadline 14.2.7
Lease Obligation Credit 14.2.7
Legal Requirement Article XXII
liabilities 7.4.5
Loss Rents Proceeds 17.2.3
Major Taking 17.1
Marketable Securities 1.6
Masco Stock 1.6
material Article XXII
Moody-Day 1.4
Moody-Day Audited Financial Statements 4.4.2
Moody-Day Balance Sheet 7.4.5
Moody-Day Benefits Plans 4.4.7
Moody-Day Contracts 7.4.9
Moody-Day Equipment Debt 8.1.10
Moody-Day Financial Statements 4.4.2
Moody-Day Governing Document 4.4.1
Moody-Day Insurance Policies 4.4.8
Moody-Day Interim Financial Statements 4.4.2
Moody-Day 1997 Financial Statements 4.4.2
Moody-Day Stock 1.4
Moody-Day Tracts 1.4
MRC Introductory paragraph
Municipal Bonds 1.7
Net Sales Proceeds 2.2.2
Objection Notice 5.1
Objectionable Exception 5.1
Objectionable Persons 20.4
Offer Letter 8.2.16
Office Buildings 1.11
Office Properties 1.11
Ohio Drive 1 Reclamation Project 8.2.18
O&G Consents 9.5
Oil and Gas Interests 1.5
Oil and Gas Title Defects 5.3
Oil and Gas Title Review Period 5.3
Open Issues 20.6
Operating Agreements 1.2.6
Operating Expense Adjustment Deadline 14.2.5
Operating Expense Objection 14.2.5
Operating Expense Rent 14.2.5
Original Resolution 20.4
</TABLE>
-99-
<PAGE> 114
<TABLE>
<S> <C>
Other Partners 2.4
Panel List 20.4
Parcel 1.11
Partial Designee 21.1
Partnership 1.3.3
Partnership Agreements 1.3.3
Partnership Assignment 12.3
Partnership Consents 9.3
Partnership Interests 1.3
Party Selection Notice 20.4
Permits 1.2.8
Permitted Exceptions 5.2
Person Article XXII
Personal Property 1.2.3
Pre-Closing Title Commitment 5.1
Pre-Execution Leases 14.2.7
Pre-Execution Lease Expenses 14.2.7
Pre-Execution Lease Obligations 14.2.7
Preliminary Notice 20.4
Principal Officers 7.1
Proceeding Article XXII
Promissory Notes 1.8
Property 1.2.8
Property and Liability Insurance 17.2.4
Purchaser Introductory paragraph
Purchaser Indemnitees 16.1
Purchase Price 2.1
Purchaser's Adjustment Proposal 20.3.3
Purchaser's Conditions 10.1
Purchaser's Estimate 17.2.2
Purchaser's Insurance Proceeds 17.2.3
Purchaser's Representatives 21.10
Purchaser's Resolution 20.4
Radovir Installment Request 2.2.6
Radovir Installments 2.2.6
Radovir Obligation 2.2.6
Radovir Payment 2.2.6
Real Property Assets 1.2
Restoration Costs 17.2.1
Restoration Documents 17.2.2
Restoration Plans 17.2.2
Restricted Period 2.4
</TABLE>
-100-
<PAGE> 115
<TABLE>
<S> <C>
Restrictions 5.1
Rising Star Merger 8.3.3
Rising Star Oil and Gas Interests 4.3.2.2
Rising Star Partnership Agreements 4.3.2.1
Rising Star Partnership Interests 1.3.2
RSE-I 1.3.2
RSE-II 1.3.2
Second Adjustment Notice 20.3.3
Security Deposits 1.2.4
Security Documents 1.8
Seller 1.12
Seller Indemnitees 16.2
Seller Representations 7.1
Seller's Adjustment Proposal 20.3.3
Seller's Conditions 10.12
Seller's Corporate Approvals 10.1.5
Seller's Estimate 17.2.2
Seller's Lease 8.2.15
Seller's Resolution 20.4
Seller's Share 14.2.5
Settlement Period 20.4
Spinoff Affiliate 21.1
Stadium Bonds 1.10
Stadium Improvements 1.10
Stadium License Agreement 1.10
Stadium Suite 1.10
Stemmons Estoppel 9.2.2
Stemmons Ground Lease 1.2.1
Stemmons Leasehold 1.2.1
Stemmons Lessor 9.2.2
Stemmons Substitute Estoppel 9.2.2
Substitute Certificate 9.2.1
Substitute Certificate Condition 9.2.1
Substitute Estoppel 9.6
Suite Consents 10.10
Survey 5.1
Taking 17.1
Tax 7.4.10
Tax Return 7.4.10
Tenant Estoppel Deadline 9.2.1
Tenant Estoppels 9.2.1
Texas Stadium Suite 1.10
</TABLE>
-101-
<PAGE> 116
<TABLE>
<S> <C>
The Addison Exhibit 1.2
The Meridian Exhibit 1.2
Ticket Options 1.10
Title Company 3.1
Title Policies 10.2.1
Trading Day 2.2.2
Trigger Date 21.16
UCC Searches 5.1
Undeveloped Land 1.11
Williams Note Exhibit 1.8
Withdrawal Notice 20.3.3
Woodwind Apartments Exhibit 1.2
85% Requirement 9.2.1
</TABLE>
- --------------------
-102-
<PAGE> 117
ACQUISITION AGREEMENT
(MAVERICKS AGREEMENT)
BY AND AMONG
DALLAS MAVERICKS, INC.
("SELLER")
AND
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
("PURCHASER")
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
ASSETS.................................. 1
1.1 Assets................................................................. 1
1.2 Partnership Interests.................................................. 1
1.3 Promissory Notes....................................................... 1
1.4 Assets................................................................. 1
ARTICLE II
PURCHASE PRICE............................ 1
2.1 Purchase Price......................................................... 1
2.2 Adjustments to Purchase Price.......................................... 2
2.2.1 Partnership Interests........................................... 2
2.2.2 Promissory Note Payments........................................ 2
2.3 Allocation of Purchase Price........................................... 2
ARTICLE III
EARNEST MONEY.............................. 2
3.1 Earnest Money.......................................................... 2
ARTICLE IV
DUE DILIGENCE AGREEMENTS........................ 2
4.1 Due Diligence Deliveries............................................... 2
4.2 Partnership Interests.................................................. 3
4.2.1 DBL Partnershp Agreement........................................ 3
4.2.2 Capital Contributions........................................... 3
4.2.3 Unfunded Commitments............................................ 3
4.2.4 DBL Financial Information....................................... 3
4.2.5 Other Information............................................... 3
4.2.6 Tax Records..................................................... 3
4.3 Promissory Notes....................................................... 3
4.3.1 Notes and Security Documents.................................... 3
4.3.2 Payments Received............................................... 3
4.3.3 Documents....................................................... 3
4.4 Other Documents........................................................ 4
4.5 Records in Possession of Seller........................................ 4
ARTICLE V
INSPECTION PERIOD............................ 4
5.1 Inspection Period...................................................... 4
</TABLE>
- i -
<PAGE> 119
<TABLE>
<S> <C> <C>
5.2 Purchaser's Right to Review Books...................................... 5
5.3 Sellers' Cooperation Regarding DBL Limited............................. 5
5.4 Continuing Access Prior to Closing..................................... 5
ARTICLE VI
REPRESENTATIONS AND WARRANTIES................... 6
6.1 Representations and Warranties of Seller............................... 6
6.1.1 Organization, Existence and Good Standing....................... 6
6.1.2 Authorization; Enforceability................................... 6
6.1.3 No Violation of Laws or Agreements.............................. 7
6.1.4 No Proceedings.................................................. 7
6.1.5 No Rights of First Refusal...................................... 7
6.1.6 Accuracy of Documents........................................... 7
6.1.7 Disclosure...................................................... 7
6.2 Partnership Interest................................................... 7
6.2.1 General......................................................... 7
6.2.1.1 Ownership.............................................. 8
6.2.1.2 Organization, Existence and Good Standing.............. 8
6.2.1.3 Partnership Agreements; Amendments..................... 8
6.2.1.4 No Default; No Litigation.............................. 8
6.2.1.5 No Obligations......................................... 8
6.2.1.6 Right to Transfer; Right to Become Substitute
Limited Partner...................................... 8
6.2.2 Related Agreements and Rights................................... 8
6.2.3 Approvals; Consents............................................. 9
6.2.4 Partners; Majority Interest..................................... 9
6.3 Promissory Notes....................................................... 9
6.3.1 Ownership....................................................... 9
6.3.2 No Additional Agreements........................................ 9
6.3.3 Consents and Approvals.......................................... 9
6.3.4 No Default...................................................... 9
6.3.5 No Advances..................................................... 10
6.3.6 Principal Balances.............................................. 10
6.3.7 Valid Liens..................................................... 10
6.3.8 No Defenses, Setoffs, Counterclaims............................. 10
6.4 Representations and Warranties of Purchaser............................ 10
6.4.1 Organization, Existence and Good Standing....................... 10
6.4.2 Authorization; Enforceability................................... 10
6.4.3 No Violation of Laws or Agreements.............................. 10
6.4.4 No Proceedings.................................................. 11
6.5.5 Investment...................................................... 11
</TABLE>
- ii -
<PAGE> 120
<TABLE>
<S> <C> <C>
ARTICLE VII
SELLER'S AGREEMENTS PRIOR TO CLOSING................. 11
7.1 Seller's Agreements prior to Closing................................... 11
7.1.1 Untrue Representations.......................................... 11
7.1.2 Notice of Proceedings........................................... 11
7.1.3 Commercially Reasonable Efforts................................. 11
7.1.4 Notification of Certain Matters................................. 11
7.1.5 Operation Prior to the Closing Date............................. 12
7.1.6 Performance of Obligations...................................... 12
7.1.7 No Transfer or Encumbrances..................................... 12
7.1.8 No Breach....................................................... 12
7.1.9 Compliance with Legal Requirements.............................. 12
7.1.10 Affiliate Indebtedness.......................................... 12
7.2 DBL Partnership Interests.............................................. 13
7.2.1 Notices; Participation.......................................... 13
7.2.2 Contributions and Distributions................................. 13
7.2.3 Consents from Partners and Third Parties........................ 13
7.2.4 Carter Agreement................................................ 14
7.2.5 Subordination Agreements........................................ 14
7.2.6 Rights of First Refusal......................................... 14
7.3 Promissory Notes....................................................... 14
7.3.1 Notice of Proceedings........................................... 14
7.3.2 No Encumbrances................................................. 14
7.3.3 Hillwood Consent................................................ 14
7.3.4 No Amendments or Modifications.................................. 14
7.3.5 Prepayments..................................................... 15
7.3.6 No Releases..................................................... 15
7.4 Purchaser's General Agreements Prior to Closing........................ 15
7.4.1 Untrue Representations.......................................... 15
7.4.2 Notice of Proceedings........................................... 15
7.4.3 Commercially Reasonable Efforts................................. 15
7.4.4 No Breach....................................................... 15
7.4.5 Untrue Representations.......................................... 16
ARTICLE VIII
DELIVERY OF CONSENTS AND ESTOPPELS................. 16
8.1 Consents and Estoppels................................................. 16
8.2 Partnership Interests.................................................. 16
8.3 Promissory Notes....................................................... 16
ARTICLE XI
CONDITIONS............................... 16
</TABLE>
- iii -
<PAGE> 121
<TABLE>
<S> <C> <C>
9.1 Purchaser's Conditions................................................. 16
9.1.1 Representations, Warranties and Covenants....................... 16
9.1.2 No Material Adverse Change...................................... 17
9.1.3 No Pending Litigation........................................... 17
9.1.4 Closing Documents............................................... 17
9.1.5 Authorization................................................... 17
9.1.6 No Prohibition of Transaction................................... 17
9.1.7 Documentation................................................... 18
9.1.8 Affiliate Indebtedness.......................................... 18
9.2 DBL Partnership Interests.............................................. 18
9.3 Promissory Notes....................................................... 18
9.3.1 No Default...................................................... 18
9.3.2 Principal Balance............................................... 18
9.3.3 Hillwood Consent................................................ 18
9.4 Failure of Consent Conditions.......................................... 18
9.5 Seller's Conditions to Closing......................................... 18
9.5.1 Representations, Warranties and Covenants....................... 19
9.5.2 No Pending Litigation........................................... 19
9.5.3 Authorization................................................... 19
9.5.4 No Prohibition of Transaction................................... 19
9.6 Failure of Seller's Conditions to Closing.............................. 19
9.7 Fairness Opinion....................................................... 19
ARTICLE X
CLOSING................................. 20
ARTICLE XI
SELLER'S OBLIGATIONS AT CLOSING................... 20
11.1 Seller's Obligations at Closing........................................ 20
11.1.1 General Closing Obligations of Seller........................... 20
11.1.2 Affiliate Indebtedness.......................................... 21
11.2 DBL Partnership Interests.............................................. 21
11.3 Promissory Notes....................................................... 21
11.3.1 ................................................................ 21
11.3.2 ................................................................ 21
11.3.3 ................................................................ 21
11.3.4 ................................................................ 21
11.3.5 ................................................................ 21
11.3.6 ................................................................ 21
11.3.7 ................................................................ 21
</TABLE>
- iv -
<PAGE> 122
<TABLE>
<S> <C> <C>
ARTICLE XII
PURCHASER'S OBLIGATIONS AT CLOSING................... 22
12.1 Purchaser's Obligations at Closing.................................... 22
12.1.1 General Closing Obligations of Purchaser....................... 22
12.2 DBL Partnership Interests............................................. 22
ARTICLE XIII
COSTS AND ADJUSTMENTS.......................... 22
ARTICLE XIV
AS IS PROVISION............................. 22
ARTICLE XV
NOTICES................................ 23
ARTICLE XVI
REMEDIES................................ 25
16.1 Default by Seller..................................................... 25
16.2 Default by Purchaser.................................................. 25
16.3 Adjustment Events..................................................... 25
16.3.1 Definitions.................................................... 25
16.3.2 Adjustment Procedure. ........................................ 25
16.3.3 Effect of Closing.............................................. 26
16.3.4 Sole Remedy.................................................... 27
16.4 Arbitration........................................................... 27
16.5 Incidental and Consequential Damages.................................. 28
16.6 Survival of Sections 16.3 and 16.4.................................... 28
ARTICLE XVII
MISCELLANEOUS............................. 29
17.1 Assignment............................................................ 29
17.2 Interpretation and Applicable Law..................................... 29
17.3 Amendment............................................................. 29
17.4 Attorneys' Fees....................................................... 30
17.5 Descriptive Headings.................................................. 30
17.6 Entire Agreement...................................................... 30
17.7 Counterparts.......................................................... 30
17.8 Time.................................................................. 30
17.9 Commissions and Finders Fee........................................... 30
17.10 Confidentiality....................................................... 31
17.11 Rule of Construction.................................................. 33
17.12 Shareholder Consent................................................... 33
</TABLE>
- v -
<PAGE> 123
<TABLE>
<S> <C> <C>
17.13 Access to Records after Closing....................................... 33
17.14 Special Non-Disturbance Agreement..................................... 33
17.15 Retention by DMI or CCP............................................... 34
17.16 Joinder by CCP........................................................ 34
ARTICLE XVIII
DEFINITIONS............................... 34
</TABLE>
- vi -
<PAGE> 124
ACQUISITION AGREEMENT
(MAVERICKS AGREEMENT)
This Acquisition Agreement ("Agreement") is entered into by and
between DALLAS MAVERICKS, INC., a Texas corporation ("DMI" or "Seller") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Purchaser"), as of the 10th day of February, 1997 (the "Effective
Date").
R E C I T A L S :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions.
ARTICLE I
ASSETS
1.1 Assets. Seller agrees to sell and Purchaser agrees to purchase in
accordance with the terms of this Agreement the assets described in Sections
1.2 and 1.3.
1.2 Partnership Interests. The interests of Seller in Dallas
Basketball Limited, a Texas limited partnership ("DBL Limited"), and in those
certain agreements and rights related to or associated with Seller's interest
in DBL Limited, as more particularly described in Exhibit 1.2 (collectively,
the "DBL Partnership Interests"). DBL Limited is sometimes referred to herein
as the "Partnership" and the agreements described in Exhibit 1.2 describing and
evidencing the DBL Partnership Interests, including all amendments thereto, are
referred to herein collectively as the "DBL Partnership Agreements".
1.3 Promissory Notes. The promissory notes (the "Promissory Notes"),
and all documents securing their payment (the "Security Documents"), described
on Exhibit 1.3.
1.4 Assets. The DBL Partnership Interests and Promissory Notes are
hereinafter sometimes referred to individually as an "Asset" or collectively as
the "Assets."
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price ("Purchase Price") to be paid
by Purchaser to Seller for the Assets shall be the sum of Sixty-Six Million
Four Hundred Seventy-five Thousand and No/100 Dollars ($66,475,000.00). The
Purchase Price shall be paid all in cash at the Closing.
<PAGE> 125
2.2 Adjustments to Purchase Price. The Purchase Price may be adjusted
in accordance with the provisions of this Section 2.2.
2.2.1 Partnership Interests. The Purchase Price shall be
increased by an amount equal to any capital contributions made by Seller with
respect to the DBL Partnership Interests from and after January 1, 1997 through
the Closing Date, and reduced by an amount equal to any distributions made to
Seller from the DBL Partnership from and after January 1, 1997 through Closing.
2.2.2 Promissory Note Payments. The Purchase Price shall be
reduced by any payments of principal received by Seller subsequent to January
1, 1997 with respect to any of the Promissory Notes.
2.3 Allocation of Purchase Price. Seller and Purchaser agree that the
Purchase Price is allocated among the Assets as set forth on Exhibit 2.3.
Exhibit 2.3 is sometimes called "Asset Allocation."
