CRESCENT OPERATING INC
10-Q, 1997-08-14
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ----------------------

                                   FORM 10-Q

            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997


            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


                        COMMISSION FILE NUMBER 333-25223
                        --------------------------------



                            CRESCENT OPERATING, INC.
             (Exact name of Registrant as specified in its charter)


STATE OF DELAWARE                                     75-2701931
(State or other incorporation)                       (I.R.S. Employer
                                                     Identification No.)

777 MAIN STREET
FORT WORTH, TEXAS                                     76102
(Address of principal executive offices)             (Zip Code)



       Registrant's telephone number, including area code: (817) 877-0477


Indicate by check mark whether the registrant (1) has filed all reports
required by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]

 The number of shares of Common Stock, $.01 par value, outstanding on June 30,
                             1997 was 11,025,547.


<PAGE>   2


                            CRESCENT OPERATING, INC.
                           CONSOLIDATED BALANCE SHEET
                              AT JUNE 30, 1997 AND
                           CARTER CROWLEY ASSET GROUP
                  COMBINED BALANCE SHEET AT DECEMBER 31, 1996

<TABLE>
<CAPTION>                
                                                                                   PREDECESSOR
                                                                                   ------------
                                                                      JUNE 30,     DECEMBER 31,
                                                                        1997           1996
                                                                    ------------   ------------
                                                                    (unaudited)      (audited)
<S>                                                                 <C>            <C>         
                                     ASSETS                                      
CURRENT ASSETS                                                                   
     Cash and cash equivalent                                       $  1,207,307   $     22,335
     Accounts Receivable                                                         
         Trade, net of allowance for doubtful accounts of $45,360                
         and $30,645 in 1997 and 1996, respectively                    1,112,548      1,030,648
         Affiliate                                                          --          129,296
         Other                                                              --           42,641
     Inventories                                                       1,862,406      1,612,952
     Investment in sales-type leases, net                                   --          212,320
     Deferred income tax asset                                              --           30,705
     Prepaid expenses and other current assets                           214,131          6,164
                                                                    ------------   ------------
         Total current assets                                          4,396,392      3,087,061
                                                                    ------------   ------------
                                                                                 
PROPERTY AND EQUIPMENT, at cost                                                  
     Rental equipment                                                  2,134,943      7,733,007
     Land                                                                 31,687        452,397
     Building and improvements                                           156,213        680,895
     Transportation equipment                                             16,530        375,721
     Office furniture and other equipment                                 19,140        368,752
                                                                    ------------   ------------
                                                                                 
     Less - accumulated depreciation                                      (3,518)    (2,927,314)
                                                                    ------------   ------------
         Net property and equipment                                    2,354,995      6,683,458
                                                                    ------------   ------------
                                                                                 
INVESTMENTS:                                                                     
     Investment in Hicks, Muse, Tate and Furst Equity Fund II         10,153,304      7,593,493
     Investments in Charter Behavioral Health Systems, LLC             7,101,000           --
     Investment in Magellan Warrants                                  12,500,000           --
     Investments in sales-type leases, net                                  --          118,721
                                                                    ------------   ------------
         Total Investments                                            29,754,304      7,712,214
                                                                    ------------   ------------
                                                                                 
OTHER ASSETS                                                                     
     Organizational Cost and other                                       684,140           --
                                                                    ------------   ------------
TOTAL ASSETS                                                        $ 37,189,831   $ 17,482,733
                                                                    ============   ============
                                                                                 
                      LIABILITIES AND SHAREHOLDERS' EQUITY                       
CURRENT LIABILITIES:                                                             
     Accounts payable and accrued liabilities                       $  1,776,091   $    782,567
     Notes payable, current portion                                              
         Affiliate                                                          --        1,941,606
         Other                                                           292,217        264,136
                                                                    ------------   ------------
         Total current liabilities                                     2,068,308      2,988,309
                                                                                 
LONG-TERM LIABILITIES                                                            
     Long-term debt, net of current portion                           25,905,000      3,199,607
     Deferred income taxes                                                  --          369,806
                                                                    ------------   ------------
         Total liabilities                                            27,973,308      6,557,722
                                                                    ------------   ------------
                                                                                 
COMMITMENTS AND CONTINGENCIES (SEE NOTE 8)                                       
                                                                                 
SHAREHOLDERS' EQUITY                                                             
     Common Stock, $0.01 par value; authorized 22,500,000 shares;                
     outstanding 11,025,547 at June 30,1997                              110,255         12,500
     Paid in Capital                                                   9,368,246     14,425,687
     Retained Deficit                                                   (261,978)    (3,513,176)
                                                                    ------------   ------------
Total Shareholders' Equity                                          $  9,216,523   $ 10,925,011
                                                                    ------------   ------------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES                          $ 37,189,831   $ 17,482,733
                                                                    ============   ============
</TABLE>

        The accompanying notes are an integral part of the consolidated
                 and combined condensed financial information.


<PAGE>   3

                            CRESCENT OPERATING, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE PERIOD FROM MAY 9, 1997 TO JUNE 30, 1997 AND
                           CARTER CROWLEY ASSET GROUP
    STATEMENTS 0F OPERATIONS FOR THE PERIOD APRIL 1, 1997 TO MAY 8, 1997 AND
                    FOR THE THREE MONTHS ENDED JUNE 30, 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Predecessor
                                                           ----------------------------
                                             For the        For the          For the
                                           Period from     Period from     Three Months
                                           May 9, 1997-   April 1, 1997-      Ended
                                           June 30, 1997   May 8, 1997     June 30, 1996
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>         
REVENUES:
   Sales and service ...................   $    527,542    $    376,891    $    856,716
   Equipment sales .....................        551,881         378,294       1,259,198
   Rental ..............................        628,157         395,037         607,389
                                           ------------    ------------    ------------
     Total revenues ....................   $  1,707,580    $  1,150,222    $  2,723,303
                                           ------------    ------------    ------------
COST OF SALES:
   Sales and service ...................        418,516         344,633         683,143
   Equipment sales .....................        492,536         343,450       1,156,605
   Rental ..............................         78,503         243,077         425,845
                                           ------------    ------------    ------------
     Total cost of sales ...............        989,555         931,160       2,265,593
                                           ------------    ------------    ------------
GROSS PROFIT ...........................   $    718,025    $    219,062    $    457,710
                                           ------------    ------------    ------------

SELLING, GENERAL, AND
   ADMINISTRATIVE
   EXPENSES ............................   $    435,327    $    197,587    $    389,408
                                           ------------    ------------    ------------

INCOME FROM OPERATIONS .................   $    282,698    $     21,475    $     68,302
                                           ------------    ------------    ------------

OTHER (INCOME) EXPENSE:
   Equity in loss of CBHS ..............        399,000            --              --
   Interest expense ....................        308,825          22,115          64,868
   Interest income .....................         (3,888)         (3,166)        (15,635)
   Gain on sale of partnership .........       (150,000)           --              --
   Other ...............................   $     (9,261)   $     (1,055)   $     (1,377)
                                           ------------    ------------    ------------
Total other (income)
       expense .........................   $    544,676    $     17,894    $     47,856
                                           ------------    ------------    ------------
INCOME (LOSS) BEFORE
   INCOME  TAXES .......................       (261,978)          3,581          20,446

INCOME  TAX PROVISION ..................   $       --      $      1,253    $      7,154
                                           ------------    ------------    ------------

NET INCOME (LOSS) ......................   $   (261,978)   $      2,328    $     13,292
                                           ============    ============    ============

NET INCOME (LOSS)
PER SHARE ..............................   $       (.02)           --              --
WEIGHTED AVERAGE
SHARES OUTSTANDING .....................     11,025,547            --              --
</TABLE>

      The accompanying notes are an integral part of the consolidated and
                   combined condensed financial information.

