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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 31, 1997
CRESCENT OPERATING, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 333-25223 75-2701931
(state of organization) (Commission File Number) (IRS Employer Identification
Number)
777 Main Street
Fort Worth, Texas 76102
(Address of Principal Executive (Zip code)
offices)
(817) 877-0477
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
THE WOODLANDS CORPORATION
BACKGROUND
On July 31, 1997, Crescent Operating, Inc. (the "Company"), through its
newly-formed subsidiary, WOCOI Investment Company, acquired for approximately
$425,000, a 42.5% general partner interest in The Woodlands Operating Company,
L.P. ("Woodlands Operating"). The acquisition was part of a larger transaction
(the "Transaction"), pursuant to which Crescent Real Estate Equities Company
and certain of its subsidiaries, Crescent Real Estate Equities Limited
Partnership ("Crescent Operating Partnership," and together with Crescent Real
Estate Equities Company and certain of its subsidiaries, "Crescent") and
certain Morgan Stanley funds (the "Morgan Stanley Group") acquired The
Woodlands Corporation. The purchase price of the Company's interest in
Woodlands Operating was determined by mutual agreement of the parties to the
Transaction. WOCOI Investment Company will serve as the managing general
partner of Woodlands Operating.
The Woodlands Corporation is the principal owner, developer and operator of
The Woodlands, an approximately 27,000 acre master-planned residential and
commercial community located approximately 27 miles north of Houston, Texas.
The Woodlands includes a shopping mall, retail centers, office buildings, a
Conference Center and Country Club and other amenities. The Company obtained
the opportunity to purchase its interest in Woodlands Operating from Crescent
pursuant to an intercompany agreement (the "Intercompany Agreement") between
the Company and Crescent Operating Partnership. The Intercompany Agreement
gives the Company the right of first refusal to become a lessee of real
property acquired by Crescent Operating Partnership under certain
circumstances, and permits Crescent Operating Partnership to offer the Company
other investment opportunities, in Crescent Operating Partnership's discretion.
WOODLANDS OPERATING AND ITS SUBSIDIARIES
Woodlands Operating was formed to provide management, advisory, landscaping
and maintenance services to entities affiliated with the Company and Crescent
as well as to third parties. Pursuant to the terms of five written service
agreements, Woodlands Operating will perform general management, landscaping
and maintenance, construction, design, sales, promotional and other marketing
services for the properties in which Crescent acquired a direct or indirect
interest as a result of the Transaction. In addition, Woodlands Operating will
monitor certain of the real estate investments of, and provide advice regarding
real estate and development issues to, such entities. As compensation for its
management and advisory services, Woodlands Operating will be paid a monthly
advisory fee in an amount equal to 3% of all costs and expenses incurred by
Woodlands Operating in providing such services. As compensation for its
landscaping and maintenance services, Woodlands Operating will receive a
monthly fee in an amount equal to 5% of the cost per month of performing the
required landscaping and maintenance services. Each service agreement provides
for an initial term of at least 12 months (subject to earlier termination under
certain circumstances) and will be renewed automatically, unless terminated by
either party upon giving prior notice as specified in each agreement.
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The assets of Woodlands Operating consist primarily of the following direct
and indirect subsidiaries: (i) MND Hospitality, Inc., a payroll entity the
assets of which are solely related to its employee benefit plans; (ii) MND
Hospitality Services Corp., a payroll entity used to record the expenses of
temporary employees; (iii) BOCH General Partnership, the assets of which
include certain equipment, personal property and contract rights; (iv) WECCR
General Partnership ("WECCR GP") which leases certain assets described below;
and (v) WECCR, Inc., a Texas corporation which owns 1% general partner
interests in both BOCH General Partnership and WECCR GP.
WECCR GP leases the Woodlands Conference Center and Country Club, a 364-room
executive conference center with a private golf and tennis club serving
approximately 1,600 members and offering 81 holes of golf, and certain related
assets (the "Facility") from The Woodlands Commercial Properties Company, L.P.
("Woodlands Commercial"), a partnership the interests of which are owned by
Crescent and the Morgan Stanley Group. Pursuant to the lease agreement,
Woodlands Commercial has assigned to WECCR GP substantially all of its interest
in and to third-party contracts and agreements relating to the operation of the
Facility. WECCR GP leases the Facility on a triple net basis and will pay base
rent in the amount of $750,000 per month during the eight-year term of the
lease. The lease also provides for the payment of percentage rent ranging from
23% to 35% for each calendar year in which gross receipts from the operation of
the Facility exceed amounts ranging from $38,000,000 to $54,000,000; provided,
however, that in no event will percentage rent payments exceed a ceiling amount
to be determined in accordance with a formula based on actual and estimated
annual gross receipts. Under the lease, WECCR GP must maintain a net worth of
at least $400,000 and is responsible for the payment of maintenance costs.
FUNDING FOR THE ACQUISITION OF WOODLANDS OPERATING
Funds used to acquire the Company's general partner interest in Woodlands
Operating were obtained through an advance on a $35.9 million term note from
Crescent Operating Partnership, pursuant to a term note agreement between the
two companies. The term note is a recourse obligation which bears 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 quarterly amount of principal due, together with interest accrued
on the loan. Net cash flow will be computed by subtracting the total costs
incurred by the Company from its gross receipts. The loan will mature
on May 8, 2002.
The financial statements required to be filed with this Form 8-K, pursuant
to Item 7 of Form 8-K will be filed by the Company in a Form 8-K/A within 60
days after the filing of this Form 8-K, in accordance with Item 7(a)(4) and Item
7(b)(2) of Form 8-K.
PENDING INVESTMENT
Crescent has offered the Company the opportunity to acquire, for
approximately $1 million, all of the voting stock, representing a 5% equity
interest, in The Woodlands Land Company, Inc. ("Landevco"), a newly-formed
residential development corporation which is currently wholly owned by Crescent.
Landevco holds a 42.5% general partner interest in, and is the managing general
partner of, The Woodlands Land Development Company, L.P., which owns, among
other assets, certain residential property, a realty office, contract rights
relating to the operation of its property and a 50% interest in a title
company. The Company has accepted the offer to acquire the interest in Landevco
and anticipates it will consummate the acquisition in the near future.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 7, 1997 CRESCENT OPERATING, INC.
By: /s/ JEFFREY L. STEVENS
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Jeffrey L. Stevens
Treasurer, Chief Financial
Officer and Secretary