ARTICLE III
EARNEST MONEY
3.1 Earnest Money. On the day of execution of this Agreement by all
parties hereto (or if such execution occurs after 12:00 p.m., Dallas, Texas
time on the subject day, then on the first business day following such
execution), Purchaser shall deliver Eight Hundred Seventy- five Thousand and
No/100 Dollars ($875,000.00) (the "Earnest Money") by wire transfer to Republic
Title of Texas, Inc., 300 Crescent Court, Suite 100, Dallas, Texas 75201, Attn:
Rhenda Addison (the "Title Company"). The Title Company shall immediately
deposit the Earnest Money in an interest bearing account, the earnings from
which shall accrue to the benefit of Purchaser. In the event that this
Agreement is closed, all Earnest Money shall be applied to the Purchase Price.
In the event that this Agreement is not closed for any reason whatsoever, then
the Earnest Money shall be disbursed to Seller except as otherwise specifically
provided herein.
ARTICLE IV
DUE DILIGENCE AGREEMENTS
4.1 Due Diligence Deliveries. On and after the Effective Date, Seller
shall make those items described in Article IV ("Due Diligence Items")
available to Purchaser and its representatives at the offices of Seller set
forth in Article XV or at the current location of such items. Additionally,
Seller will cooperate with Purchaser and its representatives in making copies
of said items, at the expense of Purchaser, including but not limited to
allowing said items to be temporarily removed from Seller's offices for
copying, making space available for Purchaser and its representatives to review
and copy said items and providing electrical power
- 2 -
<PAGE> 126
and space for copying on site. Notwithstanding the generality of the provisions
of this Article IV, Seller shall not be obligated to provide to Purchaser or
its representatives any information of or related to any pending or threatened
litigation if providing such information would jeopardize the attorney/client
privilege.
4.2 Partnership Interests.
4.2.1 DBL Partnership Agreement. Copies of the documents and
agreements listed on Exhibit 1.2, together with any and all amendments thereto
and restatements thereof (the "DBL Partnership Agreements").
4.2.2 Capital Contributions. A schedule of the total capital
contributions and distributions of the DBL Partnership from July 1, 1996
through the Effective Date.
4.2.3 Unfunded Commitments. A schedule of any unfunded capital
commitment obligations of Seller to the DBL Partnership, specifically
identifying the dates and manner on or in which the funding obligations arose.
4.2.4 DBL Financial Information. The financial statements,
reports, budgets and other financial information regarding DBL Limited or the
DBL Partnership Interests which have been provided to Seller by or on behalf of
DBL Limited or which have been prepared or obtained by or at the direction or
request of Seller in connection with its ownership of the DBL Partnership
Interests.
4.2.5 Other Information. Copies of all notices given or received
by Seller pursuant to the DBL Partnership Agreement, together with reasonable
access to the records in Seller's possession relating to the DBL Partnership
Interests for the period after July 1, 1996 including, but not limited to,
correspondence, memoranda, and other information.
4.2.6 Tax Records. Such information as is reasonably available to
Seller regarding the federal income tax attributes of Seller's interest in the
Partnership.
4.3 Promissory Notes.
4.3.1 Notes and Security Documents. Copies of the Promissory
Notes, Security Documents and UCC filings relating thereto.
4.3.2 Payments Received. Copies of all documents showing payments
of principal and interest received on the Promissory Notes, together with
summary schedules thereof for each Promissory Note.
- 3 -
<PAGE> 127
4.3.3 Documents. Copies of all documents of every kind and nature
created by or addressed to Seller, related to the Promissory Notes and the
Security Documents and dated after July 1, 1996 (together with documents prior
to such date that are reasonably determined to be relevant to Purchaser's
review, if any) including all correspondence received from the makers of the
Promissory Notes, all correspondence to the makers of the Promissory Notes, all
correspondence to and received from the Federal Aviation Administration
("FAA"), the documents listed on Exhibit 1.2, correspondence from the NBA (as
hereafter defined) consenting to the transaction(s) which culminated with the
delivery of such documents, and all files related to the Promissory Notes and
Security Documents.
4.4 Other Documents. Such other documents, records and information as
Purchaser shall reasonably request and are reasonably accessible to Seller in
order to verify the accuracy of the Seller Representations.
4.5 Records in Possession of Seller. Purchaser acknowledges that
Seller may not have some of the items described in Article IV as regards the
Partnership Interests and agrees that, to the extent Seller does not have said
items, Seller shall only be required to use commercially reasonable efforts to
cause the persons who have said items to make them available to Purchaser and
its representatives.
ARTICLE V
INSPECTION PERIOD
5.1 Inspection Period. Purchaser, at Purchaser's sole expense, shall
have the right to conduct a study of the Assets for a period of time commencing
on the Effective Date and expiring on the date which is sixty (60) days after
the Effective Date (the "Inspection Period"). Purchaser and Purchaser's duly
authorized agents or representatives shall be permitted to enter upon the
location constituting the principal place of business of Seller, and to the
extent Seller is able to obtain such access for Purchaser, the offices of the
Partnership, at all reasonable times during the Inspection Period in order to
conduct studies and any other inspections, reviews and/or tests that Purchaser
may deem reasonably necessary or advisable. In the event that the review and/or
inspection conducted by this Section shows any fact, matter or condition to
exist with respect to the Assets that is unacceptable to Purchaser, in
Purchaser's sole discretion, or if for any reason Purchaser determines that
purchase of the Assets is not feasible, then Purchaser shall be entitled, as
Purchaser's sole remedy, to cancel this Agreement by providing written notice
of cancellation to Seller prior to the expiration of the Inspection Period. If
Purchaser shall provide written notice of cancellation prior to the expiration
of the Inspection Period, then this Agreement shall be canceled, all Earnest
Money shall be immediately paid to Seller by the Title Company, Purchaser shall
return to Seller all of the Due Diligence Items, and thereafter neither Seller
nor Purchaser shall have any continuing obligations one unto the other except
as provided in Section 17.9. Purchaser shall indemnify and hold Seller harmless
from and against any and all claims, causes of action or expenses asserted
against or incurred by Seller and
- 4 -
<PAGE> 128
arising out of the acts or failures to act of Purchaser or its representatives
in connection with their inspections of any of the Assets. Notwithstanding any
provision of this Agreement to the contrary, the foregoing indemnity shall
survive any termination of this Agreement.
5.2 Purchaser's Right to Review Books. Following the Effective Date,
Seller, at Purchaser's sole cost and expense, shall furnish to Purchaser and
Purchaser's accountants and other representatives full and reasonable access to
the books and records of Seller relating to the Assets and to all financial
information or other information known or possessed by each Seller with respect
to the Assets which Purchaser or Purchaser's accountants or other
representatives may reasonably request in connection with any financial audits
Purchaser elects to conduct with respect to the Assets, and, at Purchaser's
sole cost and expense, shall cooperate fully, and shall instruct their
accountants, attorneys and other representatives to cooperate fully with
Purchaser and Purchaser's accountants and other representatives in obtaining
all financial or other information which Purchaser or its accountants or other
representatives may reasonably request in connection with any financial audits
conducted with respect to the Assets, including without limitation providing to
Purchaser's accountants such management representation letters or legal
representation letters which Purchaser's accountants are required to obtain in
order to issue financial audits. Notwithstanding anything herein, nothing in
this Agreement shall require Seller to disclose any information regarding cash
of Seller or other assets of Seller not being acquired by Purchaser hereunder.
The obligations of this Section 5.2 shall survive Closing and continue until
Purchaser and/or Purchaser's accountants have completed any and all audits of
or with respect to the Assets, which Purchaser, in its sole discretion,
determines are reasonably needed.
5.3 Sellers' Cooperation Regarding DBL Limited. Seller, at Purchaser's
sole cost and expense, agrees to cooperate with Purchaser in obtaining
information from the Partnership. Seller and Purchaser shall endeavor to meet
with representatives of DBL Limited and shall seek to allow Purchaser and
Purchaser's agents and representatives such access to information regarding DBL
Limited which Purchaser deems reasonably necessary or appropriate and which is
available to Seller. Purchaser agrees to review and, where appropriate, execute
and deliver to such entity or entities such confidentiality or non-disclosure
agreements as may be reasonably necessary to allow Purchaser access to the
records or information sought. Seller, at Purchaser's sole cost and expense,
shall cooperate with Purchaser in obtaining consents from each entity or
participant therein which is required to give its consent including arranging
meeting(s) with representatives of DBL Limited or other entities or
participants therein and providing, prior to any such meetings, reasonable
background information and support to Purchaser which Seller reasonably
believes may be important in obtaining the required consent.
5.4 Continuing Access Prior to Closing. If this Agreement is not
terminated on or before the end of the Inspection Period, Seller and Purchaser
contemplate that Purchaser will have continuing access to information regarding
the Assets after the termination of the Inspection Period but prior to Closing.
Seller, at Purchaser's sole cost and expense, will cooperate with Purchaser and
Purchaser's agents and representatives to allow such access and
- 5 -
<PAGE> 129
to provide continuing updates to information regarding the Assets as may be
reasonable to assure that Purchaser has all of the material information
regarding the Assets that Seller has been given from and after the Effective
Date but prior to Closing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Seller. Seller represents and
warrants that the statements set forth in Sections 6.1 through 6.3 are true and
correct in all material respects as of the Effective Date. Said statements are
herein called "Seller Representations." When used in this Agreement: (i)
"knowledge" or "actual knowledge" means the current actual knowledge of any of
the Principal Officers or the existence of any information in the records or
files of the Seller at the time the respective Seller Representation was made,
and (ii) "Principal Officers" means Donald J. Carter, Ronald Carter, Jeff Fink
and B.G. Moore. Notwithstanding the foregoing, or any other provision of this
Agreement to the contrary (other than this Section 6.1), Seller shall have no
liability whatsoever to Purchaser or any Affiliate of Purchaser for any breach
of any Seller Representation, except that such a breach may constitute an
Adjustment Event and thus serve as the basis for adjustment to the Purchase
Price in accordance with Section 16.3. Purchaser acknowledges that (i) the
Seller Representations are, in many cases, made without current actual
knowledge of any of the Principal Officers as to whether they are true or
false, (ii) that, due to lack of current actual knowledge of any of the
Principal Officers, some Seller Representations may be false when made, and
(iii) the Seller Representations are made by Seller solely to allocate the risk
between the parties of certain matters prior to Closing and to serve as the
basis for determining the existence of an Adjustment Event. Purchaser (for
itself and its Affiliates) agrees that it shall have no basis for any claim of
fraud in the inducement or otherwise relating to any of the Seller
Representations set forth herein being false when made; however, Purchaser may
seek actual damages suffered by it as a result of any Seller Representation
herein having been false when made if Purchaser establishes that such Seller
Representation was known by one or more of the Principal Officers of Seller to
be false when made and was made by Seller with intent to mislead Purchaser.
None of the Seller Representations shall survive Closing.
6.1.1 Organization, Existence and Good Standing. Seller is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and
authority to carry on its business as now being conducted, to own or lease and
operate its Assets as now owned, leased or operated, and to perform all its
obligations under the agreements and instruments to which it is a party or by
which it is bound.
6.1.2 Authorization; Enforceability. This Agreement, and each
other agreement to which Seller is to become a party pursuant to the provisions
hereof, when executed and delivered by Seller and, if applicable, approved by
the shareholder of Seller, shall constitute the legal, valid and binding
obligations of Seller, enforceable against it in accordance with their
- 6 -
<PAGE> 130
respective terms, except to the extent limited by bankruptcy, reorganization
and other moratorium laws generally affecting the rights of creditors and the
availability of equitable remedies. All actions contemplated by this Section
have been or after necessary shareholder approval will have been duly and
validly authorized by all necessary proceedings by Seller.
6.1.3 No Violation of Laws or Agreements. Neither the execution
and delivery of this Agreement or any other agreement to which Seller is or is
to become a party pursuant to the provisions hereof, the consummation of the
transactions contemplated hereby or thereby nor the compliance with or
fulfillment of the terms, conditions or provisions hereof or thereof by Seller
will, except for the need to obtain the Consents contemplated by this
Agreement: (i) conflict with, result in a breach of, constitute a default (or
an event that might, with the passage of time or the giving of notice or both,
constitute a default or event of default) under any of the terms of, result in
termination of, result in the loss of any right under, or give to any other
Person the right to cause such a termination of or loss under any Asset or any
contract, agreement or instrument to which Seller is a party or by which any of
the Assets may be bound or affected, or (ii) violate any Legal Requirement to
which Seller is subject or by which any of the Assets may be bound or affected.
6.1.4 No Proceedings. No Proceeding is pending or, to the
knowledge of Seller, threatened against or affecting Seller, any of the Assets,
the ability of Seller to perform its obligations under this Agreement or any of
the transactions contemplated hereby. Seller has not received any notice of any
violation of any Legal Requirement pertaining to any of the Assets.
6.1.5 No Rights of First Refusal. Except as disclosed in other
provisions of this Agreement or contained in the DBL Partnership Agreements,
there are no existing options, rights, warrants, commitments, agreements or
instruments of any type to which Seller is bound, or to which any Asset is
subject, under or pursuant to which any Person shall be given, provided or
otherwise afforded the right, option, occasion, possibility or opportunity to
purchase any Asset.
6.1.6 Accuracy of Documents. All documents, records, listings and
schedules delivered to Seller pursuant to Article IV are in all material
respects true, correct and complete copies of all the documents and records
delivered or to be delivered.
6.1.7 Disclosure. No Seller Representation or statement in the
Exhibits or in any items delivered pursuant to Article IV contains any untrue
statement of a material fact.
6.2 Partnership Interest.
6.2.1 General
- 7 -
<PAGE> 131
6.2.1.1 Ownership. Seller is the record and beneficial owner
of the DBL Partnership Interests and has good, valid and indefeasible record
and beneficial title to the DBL Partnership Interests free and clear of any
adverse claim of any Person, including any Encumbrances (except as set forth in
the Partnership Agreements). The transfer and assignment documents to be
delivered to Purchaser on the Closing Date will transfer to and vest in
Purchaser good, valid and indefeasible title to the DBL Partnership Interests,
free and clear of any adverse claims of any Person, including any Encumbrance
(except as set forth in the Partnership Agreements).
6.2.1.2 Organization, Existence and Good Standing. DBL
Limited is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and is, to the extent necessary, qualified
to do business in each jurisdiction in which it operates, it has all requisite
partnership power and authority to carry on its business as now being
conducted, to own or lease and operate its properties and assets as now owned,
leased or operated, and to perform all of its obligations under the agreements
and instruments to which it is a party or by which it is bound.
6.2.1.3 Partnership Agreements; Amendments. Seller has
delivered to Purchaser true and correct copies of all of the DBL Partnership
Agreements which are listed on Exhibit 1.2 and such DBL Partnership Agreements
have not been amended or modified in any way, except for amendments copies of
which have been delivered to Seller prior to the Effective Date.
6.2.1.4 No Default; No Litigation. There has been no default
by Seller or, to Seller's knowledge, no default by any other partner, under or
pursuant to the DBL Partnership Agreements. To Seller's knowledge, DBL Limited
is not a party to any material litigation not fully covered by insurance, and
there is no litigation affecting the rights of DBL Limited in any of its assets
or business that would, if determined adversely to DBL Limited, have a material
adverse affect on the value of those assets or that business. There is no
litigation involving Seller's interest in DBL Limited or the rights related
thereto.
6.2.1.5 No Obligations. Except as provided in the DBL
Partnership Agreements or materials delivered to Purchaser pursuant to Section
4.2, Seller is not and, upon acquisition of the DBL Partnership Interests,
Purchaser will not be, obligated to make any capital contributions or return
any capital or otherwise pay any amounts with regard to the DBL Partnership
Interests. This Section 6.2.1.5 does not relate to capital contribution
obligations arising after the Closing pursuant to the terms of the respective
DBL Partnership Agreements.
6.2.1.6 Right to Transfer; Right to Become Substitute
Limited Partner. Except as specifically set forth in the DBL Partnership
Agreements, Seller has the full power and authority to transfer and assign the
DBL Partnership Interests to Purchaser or Purchaser's assignee (as permitted
hereunder) and, upon such transfer, Purchaser (or Purchaser's permitted
- 8 -
<PAGE> 132
assignee) shall have the right to become a substitute limited partner in the
applicable Partnership, subject only to the specific conditions set forth in
the DBL Partnership Agreements and the consent of the NBA.
6.2.2 Related Agreements and Rights. The only rights and
agreements related to or associated with the rights of DMI in or to DBL Limited
are contained in the documents set forth in Exhibit 1.2, the Promissory Notes
and related Security Documents described in Exhibit 1.3 and that certain
Amended and Restated Linda Carter Agreement Regarding Arena Suite (the "Linda
Carter Suite Agreement") dated July 1, 1996, among Hillwood Basketball
Partners, Ltd., a Texas limited partnership ("Hillwood"), Hillwood DBL, Ltd., a
Texas limited partnership ("GP"), and DMI.
6.2.3 Approvals; Consents. The only consents or approvals required
to be obtained in connection with the transfer of the DBL Partnership Interests
to Purchaser or Purchaser's permitted assignee (and the admission of such
Person to the Partnership as a substitute limited partner) are from parties to
the DBL Partnership Agreements and the National Basketball Association ("NBA").
6.2.4 Partners; Majority Interest. To Seller's knowledge, the only
partners in the Partnership are those listed in the DBL Partnership Agreements
and Joseph L. Williams and Gretchen M. Williams. DMI and Donald J. Carter
collectively constitute a "Majority Interest" as such term is defined in the
DBL Partnership Agreement.
6.3 Promissory Notes.
6.3.1 Ownership. Seller is the legal and beneficial owner of the
Promissory Notes, the Security Documents and all liens and security interests
securing payment of the Promissory Notes and the obligations under the Security
Documents free and clear of all Encumbrances (except as contemplated by Section
6.3.3).