                                       3
<PAGE>   4




                            CRESCENT OPERATING, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE PERIOD FROM MAY 9, 1997 TO JUNE 30, 1997 AND
                           CARTER CROWLEY ASSET GROUP
   STATEMENTS 0F OPERATIONS FOR THE PERIOD JANUARY 1, 1997 TO MAY 8, 1997 AND
                     FOR THE SIX MONTHS ENDED JUNE 30, 1996
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                Predecessor
                                                        ----------------------------
                                          For the         For the          For the
                                        Period from      Period from     Six  Months
                                        May 9, 1997-   January 1, 1997-    Ended
                                       June 30, 1997    May 8, 1997     June 30, 1996
                                        ------------    ------------    ------------
<S>                                     <C>             <C>             <C>         
REVENUES:
   Sales and service ................   $    527,542    $  1,209,271    $  1,828,386
   Equipment sales ..................        551,881       1,727,602       1,919,057
   Rental ...........................        628,157       1,252,844       1,279,253
                                        ------------    ------------    ------------
     Total revenues .................   $  1,707,580    $  4,189,717    $  5,026,696
                                        ------------    ------------    ------------
COST OF SALES:
   Sales and service ................        418,516       1,527,183       1,469,613
   Equipment sales ..................        492,536       1,024,310       1,746,346
   Rental ...........................         78,503         841,651         924,365
                                        ------------    ------------    ------------
     Total cost of sales ............        989,555       3,393,144       4,140,324
                                        ------------    ------------    ------------
GROSS PROFIT ........................   $    718,025    $    796,573    $    886,372
                                        ------------    ------------    ------------

SELLING, GENERAL, AND
   ADMINISTRATIVE
   EXPENSES .........................   $    435,327    $    635,993    $    864,400
                                        ------------    ------------    ------------

INCOME FROM OPERATIONS ..............   $    282,698    $    160,580    $     21,972
                                        ------------    ------------    ------------

OTHER (INCOME) EXPENSE:
   Equity in loss of CBHS ...........        399,000            --              --
   Interest expense .................        308,825         135,369         135,693
   Interest income ..................         (3,888)        (12,884)        (27,778)
   Gain on sale of partnership ......       (150,000)           --              --
   Other ............................   $     (9,261)   $       (996)   $        487
                                        ------------    ------------    ------------
     Total other (income) expense ...   $    544,676    $    121,489    $    108,402
                                        ------------    ------------    ------------
INCOME (LOSS) BEFORE
   INCOME  TAXES ....................       (261,978)         39,091         (86,430)

INCOME  TAX PROVISION ...............   $       --      $     13,681    $    (30,253)
                                        ------------    ------------    ------------

NET INCOME (LOSS) ...................   $   (261,978)   $     25,410    $    (56,177)
                                        ============    ============    ============
NET INCOME (LOSS)
PER SHARE ...........................   $       (.02)           --              --

WEIGHTED AVERAGE
SHARES OUTSTANDING ..................     11,025,547            --              --
</TABLE>

        The accompanying notes are an integral part of the consolidated
                  and combined condensed financial information





                                       4
<PAGE>   5


                            CRESCENT OPERATING, INC
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE PERIOD FROM MAY 9, 1997 TO JUNE 30, 1997 AND
                           CARTER CROWLEY ASSET GROUP
 STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 1997 TO MAY 8, 1997 AND
                     FOR THE SIX MONTHS ENDED JUNE 30, 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Predecessor
                                                               ----------------------------
                                                 For the         For the         For the
                                                Period from     Period from     Six  Months
                                               May 9, 1997-   January 1, 1997-    Ended
                                               June 30, 1997   May 8, 1997     June 30, 1996
                                                ------------   ------------    ------------
<S>                                            <C>              <C>             <C>          
OPERATING ACTIVITIES:
   Net income                                  $   (261,978)    $    25,410     $   (56,178)
   Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and Amortization                    3,518         747,503         434,124
     Equity in loss of CBHS                         399,000             --              --
     Gain on sale of fixed asset                        --         (133,607)            --
     Gain on sale of partnership                   (150,000)            --              --
     Accounts receivable - Trade                    (82,388)            488         447,831 
     Accounts receivable - Inter-company                --          129,296          93,655
     Accounts receivable - Other                     20,194          22,447          16,689
     Inventory                                     (364,857)        115,403        (305,934)
     Prepaid Expenses and other assets              208,552        (125,205)       (380,871)
     Accounts payable and accrued expenses          112,000         197,384          66,805
                                               ------------     -----------     -----------

CASH PROVIDED BY OPERATING ACTIVITIES          $   (115,959)    $   979,119     $   316,121 
                                               ============     ===========     ===========


INVESTING ACTIVITIES:
   Purchases of rental equipment & fixed 
     assets                                      (1,857,421)            --       (1,337,811)
   Proceeds from sale of rental equipment
     and fixed assets                                79,177         309,890             --
   Investment in Hicks Muse                        (689,175)     (1,870,636)            --
   Investment in CBHS                            (7,500,000)            --              --
   Purchase of Megellan Warrants                (12,500,000)            --              --
   Changes in investments in sales type
     leases                                             --              --          599,052
                                               ------------     -----------     -----------

CASH USED IN INVESTING ACTIVITIES              $(22,467,419)    $(1,560,746)    $  (738,759)
                                               ============     ===========     ===========

FINANCING ACTIVITIES:
   Proceeds of notes payable                     35,825,000         408,320         545,066
   Reductions in notes payable                   (9,920,000)       (848,310)            -- 
   Capital contributions                            100,000       1,164,967             --
   Dividend                                      (2,380,000)            --              --
                                               ------------     -----------     -----------
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES                           $ 23,625,000     $   724,977     $   545,066
                                               ============     ===========     ===========

NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS                           $  1,041,622     $   143,350     $   122,428
                                               ============     ===========     ===========

CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD                                 165,685          22,335         352,577

CASH AND CASH EQUIVALENTS,
END OF PERIOD                                  $  1,207,307     $   165,685     $   475,005
                                               ============     ===========     ===========

</TABLE>

        The accompanying notes are an integral part of the consolidated
                  and combined condensed financial information



                                       5
<PAGE>   6

                            CRESCENT OPERATING, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.   ORGANIZATION AND NATURE OF BUSINESS

     Crescent Operating, Inc. ("Crescent" or the "Company") was formed on April
     1, 1997, by Crescent Real Estate Equities Limited Partnership ("Crescent
     Operating Partnership") and Crescent Real Estate Equities Company
     ("Crescent REIT") to become a lessee and operator of various assets owned
     by Crescent REIT and perform an agreement ("Intercompany Agreement")
     between Crescent and Crescent Operating Partnership, a wholly owned
     partnership of Crescent REIT, pursuant to which each has agreed to provide
     the other with rights to participate in certain transactions. On June 12,
     1997, the Company distributed shares of its Common Stock to shareholders of
     Crescent REIT and Unit holders of Crescent Operating Partnership of record
     on May 30, 1997. Each holder of 10 shares of common stock of Crescent
     REIT received one share of Crescent Common Stock and each holder of five
     Units (or equivalent partnership interest) of Crescent Operating 
     Partnership received one share of Crescent Common Stock.

     On June 12, 1997, Crescent's registration statement was declared effective
     and Crescent became a public company. The shares of Crescent were accepted
     for quotation on the OTC Bulletin Board and began trading on a when-issued
     basis on June 13, 1997.

2.   BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles for
     interim financial information and with the instructions to the Form 10-Q
     and Article 10 of Regulation S-X. Accordingly, they do not include all of
     the information and footnotes required by generally accepted accounting
     principles for complete financial statements. In management's opinion, all
     adjustments (consisting of normal recurring adjustments) considered
     necessary for a fair presentation of the unaudited interim financial
     statements have been included. Operating results for interim periods
     reflected are not necessarily indicative of the results that may be
     expected for a full fiscal year. These financial statements and notes
     should be read in conjunction with Crescent's Form S-1, dated June 12,
     1997.

     Moody-Day Inc., which is a wholly-owned subsidiary of Crescent, is
     consolidated and the Company's 1.21% investment in Hicks Muse Tate & Furst
     Equity Fund II, LP ("Hicks-Muse") is shown at cost. Crescent's 50% interest
     in Charter Behavioral Health Systems, LLC ("CBHS") is shown on the equity
     method of accounting.

     The financial statements were prepared on the basis that the "Predecessor"
     is a combination of Moody-Day, Inc. and Hicks-Muse (collectively, the
     "Carter Crowley Asset Group"). As the Company did not have any activities
     until May 9, 1997, the comparative data relating to 1996 and the period
     prior to May 9, 1997 is only with regard to the Predecessor. The assets of
     Carter Crowley Asset Group were adjusted to reflect the purchase price
     allocation.