6.3.2 No Additional Agreements. Seller is not a party to any
contract, agreement, instrument, document or written or oral understanding
which amends, modifies or rearranges the Promissory Notes or the Security
Documents.
6.3.3 Consents and Approvals. Seller has the authority to convey
the Promissory Notes, the liens and security interests securing their payment
and the Security Documents without the joinder of, or consent or approval from,
any other Person other than: (i) Donald J. Carter; (ii) Hillwood DBL, Ltd. and
Hillwood Basketball Partners, Ltd., with respect to the Performance Note and
the General Partner Promissory Note; (iii) Hillwood Basketball Partners, Ltd.,
with respect to the Limited Partner Promissory Note; and (iv) Eagle Airlines,
Inc., with respect to the Aircraft Note.
- 9 -
<PAGE> 133
6.3.4 No Default. Seller has no knowledge that any event has
occurred or with the passage of time or the giving of notice will occur which
is or would be an event of default under the Promissory Notes or the Security
Documents. During its ownership thereof, Seller has not modified the Promissory
Notes.
6.3.5 No Advances. There are no further obligations to make any
advances under the Promissory Notes or the Security Documents.
6.3.6 Principal Balances. The outstanding principal balances due
under the Promissory Notes as of December 31, 1996 are as set out on Exhibit
1.3.
6.3.7 Valid Liens. The Security Documents create valid and
enforceable first liens and first security interests in the property described
therein, and upon consummation of the transaction contemplated hereby,
Purchaser will be the owner and holder of such liens and security interests.
6.3.8 No Defenses, Setoffs, Counterclaims. To Seller's knowledge,
no defenses, setoffs or counterclaims exist with respect to the Promissory
Notes or the Security Documents.
6.4 Representations and Warranties of Purchaser. Purchaser represents
and warrants that the statements set forth in this Section 6.4 are true and
correct in all material respects as of the Effective Date.
6.4.1 Organization, Existence and Good Standing. Purchaser is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and
authority to carry on its business as now being conducted, to own or lease and
operate its properties and assets as now owned, leased or operated, and to
perform all its obligations under the agreements and instruments to which it is
a party or by which it is bound.
6.4.2 Authorization; Enforceability. This Agreement, and each
other agreement to which Purchaser is to become a party pursuant to the
provisions hereof, when executed and delivered by Purchaser shall constitute
the legal, valid and binding obligations of Purchaser, enforceable against it
in accordance with their respective terms. All actions contemplated by this
Section have been duly and validly authorized by all necessary proceedings by
Purchaser.
6.4.3 No Violation of Laws or Agreements. Neither the execution
and delivery of this Agreement or any other agreement to which Purchaser is or
is to become a party, the consummation of the transactions contemplated hereby
or thereby nor the compliance with or fulfillment of the terms, conditions or
provisions hereof or thereof by Purchaser will: (i) conflict with, result in a
breach of, constitute a default (or an event that might, with the passage of
time or the giving of notice or both, constitute a default or event of default)
under any of the terms
- 10 -
<PAGE> 134
of, result in termination of, result in the loss of any right under, or give to
any other Person the right to cause such a termination of or loss under, any
contract, agreement or instrument to which Purchaser is a party, or (ii)
violate any Legal Requirement to which Purchaser is subject.
6.4.4 No Proceedings. Except as set forth on Exhibit 6.4.4, no
Proceeding is pending or, to the knowledge of Purchaser, threatened against or
affecting the ability of Purchaser to perform its obligations under this
Agreement or any of the transactions contemplated hereby; and there is no basis
for any such Proceeding.
6.5.5 Investment. Purchaser is acquiring the DBL Partnership
Interests for business and investment purposes and not with a view toward the
distribution thereof.
ARTICLE VII
SELLER'S AGREEMENTS PRIOR TO CLOSING
7.1 Seller's Agreements prior to Closing. Seller agrees to perform
those agreements set forth in this Sections 7.1 through 7.3 during the period
commencing on the Effective Date and ending on the Closing Date.
7.1.1 Untrue Representations. Seller will notify Purchaser
promptly in writing if it becomes aware of any fact or condition which makes
untrue, or shows to have been untrue, in any material respect, any Exhibit,
schedule or listing furnished to Purchaser or any Seller Representation. Seller
will notify Purchaser within a reasonable period of time in writing if it
becomes aware of any fact or condition which makes untrue, or shows to have
been untrue, in any material respect, any representation or warranty made
herein by Purchaser.
7.1.2 Notice of Proceedings. If Seller obtains knowledge of (i)
any investigation or inquiry being made or commenced by any Governmental
Authority in connection with this Agreement or the transactions contemplated
hereby, or (ii) the institution of any Proceeding against Seller or that could
any way have a material adverse affect on any of the Assets, Seller shall
promptly notify Purchaser.
7.1.3 Commercially Reasonable Efforts. Upon the terms and subject
to the conditions set forth in this Agreement, Seller agrees to use its
commercially reasonable efforts to take or cause to be taken all actions, and
to do, or cause to be done, and to assist and cooperate with Purchaser and any
third parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the purchase of
the Assets by Purchaser and all other transactions contemplated by this
Agreement and not to take, commit, or agree in writing or otherwise to take,
any action which would make any Seller Representation untrue or incorrect in
any material respect as of the date when made or as of the Closing Date.
- 11 -
<PAGE> 135
7.1.4 Notification of Certain Matters. Seller shall give Purchaser
prompt notice of: (i) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the Effective Date and prior to the Closing
Date, under the DBL Partnership Agreements, the Promissory Notes and/or
Security Documents, (ii) any material adverse change or the occurrence of any
event which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to result in a material adverse change on
Seller or any of the Assets, or (iii) any written notice or other written
communication from any third party received by Seller alleging that the consent
of such third party is or may be required in connection with transactions
contemplated by this Agreement.
7.1.5 Operation Prior to the Closing Date. Seller shall not engage
in any practice, take any action or enter into any transaction, with regard to
the Assets and the operation of its business related thereto, other than in the
customary and ordinary course of business without the consent of Purchaser, and
Seller shall use its commercially reasonable efforts to keep its business,
properties and business relationships relating to the Assets substantially
intact.
7.1.6 Performance of Obligations. Seller shall pay or cause to be
paid, and perform or cause to be performed, all debts, liabilities and
obligations relating to the Assets as and when due, except to the extent being
contested in good faith.
7.1.7 No Transfer or Encumbrances. Seller shall not: (i) solicit
any offers to purchase any of the Assets, or (ii) sell, transfer or otherwise
dispose of, or cause the sale, transfer or other disposal of, any of the
Assets, or allow any Encumbrance to be placed on any of the Assets.
7.1.8 No Breach. Seller agrees that (i) Seller will not take any
action and will endeavor in good faith not to permit any event to occur, which
would cause or constitute a material breach of this Agreement; (ii) Seller
will, in the event, and promptly after the occurrence of, or promptly after
becoming aware of the occurrence of or the impending or threatened occurrence
of, any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or constituted a
material breach of any of the Seller Representations, give notice thereof to
Purchaser; and (iii) Seller shall use its commercially reasonable efforts to
prevent or promptly to remedy such breach.
7.1.9 Compliance with Legal Requirements. Seller shall comply, or
cause compliance, in all material respects with all Legal Requirements
applicable to Seller and its businesses with respect to the Assets subject to
Seller's right to contest the same in good faith.
- 12 -
<PAGE> 136
7.1.10 Affiliate Indebtedness. Any indebtedness of the Partnership
to Seller or any Affiliate of Seller will, at Closing, be transferred to
Purchaser (with such transfer to include a transfer of all Encumbrances
securing same). Purchaser consents to the receipt and retention, before or
after Closing, by Home Interiors and Gifts, Inc. of any proceeds of any tax
refund or adjustment attributable to the 1994 tax year of DBL Limited and
acknowledges that such will not violate the requirements of Sections 7.1.10 or
9.1.8.
7.2 DBL Partnership Interests.
7.2.1 Notices; Participation. Seller shall promptly give Purchaser
notice of any notices or other communication received by Seller from the
Partnership and, in any event, within three (3) days of the date on which any
such notice is received, will give Purchaser prior written notice of Seller's
intent to send any notices to the Partnership or another partner of the
Partnership as soon as reasonably possible and, in any event, within such time
period as will allow Purchaser to consult with Seller regarding the contents of
the notice and any response to a notice received by Seller. Purchaser will
respond within the time period required for Seller to act or respond. Seller
shall promptly give Purchaser such other information as Seller receives in
connection with the Partnership and allow Purchaser to participate with Seller
in connection with Seller's responsibilities to the Partnership. Seller will
not take any action or fail to take any action that could have a material
adverse change on Seller's interest in the Partnership during the pendency of
this Agreement; provided, Seller will not participate in any meetings with
partners of the Partnership (whether called or informal) regarding Partnership
Matters or consent or object to any action by the Partnership unless Seller has
given Purchaser notice of the meetings, consent or objection together with all
material information concerning the matter being considered, and afforded
Purchaser an opportunity to participate in the meeting and/or decision if
permitted by the other partners.
7.2.2 Contributions and Distributions. Seller shall not make any
capital contributions to the Partnership other than those scheduled in the
documents delivered to Purchaser pursuant to Section 4.2 without obtaining the
prior written consent of Purchaser unless the failure to make such contribution
would adversely affect Seller's interest in the Partnership and Seller has
complied with Section 7.2.1 regarding any notices Seller has received with
regard to such contribution. Seller shall promptly give Purchaser notice of the
amount and timing of any distributions from the Partnership together with any
supporting documentation therefor which has been delivered or made available by
the Partnership to Seller.
7.2.3 Consents from Partners and Third Parties. Seller and
Purchaser will cooperate in obtaining the consent and/or approval to the
transfer of the DBL Partnership Interests and admission of the transferee as a
substitute limited partner and in obtaining any other consent deemed reasonably
necessary or appropriate by Purchaser including, without limitation, filing
applications therefor (with the NBA or any other Person), providing information
regarding Seller and/or Purchaser that may be required to be provided in
connection with the transfer and
- 13 -
<PAGE> 137
otherwise using their reasonable good faith effort to obtain any consents
and/or approvals required in connection with the transfers contemplated hereby.
Any consents or approvals shall be in such form as Purchaser may reasonably
require.
7.2.4 Carter Agreement. Seller shall cause an agreement (the
"Carter Agreement") to be executed and delivered at Closing pursuant to which
Donald J. Carter agrees (for himself and his heirs and assigns) to vote his
interest in DBL Limited as directed by Purchaser in instances in which a
"Majority Interest" (as defined in the DBL Partnership Agreements) is required
or permitted.
7.2.5 Subordination Agreements. Seller shall cause the holder ("LC
Holder") of the rights originally owned by DMI pursuant to the Linda Carter
Suite Agreement to enter into an agreement (the "Subordination Agreement") to
subordinate any security interests held to secure any obligations in favor of
the LC Holder under the Linda Carter Suite Agreement to any security interests
securing the payment of the Hillwood Notes. The form of the Subordination
Agreement shall be approved by Seller and Purchaser, which approval shall not
be unreasonably withheld or delayed. The Subordination Agreement executed by
the LC Holder shall be delivered at Closing.
7.2.6 Right of First Refusal. Seller and Purchaser shall cooperate
in connection with compliance with the procedures set forth in the DBL
Partnership Agreement regarding any rights of first refusal the other partners
of DBL Limited may have with regard to a purchase of the DBL Partnership
Interests.
7.3 Promissory Notes.
7.3.1 Notice of Proceedings. Seller will advise Purchaser promptly
of any Proceeding concerning or affecting the Promissory Notes, the Security
Documents or any of the collateral described in the Security Documents.
7.3.2 No Encumbrances. Seller will not by act or omission, without
the prior written consent of Purchaser, create or place, permit to be created
or placed, acquiesce in the placing of or allow to remain, any Encumbrance or
conditional sale or other title retention encumbrance on the Promissory Notes
or the Security Documents. Should any of the foregoing become attached in any
manner to any of the Promissory Notes or the Security Documents without the
prior written consent of Purchaser, Seller will cause the same to be discharged
promptly and released at its cost prior to Closing.
7.3.3 Hillwood Consent. Seller shall use commercially reasonable
efforts to obtain the unconditional execution and delivery of the Amendment of
Pledge Agreements ("Hillwood Consent"), in a form reasonably acceptable to
Purchaser and Seller, by Hillwood, GP, Eagle Airlines, Inc., DMI and Donald J.
Carter and to deliver same to Purchaser (so as to
- 14 -
<PAGE> 138
delete the prohibition on assignment of such Security Documents while Donald J.
Carter [or certain relatives] remains a limited partner in DBL Limited) on or
before the Closing Date.
7.3.4 No Amendments or Modifications. Seller will not amend,
modify or rearrange any of the Promissory Notes or Security Documents without
the prior written consent of Purchaser.
7.3.5 Prepayments. Seller will not accept a prepayment of
principal or interest due under any of the Promissory Notes unless required by
the terms of a Promissory Note, and in the event Seller is required to and does
accept a prepayment, Seller will immediately notify Purchaser in writing of the
identity of the Promissory Note, of the amount of the prepayment, of the
application of the prepayment to interest and principal and of the amount of
unpaid principal and accrued interest due after application of the prepayment.
7.3.6 No Releases. Seller will not release any lien, security
interest or guaranty securing payment of any of the Promissory Notes.
7.4 Purchaser's General Agreements Prior to Closing. Purchaser agrees
to perform those agreements set forth in this Section 7.4 during the period
commencing on the Effective Date and ending on the Closing Date.
7.4.1 Untrue Representations. Purchaser will notify Seller
promptly in writing if it becomes aware of any fact or condition which makes
untrue, or shows to have been untrue, in any material respect, any
representation or warranty made by Purchaser in this Agreement.
7.4.2 Notice of Proceedings. If Purchaser obtains knowledge of (i)
any investigation or inquiry being made or commenced by any Governmental
Authority in connection with this Agreement or the transactions contemplated
hereby, or (ii) the institution of any Proceeding against Purchaser or that
could any way have a material adverse effect on Purchaser's ability to
consummate the transactions contemplated by this Agreement, Purchaser shall
promptly notify Seller.
7.4.3 Commercially Reasonable Efforts. Upon the terms and subject
to the conditions set forth in this Agreement, Purchaser agrees to use its
commercially reasonable efforts to take or cause to be taken all actions, and
to do, or cause to be done, and to assist and cooperate with Seller and any
third parties in doing all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the purchase of
the Assets by Purchaser and all other transactions contemplated by this
Agreement, and not to take, commit, or agree in writing or otherwise to take,
any action which would make any representation or warranty of Purchaser
contained in this Agreement untrue or incorrect in any material respect as of
the date when made or as of the Closing Date.
- 15 -
<PAGE> 139
7.4.4 No Breach. Purchaser agrees that (i) Purchaser will not take
any action and will endeavor in good faith not to permit any event to occur,
which would cause or constitute a material breach of this Agreement; (ii)
Purchaser will, in the event, and promptly after the occurrence of, or promptly
after becoming aware of the occurrence of or the impending or threatened
occurrence of, any event which would cause or constitute a material breach or
would, if it had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties made
by Purchaser in this Agreement, give notice thereof to Seller; and (iii)
Purchaser shall use its best efforts to prevent or promptly to remedy such
breach.
7.4.5 Untrue Representations. Purchaser will notify Seller within
a reasonable period of time in writing if it becomes aware of any fact or
condition which makes untrue, or shows to have been untrue, in any material
respect, any Seller Representation.
ARTICLE VIII
DELIVERY OF CONSENTS AND ESTOPPELS
8.1 Consents and Estoppels. Seller shall use commercially reasonable
efforts to cause the indicated party to execute and deliver the consents or
estoppels described in Sections 8.2 and 8.3 and to deliver each consent or
estoppel to Purchaser.
8.2 Partnership Interests. The consents required in connection with
the transfers of the Partnership Interests including, without limitation, the
consent of the NBA to the transfers of the DBL Partnership Interests and the
Promissory Notes (the "NBA Consent") and the consent of the partners of DBL
Limited who are required to consent (the "Partnership Consents"), and the
execution and delivery of the Subordination Agreement required pursuant to
Section 7.2.5.
8.3 Promissory Notes. Estoppel Certificates executed by each maker in
the form reasonably acceptable to the parties (Purchaser agreeing that the
forms of Estoppel Certificates attached hereto and collectively identified as
Exhibit 8.3-A is acceptable). Provided, however, in the event Seller is unable,
using commercially reasonable efforts, to obtain an Estoppel Certificate for
any Promissory Note, in lieu thereof, Seller shall execute and deliver to
Purchaser a Substitute Estoppel which shall survive Closing and continue until
six (6) months following Closing. "Substitute Estoppel" shall mean a written
certificate dated as of Closing in substantially the form of Exhibit 8.3-B
setting forth the information called for in the form of Estoppel Certificates,
with respect to any Promissory Note for which Seller is unable to obtain an
Estoppel Certificate.
- 16 -
<PAGE> 140
ARTICLE IX
CONDITIONS
9.1 Purchaser's Conditions. The conditions described in Sections 9.1
through 9.3 are referred to herein as the "Purchaser's Conditions." If any of
the Purchaser's Conditions (other than the Consent Conditions, as defined in
Section 9.4) is not fully satisfied by Closing, the failed condition shall be
an Adjustment Event and the rights and obligations of the parties shall be
governed by the provisions of Section 16.3.
9.1.1 Representations, Warranties and Covenants. The Seller
Representations shall be true and correct in all material respects as of the
Effective Date and as of the Closing Date as though made on and as of the
Closing Date, except (i) to the extent another date is contemplated by this
Agreement, (ii) any changes permitted by this Agreement, and (iii) changes in
the ordinary course of business, such Seller Representations, as modified,
shall be true and correct as of the Closing Date; and Seller shall have
performed and complied in all material respects with all of the agreements,
obligations and covenants required to be performed hereunder by Seller prior to
or at the Closing.
9.1.2 No Material Adverse Change. There shall have been no
material adverse change in the Assets since the Effective Date, and there shall
not exist any material liability or obligation of Seller, with respect to the
Assets, whether accrued or unaccrued, direct or indirect, absolute or
contingent, asserted or unasserted except (i) as reflected in this Agreement or
the Exhibits hereto, or (ii) liabilities incurred in the ordinary course of
business and consistent with past practice since the Effective Date.
9.1.3 No Pending Litigation. No Proceeding will be pending or
threatened before any court or governmental agency seeking to restrain,
prohibit or obtain damages or other relief as a result of or in connection with
this Agreement or the consummation of the transactions contemplated hereby.
9.1.4 Closing Documents. Purchaser shall have received each of the
documents referred to in Article XI. All agreements, certificates, opinions and
other documents delivered by Seller to Purchaser hereunder shall be in form and
substance reasonably satisfactory to Purchaser.
9.1.5 Authorization. All corporate action necessary to authorize
the execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated by this Agreement shall
have been duly and validly taken and Seller shall have full right and power to
sell the Assets upon the terms provided in this Agreement (collectively,
"Seller's Corporate Approvals"). Purchaser shall have received copies,
certified by the appropriate officer of Seller, of (i) resolutions duly adopted
by the Board of Directors of Seller approving this Agreement and the
transactions contemplated hereby and directing the
- 17 -
<PAGE> 141
submission thereof to a vote of Seller's shareholder, if necessary, and (ii) if
applicable, resolutions duly adopted by the holders of the necessary vote of
the outstanding shares of Seller's securities approving and adopting this
Agreement and the transactions contemplated hereby.
9.1.6 No Prohibition of Transaction. No Proceeding, regulation or
legislation shall have been instituted, threatened in writing or proposed in
writing (other than caused by the act or failure to act of Purchaser or Persons
acting on behalf of Purchaser) before, nor any order issued by, any
Governmental Authority to enjoin, restrain, prohibit or obtain substantial
damages in respect of, which is related to, or which arises out of, this
Agreement.
9.1.7 Documentation. Seller shall have delivered all assignments,
other documents, certificates and instruments in its possession or control as
required hereunder.
9.1.8 Affiliate Indebtedness. Seller shall have caused any
indebtedness owed by DBL Partnership to Seller or any Affiliate of Seller to be
transferred to Purchaser (with such transfer to include a transfer of all
Encumbrances securing same).
9.2 DBL Partnership Interests. Purchaser shall have received the NBA
Consent, the Carter Agreement, the Partnership Consents and the Subordination
Agreement, all executed by the appropriate party or parties and acknowledged,
where required.
9.3 Promissory Notes.
9.3.1 No Default. No event has occurred or with the passage of
time or the giving of notice will occur which is or would be an event of
default under the Promissory Notes or the Security Documents.
9.3.2 Principal Balance. The outstanding principal balances due
under the Promissory Notes are as set out on Exhibit 1.3, except to the extent
there has been a payment of principal prior to Closing.
9.3.3 Hillwood Consent. The execution and delivery of the Hillwood
Consent in accordance with the provisions of Section 7.3.3.
9.4 Failure of Consent Conditions. The term "Consent Conditions" means
obtaining the NBA Consent, the Partnership Consent and the Hillwood Consent. If
any Consent Condition is not satisfied as of the Closing, Purchaser may either:
(i) waive the receipt of the respective consent and close, or (ii) terminate
this Agreement with respect to the DBL Partnership Interests or the Promissory
Notes, as the case may be. If this Agreement is terminated as to only the DBL
Partnership Interests or the Promissory Notes pursuant to this Section 9.4,
this Agreement shall be deemed to be amended to exclude the DBL Partnership
Interests or the Promissory
- 18 -
<PAGE> 142
Notes, as the case may be, and all representations, warranties and covenants
relating to the excluded Asset and to reduce the Purchase Price by the amount
of the Purchase Price allocated to said Asset on the Exhibit 2.3. Provided
however, if any condition is not satisfied as the result of the act or failure
to act by Seller which constitutes Seller's failure to perform its obligations
pursuant to this Agreement and Seller fails to cure same within a reasonable
period of time, Purchaser shall be entitled to the remedies set forth in
Article XVI.
9.5 Seller's Conditions to Closing. Seller's obligation to perform its
agreements pursuant to this Agreement are subject to the conditions described
in this Section 9.5 being satisfied or waived by Seller as of the Closing Date
("Seller's Conditions").
9.5.1 Representations, Warranties and Covenants. The
representations and warranties of Purchaser set forth in this Agreement shall
be true and correct in all material respects as of the Effective Date and as of
the Closing Date as though made on and as of the Closing Date, except (i) to
the extent another date is contemplated by this Agreement, (ii) for any changes
permitted by this Agreement, and (iii) for changes in the ordinary course of
business, such warranties and representations, as modified, shall be true and
correct as of the Closing Date; and Purchaser shall have performed and complied
in all material respects with all of the agreements, obligations and covenants
required to be performed hereunder by Purchaser prior to or at the Closing.
9.5.2 No Pending Litigation. No Proceeding (other than one caused
by the act or failure to act of Seller or Persons acting on behalf of Sellers)
will be pending or threatened before any court or governmental agency seeking
to restrain, prohibit or obtain damages or other relief as a result of or in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
9.5.3 Authorization. All action necessary to authorize the
execution, delivery and performance of (or regarding) this Agreement by
Purchaser and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by Purchaser and Purchaser shall have full
power and right to consummate the transactions contemplated hereby on the terms
provided herein.
9.5.4 No Prohibition of Transaction. No Proceeding or Legal
Requirement shall have been instituted, threatened or proposed (other than
caused by the act or failure to act of Seller or Persons acting on behalf of
Seller) before, nor any order issued by, any Governmental Authority (other than
one caused by the act or failure to act of Seller or Persons acting on behalf
of Seller) to enjoin, restrain, prohibit or obtain substantial damages in
respect of, which is related to, or which arises out of, this Agreement.
- 19 -
<PAGE> 143
9.6 Failure of Seller's Conditions to Closing. If any of Seller's
Conditions is not fully satisfied by Closing, Seller may terminate this
Agreement by written notice to Purchaser whereupon this Agreement shall be
canceled, all Earnest Money shall be paid to Seller by the Title Company,
Purchaser shall return to Seller all of the Due Diligence Items requested by
Seller, and thereafter neither Seller nor Purchaser shall have any continuing
obligations one unto the other except as provided in Section 17.9.
ARTICLE X
CLOSING
The closing ("Closing") hereunder shall take place at the offices of
Brown McCarroll & Oaks Hartline, 300 Crescent Court, Suite 1400, Dallas, Texas
75201. The Closing shall occur on or before the date ("Closing Date") which is
the earlier of (i) the tenth (10th) day after the expiration of the Inspection
Period or (ii) May 1, 1997. Purchaser shall notify Seller at least five (5)
days in advance of the exact time and date of Closing.
ARTICLE XI
SELLER'S OBLIGATIONS AT CLOSING
11.1 Seller's Obligations at Closing. At the Closing, Seller shall
execute, deliver and if required acknowledge or cause the appropriate party to
execute, deliver and if required acknowledge the documents described in
Sections 11.2 and 11.3 and shall perform those obligations described therein.
11.1.1 General Closing Obligations of Seller. In addition to the
other documents to be delivered by Seller to Purchaser at Closing pursuant to
the terms of this Agreement, Seller shall deliver the following to Purchaser at
Closing: (i) a certificate signed by a senior executive officer of Seller dated
as of the Closing Date stating that each of Seller's Representations are true
and correct at Closing and that each obligation of Purchaser, which is a
condition to Closing, has been satisfied by Purchaser or waived by Seller, (ii)
an opinion of Seller's counsel, Gardere & Wynne, L.L.P., dated as of the
Closing Date, addressed to Purchaser, in a form reasonably satisfactory to
Purchaser, (iii) certificates of the appropriate public officials to the effect
that each Seller is a validly existing corporation in good standing in Texas as
of a date not more than ten (10) days of the Closing Date, (iv) certificates of
the secretary of Seller setting forth all resolutions of the Board of Directors
and the shareholder of Seller authorizing the execution and delivery of this
Agreement and the performance by Seller of the transactions contemplated
hereby, and (v) incumbency and specimen signature certificates dated the
Closing Date signed by the officers of Seller certified by its Secretary.
11.1.2 Affiliate Indebtedness. Assignment of notes and liens
representing any indebtedness (or security therefor) owed by DBL Limited to
Seller or any Affiliate of Seller.
- 20 -
<PAGE> 144
11.2 DBL Partnership Interests. Execute and deliver to Buyer an
assignment of partnership interest ("Partnership Assignment") for the DBL
Partnership Interests, which shall be in the form of Exhibit 11.2, together
with such other documents as may be necessary to cause the admission of
Purchaser as a substitute limited partner of DBL Limited.
11.3 Promissory Notes.
11.3.1 The original Promissory Notes, endorsed by Seller "Pay to
the Order of [NAME OF PURCHASER OR PARTIAL DESIGNEE] without recourse," the
originals of all Security Documents, the originals of all UCC-1 Financing
Statements, and the originals of all filings with the FAA.
11.3.2 An Assignment of Notes and Liens in the form attached as
Exhibit 11.3.2 transferring and assigning all of Seller's rights, title and
interest in and to the Promissory Notes, the Security Documents, and all liens
and security interests securing their payment.
11.3.3 UCC-3 Forms as promulgated by the Texas Secretary of State
assigning to Purchaser all of Seller's rights under any security interests held
by Seller securing the Promissory Notes and/or any related UCC filings.
11.3.4 An executed letter addressed to each maker of a Promissory
Note in the form of Exhibit 11.3.4.
11.3.5 An Assignment of Aircraft Security Agreement in the form
of Exhibit 11.3.5.
11.3.6 A consent in a form reasonably acceptable to Purchaser and
Seller executed by Donald J. Carter consenting to the amendment of the Amended
and Restated General Partner Pledge Agreement, the Amended and Restated Limited
Partner Pledge Agreement and the Amended and Restated Aircraft Security
Agreement to delete the prohibition on assignment of the Performance Note, the
General Partner Promissory Note, the Limited Partner Promissory Note and the
Aircraft Note.
11.3.7 The Hillwood Consent by GP, Hillwood and Eagle Airlines,
Inc.
ARTICLE XII
PURCHASER'S OBLIGATIONS AT CLOSING
12.1 Purchaser's Obligations at Closing. At Closing, Purchaser shall
deliver to Seller the Purchase Price in cash and execute, deliver and if
required acknowledge the documents described in Section 12.2 and perform the
obligations described therein.
- 21 -
<PAGE> 145
12.1.1 General Closing Obligations of Purchaser. In addition to
the other documents to be delivered by Purchaser to Seller at Closing pursuant
to the terms of this Agreement, Purchaser shall deliver to the Seller at
Closing: (i) a certificate signed by a senior executive officer of Purchaser
dated as of the Closing Date stating that each of the representations and
warranties made herein by Purchaser are true and correct at Closing and that
each obligation of Seller, which is a condition to Closing, has been satisfied
by Seller or waived by Purchaser, (ii) an Opinion of Purchaser's counsel, Brown
McCarroll & Oaks Hartline, dated as of the Closing Date, addressed to Seller,
in a form reasonably satisfactory to Seller, (iii) certificates of the
appropriate public officials to the effect that Purchaser is a validly existing
Delaware limited partnership and is authorized to do business in and in good
standing in Texas as of a date not more than ten (10) days of the Closing Date,
(iv) certificates of Purchaser setting forth that all necessary actions have
been taken by Purchaser's partners authorizing the execution and delivery of
this Agreement and the performance by Purchaser of the transactions
contemplated hereby, and (v) incumbency and specimen signature certificates
dated the Closing Date signed by the General Partner of Purchaser.
12.2 DBL Partnership Interests. Execute and deliver such documents as
may be reasonably required in order for Purchaser to become a substitute
limited partner in DBL Limited and assume the obligations of Seller pursuant to
the Partnership Agreement upon such substitution.
ARTICLE XIII
COSTS AND ADJUSTMENTS
At or about Closing, the Assignment of Aircraft Security Agreement
shall be registered by Purchaser with the FAA. The Assignment of Notes and
Liens shall be recorded by Purchaser in Dallas County, Texas and with the
Office of the Secretary of State of Texas. Purchaser shall pay at Closing all
sales, transfer and any other similar Taxes payable as a result of the purchase
of the Assets by Purchaser.
ARTICLE XIV
AS IS PROVISION
PROPERTY CONVEYED "AS IS". PURCHASER AGREES THAT, EXCEPT FOR SELLER'S
REPRESENTATIONS SET FORTH IN THIS AGREEMENT, SELLER IS NOT MAKING AND
SPECIFICALLY DISCLAIMS ANY ADDITIONAL WARRANTIES OR REPRESENTATIONS OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE ASSETS, INCLUDING,
BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS AS TO MATTERS OF TITLE (OTHER
THAN SELLER'S WARRANTY OF TITLE SET FORTH IN THE ASSIGNMENT OR CONVEYANCE
DOCUMENTS TO BE DELIVERED AT CLOSING), TAX CONSEQUENCES, OPERATING HISTORY OR
PROJECTIONS, VALUATION,
- 22 -
<PAGE> 146
GOVERNMENTAL APPROVALS, GOVERNMENTAL REGULATIONS OR ANY OTHER MATTER OR THING
RELATING TO OR AFFECTING THE ASSETS. PURCHASER AGREES THAT WITH RESPECT TO THE
ASSETS, PURCHASER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER DIRECTLY
OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER OR ANY AGENT OF SELLER
OTHER THAN THOSE SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS THAT IT IS A
KNOWLEDGEABLE PURCHASER OF OTHER PROPERTY OF THE KINDS INCLUDED IN THE ASSETS
AND THAT IT IS RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF PURCHASER'S
CONSULTANTS, AND PURCHASER AGREES THAT UPON CLOSING, SELLER SHALL SELL AND
CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE ASSETS "AS IS, WHERE IS,"
WITH ALL FAULTS, AND PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THERE ARE
NO ORAL AGREEMENTS, WARRANTIES OR REPRESENTATIONS, COLLATERAL TO OR AFFECTING
THE PROPERTY BY SELLER, ANY AGENT OF SELLER OR ANY THIRD PARTY, EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. THE TERMS AND CONDITIONS OF
THIS ARTICLE SHALL EXPRESSLY SURVIVE THE CLOSING AND NOT MERGE THEREIN AND
SHALL BE INCORPORATED INTO THE CONVEYANCE DOCUMENTS RELATING TO THE ASSETS.
ARTICLE XV
NOTICES
All notices, demands, or other communications of any type given by
Seller to Purchaser, or by Purchaser to Seller, whether required by this
Agreement or in any way related to the transaction contracted for herein, shall
be void and of no effect unless given in accordance with the provisions of this
Article. All notices shall be in writing and delivered to the Person to whom
the notice is directed, either in person, by facsimile transmission or by
United States Mail, as a registered or certified item, return receipt
requested. Notices delivered in person shall be deemed delivered upon receipt,
notices delivered by facsimile transmission shall be deemed delivered the same
day as sent with confirmation received by the senders's facsimile equipment and
notices delivered by mail shall be deemed given three (3) days after being
deposited in a post office or other depository under the care or custody of the
United States Postal Service, enclosed in a wrapper with proper postage
affixed, addressed as follows:
- 23 -
<PAGE> 147
Seller: Carter-Crowley Properties, Inc.
2711 LBJ Freeway, Suite 426
Dallas, Texas 75234
Attn: Ronald L. Carter
Telephone No.: (972) 247-8535
Facsimile No.: (972) 243-3615
With Required Gardere & Wynne, L.L.P.
Copy (which 1601 Elm Street, Suite 3000
does not consti- Dallas, Texas 75201
tute notice) to: Attn: Alan J. Perkins, Esq.
Telephone No.: (214) 999-4683
Facsimile No.: (214) 999-4667
Purchaser: Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Attn: Mr. James M. Eidson, Jr.
Telephone No.: (817) 877-0477
Facsimile No.: (817) 878-0429
With Required Crescent Real Estate Equities Limited Partnership
Copy (which 777 Main Street, Suite 2700
does not consti- Fort Worth, Texas 76102
tute notice) to: Attn: David M. Dean, Esq.
Telephone No.: (817) 878-0442
Facsimile No.: (817) 878-0429
Brown McCarroll & Oaks Hartline
300 Crescent Court
Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy, Esq.
Telephone No.: (214) 999-6102
Facsimile No.: (214) 999-6170
- 24 -
<PAGE> 148
ARTICLE XVI
REMEDIES
16.1 Default by Seller. If Seller fails or refuses to consummate this
Agreement, or if Seller fails to perform any of Seller's other obligations
hereunder either prior to or at the Closing and Seller fails to cure the same
within seven (7) days, and such failure or refusal results from any reason
other than the termination of this Agreement by Purchaser pursuant to a right
to terminate expressly set forth in this Agreement or Purchaser's failure to
perform any of Purchaser's obligations under this Agreement, then Purchaser may
(i) enforce specific performance of Seller's duties and obligations under this
Agreement, or (ii) terminate this Agreement by giving written notice thereof to
Seller prior to or at the Closing, in which event Purchaser shall also be
entitled, subject to Section 16.5, to a return of the Earnest Money (and
interest thereon) and to seek its actual damages against Seller for such
default as well as such other relief as may be available at law or in equity.