3.   NEW ACCOUNTING PRONOUNCEMENT

     In February, 1997, the Financial Accounting Standard Board issued Statement
     for Financial Accounting Standards No. 128, "Earnings Per Share" ("EPS")
     ("SFAS 128") which supersedes APB No. 15 for periods ending after December
     15, 1997. SFAS 128 specifies the computation, presentation and disclosure
     requirements for earnings per share. Primary EPS and Fully Diluted EPS are
     replaced by Basic EPS and Diluted EPS, respectively. Basic EPS, unlike
     Primary EPS, excludes all dilution while Diluted EPS, like Fully Diluted
     EPS, reflects the potential dilution that could occur if securities or
     other contracts to issue common shares were exercised or converted into
     common shares. The Company does not expect the effect of its adoption of
     SFAS 128 to be material.



                                       6
<PAGE>   7

4.  INDEBTEDNESS

     Crescent Operating Partnership agreed to lend Crescent approximately $35.9
     million pursuant to a five-year term loan ("Term Loan"). At June 30, 1997,
     the Company has drawn $35.8 million against this Term Loan and repaid $9.9
     million. The Term Loan is a recourse loan that is secured, to the extent
     not prohibited by pre-existing arrangements, by a first lien on the assets
     owned by Crescent now or in the future (other than assets of Crescent
     acquired after June 30, 1997, which may be pledged in the future to secure
     non-recourse loans to Crescent). The Term Loan 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 Crescent from its gross receipts. The Term Loan
     will mature on May 8, 2002. The Company also has obtained from Crescent
     Operating Partnership a $20.4 million line of credit ("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 21, 2002 or (ii) five years after the last draw under the
     Line of Credit. Draws may be made under the Line of Credit until June 22,
     2002. The Line of Credit is a recourse obligation and amounts outstanding
     thereunder are or will be secured, to the extent not prohibited by
     pre-existing arrangements, by a first lien on the assets owned by Crescent
     now or in the future (other than assets of Crescent acquired after June 30,
     1997, which may be pledged in the future to secure non-recourse loans to
     Crescent). As of June 30, 1997, no amounts were outstanding under the Line
     of Credit.


5.   SHAREHOLDERS' EQUITY

     COMMON STOCK

     The Company's authorized capital stock consists of 10 million shares of
     preferred stock, par value $.01 per share and 22.5 million shares of
     Common Stock, par value $.01 per share. At June 30, 1997, there were
     11,025,547 shares of Common Stock outstanding.


     PREFERRED SHARE PURCHASE RIGHTS

     The Board of Directors has adopted a rights plan that provides that each
     holder of Common Stock also receives a right to purchase from the Company
     one-hundredth of a share of Series A Junior Preferred Stock, par value
     $.01, of the Company at a price of $5 per share, subject to adjustment.
     These rights can only be exercised in certain events and are intended to
     provide the Company certain anti-takeover protection. The Company has
     reserved 225,000 shares of series A junior preferred stock for this plan.


     WARRANTS

     The Company, in conjunction with the acquisition of its 50% interest in
     CBHS, has issued warrants ("Warrants") to acquire up to 2.5% of the
     Company's Common Stock outstanding (including the shares covered by the
     Warrants) to Magellan Health Services, Inc. ("Magellan") on June 16, 1997 
     at a price to be determined by multiplying a factor of 1.25% by the average
     of the daily high and low sales prices of the Company's Common Stock for
     each trading day, beginning on the trading day immediately following June
     17, 1997, and ending 30 consecutive trading days thereafter. As of July 30,
     1997, the exercise price of the Warrants was determined to be $18.29.


                                       7
<PAGE>   8

6.  ACQUISITION AND DIVESTITURE ACTIVITIES

     On May 9, 1997, Crescent acquired (i) all of the stock in Moody-Day, Inc.,
     a construction equipment sales, leasing and servicing company, (ii) a 1.21%
     interest in Hicks-Muse, a private venture capital fund and (iii) a 12.38%
     interest in Dallas Basketball Limited, a partnership that holds the
     National Basketball Association franchise for the Dallas Mavericks. The
     purchase price was approximately $4.1 million for Moody-Day, Inc.,
     approximately $9.6 million for the Hicks-Muse interest and approximately
     $12.4 million for the interest in the Dallas Basketball partnership. The
     interest in the Dallas Basketball partnership was subsequently sold for
     approximately $12.55 million.

     On June 17, 1997, Crescent acquired for $7.5 million a 50% member 
     interest in CHBS and issued Warrants to purchase up to 2.5% of Crescent
     Common Stock. CHBS is a newly formed limited liability company which
     operates 92 behavioral healthcare facilities (See Footnote 7.). Crescent
     also purchased as part of this acquisition warrants to acquire 1,283,311
     shares of Magellan common stock for $12.5 million. The exercise price of
     the Warrants is $30 per share, exercisable in varying increments beginning
     on May 31, 1998 and ending on May 31, 2009.

7.   INVESTMENT IN CBHS

     The Company owned a 50% interest in CBHS at June 30, 1997. The Company
     accounts for its investment in CBHS using the equity method. A summary of
     financial information for the Company's investment in CBHS is as follows



<TABLE>
<CAPTION>
     (in thousands):
                                                                  JUNE 30, 1997
                                                                   ------------
<S>                                                                <C>         
         Current assets                                            $     59,870
         --------------
         Property and equipment, net                                     18,863
         Other noncurrent assets                                          3,340
                                                                   ------------
              Total assets                                         $     82,073
                                                                   ============

         Current liabilities                                       $     40,980
         -------------------
         Long-term debt (2)                                              25,875
         Other noncurrent liabilities                                     1,016
         Member capital                                                  14,202
                                                                   ------------
              Total liabilities and member capital                 $     82,073
                                                                   ============
         Crescent equity investment                                $      7,101
                                                                   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                   14 DAYS ENDED
                                                                   JUNE 30, 1997
                                                                   ------------
<S>                                                                <C>         
         Net revenue                                               $     29,865
                                                                   ------------
         Operating expenses (1)                                          30,565
         Interest, net                                                       98
                                                                   ------------
              Net loss                                             $       (798)
                                                                   ============
         Cash used in operating activities                         $    (13,996)
                                                                   ============
         Crescent equity loss                                      $       (399)
                                                                   ============
</TABLE>

(1) Includes salaries, supplies and other operating expenses, bad debt expense,
    depreciation and amortization.


(2) As of August 11, 1997, CBHS had $65 million of outstanding borrowings under
    its revolving credit agreement and had received $20 million of advances
    from its members, including $10 million from the Company.



                                       8
<PAGE>   9


8.  COMMITMENTS AND CONTINGENCIES

     The Hicks-Muse interest includes a commitment that the Company invest an
additional $2.1 million in the fund which is required to be paid by the Company
when called.


9.  PROFORMA FINANCIALS

     The following Table assumes that the acquisitions occurred at January 1,
1997 (in thousands).


<TABLE>
<S>                                            <C>   
    Revenues                                   $2,857
    Gross Profit                                 $937
    Income from Operations                       $304
    Equity In Loss of CBHS                   $(3,432)
    Net Loss                                 $(3,295)
    Net Loss Per Share                         $(.30)
</TABLE>

10.  SUBSEQUENT EVENTS

BACKGROUND

     On July 31, 1997, 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 REIT and certain of its
     subsidiaries, 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 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.




                                       9
<PAGE>   10


                            CRESCENT OPERATING, INC.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STRATEGY

     Crescent intends to manage its assets, which as of June 30, 1997 consisted
     of (i) Moody Day, Inc. ("Moody-Day"), a construction equipment sales,
     leasing and service company, (ii) a 1.21% limited partner interest in Hicks
     Muste Tate & Furst Equity Fund II, LP ("Hicks-Muse"), a private venture
     capital fund (together with Moody Day, the "Carter Crowley Asset Group")
     and (iii) a 50% member interest in Charter Behavioral Health Systems, LLC
     ("CBHS"), a limited liability company which operates 92 healthcare
     facilities (collectively, the "Assets"), enter into certain of the
     businesses to which the Assets relate and pursue additional opportunities.
     Crescent believes that it has, or will have access to, sufficient liquidity
     and management expertise to manage the assets successfully.