16.2 Default by Purchaser. If the Purchaser fails or refuses to
consummate the purchase of the Assets pursuant to this Agreement, and such
failure or refusal results from any reason other than termination of this
Agreement by Purchaser pursuant to a right to terminate expressly set forth in
this Agreement, then the Seller may as its sole remedy terminate this Agreement
by giving written notice thereof to Purchaser at the Closing, and the Title
Company shall deliver the Earnest Money to Seller as liquidated damages. The
Earnest Money is agreed upon by and between Seller and Purchaser as liquidated
damages, and not as a penalty, due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to Seller, and Seller shall accept the Earnest Money
as Seller's total damages and relief. Earnings on the Earnest Money shall be
returned to Purchaser.
16.3 Adjustment Events.
16.3.1 Definitions. "Adjustment Event" means any of the
following: (i) the breach of a Seller Representation or (ii) any of the
Purchaser's Conditions (other than any of the Consent Conditions) is not
satisfied. As used in this Section 16.3, "cost of curing" means the reasonable
cost to cure the matter constituting the Adjustment Event or, if the Adjustment
Event is either not curable or the cure does not fully restore the value of the
affected Asset to its preAdjustment Event value, the reduction in the value of
the affected Asset.
16.3.2 Adjustment Procedure. From and after the occurrence of an
Adjustment Event, Seller shall cure (or agree to an adjustment in the Purchase
Price relating to the affected Asset) all Adjustment Events, each of which
shall be resolved in accordance with the further provisions of this Section
16.3.2. Purchaser shall deliver written notice of the Adjustment Event ("First
Adjustment Notice") and a proposal ("Purchaser's Adjustment Proposal") for
resolving same. Within five (5) business days after delivery of the First
Adjustment Notice, Seller shall
- 25 -
<PAGE> 149
either deliver written notice ("Second Adjustment Notice") to Purchaser
agreeing to Purchaser's Adjustment Proposal or Seller shall deliver an
alternative proposal in writing ("Seller's Adjustment Proposal"). If Seller
fails to deliver timely a Second Adjustment Notice or agrees to Purchaser's
Adjustment Proposal in its Second Adjustment Notice, Purchaser's Adjustment
Proposal shall be binding on the parties. If Seller delivers a Seller's
Adjustment Proposal, the parties shall promptly engage in good faith
negotiations to resolve the differences between the proposals. To the extent
either of the parties determines the same might facilitate resolution, each
will cause their senior officers to participate in such negotiations. If the
parties have not resolved the differences within ten (10) days after the
delivery of the Seller's Adjustment Proposal, the parties agree to promptly
engage in non-binding mediation with a mediator mutually acceptable to both
parties (both parties agree to not unreasonably withhold or delay their consent
to selection of a mediator) in order to resolve the differences. If after ten
(10) hours of mediation the parties are unable to resolve the differences,
either party may deliver an Arbitration Notice in accordance with Section 16.4
and the dispute shall be an Arbitration Event to be resolved in accordance with
the provisions of Section 16.4. Notwithstanding any provision of this Section
16.3.2 to the contrary, if the amount Purchaser asserts is necessary to cure an
Adjustment Event exceeds the value of such Affected Asset as reasonably
determined by Purchaser (which determination will be subject to Section 16.4),
Seller may (but is not obligated to) cure the Adjustment Event by delivering
written notice ("Withdrawal Notice") to Purchaser notifying Purchaser that
Seller is withdrawing the affected Asset from this Agreement. If Seller
withdraws an Asset from this Agreement in accordance with this Section 16.3.2,
this Agreement shall be deemed to be amended to exclude the affected Asset and
all representations, warranties and covenants (other than set forth in Section
17.9) relating to the withdrawn Asset, and to reduce the Purchase Price by the
value of the Affected Asset as specified by Purchaser or as determined pursuant
to Section 16.4.
16.3.3 Effect of Closing. Except as otherwise provided in this
Section 16.3, unresolved Adjustment Events shall not delay Closing nor shall
Closing alter the rights or obligations of the parties regarding the unresolved
Adjustment Events. The parties shall continue the resolution process following
Closing (including but not limited to arbitration pursuant to Section 16.4) and
the rights and obligations of the parties with respect to the unresolved
Adjustment Event shall be the same as if the Closing had not occurred. Provided
however, if the aggregate amount in dispute regarding any unresolved Adjustment
Events exceeds $1,000,000.00 either party may extend the Closing Date until not
later than the first business day following the expiration of ten (10) calendar
days after the originally scheduled Closing Date, but in no event later than
May 12, 1997.
16.3.4 Sole Remedy. Purchaser's only remedy arising out of the
occurrence of an Adjustment Event shall be an adjustment of the Purchase Price
to reflect the reasonable cost to cure or Purchaser's actual (not incidental
and consequential) damages arising out of the Adjustment Event (regardless of
whether determined before or after Closing), the amount of which shall be
agreed to by the parties in accordance with the provisions of Section 16.3 or
- 26 -
<PAGE> 150
awarded by arbitration in accordance with the provisions of Section 16.4. NO
SELLER REPRESENTATION SHALL SURVIVE CLOSING.
16.4 Arbitration. As used in this Agreement an "Arbitration Event"
means any dispute which pursuant to the further provisions of this Agreement is
designated as an Arbitration Event. In those instances in which there is a
dispute other than an Arbitration Event governed by Section 16.3.2, Seller and
Purchaser shall attempt to resolve the dispute for a period of five (5)
business days following either party's delivery of a notice ("Preliminary
Notice") (said period called "Settlement Period") of its intent to submit the
dispute to arbitration if not resolved prior to the expiration of the
Settlement Period. If the dispute is not resolved at the end of the Settlement
Period or, in the case of a dispute under Section 16.3.2, after the prescribed
mediation, either party may thereafter deliver a written notice ("Arbitration
Notice") to the other party and the American Arbitration Association ("AAA")
(Dallas Office) notifying both of its intent to resolve the dispute in
accordance with the further provisions of this Section and the Commercial
Arbitration Rules of the AAA then in effect ("AAA Rules"). However, the
provisions of this Section shall control over any contrary provisions in the
AAA Rules. Within five (5) days after the delivery of an Arbitration Notice,
each party shall deliver a written statement of a resolution of the dispute
acceptable to it to the other party (each an "Original Resolution") (and if
more than one Asset is the subject of an Arbitration Notice, each Asset shall
be the subject of a separate Resolution). Seller's statement is hereafter
called "Seller's Resolution" and Purchaser's statement is hereafter called
"Purchaser's Resolution." If either party fails to timely deliver its Original
Resolution, the Original Resolution of the other party shall be binding on the
parties and no further action shall be taken to resolve the dispute. The
resolution of the dispute shall be either the Seller's Resolution or the
Purchaser's Resolution based upon the determination of a panel of three
arbitrators ("Arbitrators") selected in accordance with the further provisions
of this Section. All of the Arbitrators shall be selected from the panel of
arbitrators submitted by AAA. Within ten (10) days after either party delivers
an Arbitration Notice to the other party and the AAA requesting arbitration in
accordance with the provisions of this subsection, AAA shall deliver a list
("Panel List") of qualified arbitrators to Seller and Purchaser. Within ten
(10) days after the delivery of the Panel List, each party shall send written
notice ("Party Selection Notice") to the other party and the AAA indicating its
choice of one arbitrator and indicating up to two persons on the Panel List to
which it objects ("Objectionable Persons"). Within ten (10) days after its
receipt of both Party Selection Notices, the AAA shall select a third
arbitrator from the Panel List by delivering written notice ("AAA Selection
Notice") of its selection to both parties. The third arbitrator shall not be an
Objectionable Person. The Arbitrators shall be one person selected by each
party and one person selected by the AAA. Within five (5) days after the date
of the delivery of the AAA Selection Notice, Seller and Purchaser shall submit
their respective Resolution in writing (which may not be different from their
respective original Resolutions), together with the supporting data and facts
used to determine their Resolution, to the Arbitrators. Within twenty (20) days
after the Resolutions are submitted, the Arbitrators shall hold a hearing
during which Seller and Purchaser may present evidence in support of their
respective resolutions. Within fifteen (15)
- 27 -
<PAGE> 151
days after the date on which the hearing is completed, the Arbitrators will
determine a resolution ("Final Resolution") based upon the parties' submissions
and evidence presented. The Final Resolution shall be either the Seller's
Resolution or the Purchaser's Resolution. The Arbitrator's determination shall
be binding on Seller and Purchaser and may be enforced by a court of competent
jurisdiction. The cost of such arbitration shall be paid by the party whose
Resolution was not selected.
16.5 Incidental and Consequential Damages. NOTWITHSTANDING ANY LEGAL
REQUIREMENT OR PROVISION HEREIN TO THE CONTRARY, NO PARTY SHALL BE ENTITLED TO
ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING UNDER OR AS A RESULT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREUNDER.
16.6 Survival of Sections 16.3 and 16.4. If matters and issues
described in or being resolved pursuant to Sections 16.3 or 16.4 are not
resolved (said matters and issues hereafter called "Open Issues") prior to the
Closing Date, the provisions of said Sections shall survive Closing and shall
continue to govern the rights and obligations of the parties until the Open
Issues are fully resolved and all sums owing are paid and the occurrence of
Closing shall not accelerate or otherwise affect the rights or obligations of
the parties. To the extent there are Open Issues, any adjustments to the
Purchase Price determined subsequent to the Closing shall be paid by Seller
when determined in accordance with said Sections.
ARTICLE XVII
MISCELLANEOUS
17.1 Assignment. Provided Purchaser agrees to remain primarily liable
for performance of Purchaser's obligation hereunder, Purchaser may: (i) assign
this Agreement to any Affiliate of Purchaser, and/or (ii) deliver a written
notice (each a "Closing Direction") to Seller directing Seller to convey,
transfer or assign (as appropriate) one or more of the Assets to any Partial
Designee described in the Closing Direction. Seller agrees to comply with any
Closing Direction. "Partial Designee" means (i) an Affiliate of Purchaser, (ii)
any corporation, more than 50% of the total number of shares of stock of which
are owned by Purchaser and (iii) the Spinoff Affiliate. "Spinoff Affiliate"
means that certain corporation (and its direct or indirect partnership or
corporate subsidiaries) described, in that certain press release issued by
Purchaser on January 30, 1997, as a newly formed corporation that will be spun
off to shareholders of Crescent Real Estate Equities Trust and whose stock will
be listed separately on a national exchange. In the event that Purchaser
assigns this Agreement to an Affiliate of Purchaser or Purchaser delivers a
Closing Direction to Seller with respect to one or more of the Assets, all
references in this Agreement to Purchaser shall be considered to also
constitute references to the Affiliate or Partial Designee to the extent of the
Assets affected by such assignment or Closing Direction.
- 28 -
<PAGE> 152
17.2 Interpretation and Applicable Law. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas. As
used herein, unless the context otherwise requires: (i) references to "Article"
or "Section" are to an article or section hereof; (ii) all "Exhibits" referred
to herein are to Exhibits attached hereto and are incorporated herein by
reference and made a part hereof; and (iii) except where specifically qualified
by limiting language relating thereto, "include", "includes" and "including"
are deemed to be followed by "without limitation" whether or not they are in
fact followed by such words or words of like import. Where required for proper
interpretation, words in the singular shall include the plural; the masculine
gender shall include the neuter and the feminine, and vice versa. The terms
"successors and assigns" shall include the heirs, administrators, executors,
successors and permitted assigns, as applicable, of any party hereto.
17.3 Amendment. This Agreement may not be modified or amended, except
by an agreement in writing signed by Seller and Purchaser. The parties may
waive any of the conditions contained herein or any of the obligations of the
other party hereunder, but any such waiver shall be effective only if in
writing and signed by the party waiving such conditions and obligations.
17.4 Attorneys' Fees. In the event it becomes necessary for either
party to file a suit to enforce this Agreement or any provisions contained
herein, the prevailing party shall be entitled to recover, in addition to all
other remedies or damages, reasonable attorneys' fees and costs of court
incurred in such suit.
17.5 Descriptive Headings. The descriptive headings of the several
sections or paragraphs contained in this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
17.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in
connection therewith. No representation, warranty, covenant, agreement or
condition not expressed in this Agreement shall be binding upon the parties
hereto or shall affect or be effective to interpret, change or restrict the
provisions of this Agreement.
17.7 Counterparts. Numerous copies of this Agreement may be executed
by the parties hereto. Each such executed copy shall have the full force and
effect of an original executed instrument.
17.8 Time. Time is of the essence of this Agreement. The date of
execution of this Agreement by Seller shall be the date of execution of this
Agreement. If the final date of any period falls upon a Saturday, Sunday or
legal holiday under the laws of the State of Texas, then
- 29 -
<PAGE> 153
in such event the expiration date of such period shall be extended to the next
day which is not a Saturday, Sunday or legal holiday under the laws of the
State of Texas.
17.9 Confidentiality. Purchaser agrees that, from the Effective Date
through Closing or, if this Agreement is terminated, through the date which is
six (6) months after the date of termination or, as to any Asset not purchased
by Purchaser at Closing, through the date which is six (6) months after the
Closing Date (the "Confidentiality Period"), all Asset Information shall be
kept confidential and shall not be used except as provided in this Section
17.9. Without the prior written consent of Seller, during the Confidentiality
Period the Asset Information shall not be disclosed by Purchaser or Purchaser's
Representatives, in any manner whatsoever, in whole or in part, except (i) to
Purchaser's Representatives who need to know the Asset Information for the
purpose of evaluating the Assets and who are informed by the Purchaser of the
confidential nature of the Asset Information; (ii) as may be necessary for
Purchaser or Purchaser's Representatives to comply with applicable laws,
including, without limitation, governmental regulatory, disclosure, tax and
reporting requirements; to comply with other requirements and requests of
regulatory and supervisory authorities and self-regulatory organizations having
jurisdiction over Purchaser or Purchaser's Representatives; to comply with
regulatory or judicial processes; or to satisfy reporting procedures and
inquiries of credit rating agencies in accordance with customary practices of
Purchaser or its Affiliates provided that Purchaser shall give prompt notice of
any such requirement to Seller; and (iii) as otherwise permitted by this
Section 17.9. If this Agreement is terminated, Purchaser and Purchaser's
Affiliates shall not during the remainder of the Confidentiality Period use for
any purpose or for the benefit of any Person any of the Asset Information.
Except as provided otherwise in this Section 17.9, Purchaser and
Seller, for the benefit of each other, hereby agree that prior to Closing
neither of them will release or cause or permit to be released to the public
any press notices, publicity (oral or written) or advertising promotion
relating to, or otherwise publicly announce or disclose or cause or permit to
be publicly announced or disclosed, in any manner whatsoever, the terms,
conditions or substance of this Agreement or the transactions contemplated
herein, without first obtaining the consent of the other party hereto (which
shall not be unreasonably withheld or delayed). Seller, being aware of
Purchaser's affiliation with a publicly-held corporation, the securities of
which are traded on a national securities exchange, acknowledges that Purchaser
and its Affiliates may be compelled by considerations of legal obligation,
fiduciary and public responsibility, commercial pragmatism and established
corporate policy, to issue a public press release announcing that it has
entered into this Agreement and stating the material terms hereof; Purchaser
will not issue or disclose any press release without first obtaining the
consent of Seller as to the content of such press release (which acceptance
shall not be unreasonably withheld or delayed); Seller consents to all such
additional statements and disclosures Purchaser may reasonably make in
responding to inquiries arising as a result of any such press release.
Purchaser agrees to send a copy of any final press release directly to Seller
not later than the time when Purchaser issues such press release to the public.
- 30 -
<PAGE> 154
Purchaser acknowledges that Seller, as part of an internal
restructuring, will be required to disclose the existence and terms of this
Agreement in an Information Statement to be sent to the shareholder of DMI and,
if necessary, the shareholders of the parent company thereof (CCP) and
Purchaser consents to such disclosure.
Purchaser shall indemnify and hold Seller and the Affiliates of Seller
harmless, and Seller shall indemnify and hold Purchaser and the Affiliates of
Purchaser harmless, from and against any and all actual direct claims, demands,
causes of action, losses, damages, liabilities, costs and expenses (including,
without limitation, attorneys' fees and disbursements) suffered or incurred by
the other party and proximately caused by a breach by Purchaser or Purchaser's
Representatives or Seller, as the case may be, of the provisions of this
Section 17.9; BUT THIS SECTION 17.9 WILL NOT ENTITLE EITHER PURCHASER, SELLER,
PURCHASER'S AFFILIATES OR SELLER'S AFFILIATES TO RECOVER INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
As used in this Agreement, the term "Asset Information" shall mean (i)
all information and documents in any way relating to the Assets, the operation
thereof or the sale thereof furnished to, or otherwise made available for
review by, Purchaser or its directors, officers, employees, Affiliates,
partners, brokers, agents or other representatives, including, without
limitation, attorneys, accountants, contractors, consultants, engineers and
financial advisors (collectively, "Purchaser's Representatives"), under or in
connection with this Agreement by Seller or any Affiliate of Seller, or their
agents or representatives, including, without limitation, their contractors,
engineers, attorneys, accountants, consultants, brokers or advisors, and (ii)
all analyses, compilations, data, studies, reports or other information or
documents prepared or obtained by Purchaser or Purchaser's Representatives to
the extent such information or documents contain or are based on the
information or documents described in the preceding clause (i), or otherwise
reflecting their review or investigation of the Assets undertaken with Seller's
required approval; but notwithstanding the foregoing, the term "Asset
Information" shall not be deemed to include any information or document which
(1) is or becomes generally available to the public other than as a result of a
disclosure by Purchaser or Purchaser's Representatives in violation of this
Agreement, (2) is in the possession of Purchaser or Purchaser's Representatives
prior to its disclosure to Purchaser by Seller or any Affiliates of Seller or
their agents or representatives, (3) becomes available to Purchaser from a
source other than Seller or any Affiliates of Seller or their agents or
representatives without a violation of any confidentiality obligation, or (4)
is developed by Purchaser or Purchaser's Representatives without reliance upon
and independently of otherwise confidential Asset Information.