     Crescent'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 REIT. To pursue additional
     opportunities, Crescent plans to capitalize on its relationship with
     Crescent REIT and Crescent REIT's ability to structure transactions
     creatively. Crescent also plans to determine whether it could provide to
     Crescent REIT certain lessee and operator functions currently provided by
     others to Crescent REIT. In this regard, it plans to negotiate to acquire
     or replace the tenants of certain hotels and resorts owned by Crescent REIT
     and leased to third parties. As of June 30, 1997, no such tenants have been
     acquired or replaced, however, and there is no assurance that such
     agreements will be reached. The additional opportunities Crescent may
     pursue are expected to be varied and may be unrelated to any business in
     which Crescent is then engaged or may be engaged at any future date.
     Crescent 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 REIT has outstanding indebtedness,
     Crescent anticipates that it will use the proceeds of any such sales of
     assets to reduce the amount of any such indebtedness.

     Crescent also intends to pursue additional and similar opportunities with
     Crescent REIT and others in the future. The distribution of Crescent Common
     Stock will provide Crescent shareholders and the Limited Partners who
     received Common Stock in connection with the initial distribution in June
     1997 and who retain their Crescent REIT common shares with the opportunity
     to participate in the benefits both of the real estate operations of
     Crescent REIT (including ownership of real property) and of the lease of
     certain of such assets and the ownership of other non-real estate assets.
     There can be no assurance, however, that any such opportunities will arise
     in the future. 

THE INTERCOMPANY AGREEMENT

     Crescent and Crescent Operating Partnership have entered into the
     Intercompany Agreement to provide each other with rights to participate in
     certain transactions. The Intercompany Agreement provides, subject to
     certain terms, that Crescent Operating Partnership will provide Crescent
     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 REIT's status as a
     REIT, it is required to enter into a "master" lease arrangement, provided
     that Crescent and Crescent Operating Partnership negotiate a mutually
     satisfactory lease arrangement and Crescent Operating Partnership
     determines, in its sole discretion, that Crescent is qualified to be the
     lessee. For example, Crescent REIT generally would be required, consistent
     with its status as a REIT, to enter into a master lease arrangement as to
     hotels and behavioral healthcare 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) is leased to a
     single lessee. As to opportunities for Crescent to become the lessee of any
     assets under a master lease arrangement, the Intercompany Agreement
     provides that Crescent Operating Partnership must provide Crescent with
     written notice of the lessee opportunity. During the 30 days following such
     notice, Crescent has a right of first refusal with regard to the offer to
     become a lessee and the right to negotiate with Crescent Operating
     Partnership on an exclusive basis regarding the terms and conditions of the
     lease. If a mutually satisfactory agreement cannot be reached within the
     30-day period (or such longer period to which Crescent and Crescent
     Operating Partnership may agree), Crescent Operating Partnership may offer
     the opportunity to others for a period of one year thereafter before it
     must again offer the 






                                      10
<PAGE>   11

     opportunity to Crescent in accordance with the procedures specified above.
     Crescent Operating Partnership may, in its discretion, offer any
     investment opportunity other than a lessee opportunity to Crescent , upon
     such notice and other terms as Crescent Operating Partnership may
     determine.

     Under the Intercompany Agreement, Crescent has agreed not to acquire or
     make (i) investments in real estate which, for purposes of the
     Intercompany Agreement, includes the provision of services related to real
     estate and investment in hotel properties, real estate mortgages, real
     estate derivatives or entities that invest in real estate assets or (ii)
     any other investments that may be structured in a manner that qualifies
     under the federal income tax requirements applicable to REITs unless it
     has provided written notice to Crescent Operating Partnership of the
     material terms and conditions of the acquisition or investment
     opportunity, and Crescent Operating Partnership has determined not to
     pursue such acquisitions or investments either by providing written notice
     to Crescent rejecting the opportunity within 10 days from the date of
     receipt of notice of the opportunity or by allowing such 10-day period to
     lapse. Crescent 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 has agreed to notify
     Crescent Operating Partnership of, and make available to Crescent
     Operating Partnership, investment opportunities developed by Crescent or
     of which Crescent becomes aware but is unable or unwilling to pursue.

HISTORICAL RESULTS OF OPERATIONS

     On May 9, 1997, the Company acquired the Carter Crowley Asset Group. The
     Company's financial statements have been prepared on the basis that the
     "Predecessor" consists of the Carter Crowley Asset Group. As the Company
     did not have any activities until May 9, 1997, the comparative data
     relating to 1996 and the period prior to May 9, 1997 is only with regard to
     the Predecessor.       

     Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 
     1996. Total revenues of the Company increased approximately $200,000,
     or 7.4% to $2.9 million for the three months ended June 30, 1997, compared
     with $2.7 million for the three months ended June 30, 1996. This increase
     was due to an increase in customer construction projects and a
     corresponding increase in demand for Moody-Day equipment and services, an
     increase in the amount of equipment Moody-Day had available to meet sale
     and rental demand and the favorable introduction by Moody-Day of new lines
     of equipment available for sale and rental.

     Total cost of sales for the Company decreased approximately $400,000, or
     17.4%, to $1.9 million for the three months ended June 30, 1997, compared
     with $2.3 million for the three months ended June 30, 1996. This decrease
     is due primarily to lower depreciation of new and used equipment as a
     result of the purchase price allocation.

     Selling, general and administrative and other expense for the Company
     increased approximately $245,000, or 62.8%, in the aggregate, due
     primarily to increases in interest expense attributable to increases in
     corporate borrowing and in general corporate expenses.

     Other expenses of the Company increased approximately $515,000 for the
     three months ended June 30, 1997, compared with June 30, 1996, due
     primarily to a $266,000 increase in interest expense resulting from an
     increase in corporate borrowings.  

     Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.
     Total revenues of the Company increased approximately $900,000 or 16%,
     to $5.9 million for the six months ended June 30, 1997, compared with $5.0
     million for the six months ended June 30, 1996. The increase is primarily
     the result of an increase in customer construction projects and a
     corresponding increase in demand for Moody-Day's equipment and services,
     an increase in the amount of equipment Moody-Day had available to meet
     sale and rental demand and the favorable introduction by Moody-Day of new
     lines of equipment available for sale and rental.

     Total cost of sales for the Company increased approximately $300,000, or
     7.3%, to $4.4 million for the six months ended June 30, 1997, compared
     with $4.1 million for the six months ended June 30, 1996. This increase is
     due primarily to an increase in depreciation expense as a result of
     inventory purchased by Moody-Day to meet customer demand for rental
     equipment and an increase in cost of sales as a result of the new
     equipment lines available for sale.

     Selling, general and administrative expense of the Company increased
     approximately $200,000, or 22.2%, to $1.1 million for the year ended June
     30, 1997, compared with $900,000 for the six months ended June 30, 1996,
     due to increases in general corporate expenses and sales commissions.



                                      11
<PAGE>   12

     Other expenses of the Company increased approximately $600,000, for the
     six months ended June 30, 1997, compared with the six months ended June
     30, 1996 due primarily to a $300,000 increase in interest expense
     resulting from an increase in corporate borrowings.


LIQUIDITY AND CAPITAL RESOURCES

     In connection with the formation and capitalization of Crescent, Crescent
     has received approximately $14.1 million in cash from Crescent Operating
     Partnership and Crescent Operating Partnership agreed to lend Crescent
     approximately $35.9 million pursuant to a five-year term loan
     (approximately $35.8 million of which was funded through June 30, 1997 and
     approximately $25.9 million of which was outstanding as of such date). The
     loan is a recourse loan that is or will be secured, to the extent not
     prohibited by pre-existing arrangements, by a first lien on the investments
     and all other assets owned by Crescent now or in the future (other than
     assets of Crescent acquired after June 30, 1997, which may be pledged in
     the future to secure non-recourse loans to Crescent). The loan 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 Crescent from its gross receipts.
     The loan will mature on May 8, 2002. The Company also has obtained a $20.4
     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 21, 2002 or (ii) five years
     after the last draw under the line of credit. Draws may be made under the
     line of credit until June 22, 2002. The line of credit is a recourse
     obligation and amounts outstanding thereunder are or will be secured, to
     the extent not prohibited by pre-existing arrangements, by a first lien on
     the investments and all other assets owned by Crescent now or in the future
     (other than assets of Crescent acquired after June 30, 1997, which may be
     pledged in the future to secure non-recourse loans to Crescent). As of June
     30, 1997, no amounts were outstanding under the line of credit.