In addition to any other remedies available to Seller and Purchaser,
Seller and Purchaser shall each have the right to seek equitable relief,
including, without limitation, injunctive relief or specific performance,
against the other party or their representatives in order to enforce the
provisions of this Section 17.9.
- 31 -
<PAGE> 155
The provisions of this Section 17.9 shall survive the termination of
this Agreement prior to Closing for six months following the termination date.
It is understood that the foregoing shall not preclude either party
from discussing the substance or any relevant details of the transactions
contemplated in this Agreement on a confidential basis with any of its
attorneys, accountants, professional consultants, financial advisors, rating
agencies, or potential lenders, as the case may be, or prevent either party
hereto from complying with applicable laws, including, without limitation,
governmental regulatory, disclosure, tax and reporting requirements.
17.10 Rule of Construction. The parties hereto acknowledge that they
each enter into this Agreement after having had an opportunity for thorough
review by, and on advice of, their respective legal counsel. The parties agree
that the judicial rule of construction requiring or allowing an instrument to
be construed to the detriment of or against the interest of the maker thereof
shall not apply to this Agreement.
17.11 Shareholder Consent. DMI represents and warrants to Purchaser
that the parent company of DMI, Carter-Crowley Properties, Inc., a Texas
corporation ("CCP"), has authorized the execution, delivery and performance
hereof.
17.12 Access to Records after Closing. Following the Closing,
Purchaser shall give to Seller an unrestricted access during normal business
hours with reasonable prior notice to (and the right to make copies at the
expense of Seller) the books, files, records and Tax Returns and supporting
schedules and work papers relating to the Assets and business, operations,
income, and expenses of Purchaser relating thereto which exist on, accrue or
arise after or occur after the Closing. Any access pursuant to this Section
17.12 shall be conducted in such manner as not to interfere unreasonably with
the operations of the business of Purchaser following the Closing.
17.13 SPECIAL NON-DISCLOSURE AGREEMENT. IN ADDITION TO THE AGREEMENTS
SET FORTH IN SECTION 17.9, PURCHASER UNCONDITIONALLY AGREES THAT NEITHER
PURCHASER NOR PURCHASER'S REPRESENTATIVES OF AFFILIATES WILL DISCLOSE THE TERMS
OR EXISTENCE OF THIS AGREEMENT PRIOR TO THE EARLIER OF: (I) THE DATE WHICH IS
SEVEN (7) DAYS AFTER THE EFFECTIVE DATE OR (II) THE DATE ("TRIGGER DATE") WHICH
IS THE LATER OF (A) THE DAY AFTER THE DATE ON WHICH DONALD J. CARTER DISCLOSES
THE EXISTENCE OF THIS AGREEMENT TO ROSS PEROT, JR. AND (B) THE DATE ON WHICH
SELLER DISCLOSES THE EXISTENCE OF THIS AGREEMENT TO SELLER'S EMPLOYEES AND
OTHER PERSONS SELLER WISHES TO TELL BEFORE THE EXISTENCE OF THIS AGREEMENT IS
KNOWN GENERALLY. SELLER AGREES TO NOTIFY PURCHASER OF THE TRIGGER DATE WITHIN A
REASONABLE PERIOD FOLLOWING ITS OCCURRENCE.
17.14 Retention by DMI or CCP. Until such time as all obligations of
Seller to Purchaser hereunder shall have expired, DMI or CCP shall retain (or
place into its liquidating trust), as a reserve for contingent liabilities
under this Agreement, an amount equal to one
- 32 -
<PAGE> 156
hundred twenty-five percent (125%) of the total of: (i) all unpaid sums to
which Purchaser is entitled pursuant to Sections 16.3 or 16.4, plus (ii) the
amount asserted by Purchaser in connection with any unresolved Adjustment Event
amount and any amount subject to arbitration in accordance with the provisions
of Section 16.4.
17.15 Joinder by CCP. CCP joins in the execution of this Agreement for
purposes of acknowledging obligations pursuant to Sections 17.11 and 17.14.
ARTICLE XVIII
DEFINITIONS
The following terms used in this Agreement have the respective
meanings specified or referred to in this Article XVIII. The "Defined Term
Index" attached hereto sets forth the Sections in this Agreement in which other
terms are defined.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. For purposes of this
definition, "control" (including "controlling", "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"Code" means the United States Internal Revenue Code of 1986, as
amended, and the applicable rulings and regulations thereunder.
"Encumbrance" means any liability, debt, mortgage, deed of trust,
pledge, security interest, encumbrance, option, right of first refusal,
agreement of sale, adverse claim, easement, lien, assessment, restrictive
covenant, encroachment, burden or charge of any kind or nature whatsoever or
any item similar or related to the foregoing.
"GAAP" means generally accepted accounting principles, in effect from
time to time in the United States (i) which are consistent with the principles
promulgated and adopted by the Financial Accounting Standards Board and it
predecessors as generally accepted accounting principles, (ii) which are
applied for all periods in a manner consistent with the manner in which such
principles and practices were applied to the most recent financial statements
furnished by Seller to Purchaser pursuant to this Agreement.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental private
- 33 -
<PAGE> 157
body exercising, or purporting to exercise, any executive, legislative,
judicial, administrative, police, regulatory or taxing authority or power of
any nature.
"Governmental Authorization" means any permit, license, franchise,
approval, certificate, consent, ratification, permission, confirmation,
endorsement, waiver, certification, registration, qualification or other
authorization issued, granted, given or otherwise made available by or under
the authority of any Governmental Authority or pursuant to any Legal
Requirement.
"IRS" means the United States Internal Revenue Service.
"Legal Requirement" means any federal, state, municipal, local or
foreign statute, law, ordinance, decree, requirement, judgment, order, treaty,
proclamation, convention, rule or regulation (or interpretation of any of the
foregoing) of any Governmental Authority or any principle, ruling or finding of
common law, including any Environmental Laws.
As used herein, the term "material" means a fact (e.g., an adverse
change) which it is reasonably likely that a prudent and knowledgeable
purchaser would attach importance in making a decision regarding the specific
item, in the context in which it is used.
"Person" means any individual, corporation (including any non-profit
corporation), general partnership, limited partnership, joint venture, joint
stock association, estate, trust, cooperative, foundation, union, syndicate,
league, consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or entity of any nature, other than a
Governmental Authority.
"Proceeding" means any action, suit, litigation, arbitration, lawsuit,
claim, proceeding (including any civil, criminal, administrative, investigative
or appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination, investigation, challenge,
controversy or dispute commenced, brought, conducted or heard by or before, or
otherwise involving any Governmental Authority or arbitrator.
- 34 -
<PAGE> 158
EXECUTED on this the _________ day of February, 1997.
SELLER:
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
EXECUTED for the purposes set forth in Section 17.15 of the Agreement
this the 10th day of February, 1997.
CARTER-CROWLEY PROPERTIES, INC.,
a Texas corporation
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
EXECUTED on this the 10th day of February, 1997.
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation, General
Partner
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
- 35 -
<PAGE> 159
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS Agreement IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
REPUBLIC TITLE OF TEXAS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Its:
--------------------------------------
- 36 -
<PAGE> 160
ACQUISITION AGREEMENT
DEFINED TERM INDEX
The following terms are defined in the respective Section of the
Agreement indicated below.
<TABLE>
<CAPTION>
DEFINED TERM DEFINITION LOCATION
- ------------ -------------------
<S> <C>
AAA 16.4
AAA Rules 16.4
AAA Selection Notice 16.4
Actual knowledge 6.1
Adjustment Event 16.3.1
Affiliate Article XVIII
Agreement Introductory Paragraph
Aircraft Note Exhibit 1.3
Aircraft Security Agreement Exhibit 1.3
Arbitration Event 16.4
Arbitration Notice 16.4
Arbitrators 16.4
Asset Allocation 2.3
Assets 1.1
Asset Information 17.9
Carter Agreement 7.2.4
CCP 17.12
CERCLA Article XVIII
Closing Article X
Closing Date Article X
Closing Direction 17.1
Code Article XVIII
Confidentiality Period 17.9
Consent Conditions 9.4
Contaminant Article XVIII
Cost of Curing 16.3.1
DBL Limited 1.2
DBL Partnership Agreements 4.2.1
DBL Partnership Interests 1.2
DMI Introductory paragraph
Due Diligence Items 4.1
Earnest Money 3.1
</TABLE>
- 37 -
<PAGE> 161
<TABLE>
<S> <C>
Effective Date Introductory paragraph
Encumbrance Article XVIII
FAA 4.3.3
Fairness Opinion 9.7
Fairness Deadline 9.7
Fairness Notice 9.7
Fairness Opinion Termination Deadline 9.7
Final Resolution 16.4
First Adjustment Notice 16.3.2
GAAP Article XVIII
General Partner Promissory Note Exhibit 1.3
Governmental Authorities Article XVIII
Governmental Authorization Article XVIII
GP 6.2.2
Hillwood 6.2.2
Hillwood Consent 7.3.3
Inspection Period 5.1
IRS Article XVIII
Knowledge 6.1
LC Holder 7.2.5
Legal Requirement Article XVIII
Limited Partner Promissory Note Exhibit 1.3
Linda Carter Suite Agreement 6.2.2
Majority Interest 6.2.4
Material Article XVIII
NBA 6.2.3
NBA Consent 8.2
Objectionable Persons 16.4
Original Resolution 16.4
Panel List 16.4
Partial Designee 17.1
Partnership 1.2
Partnership Agreements 1.2
Partnership Assignment 11.2
Partnership Consents 8.2
Partnership Interests 1.2
Party Selection Notice 16.4
Performance Note Exhibit 1.13
Person Article XVIII
Pledgors Exhibit 1.3
Preliminary Notice 16.4
Principal Officers 6.1
</TABLE>
- 38 -
<PAGE> 162
<TABLE>
<S> <C>
Proceeding Article X
Promissory Notes 1.3
Purchaser Introductory paragraph
Purchase Price 2.1
Purchaser's Adjustment Proposal 16.3.2
Purchaser's Conditions 9.1
Purchaser's Representatives 17.9
Purchaser's Resolution 16.4
Second Adjustment Notice 16.3.2
Security Documents 1.3
Seller Introductory paragraph
Seller Representations 6.1
Seller's Adjustment Proposal 16.3.2
Seller's Conditions 9.5
Seller's Corporate Approvals 9.1.5
Seller's Resolution 16.4
Settlement Period 16.4
Subordination Agreement 7.2.5
Substitute Estoppel 8.3
Title Company 3.1
Trigger Date 17.14
Withdrawal Notice 16.3.2
</TABLE>
- 39 -
<PAGE> 163
FIRST AMENDMENT TO ACQUISITION AGREEMENT
This First Amendment to Acquisition Agreement ("Amendment") is entered
into by and among CARTER-CROWLEY PROPERTIES, INC., a Texas corporation ("CCP"),
HI CAPITAL CORP., a Texas corporation ("HCC"), METROPORT REALTY CORPORATION, a
Texas corporation ("MRC"), HI PRODUCTION COMPANY, INC., a Texas corporation
("HPC"), DALLAS MAVERICKS, INC., a Texas corporation ("DMI") (CCP, HCC, MRC,
HPC, and DMI are collectively referred to as "Seller") and CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser"), as
of the _____ day of March, 1997 in light of the following recitals.
R E C I T A L S :
Heretofore, CCP, HCC, MRC, HPC, DMI and Purchaser entered into a
certain Acquisition Agreement with an effective date of February 10, 1997 (the
"Acquisition Agreement"). Unless defined herein, all capitalized terms shall
have the meaning provided in the Acquisition Agreement. One of the Assets
described in the Acquisition Agreement is the Airport Leasehold. CCP subleases
the Airport Leasehold to RR Investments, Inc., d/b/a Million Air ("Million
Air") pursuant to a certain sublease ("Million Air Sublease") dated May 1,
1992. Some of the provisions of the Million Air Sublease grant Million Air the
right of first refusal ("First Refusal Right") to purchase the Airport
Leasehold and the improvements situated thereon. In accordance with the terms
of the Million Air Sublease, CCP gave Million Air notice of its intention to
sell the Airport Leasehold pursuant to the Acquisition Agreement and Million
Air timely exercised the First Refusal Right. However, Million Air requested an
amendment to the First Refusal Right provisions. The Acquisition Agreement did
not contemplate the sale of the Airport Leasehold to Million Air on any terms
other than those set forth in the Million Air Sublease. CCP has requested
Purchaser to amend the Acquisition Agreement to allow CCP to sell the Airport
Leasehold in accordance with the terms of the letter agreement set forth on
Exhibit "A" to this Amendment ("Million Air Agreement"). Purchaser has
consented to the sale of the Airport Leasehold and the related Real Property
Assets to Million Air in accordance with the Million Air Agreement subject to
the further terms of this Amendment. Therefore, Seller and Purchaser have
agreed to amend the Acquisition Agreement in accordance with the further terms
of this Amendment.
Therefore, in consideration of the foregoing and other good and
valuable consideration, Seller and Purchaser agree as follows:
1. Seller shall not sell or agree to sell the Airport Leasehold except
to Million Air in accordance with the provisions of the Million Air Agreement.
2. Upon the execution of the Million Air Agreement by Million Air and
CCP, the Airport Leasehold and the related Real Property Assets (i) shall be
conveyed by CCP to Million Air pursuant to the terms of the Million Air
Agreement, and (ii) shall not be conveyed pursuant
<PAGE> 164
to the Acquisition Agreement and the Purchase Price shall be reduced by
$1,500,000.00; otherwise, the Airport Leasehold and the related Real Property
Assets shall remain a part of the Assets subject to the terms of the
Acquisition Agreement for all purposes. However, the provisions of this
paragraph 2 are subject to the provisions of paragraph 3 below.
3. If Million Air executes the Million Air Agreement but does not
acquire the Airport Leasehold within thirty (30) days following the Closing
Date, Seller agrees to sell and Purchaser agrees to buy the assets related to
the Airport Leasehold in accordance with the terms of the Acquisition Agreement
with the following provisions: (i) the "Closing Date" shall be seventy (70)
days after the date Seller delivers a written notice ("Airport Leasehold
Notice") to Purchaser advising it of the failure of Million Air to acquire the
Airport Leasehold; (ii) the "Inspection Period" shall be sixty (60) days from
the date of the delivery of the Airport Leasehold Notice; (iii) the Purchase
Price shall be $1,500,000.00; and (iv) the Earnest Money shall be $19,750.00.
4. Seller and Purchaser ratify and confirm the Acquisition Agreement
as amended by this Amendment.
EXECUTED on this the ____ day of ___________, 1997.
SELLER:
CARTER-CROWLEY PROPERTIES, INC.,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
HI CAPITAL CORP.,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
METROPORT REALTY CORPORATION
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
2
<PAGE> 165
HI PRODUCTION COMPANY, INC.
a Texas corporation
By:
--------------------------------------
Ronald L. Carter, President
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
--------------------------------------
Donald J. Carter, President
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
----------------------------------
James M. Eidson, Jr.
Sr. Vice President, Acquisitions
3
<PAGE> 166
SECOND AMENDMENT TO ACQUISITION AGREEMENT
This Second Amendment to Acquisition Agreement ("Amendment") is
entered into by and among CARTER-CROWLEY PROPERTIES, INC., a Texas corporation
("CCP"), HI CAPITAL CORP., a Texas corporation ("HCC"), METROPORT REALTY
CORPORATION, a Texas corporation ("MRC"), HI PRODUCTION COMPANY, INC., a Texas
corporation ("HPC"), DALLAS MAVERICKS, INC., a Texas corporation ("DMI") (CCP,
HCC, MRC, HPC, and DMI are collectively referred to as "Seller") and CRESCENT
REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership
("Purchaser"), as of the _____ day of April, 1997 in light of the following
recitals.
R E C I T A L S :
Heretofore, Seller and Purchaser entered into a certain Acquisition
Agreement with an effective date of February 10, 1997 (the "Initial
Agreement"). Effective as of March 27, 1997, Seller and Purchaser entered into
that certain First Amendment to Acquisition Agreement (the"First Amendment,"
together with the Initial Agreement, referred to herein as the "Acquisition
Agreement"). Unless defined herein, all capitalized terms shall have the
meaning provided in the Acquisition Agreement.
Seller has proposed that in lieu of selling certain of the assets
directly to Purchaser, Seller will (a) contribute the Real Property Assets to
CCP Partners, Ltd., a Texas limited partnership ("CCP-LP") whose sole general
partner is CCP and whose limited partners are CCP and MRC, (b) sell the general
partnership interest in CCP-LP to Purchaser in exchange for either a cash
payment or a demand promissory note and (c) sell the limited partnership
interest in CCP-LP to Crescent Real Estate Equities, Ltd., a Delaware
corporation and the general partner of Purchaser ("Crescent GP") in exchange
for a demand promissory note. Immediately thereafter, Crescent GP will transfer
the limited partnership interests in CCP-LP to Purchaser and Purchaser will
assume the demand promissory note of Crescent GP. Immediately thereafter,
Purchaser will pay the demand promissory note(s). The transaction described in
this paragraph and in Paragraph 3(a) below is hereafter called the "Real Estate
Restructured Transaction."
Seller has proposed that in lieu of selling certain of the Assets
directly to Purchaser, Seller will sell the Promissory Notes to Crescent GP in
exchange for a demand promissory note. Immediately thereafter, Crescent GP will
transfer the Promissory Notes to Purchaser and Purchaser will assume the demand
promissory note. Immediately thereafter, Purchaser will pay the demand
promissory note. The transaction described in this paragraph and in paragraph
3(b) below is hereafter called the "Intangibles Restructured Transaction." The
"Real Estate Restructured Transaction" and the "Intangibles Restructured
Transaction" are sometimes collectively referred to as the "Restructured
Transaction."