     Approximately $12.6 million in cash and the proceeds of approximately
     $15.3 million of loans were used to acquire the Carter-Crowley Assets and
     the 12.38% limited partner interest in the partnership that owns the
     Dallas Mavericks. The remaining approximately $1.5 million previously
     funded in the form of cash, together with the remaining approximately
     $20.6 million advanced in the form of loans, was used both to acquire, and
     make an additional contribution relating to, the CBHS Interest and to
     acquire the warrants to acquire shares of Magellan common stock for an
     aggregate of approximately $20.0 million, and to fund an obligation of
     Moody-Day to purchase construction equipment for approximately $2.1
     million. The line of credit will be used to support future funding
     obligations associated with these investments (consisting of approximately
     $2.1 million relating to Crescent's investment in Hicks-Muse and
     approximately $17.5 million relating to the CBHS Interest) and other cash
     requirements.



                                      12
<PAGE>   13

     On June 11, 1997, Crescent sold the 12.38% limited partner interest in the
     partnership that owns the Dallas Mavericks to an affiliated entity and
     received proceeds from the sale in the amount of approximately $12.55
     million. The limited partner interest was originally purchased by Crescent
     for approximately $12.4 million and the sale resulted in a gain to Crescent
     of approximately $.15 million. Of the approximately $12.55 million proceeds
     from the sale of the limited partner interest, Crescent used approximately
     $9.9 million to repay outstanding principal and $.2 million to pay accrued
     and unpaid interest on the term loan from Crescent Operating Partnership.
     Additionally, Crescent paid a dividend of approximately $2.4 million to
     Crescent Operating Partnership, its sole stockholder at that time.

PRO FORMA CAPITAL RESOURCES

     The Company currently has no commitments to purchase any assets. Crescent
has no external sources of financing except as described above in "Liquidity and
Capital Resources." 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 change in
the availability and relative cost of such capital resources.


CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC

     The Company acquired its 50% member interest in CBHS on June 17, 1997.
     Summarized below are operating statistics for the quarter ended June 30,
     1997.

<TABLE>
<S>                                                           <C>
         Facilities in Operation                              81
         Patient Days                                         50,424
         Equivalent Patient Days                              53,716
         Admissions                                           4,221
         Average Length of Stay                               13.1
</TABLE>

     The Facilities' hospital business is seasonal in nature, with a reduced
     demand of certain services generally occurring in the first fiscal quarter
     around major holidays, such as Thanksgiving and Christmas, and during the
     summer months comprising the Company's third quarter. CBHS's business is
     also subject to general economic conditions and other factors.
     Accordingly, the results of operations for the interim periods are not
     necessarily indicative of the actual results expected for the year.

     The Facilities provide inpatient and outpatient behavioral healthcare
     services. The inpatient treatment includes acute and residential programs
     serving adults, adolescents and children. Third party payers include
     governmental, commercial, managed care and private payers. The Facilities
     are experiencing a shift in payer mix to managed care payers from other
     payers. The Company on August 1, 1997, advanced CBHS $10 million pursuant
     to its agreement to provide working capital. This loan bears interest at
     10% per annum.



                                      13
<PAGE>   14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Not applicable.


                                      14
<PAGE>   15


                            CRESCENT OPERATING, INC.

                           PART II. OTHER INFORMATION

     ITEM 1.  LEGAL PROCEEDINGS

         Not Applicable

     ITEM 2.  CHANGES IN SECURITIES

         Not Applicable

     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not Applicable

     ITEM 5.  OTHER INFORMATION

BACKGROUND

     On July 31, 1997, 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 REIT and certain of its
     subsidiaries, 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 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.



                                      15
<PAGE>   16

     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 (AWECCR 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.

PENDING INVESTMENT

     Crescent REIT 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 REIT 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 properties 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.

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.   Exhibits. 

         3.4  Amended and Restated Bylaws

         4.2  Preferred Share Purchase Rights Agreement

        10.2  Intercompany Agreement between Crescent Operating, Inc. and
              Crescent Operating Partnership

        10.3  Amended and Restated Operating Agreement of Charter Behavioral
              Health Systems, LLC

        10.4  Warrant Purchase Agreement between Crescent Operating, Inc. and
              Magellan Health Services, Inc.

        10.5  Amended and Restated Credit and Security Agreement

        10.6  Line of Credit and Security Agreement

        10.7  Charter Behavioral Health Systems, LLC Promissory Note

        27    Financial Data Schedule
    
         b.    Reports on Form 8-K. Not Applicable



                                      16
<PAGE>   17





                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                         CRESCENT OPERATING, INC.
                                         (Registrant)



                                         By: /s/ JEFFREY L. STEVENS
                                            -----------------------------------
                                                Jeffrey L. Stevens
                                         Treasurer and Chief Financial Officer


Date: August 14, 1997


                                      17
<PAGE>   18
                                EXHIBIT INDEX



<TABLE>
<CAPTION>
EXHIBIT         DESCRIPTION
- -------         -----------
<S>             <C>
  3.4           Amended and Restated Bylaws

  4.2           Preferred Share Purchase Rights Agreement

 10.2           Intercompany Agreement

 10.3           Amended and Restated Operating Agreement of Charter
                Behavioral Health Systems, LLC

 10.4           Warrant Purchase Agreement

 10.5           Amended and Restated Credit and Security Agreement

 10.6           Credit and Security Agreement

 10.7           Promissory Note

 27             Financial Data Schedule
</TABLE>


<PAGE>   1


   
                                  Exhibit 3.4
    


                        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 4.2

                   PREFERRED SHARE PURCHASE RIGHTS AGREEMENT

   
                          Dated as of June 11, 1997
    

                                    Between

                            CRESCENT OPERATING, INC.

                                      and

   
                              BANKBOSTON, N.A.
    

                                  Rights Agent


                               TABLE OF CONTENTS




<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>            <C>                                                         <C>
Section 1.     Certain Definitions                                           1

Section 2.     Appointment of Rights Agent                                   4

Section 3.     Issue of Right Certificates                                   5

Section 4.     Form of Right Certificates                                    6

Section 5.     Countersignature and Registration                             6

Section 6.     Transfer, Split Up, Combination and Exchange of Right
               Certificates; Mutilated, Destroyed, Lost or Stolen Right
               Certificates                                                  7

Section 7.     Exercise of Rights; Purchase Price; Expiration 
               Date of Rights                                                8

Section 8.     Cancellation and Destruction of Right Certificates            9

Section 9.     Availability of Preferred Shares                              9

Section 10.    Preferred Shares Record Date                                  9

Section 11.    Adjustment of Purchase Price, Number of Shares or
               Number of Rights                                             10

Section 12.    Certificate of Adjusted Purchase Price or Number 
               of Shares                                                    16

Section 13.    Consolidation, Merger or Sale or Transfer of Assets
               or Earning Power                                             16
</TABLE>


                                       i
<PAGE>   2
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>              <C>                                                       <C>
Section 14.       Fractional Rights and Fractional Shares                   17

Section 15.       Rights of Action                                          18

Section 16.       Agreement of Right Holders                                18

Section 17.       Right Certificate Holder Not Deemed a Stockholder         19

Section 18.       Concerning the Rights Agent                               19

Section 19.       Merger or Consolidation or Change of
                  Name of Rights Agent                                      19

Section 20.       Duties of Rights Agent                                    20

Section 21.       Change of Rights Agent                                    22

Section 22.       Issuance of New Right Certificates                        22

Section 23.       Redemption                                                22

Section 24.       Exchange                                                  23

Section 25.       Notice of Events                                          24

Section 26.       Notices                                                   25

Section 27.       Supplements and Amendments                                25

Section 28.       Successors                                                26

Section 29.       Benefits of this Agreement                                26

Section 30.       Severability                                              26

Section 31.       Governing Law                                             26

Section 32.       Counterparts                                              26

Section 33.       Descriptive Headings                                      26

Signatures.                                                                 27

Exhibit A         Form of Certificate of Designations                       28

Exhibit B         Form of Right Certificate                                 35

Exhibit C         Summary of Rights to Purchase Preferred Shares            41
</TABLE>


                                       ii
<PAGE>   3


This Rights Agreement (the "Agreement"), dated as of June 11, 1997, between
Crescent Operating, Inc., a Delaware corporation (the "Company"), and 
BankBoston, N.A. as Rights Agent (the "Rights Agent").


   
The board of directors of the Company (the "Board of Directors") has authorized
and declared a dividend of one preferred share purchase right (a "Right") for
each Common Share (as hereinafter defined) of the Company outstanding on the
date specified as the "Distribution Effective Date" in the Company's 
registration statement on Form S-1 (file no. 333-25223) as declared effective 
by the Securities and Exchange Commission (the "Record Date"), each Right 
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding between the Record
Date and the earliest of the Rights Distribution Date, the Redemption Date and
the Final Expiration Date (as such terms are hereinafter defined). 
    

Accordingly, in consideration of the premises and the mutual agreements herein
set forth, the parties hereby agree as follows:


Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:

     (a) "Acquiring Person" shall mean any Person who or which, together with
     all Affiliates and Associates of such Person, shall be the Beneficial
     Owner of 10% or more of the Common Shares of the Company then outstanding
     but shall not include (i) the Company, (ii) any Subsidiary of the Company,
     (iii) any employee benefit plan of the Company or of any Subsidiary of the
     Company, or any entity holding Common Shares for or pursuant to the terms
     of any such plan, or (iv) Crescent and its affiliates. Notwithstanding
     anything in this definition of Acquiring Person to the contrary, no Person
     shall become an "Acquiring Person" as the result of an acquisition of
     Common Shares by the Company which, by reducing the number of shares
     outstanding, increases the proportionate number of shares beneficially
     owned by such Person to 10% or more of the Common Shares of the Company
     then outstanding; provided, however, that if a Person shall become the
     Beneficial Owner of 10% or more of the Common Shares of the Company then
     outstanding by reason of share purchases by the Company and shall, after
     such share purchases by the Company, become the Beneficial Owner of any
     additional Common Shares of the Company, then such Person shall be deemed
     to be an "Acquiring Person." Notwithstanding anything in this definition
     of Acquiring Person to the contrary, if the Board of Directors determines
     in good faith that a Person who would otherwise be an "Acquiring Person,"
     as defined pursuant to the foregoing provisions of this paragraph (a), has
     become such inadvertently, and such Person divests as promptly as
     practicable a sufficient number of Common Shares so that such Person would
     no longer be an "Acquiring Person," as defined pursuant to the foregoing
     provisions of this paragraph (a), then such Person shall not be deemed to
     be an "Acquiring Person" for any purposes of this Agreement.


                                      1
<PAGE>   4


     (b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
     of the General Rules and Regulations under the Exchange Act as in effect
     on the date of this Agreement .

     (c) "Associate" shall have the meaning ascribed to such term in Rule 12b-2
     of the General Rules and Regulations under the Exchange Act as in effect
     on the date of this Agreement.

     (d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
     to "beneficially own" any securities:

          (i) which such Person or any of such Person's Affiliates or
          Associates beneficially owns, directly or indirectly:

          (ii) which such Person or any of such Person's Affiliates or
          Associates has (A) the right to acquire (whether such right is
          exercisable immediately or only after the passage of time) pursuant
          to any agreement, arrangement or understanding (other than customary
          agreements with and between underwriters and selling group members
          with respect to a bona fide public offering of securities), or upon
          the exercise of conversion rights, exchange rights, rights (other
          than these Rights), warrants or options, or otherwise; provided,
          however, that a Person shall not be deemed the Beneficial Owner of,
          or to beneficially own, securities tendered pursuant to a tender or
          exchange offer made by or on behalf of such Person or any of such
          Person's Affiliates or Associates until such tendered securities are
          accepted for purchase or exchange; or (B) the right to vote, or the
          right to direct the vote, pursuant to any agreement, arrangement or
          understanding; provided, however, that a Person shall not be deemed
          the Beneficial Owner of, or to beneficially own, any security, if the
          agreement, arrangement or understanding to vote, or direct the vote
          of, such security (1) arises solely from a revocable proxy or consent
          given to such Person in response to a public proxy or consent
          solicitation made pursuant to, and in accordance with, the applicable
          rules and regulations promulgated under the Exchange Act and (2) is
          not also then reportable on Schedule 13D under the Exchange Act (or
          any comparable or successor report); or

   
          (iii) which are beneficially owned, directly or indirectly, by any
          other Person with which such Person or any of such Person's
          Affiliates or Associates has any agreement, arrangement or
          understanding (other than customary agreements with and between
          underwriters and selling group members with respect to a bona fide
          public offering of securities) for the purpose of acquiring, holding,
          voting (except to the extent contemplated by the proviso to Section
          1(d)(ii)(B)) or disposing of any securities of the Company.
    

Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, no Person (and no Affiliate or Associate of any Person) shall at any
time be deemed to be the "Beneficial 


                                       2
<PAGE>   5


   
Owner" of or to "beneficially own" any securities if such Person is the
Beneficial Owner of or "beneficially owns" such securities as a result of one
or more agreements, arrangements or understandings with any Crescent Affiliate
(whether or not the Company or any other Person is a party thereto) and if such
Person would not be the Beneficial Owner of or "beneficially own" such
securities if such agreements, arrangements or understandings were not then in
effect. Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
    

     (e) "Board of Directors" shall have the meaning set forth in the preamble
     hereof.

   
     (f) "Business Day" shall mean any day other than a Saturday, a Sunday, or
     a day on which banking institutions in New York are authorized or
     obligated by law or executive order to close.
    

   
     (g) "Close of Business" on any given date shall mean 5:00 P.M., New York
     Time, on such date; provided, however, that, if such date is not a
     Business Day, it shall mean 5:00 P.M., New York Time, on the next
     succeeding Business Day.
    

     (h) "Common Shares" when used with reference to the Company shall mean the
     shares of common stock, par value $.01 per share, of the Company. "Common
     Shares" when used with reference to any Person other than the Company
     shall mean the capital stock (or equity interest) with the greatest voting
     power of such other Person or, if such other Person is a Subsidiary of
     another Person, the Person or Persons which ultimately control such
     first-mentioned Person.

     (i) "Company" shall have the meaning set forth in the preamble hereof.

     (j) "Current Per Share Market Price" shall have the meaning set forth in
     Section 11(d)(i) hereof.

     (k) "Rights Distribution Date" shall have the meaning set forth in Section
     3 hereof.

     (l) "Equivalent Preferred Shares" shall have the meaning set forth in
     Section 11(b) hereof.

     (m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
     amended.

     (n) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
     hereof.

     (o) "Final Expiration Date" shall have the meaning set forth in Section
     7(a) hereof.


                                       3
<PAGE>   6


     (p) "Person" shall mean any individual, firm, corporation or other entity,
     and shall include any successor (by merger or otherwise) of such entity.

     (q) "Preferred Shares" shall mean shares of Series A Junior Participating
     Preferred Stock, par value $.01 per share, of the Company having the
     rights and preferences set forth in the Form of Certificate of
     Designations attached to this Agreement as Exhibit A.

     (r) "Purchase Price" shall have the meaning set forth in Section 4 hereof.

     (s) "Record Date" shall have the meaning set forth in the preamble hereof.

     (t) "Redemption Date" shall have the meaning set forth in Section 7(a)
     hereof.

     (u) "Redemption Price" shall have the meaning set forth in Section 23(a)
     hereof.

     (v) "Right" shall have the meaning set forth in the preamble hereof.

     (w) "Right Certificate" shall have the meaning set forth in Section 3(a)
     hereof.

     (x) "Rights Agent" shall have the meaning set forth in the preamble
     hereof.

     (y) "Security" shall have the meaning set forth in Section 11(d) hereof.

     (z) "Shares Acquisition Date" shall mean the first date of public
     announcement by the Company or an Acquiring Person that an Acquiring
     Person has become such.

     (aa) "Subsidiary" of any Person shall mean any corporation or other entity
     of which a majority of the voting power of the voting equity securities or
     equity interest is owned, directly or indirectly, by such Person.

     (bb) "Summary of Rights" shall have the meaning set forth in Section 3(b)
     hereof.

     (cc) "Trading Day" shall have the meaning set forth in Section 11(d)
     hereof.

   
Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3 hereof, shall, prior to the Rights Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable, upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and in no event be
liable for, the acts or omissions of any such co-Rights Agent.
    


                                       4
<PAGE>   7


Section 3. Issue of Right Certificates.