<PAGE> 167
Seller and Purchaser have agreed to amend the Acquisition Agreement to
(a) provide for the Restructured Transaction, (b) change the Closing Date in
accordance with the terms of this Amendment, but provide that the closing
documents shall be effective as if Closing occurred as of the opening of
business on April 21, 1997 ("Effective Conveyance Date") (c) prorate all items
in accordance with the terms of the Acquisition Agreement as if Closing had
occurred on the Effective Conveyance Date, (d) delete the Rising Star
Partnership Interests and the Oil and Gas Interests from the Assets to be
purchased and sold subject to the further terms of this Amendment, (e) adjust
the Purchase Price to compensate Seller for the extension of the Closing Date
and to reflect the deletion of the Rising Star Partnership Interest and the Oil
and Gas Interests from the Assets, and (f) incorporate the other provisions of
this Amendment.
Now therefore, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
Seller and Purchaser agree as follows:
1. Closing Date. Article XI of the Acquisition Agreement is amended to
provide that the Closing Date shall be May 9, 1997. However all assignment,
conveyance or assumption documents shall be stated as effective as of the
Effective Conveyance Date. The Acquisition Agreement is further amended to
provide that all prorations, adjustments and payments contemplated by Article
XIV of the Acquisition Agreement shall be calculated as if the Closing occurred
at the opening of business on the Effective Conveyance Date. The foregoing
sentence does not affect the provisions of Section 2.2 of the Acquisition
Agreement. The reference to "Closing Date" in the definition of "Seller's
Share" in Section 14.2.5 is changed to April 21, 1997. The reference to
"Closing" in subpart (ii) of the first sentence of Section 17.2.3 is changed to
April 21, 1997. Section 17.2 is further amended to provide that Purchaser shall
bear the risk of loss from and after April 21, 1997 and if there is a Casualty
on or after April 21, 1997, Purchaser shall be entitled to recover all
insurance proceeds and Purchaser shall look to the insurers (and not Seller)
for the payment of any loss; provided however if there is a Casualty on or
after the Effective Conveyance Date, Seller and Purchaser shall cooperate in
taking the actions necessary to preserve the affected Improvements and collect
the insurance proceeds in the manner contemplated by Section 17.2. Without
limitation of the foregoing sentence, Seller agrees to execute such documents
as Purchaser may reasonably request in order to obtain the use of any insurance
proceeds. If Purchaser, acting in its sole discretion, determines that any
Property and Liability Insurance provided by Seller is not adequate, Purchaser
may replace said insurance at its expense and the cost of the replaced
insurance attributable to the period following the expiration of three (3)
business days after Purchaser delivers written notice of the replacement to
Seller (which notice includes an authorization to cancel the replaced
insurance) shall not be charged to Purchaser for the purpose of prorating
expenses in accordance with the Acquisition Agreement and this Amendment. For
the purpose of the proration of income and expenses, all income and expenses
attributable to the period from and after the Effective Conveyance Date shall
be for the account of Purchaser.
2
<PAGE> 168
2. Payment of Purchase Price. The following provisions shall be in
lieu of the provisions of Section 13.1 of the Acquisition Agreement:
As used herein the term: (i) "Adjustment Interest" means the interest
which would accrue on the Adjusted Purchase Price at the simple
interest rate of 6.5% per annum from Effective Conveyance Date to the
Closing Date; (ii) "Adjusted Purchase Price"means the Purchase Price
as adjusted by (A) any adjustments or reductions provided by the terms
of the Acquisition Agreement and (B) any credits to the Purchase Price
to which Purchaser is entitled pursuant to the further terms of the
Acquisition Agreement; and (iii) "Final Purchase Price" means the
Adjusted Purchase Price plus the Adjustment Interest. On the Closing
Date Purchaser shall pay the Final Purchase Price [including that part
represented by the Restructure Notes (hereafter defined)] by wire
transfer to a financial institution ("Wire Transferee") domiciled in
the United States in accordance with Seller's written instructions
(delivered to Purchaser at least two business days prior to the
Closing Date) by no later than 12:00 o'clock P.M. (Central Daylight
Time) ("Wire Transfer Deadline"). If the Wire Transferee does not
receive electronic notice of the wire transfer by the Wire Transfer
Deadline, Purchaser shall not be in default provided by no later than
12:00 o'clock P.M. (Central Daylight Time) on the first business day
following the Closing Date, the Wire Transferee receives electronic
notice of the wire transfer of the Final Purchase Price plus interest
calculated on the Adjusted Purchase Price at the rate of 6.5% per
annum from the Closing Date until Wire Transferee's receipt of
electronic notice of such wire transfer. At Closing Purchaser shall
also execute, deliver and, if required, acknowledge the documents
described in Section 13.2 through 13.6 of the Acquisition Agreement
and perform the obligations described therein as modified by the
provisions of paragraph 3 of this Amendment.
Any Radovir Payment which Purchaser would have been obligated to pay if the
Closing had occurred on April 21, 1997 shall be included in determining the
Adjusted Purchase Price. None of the remaining Radovir Payment shall be
included in determining the Adjusted Purchase Price.
3. Restructured Transaction. Seller and Purchaser agree that the
closing of the purchase and sale of the Assets described in this Paragraph 3
will be restructured as follows:
(a) Real Property Assets. As used in this Amendment the term
"Restructure Note" means a demand promissory note the terms of which are
approved by Seller and Purchaser which approval shall not be unreasonably
withheld or delayed. Subject to the conditions and covenants contained herein,
on May 8, 1997 (effective as of April 20, 1997) Seller will convey the Real
Property Assets to CCP-LP, which conveyance will be accomplished by execution
and delivery of the same form of documents and otherwise in the same manner as
the Real Property Assets were to be conveyed to Purchaser at Closing pursuant
to the provisions of the Acquisition Agreement prior to the effectiveness of
this Amendment (the "Original
3
<PAGE> 169
Closing Obligations"). At Closing, Purchaser will (i) cause Crescent GP to
purchase the limited partnership interest in CCP-LP held by CCP and MRC in
consideration of the execution and delivery of a Restructure Note in the amount
of 99% of the amount of the Final Purchase Price allocated to the Real Property
Assets on the Allocation Schedule (hereafter defined) , payable to the order of
CCP and MRC, and (ii) purchase the general partnership interest in CCP-LP held
by CCP in consideration of either (at the option of Purchaser) payment of cash
or the execution and delivery of a Restructure Note in the amount of 1% of the
amount of the Final Purchase Price allocated to the Real Property Assets on the
Allocation Schedule , payable to the order of CCP. Immediately thereafter,
Crescent GP will transfer the limited partnership interest in CCP-LP to
Purchaser (resulting in the dissolution and termination of CCP-LP) and
Purchaser will assume the Restructure Note executed by Crescent GP. Immediately
thereafter, Purchaser will pay the Restructure Note[s]. The Original Closing
Obligations will be accomplished by Seller on the date of Closing. The
conveyance of the partnership interests in CCP-LP will be by such transfers and
assignments as contemplated by the Acquisition Agreement for the conveyance of
the Partnership Interests. The terms of the partnership agreement of CCP-LP
shall be subject to Purchaser's approval, which approval shall not be
unreasonably withheld or delayed. Without limitation of the preceding sentence,
Purchaser may condition its approval upon the inclusion in the partnership
agreement of a provision requiring the general partner of CCP-LP to make an
election pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended, if requested by Purchaser.
(b) Promissory Notes. The Promissory Notes will be conveyed by
Seller to Crescent GP in accordance with the Original Closing Obligations
applicable thereto; however, Crescent GP will deliver to Seller at Closing a
Restructure Note in the amount of the Final Purchase Price allocated to the
Promissory Notes on the Allocation Schedule, payable to the order of Seller.
Immediately thereafter, Crescent GP will transfer the Promissory Notes to
Purchaser and Purchaser will assume the Restructure Note described in this
paragraph (b). Immediately thereafter, Purchaser will pay said Restructure
Note.
(c) Hicks Muse Partnership Interests and Moody-Day Stock. Purchaser
agrees that Crescent Operating, Inc., a Delaware corporation, will be the
purchaser of the Hicks Muse Partnership Interests and Moody-Day Stock for the
amount of Final Purchase Price allocated to said Assets on the Allocation
Schedule, which Assets will be transferred by Seller to Crescent Operating,
Inc. in accordance with the Original Closing Obligations applicable to such
Assets. Pursuant to Section 21.1 of the Acquisition Agreement, Purchaser and
Seller agree that this Amendment shall constitute a Closing Direction (as such
term is defined in Section 21.1 of the Acquisition Agreement) by Purchaser to
Seller directing Seller to sell the Hicks Muse Partnership Interests and the
Moody-Day Stock to Crescent Operating, Inc.
(d) Covenants and Indemnification. Seller further agrees as
follows:
(i) Seller will not permit any debt or other liabilities,
claims, causes of action or liens to attach to CCP-LP or the assets thereof
except (A) as the same may be
4
<PAGE> 170
contemplated and allowed by the Acquisition Agreement with regard to the Real
Property Assets, (B) the liabilities and/or agreements Purchaser agreed to
assume or take subject to pursuant thereto, in accordance with the Original
Closing Obligations and (C) those obligations, liens or other liabilities which
arise in the ordinary operation of the Real Property Assets during the period
following the Effective Conveyance Date (other than those arising out of
Seller's acts or failures to act in violation of the terms of the Acquisition
Agreement as amended hereby) ;
(ii) Seller will not transfer or encumber any partnership
interest in CCP-LP or any assets owned by CCP-LP and agrees that CCP-LP will
conduct no business and take no action from and after its formation except to
hold title to the Real Property Assets and observe all of the covenants and
obligations of Seller pursuant to the Acquisition Agreement;
(iii) Seller will pay all of Purchaser's reasonable costs and
expenses incurred in connection with the Restructured Transaction including,
without limitation, reasonable attorneys fees and expenses in connection with
the negotiation and review of this Amendment (with regard to the Restructured
Transaction) and any tax analysis thereof; and
(iv) Seller will indemnify, defend, save and hold Purchaser
Indemnitees harmless from and against all demands, claims, allegations,
assertions, action or causes of action, assessments, losses, damages,
deficiencies, liabilities, costs and expenses (including reasonable legal fees,
interest, penalties and all reasonable amounts paid in investigation, defense
or settlement of any of the foregoing and whether or not any such demands,
claims, allegations, etc., of third parties are meritorious) asserted against,
imposed upon, resulting to, required to be paid by, or incurred by any
Purchaser Indemnitees, directly or indirectly caused by the formation,
ownership or operation thereof by Seller or the change from the Original
Closing Obligations to the Restructured Transaction. This indemnity is not
intended to nor does it include (a) claims, causes of action or expenses
asserted against or incurred by Purchaser as the result of the acts or failures
to act of Purchaser other than its agreement to and participation in the
Restructured Transaction or (b) assessment of taxes as a result of Purchaser's
activities not related to the Restructured Transaction. The indemnity contained
herein shall not be subject to the limitations contained in Section 16.7 of the
Acquisition Agreement and shall survive Closing.
(e) Payment of Restructure Notes. At Closing, Purchaser shall pay
the Restructure Notes in full.
(f) No Effect on Purchase Price. The Restructured Transaction shall
not affect the amount of the Purchase Price or the Final Purchase Price and the
execution and delivery of the Restructure Notes shall not increase the Purchase
Price but shall be a form of payment of the Purchase Price. The allocations set
forth on Exhibit "A" include an allocation of the Radovir Payment. The
Restructure Notes shall be reduced by the amount of the Radovir Payment not
paid at the Closing. The amount of the reduction shall be applied to the
Restructure Notes in accordance with the direction of Purchaser. Nothing in the
foregoing two
5
<PAGE> 171
(2) sentences shall be construed to reduce the obligation of Purchaser pursuant
to Section 2.2.6 of the Acquisition Agreement.
4. Excluded Assets. Seller and Purchaser acknowledge and agree that
the Municipal Bonds described on the attached Exhibit "B" are excluded from the
Assets since each had been redeemed prior to the Effective Date of the
Acquisition Agreement and the Purchase Price shall be reduced by $225,000.
Seller and Purchaser also acknowledge that Seller has agreed to sell the Oil
and Gas Interests and the RSE Partnership Interests to a third party for a
purchase price of $3,000,000.00 ("RSE/O&G Price"). Provided said transaction is
closed prior to the Closing Date, the Oil and Gas Interests and the RSE
Partnership Interests shall not be an Asset subject to the Acquisition
Agreement and the Purchase Price shall be reduced by the RSE/O&G Price less
Seller's reasonable out of pocket expenses incurred in connection with said
sale.
5. Allocation of Final Purchase Price.
(a) Seller and Purchaser agree that the Purchase Price is allocated
to the Assets in accordance with attached Exhibit "A". Seller and Purchaser
acknowledge that (i) the allocations set forth on Exhibit "A" were made taking
into account the adjustments to the Purchase Price arising out of the sale of
the Marketable Securities, the Municipal Bonds and the Airport Leasehold and
the exclusion of the Municipal Bonds described in Paragraph 4 of this Amendment
and assuming the exclusion of the RSE Partnership Interests and the Oil and Gas
Interests; but (ii) the allocations do not reflect adjustments or credits to
the Purchase Price as the result of subsequent events and the application of
the provisions of the Acquisition Agreement. To the extent that there are
adjustments or credits to the Purchase Price, such adjustments or credits shall
be reflected as adjustments to the allocations on Exhibit "A" as determined by
Purchaser. The allocations contained in Exhibit "A," as adjusted pursuant to
the preceding sentence, shall be binding on Seller and Purchaser. As used in
this Amendment "Allocation Schedule" means the allocation of the Final Purchase
Price as determined in accordance with the provisions of this paragraph 5.
(b) Purchaser will indemnify, defend, save and hold Seller
Indemnitees harmless from and against all demands, claims, allegations,
assertions, action or causes of action, assessments, losses, damages,
deficiencies, liabilities, costs and expenses (including reasonable legal fees,
interest, penalties and all reasonable amounts paid in investigation, defense
or settlement of any of the foregoing and whether or not any such demands,
claims, allegations, etc., of third parties are meritorious) asserted against,
imposed upon, resulting to, required to be paid by, or incurred by any Seller
Indemnitees, directly or indirectly caused by the allocation of the Purchase
Price set forth on Exhibit "A" or determined in accordance with the provisions
of paragraph 5(a) of this Amendment. This indemnity is not intended to nor does
it include (a) state, local or federal taxes for which Seller may be liable as
a result of the transaction contemplated by the Acquisition Agreement as
amended by this Amendment, or (b) claims, causes of action or expenses asserted
against or incurred by Seller Indemnitees as the result of the acts or failures
of act of Seller Indemnitees other than its agreement to said allocation. The
6
<PAGE> 172
indemnity contained herein shall not be subject to the limitations contained in
Section 16.7 of the Acquisition Agreement and shall survive Closing.
6. Adjustment Events. Seller and Purchaser acknowledge that Purchaser
delivered a First Adjustment Notice on April 14, 1997. Purchaser agrees to
extend the deadline for Seller's delivery of a Second Adjustment Notice or a
Seller's Adjustment Proposal until not later than May 5, 1997. Nothing in this
paragraph shall be construed as amending any other provisions of the
Acquisition Agreement relating to Adjustment Events. Except as provided in the
next sentence, the parties' execution of this Amendment shall not be construed
as a waiver or release of any right, claim or defense arising out of an
Adjustment Event. Notwithstanding any provision of the Acquisition Agreement to
the contrary, except as provided in the next sentence Purchaser shall not be
entitled to claim any Adjustment Event unless Purchaser has delivered written
notice to Seller generally describing the occurrence or condition which is the
basis of Purchaser's claim of an Adjustment Event on or before 1:00 o'clock
P.M. (Central Daylight Savings Time) on the Effective Conveyance Date
("Adjustment Event Deadline"). Provided however, (a) the limitation set forth
in the preceding sentence shall not apply to any Adjustment Event based upon
Seller's breach of its obligations set forth in Article VIII of the Acquisition
Agreement, and (b) the Adjustment Event Deadline applicable to claims arising
out of differences between the First Rent Roll and the Closing Rent Roll shall
be 5:00 o'clock P.M. (Central Daylight Savings Time) on the earlier of the
Closing Date or the third business day after Seller delivers the Closing Rent
Roll to Purchaser. If Purchaser fails to deliver a general description of the
basis for its claim of an Adjustment Event relating to the situation described
in part (b) of the preceding sentence on or before the Adjustment Event
Deadline, Purchaser shall be barred from thereafter claiming an Adjustment
Event based on the Closing Rent Roll.
7. Revised Exhibits and Descriptions. The documents attached as
Exhibits 1.3.3 and 1.9 of the Acquisition Agreement are hereby superseded in
their entirety by the Amended and Restated Exhibits 1.3.3 and 1.9 attached to
this Amendment. In addition, the description in the first paragraph of Section
1.3.3 of the Acquisition Agreement is revised to replace the reference to
HM2/GP Partners, L.P. to HM2/Management Partners, L. P.
8. Cooperation Pending Closing. Seller and Purchaser agree to
cooperate in the management of the Real Property Assets and the other Assets
during the period commencing on April 21, 1997 and continuing through the
Closing Date. Without limitation of the foregoing Seller will: (a) negotiate
amendments to Leases requested by Purchaser; (b) execute amendments to Leases
requested by Purchaser; (c) allow Purchaser to contract (at its expense) with
persons and companies ("Third Party Providers") selected by Purchaser to
provide services to the Real Property Assets currently provided by Seller,
including, but not limited to, janitorial and parking services (the services
provided by Third Party Providers are hereafter called "Third Party Services");
(d) allow the Third Party Providers providing the Third Party Services to enter
upon the appropriate Properties to perform the Third Party Services, (e) use
commercially reasonable efforts not to provide the Third Party Services with
its employees, (f) deliver to tenants such notices as Purchaser may reasonably
request, including, but not limited to notices
7
<PAGE> 173
regarding the payment of parking fees, (g) not contract with any of Sterling
Protective Services, Constructors & Associates or BL&P to provide any services,
and (h) use commercially reasonable efforts not to provide any services to
tenants of any of the Properties other than those customarily provided to
tenants in connection with the rental of real property in Dallas, Addison,
Richardson or Farmers Branch, Texas.