   
     (a) Until the earlier of (i) the tenth day after the Shares Acquisition
     Date or (ii) the tenth Business Day (or such later date as may be
     determined by action of the Board of Directors prior to such time as any
     Person becomes an Acquiring Person) after the date of the commencement by
     any Person (other than the Company, any Subsidiary of the Company, any
     employee benefit plan of the Company or of any Subsidiary of the Company,
     any entity holding Common Shares for or pursuant to the terms of any such
     plan, or, any Crescent Affiliate) of, or of the first public announcement 
     of the intention of any Person (other than the Company, any Subsidiary of
     the Company, any employee benefit plan of the Company or of any Subsidiary
     of the Company, any entity holding Common Shares for or pursuant to the 
     terms of any such plan or, any Crescent Affiliate) to commence, a tender
     or exchange offer the consummation of which would result in any Person
     becoming the Beneficial Owner of Common Shares aggregating 10% or more of
     the then outstanding Common Shares (the earlier of such dates being herein
     referred to as the "Rights Distribution Date"), (x) the Rights will be
     evidenced (subject to the provisions of Section 3(b) hereof) by the
     certificates for Common Shares registered in the names of the holders
     thereof (which certificates shall also be deemed to be Right Certificates)
     and not by separate Right Certificates, and (y) the right to receive Right
     Certificates will be transferable only in connection with the transfer of
     Common Shares. As soon as practicable after the Rights Distribution Date,
     the Company will prepare and execute, the Rights Agent will countersign,
     and the Company will send or cause to be sent (and the Rights Agent will,
     if requested, send) by first-class, postage-prepaid mail, to each record
     holder of Common Shares as of the Close of Business on the Rights
     Distribution Date, at the address of such holder shown on the records of
     the Company, a Right Certificate, in substantially the form of Exhibit B
     hereto (a "Right Certificate"), evidencing one Right for each Common Share
     so held. From and after the Rights Distribution Date, the Rights will be
     evidenced solely by such Right Certificates.
    

     (b) On the Record Date, or as soon as practicable thereafter, the Company
     will send a copy of a Summary of Rights to Purchase Preferred Shares, in
     substantially the form of Exhibit C hereto (the "Summary of Rights"), by
     first-class, postage-prepaid mail, to each record holder of Common Shares
     as of the Close of Business on the Record Date, at the address of such
     holder shown on the records of the Company. With respect to certificates
     for Common Shares outstanding as of the Record Date, until the Rights
     Distribution Date, the Rights will be evidenced by such certificates
     registered in the names of the holders thereof together with a copy of the
     Summary of Rights attached thereto. Until the Rights Distribution Date (or
     the earlier of the Redemption Date or the Final Expiration Date), the
     surrender for transfer of any certificate for Common Shares outstanding on
     the Record Date, with or without a copy of the Summary of Rights attached
     thereto, shall also constitute the transfer of the Rights associated with
     the Common Shares represented thereby.


                                       5
<PAGE>   8


     (c) Certificates for Common Shares which become outstanding (including,
     without limitation, reacquired Common Shares referred to in the last
     sentence of this paragraph (c)) after the Record Date but prior to the
     earliest of the Rights Distribution Date, the Redemption Date or the Final
     Expiration Date, shall have impressed on, printed on, written on or
     otherwise affixed to them the following legend:

   
          This certificate also evidences and entitles the holder hereof to
          certain rights as set forth in a Rights Agreement between Crescent
          Operating, Inc. and BankBoston, N.A. dated as of June 11, 1997
          Rights Agreement"), the terms of which are hereby incorporated   
          herein by reference and a copy of which is on file at the principal
          executive offices of Crescent Operating, Inc. Under certain
          circumstances, as set forth in the Rights Agreement, such Rights will
          be evidenced by separate certificates and will no longer be evidenced
          by this certificate. Crescent Operating, Inc. will mail to the holder
          of this certificate a copy of the Rights Agreement without charge
          after receipt of a written request therefor. Under certain
          circumstances, as set forth in the Rights Agreement, Rights issued to
          any Person who becomes an Acquiring Person (as defined in the Rights
          Agreement) may become null and void.
    

With respect to such certificates containing the foregoing legend, until the
Rights Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute
the transfer of the Rights associated with the Common Shares represented
thereby. In the event that the Company purchases or acquires any Common Shares
after the Record Date but prior to the Rights Distribution Date, any Rights
associated with such Common Shares shall be deemed cancelled and retired so
that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.

Section 4. Form of Right Certificates. The Right Certificates (and the forms of
election to purchase Preferred Shares and of assignment to be printed on the
reverse thereof) shall be substantially the same as Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of his Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.

Section 5. Countersignature and Registration. The Right Certificates shall be
executed on behalf of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its Chief Executive Officer, its President, any of its
Vice Presidents, or its Treasurer, either manually or by 


                                       6
<PAGE>   9


facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the
Company with the same force and effect as though the individual who signed such
Right Certificates had not ceased to be such officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any individual who,
at the actual date of the execution of such Right Certificate, shall be a
proper officer of the Company to sign such Right Certificate although at the
date of the execution of this Agreement any such individual was not such an
officer.

Following the Rights Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.

Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
provisions of Section 14 hereof, at any time after the Close of Business on the
Rights Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined, or exchanged for another Right Certificate or other Right
Certificates entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Right Certificates.

Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor 


                                       7
<PAGE>   10


to the Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.

Section 7. Exercise of Rights; Purchase Price; Expiration Date of Right .

   
     (a) The registered holder of any Right Certificate may exercise the Rights
     evidenced thereby (except as otherwise provided herein), in whole or in
     part, at any time after the Rights Distribution Date, upon surrender of
     the Right Certificate, with the form of election to purchase on the
     reverse side thereof duly executed, to the Rights Agent at the principal
     office of the Rights Agent, together with payment of the purchase Price
     for each one one-hundredth of a Preferred Share as to which the Rights are
     exercised, at or prior to the earliest of (i) the Close of Business on the
     date which is the tenth anniversary of the Record Date (the "Final 
     Expiration Date"), (ii) the time at which the Rights are redeemed as
     provided in Section 23 hereof (the "Redemption Date"), or (iii) the time
     at which such Rights are exchanged as provided in Section 24 hereof.
    

   
     (b) The Purchase Price for each one one-hundredth of a Preferred Share
     purchasable pursuant to the exercise of a Right shall initially be $5,
     and shall be subject to adjustment from time to time as provided in
     Section 11 or 13 hereof and shall be payable in lawful money of the United
     States of America in accordance with paragraph (c) below.
    

     (c) Upon receipt of a Right Certificate representing exercisable Rights,
     with the form of election to purchase duly executed, accompanied by
     payment of the Purchase Price for the shares to be purchased and an amount
     equal to any applicable transfer tax required to be paid by the holder of
     such Right Certificate in accordance with Section 9 hereof by certified
     check, cashier's check or money order payable to the order of the Company,
     the Rights Agent shall thereupon promptly (i)(A) requisition from any
     transfer agent of the Preferred Shares certificates for the number of
     Preferred Shares to be purchased and the Company hereby irrevocably
     authorizes any such transfer agent to comply with all such requests, or
     (B) requisition from the depositary agent depositary receipts representing
     such number of one one-hundredths of a Preferred Share as are to be
     purchased (in which case certificates for the Preferred Shares represented
     by such receipts shall be deposited by the transfer agent of the Preferred
     Shares with such depositary agent) and the Company hereby directs such
     depositary agent to comply with such request; (ii) when appropriate,
     requisition from the Company the amount of cash to be paid in lieu of
     issuance of fractional shares in accordance with Section 14 hereof; (iii)
     promptly after receipt of such certificates or depositary receipts, cause
     the same to be delivered to or upon the order of the registered holder of
     such Right Certificate, registered in such name or names as may be
     designated by such holder; and (iv) when appropriate, after receipt,
     promptly deliver such cash to or upon the order of the registered holder
     of such Right Certificate.

     (d) In case the registered holder of any Right Certificate shall exercise
     less than all the Rights evidenced thereby, a new Right Certificate
     evidencing Rights equivalent to the Rights remaining unexercised shall be
     issued by the Rights Agent to the registered holder 


                                       8
<PAGE>   11

     of such Right Certificate or to his duly authorized assigns, subject to
     the provisions of Section 14 hereof.

Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Right Certificates, and,
in such case, shall deliver a certificate of destruction thereof to the
Company.