9. Other Changes to Acquisition Agreement. Seller and Purchaser agree
to the following additional changes to the Acquisition Agreement (all section
references are to sections of the Acquisition Agreement):
(a) All expenses related to the Assets incurred after the Effective
Conveyance Date shall be the responsibility of Purchaser (including costs of
salary, employment taxes and benefits of those employees of Seller who will
become employees of Purchaser pursuant to Section 21.13) and at the Closing
Purchaser shall reimburse Seller for any such expenses paid by Seller.
(b) The reference to "Closing" in the last sentence of Section
7.3.1.5 is changed to "Effective Conveyance Date".
(c) The forgiveness or transfer of debt or conversion to capital
described in Sections 8.1.10 and 10.1.8 shall be effective the day before the
Effective Conveyance Date.
(d) The reference to "Closing Date" in the last sentence of Section
9.2.1 shall be changed to "Effective Conveyance Date".
(e) The references to "Closing Date" or "Closing" in Section 10.1.1
(except the last reference to "Closing" in the Section) shall be changed to
"Effective Conveyance Date".
(f) The period contemplated by Section 10.1.2 shall end on the
opening of business on the Effective Conveyance Date except for any change
caused by Seller's breach of its obligations pursuant to the Acquisition
Agreement.
(g) The references to "Closing Date" in Section 10.4 shall be
changed to "Effective Conveyance Date".
(h) The assumptions contemplated by Sections 13.3,13.4,13.5 and
13.6 shall be effective as of the Effective Conveyance Date except for any
liabilities which are incurred as a result of Seller's acts or failures to act
which are breaches of Seller's agreement pursuant to the Acquisition Agreement.
(i) Strike the word "Closing" at the end of the next to the last
sentence of Section 16.7 and add the following prior to the period: "Effective
Conveyance Date except to extent liability arises out of Seller's breach of any
of said agreements or this Agreement".
8
<PAGE> 174
(j) The reference to "Closing Date" in Section 21.13 shall be
changed to "Effective Conveyance Date".
(k) Interest (but not principal) actually paid pursuant to any of
the Promissory Notes which is attributable to periods before and after the
Effective Conveyance Date shall be prorated on a per diem basis as of the
Effective Conveyance Date. The provisions of the Acquisition Agreement relating
to the treatment of principal payments shall not be changed and all principal
payments received subsequent to the Effective Date shall be credited to or
retained by Purchaser.
(l) The deadline for the delivery of any consents or estoppels
established in the Acquisition Agreement as the Closing Date shall be May 9,
1997.
10. Tax Treatment. Purchaser and Seller agree that (a) Seller shall
report for federal, state and local purposes all income and expenses
attributable to the Assets through the Closing Date of May 9, 1997 as Seller's
income and expenses, and Seller shall be entitled to receive the net cash flow
generated by such Assets through the Closing Date of May 9, 1997, (b) the
income of Moody-Day for the period through April 30, 1997 shall be included in
the consolidated income tax return of the affiliated group of which CCP is the
common parent, and (c) the provisions of this paragraph 10 shall not affect nor
modify the provisions of this Amendment or of the Acquisition Agreement
regarding proration of income and expenses.
11. Ratification. Seller and Purchaser ratify and confirm the
Acquisition Agreement as amended by this Amendment.
12. Execution. This Amendment may be executed in counterparts.
[SIGNATURE PAGES FOLLOW]
9
<PAGE> 175
EXECUTED on this the ____ day of April, 1997.
SELLER:
CARTER-CROWLEY PROPERTIES, INC.,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
HI CAPITAL CORP.,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
METROPORT REALTY CORPORATION,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
HI PRODUCTION COMPANY, INC.,
a Texas corporation
By:
-----------------------------------
Ronald L. Carter, President
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
-----------------------------------
Donald J. Carter, President
10
<PAGE> 176
EXECUTED on this the ____ day of April, 1997.
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
-----------------------------------
James M. Eidson, Jr.
Sr. Vice President, Acquisitions
11
<PAGE> 177
AMENDED AND RESTATED
FIRST AMENDMENT TO MAVERICKS AGREEMENT
This Amended and Restated First Amendment to Mavericks Agreement
("Amendment") is entered into by and between DALLAS MAVERICKS, INC., a Texas
corporation ("DMI" or "Seller"), and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Purchaser"), to be effective as
of the 18th day of April, 1997 (the "Effective Date") in light of the following
recitals.
R E C I T A L S :
Heretofore, Seller and Purchaser entered into a certain Acquisition
Agreement (Mavericks Agreement) with an effective date of February 10, 1997
(the "Acquisition Agreement"). On April 18, 1997, Seller and Purchaser entered
into a certain First Amendment to Mavericks Agreement (the "First Amendment").
Seller and Purchaser desire to amend and restate the First Amendment by the
execution and delivery of this Amendment, with the First Amendment having no
effect whatsoever from and after the execution hereof. Unless defined herein,
all capitalized terms shall have the meaning provided in the Acquisition
Agreement.
Seller and Purchaser have agreed that in lieu of selling certain of
the assets directly to Purchaser, Seller will (a) sell the Promissory Notes and
the "Arena Rights" (as hereafter defined) to Crescent Real Estate Equities,
Ltd., a Delaware corporation, general partner of Purchaser ("Crescent GP"), and
(b) sell the DBL Partnership Interests except the Arena Rights to Crescent
Operating, Inc., a Delaware corporation ("Crescent Operating"). The transaction
described in this paragraph and paragraph 3 herein is hereafter called the
"Restructured Transaction". As used herein, the term "Arena Rights" shall mean
the rights described in paragraph 3 of that certain Amended and Restated Right
of First Refusal Agreement dated July 1, 1996, among Hillwood DBL, Ltd., a
Texas limited partnership, Hillwood Basketball Partners, Ltd., a Texas limited
partnership, DMI and Dallas Basketball Limited, a Texas limited partnership.
Seller and Purchaser have agreed to amend the Acquisition Agreement to
(a) provide for the Restructured Transaction, (b) change the Closing Date in
accordance with the terms of this Amendment, (c) adjust the Purchase Price to
compensate Seller for the extension of the Closing Date, and (d) incorporate
the other provisions of this Amendment.
Now, therefore, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
Seller and Purchaser agree as follows:
1. Closing Date. Article X of the Acquisition Agreement is amended to
provide that the Closing Date shall be May 9, 1997 but that the closing
documents shall be effective as if Closing occurred as of the opening of
business on April 21, 1997 (the "Effective Conveyance Date").
<PAGE> 178
2. Payment of Purchase Price. The following provisions shall be in
lieu of the provisions of Section 12.1 of the Acquisition Agreement:
As used herein the term: (i) "Adjustment Interest" means the interest
which would accrue on the Adjusted Purchase Price at the simple
interest rate of 6.5% per annum from April 21, 1997 to the Closing
Date; (ii) "Adjusted Purchase Price"means the Purchase Price adjusted
by (A) any adjustments or reductions provided by the terms of the
Acquisition Agreement and (B) any credits to the Purchase Price to
which Purchaser is entitled pursuant to the further terms of the
Acquisition Agreement; (ii) "Final Purchase Price" shall mean the
Adjusted Purchase Price plus the Adjustment Interest. On the Closing
Date Purchaser shall pay the Final Purchase Price [including that part
represented by the Restructure Note (hereafter defined)] by wire
transfer to a financial institution ("Wire Transferee") domiciled in
the United States in accordance with Seller's written instructions
(delivered to Purchaser at least two business days prior to the
Closing Date) by no later than 12:00 o'clock P.M. (Central Daylight
Time) ("Wire Transfer Deadline"). If the Wire Transferee does not
receive electronic notice of the wire transfer by the Wire Transfer
Deadline, Purchaser shall not be in default provided by no later than
12:00 o'clock P.M. (Central Daylight Time) on the first business day
following the Closing Date, the Wire Transferee receives electronic
notice of such wire transfer of the Final Purchase Price plus interest
calculated on the Adjusted Purchase Price at the rate of 6.5% per
annum from the Closing Date until Wire Transferee's receipt of
electronic notice of such wire transfer. At Closing Purchaser shall
also execute, deliver and if required acknowledge the documents
described in Section 12.1.1 and 12.2 and perform the obligations
described therein as modified by the provisions of paragraph 3 of this
Amendment.
3. Restructured Transaction. Seller and Purchaser agree that the
closing of the purchase and sale of the assets described in this Paragraph 3
will be restructured as follows:
(a) Promissory Notes and Arena Rights. The Promissory Notes and
Arena Rights will be conveyed by Seller to Crescent GP; however, Crescent GP
will deliver to Seller at Closing a demand promissory note (the "Restructure
Note") in an amount agreed to by Seller and Purchaser on or before Closing,
payable to the order of Seller, in the form reasonably agreed upon by the
parties hereto. Immediately thereafter, Crescent GP will transfer the
Promissory Notes and Arena Rights to Purchaser and Purchaser will assume the
Restructure Note. Immediately thereafter, Purchaser will pay the Restructure
Note.
(b) Partnership Interests (Without the Arena Rights). Purchaser
agrees that Crescent Operating, Inc., a Delaware corporation, will be the
purchaser of the DBL Partnership Interests (without the Arena Rights) for an
amount agreed to by Seller and Purchaser on or before Closing, which assets
will be transferred by Seller to Crescent Operating, Inc. in accordance with
the provisions of the Acquisition Agreement. Pursuant to Section 17.1 of the
Acquisition Agreement, Purchaser and Seller agree that this Amendment shall
constitute a Closing Direction (as such term is defined in Section 17.1 of the
Acquisition Agreement) by
2
<PAGE> 179
Purchaser to Seller directing Seller to sell the DBL Partnership Interests
(without the Arena Rights) to Crescent Operating, Inc.
(c) Payment of Fees and Expenses. Seller will pay all of
Purchaser's reasonable costs and expenses incurred in connection with the
Restructured Transaction including, without limitation, reasonable attorneys
fees and expenses in connection with the negotiation and review of this
Amendment (with regard to the Restructured Transaction) and any tax analysis
thereof.
(d) Payment of Restructure Note. At Closing, Purchaser shall pay
the Restructure Note in full.
(e) No Effect on Purchase Price. The Restructured Transaction shall
not affect the amount of the Purchase Price or the Final Purchase Price and the
execution and delivery of the Restructure Note shall not increase the Purchase
Price but shall be a form of payment of the Purchase Price.
4. Allocation of Purchase Price. On or before Closing, Seller and
Purchaser will agree to an allocation of the Purchase Price and the amounts to
be paid pursuant to Paragraphs 3(a) and 3(b), above. To the extent that there
are adjustments or credits to the Purchase Price, such adjustments or credits
shall be reflected as adjustments to the agreed upon allocations, as determined
by Purchaser.
5. Other Changes to Acquisition Agreement. Seller and Purchaser agree
to the following additional changes to the Acquisition Agreement (all section
references are to sections of the Acquisition Agreement).
(a) The reference to "Closing" in the last sentence of Section
6.2.1.5 shall be changed to "Effective Conveyance Date."
(b) The references to "Closing Date" or "Closing" in Section 9.1.1
(except the last reference to "Closing" in the Section) shall be changed to
"Effective Conveyance Date."
(c) The period contemplated by Section 9.1.2 shall end on the
opening of business on the Effective Conveyance Date except for any changes
caused by Seller's breach of its agreements pursuant to the Acquisition
Agreement.
6. Deadline for Delivery of Consents. Notwithstanding any provision of
this Amendment or the Acquisition Agreement to the contrary, the date by which
the NBA Consent, the Partnership Consents and the Estoppel Certificates must be
delivered in accordance with the terms of the Acquisition Agreement shall be
the Closing Date as extended by this Amendment.
7. Ratification. Seller and Purchaser ratify and confirm the
Acquisition Agreement as amended by this Amendment.
8. Counterparts. This Amendment may be executed in counterparts.
3
<PAGE> 180
EXECUTED on this the ____ day of May, 1997, to be effective on the
Effective Date.
SELLER:
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
------------------------------------
4
<PAGE> 181
POST-CLOSING ADJUSTMENT AMENDMENT
TO MAVERICKS AGREEMENT
This Post-Closing Adjustment Amendment to Mavericks Agreement
("Amendment") is entered into by and between DALLAS MAVERICKS, INC., a Texas
corporation ("DMI" or "Seller"), and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Purchaser"), on the 8th day of
May (the "Effective Date") in light of the following recitals.
R E C I T A L S :
Heretofore, Seller and Purchaser entered into a certain Acquisition
Agreement (Mavericks Agreement) with an effective date of February 10, 1997
(the "Acquisition Agreement"). On May 8, 1997, effective as of April 18, 1997,
Seller and Purchaser entered into a certain Amended and Restated First
Amendment to Mavericks Agreement (the "First Amendment") and on May 8, 1997,
Seller and Purchaser entered into a certain Allocation Amendment to Mavericks
Agreement ("Allocation Amendment"). The Acquisition Agreement as amended by the
First Amendment is referred to herein as the "Agreement." Seller and Purchaser
desire to further amend the Agreement by the execution and delivery of this
Amendment. Unless defined herein, all capitalized terms shall have the meaning
provided in the Agreement.
Seller and Purchaser have agreed to share certain specific costs
incurred in connection with the transaction described in the Agreement in the
manner set forth herein.
Now, therefore, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
Seller and Purchaser agree as follows:
1. DMI Agreement Expenses. Seller and Purchaser agree that any and all
fees and expenses incurred in connection with obtaining the consent of the
National Basketball Association or Dallas Basketball Limited (or the general
partner thereof) in connection with the transfers contemplated by the Agreement
and payable to or at the direction of either the National Basketball
Association or Dallas Basketball Limited (or the general partner thereof)
(collectively, the "DMI Agreement Expenses") will be paid by Purchaser up to
$10,000.00, with any DMI Agreement Expenses in excess of $10,000.00 being paid
by Seller. Seller and Purchaser agree that at such time as either of them or an
affiliate receives an invoice or other evidence that any DMI Agreement Expense
is due, it will give the other party notice and they will cooperate in the
prompt payment of such invoice or fee prior to delinquency in accordance with
the agreement contained herein. The obligations set forth in this Amendment
will survive the closing of the transaction described in the Agreement.
<PAGE> 182
2. No Further Adjustments in Connection with DMI Agreement Expenses.
Notwithstanding any agreement or provision to the contrary of the Agreement or
any related agreement by or among the parties hereto or any affiliate thereof,
the post-closing adjustments set forth in Paragraph 1, above, will be the sole
adjustments regarding the DMI Agreement Expenses.
3. Ratification. Seller and Purchaser ratify and confirm the Agreement
as amended by this Amendment.
4. Counterparts. This Amendment may be executed in counterparts.
EXECUTED on the date first above written.
SELLER:
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
------------------------------------
<PAGE> 183
ALLOCATION AMENDMENT TO MAVERICKS AGREEMENT
This Allocation Amendment to Mavericks Agreement ("Amendment") is
entered into by and between DALLAS MAVERICKS, INC., a Texas corporation ("DMI"
or "Seller"), and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership ("Purchaser"), on the ___ day of May (the "Effective Date")
in light of the following recitals.
R E C I T A L S :
Heretofore, Seller and Purchaser entered into a certain Acquisition
Agreement (Mavericks Agreement) with an effective date of February 10, 1997
(the "Acquisition Agreement"). On May ___, 1997, effective as of April 18,
1997, Seller and Purchaser entered into a certain Amended and Restated First
Amendment to Mavericks Agreement (the "First Amendment"). The Acquisition
Agreement as amended by the First Amendment is referred to herein as the
"Agreement." Seller and Purchaser desire to further amend the Agreement by the
execution and delivery of this Amendment. Unless defined herein, all
capitalized terms shall have the meaning provided in the Agreement.
Seller and Purchaser have agreed to the allocations set forth herein
as contemplated by Paragraph 4 of the First Amendment.
Now, therefore, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
Seller and Purchaser agree as follows:
1. Allocation of Purchase Price. Seller and Purchaser agree that the
Purchase Price is allocated in accordance with the Attached Exhibit "A." The
allocations contained in Exhibit "A", as adjusted pursuant to Paragraph 4 of
the First Amendment, shall be binding on Seller and Purchaser and that
allocation is referred to as the "Allocation Schedule."
2. Amount of Restructure Note. The amount of the Restructure Note is
the amount allocated to the Promissory Notes and Arena Rights shown on the
Allocation Schedule. Such amount is the amount referred to in Paragraph 3(a) of
the First Amendment. The amount referred to in Paragraph 3(b) of the First
Amendment is the amount allocated to the DBL Partnership Interests (without
Arena Rights) set forth on the Allocation Schedule.
3. Ratification. Seller and Purchaser ratify and confirm the Agreement
as amended by this Amendment.
4. Counterparts. This Amendment may be executed in counterparts.
<PAGE> 184
EXECUTED on the date first above written.
SELLER:
DALLAS MAVERICKS, INC.,
a Texas corporation
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
PURCHASER:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
BY: CRESCENT REAL ESTATE EQUITIES,
LTD., a Delaware corporation,
General Partner
By:
------------------------------------
2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated April 3, 1997, on the balance sheet
of Crescent Operating, Inc. and to all references to our Firm included in this
Registration Statement.
Dallas, Texas
May 19, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated May 14, 1997, on the combined
financial statements of Carter-Crowley Asset Group and to all references to our
Firm included in this Registration Statement.
Dallas, Texas
May 19, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement of our report dated November 7, 1996, on the Provider
Segment of Magellan Health Services, Inc. and to all references to our Firm
included in this Registration Statement.
Atlanta, Georgia
May 19, 1997