   
Section 9. Availability of Preferred Shares. The Company covenants and agrees
that it will cause to be reserved and kept available out of its authorized and
unissued Preferred Shares or any Preferred Shares held in its treasury, the
number of Preferred Shares that will be sufficient to permit the exercise in
full of all outstanding Rights in accordance with Section 7. The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares delivered upon exercise of Rights shall, at
the time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.
    

The Company further covenants and agrees that it will pay when due and payable
any and all federal and state transfer taxes and charges which may be payable
in respect of the issuance or delivery of the Right Certificates or of any
Preferred Shares upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.

Section 10. Preferred Shares Record Date. Each Person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date
upon which the Preferred Shares transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. 


                                       9
<PAGE>   12


Prior to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a holder of Preferred Shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.
The Purchase Price, the number of Preferred Shares covered by each Right and
the number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.

     (a) (i) In the event the Company shall at any time after the date of this
     Agreement (A) declare a dividend on the Preferred Shares payable in
     Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
     combine the outstanding Preferred Shares into a smaller number of
     Preferred Shares or (D) issue any shares of its capital stock in a
     reclassification of the Preferred Shares (including any such
     reclassification in connection with a consolidation or merger in which the
     Company is the continuing or surviving corporation), except as otherwise
     provided in this Section 11(a), the Purchase Price in effect at the time
     of the record date for such dividend or of the effective date of such
     subdivision, combination or reclassification, and the number and kind of
     shares of capital stock issuable on such date, shall be proportionately
     adjusted so that the holder of any Right exercised after such time shall
     be entitled to receive the aggregate number and kind of shares of capital
     stock which, if such Right had been exercised immediately prior to such
     date and at a time when the Preferred Shares transfer books of the Company
     were open, he would have owned upon such exercise and been entitled to
     receive by virtue of such dividend, subdivision, combination or
     reclassification; provided, however, that in no event shall the
     consideration to be paid upon the exercise of one Right be less than the
     aggregate par value of the shares of capital stock of the Company issuable
     upon exercise of one Right.

         (ii) Subject to Section 24 of this Agreement, in the event any Person
         becomes an Acquiring Person, each holder of a Right shall thereafter
         have a right to receive, upon exercise thereof at a price equal to the
         then current Purchase Price multiplied by the number of one
         one-hundredths of a Preferred Share for which a Right is then
         exercisable, in accordance with the terms of this Agreement and in
         lieu of Preferred Shares, such number of Common Shares of the Company
         as shall equal the result obtained by (A) multiplying the then current
         Purchase Price by the number of one one-hundredths of a Preferred
         Share for which a Right is then exercisable and dividing that product
         by (B) 50% of the then Current Per Share Market Price of the Company's
         Common Shares (determined pursuant to Section 11(d)(i) hereof) on the
         date of the occurrence of such event. In the event that any Person
         shall become an Acquiring Person and the Rights shall then be
         outstanding, the Company shall not take any action which would
         eliminate or diminish the benefits intended to be afforded by the
         Rights.


                                      10
<PAGE>   13


From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence, or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled.

          (iii) In the event that there shall not be sufficient Common Shares
          issued but not outstanding or authorized but unissued to permit the
          exercise in full of the Rights in accordance with the foregoing
          subparagraph (ii), the Company shall take all such action as may be
          necessary to authorize additional Common Shares for issuance upon
          exercise of the Rights. In the event the Company shall, after good
          faith effort, be unable to take all such action as may be necessary
          to authorize such additional Common Shares, the Company shall
          substitute, for each Common Share that would otherwise be issuable
          upon exercise of a Right, a number of Preferred Shares or fraction
          thereof such that the Current Per Share Market Price of one Preferred
          Share multiplied by such number or fraction is equal to the Current
          Per Share Market Price of one Common Share as of the date of
          issuances of such Preferred Shares or fraction thereof.

     (b) In case the Company shall fix a record date for the issuance of
     rights, options or warrants to all holders of Preferred Shares entitling
     them (for a period expiring within 45 calendar days after such record
     date) to subscribe for or purchase Preferred Shares (or shares having the
     same rights, privileges and preferences as the Preferred Shares
     ("equivalent preferred shares")) or securities convertible into Preferred
     Shares or equivalent preferred shares at a price per Preferred Share or
     equivalent preferred share (or having a conversion price per share, if a
     security convertible into Preferred Shares or equivalent preferred shares)
     less than the then Current Per Share Market Price of the Preferred Shares
     on such record date, the Purchase Price to be in effect after such record
     date shall be determined by multiplying the Purchase Price in effect
     immediately prior to such record date by a fraction, the numerator of
     which shall be the number of Preferred Shares outstanding on such record
     date plus the number of Preferred Shares which the aggregate offering
     price of the total number of Preferred Shares and/or equivalent preferred
     shares so to be offered (and/or the aggregate initial conversion price of
     the convertible securities so to be offered) would purchase at such
     current market price and the denominator of which shall be the number of
     Preferred Shares outstanding on such record date plus the number of
     additional Preferred Shares and/or equivalent preferred shares to be
     offered for subscription or purchase (or into which the convertible
     securities so to be offered are initially convertible); provided, however,
     that in no event shall the 


                                      11
<PAGE>   14


     consideration to be paid upon the exercise of one Right be less than the
     aggregate par value of the shares of capital stock of the Company issuable
     upon exercise of one Right. In case such subscription price may be paid in
     a consideration part or all of which shall be in a form other than cash,
     the value of such consideration shall be as determined in good faith by
     the Board of Directors, whose determination shall be described in a
     statement filed with the Rights Agent and shall be binding on the Rights
     Agent and holders of the Rights. Preferred Shares owned by or held for the
     account of the Company shall not be deemed outstanding for the purpose of
     any such computation. Such adjustment shall be made successively whenever
     such a record date is fixed; and in the event that such rights, options or
     warrants are not so issued, the Purchase Price shall be adjusted to be the
     Purchase Price which would then be in effect if such record date had not
     been fixed.

     (c) In case the Company shall fix a record date for the making of a
     distribution to all holders of the Preferred Shares (including any such
     distribution made in connection with a consolidation or merger in which
     the Company is the continuing or surviving corporation) of evidences of
     indebtedness or assets (other than a regular quarterly cash dividend or a
     dividend payable in Preferred Shares) or subscription rights or warrants
     (excluding those referred to in Section 11(b) hereof), the Purchase Price
     to be in effect after such record date shall be determined by multiplying
     the Purchase Price in effect immediately prior to such record date by a
     fraction, the numerator of which shall be the then Current Per Share
     Market Price of the Preferred Shares on such record date, less the fair
     market value (as determined in good faith by the Board of Directors, whose
     determination shall be described in a statement filed with the Rights
     Agent and shall be binding on the Rights Agent and holders of the Rights) 
     of the portion of the assets or evidences of indebtedness so to be
     distributed or of such subscription rights or warrants applicable to one
     Preferred Share and the denominator of which shall be such Current Per
     Share Market Price of the Preferred Shares; provided, however, that in no
     event shall the consideration to be paid upon the exercise of one Right be
     less than the aggregate par value of the shares of capital stock of the
     Company to be issued upon exercise of one Right. Such adjustments shall be
     made successively whenever such a record date is fixed; and in the event
     that such distribution is not so made, the Purchase Price shall again be
     adjusted to be the Purchase Price which would then be in effect if such
     record date had not been fixed.

   
     (d) (i) For the purpose of any computation hereunder, the "Current Per
     Share Market Price" of any security (a "Security" for the purpose of this
     Section 11(d)(i)) on any date shall be deemed to be the average of the
     daily closing prices per share of such Security for the 30 consecutive
     Trading Days immediately prior to such date; provided, however, that in
     the event that the Current Per Share Market Price of the Security is
     determined during a period following the announcement by the issuer of
     such Security of (A) a dividend or distribution on such Security payable
     in shares of such Security or securities convertible into such shares, or
     (B) any subdivision, combination or reclassification of such Security and
     prior to the expiration of 30 Trading Days after the ex-dividend date for
     such dividend or distribution, or the record date for such Subdivision,
     combination or reclassification, then, and in each such case, the Current
     Per Share Market Price shall be 
    


                                      12
<PAGE>   15


     appropriately adjusted to reflect the current market price per share
     equivalent of such Security. The closing price for each day shall be the
     last sale price, regular way, or, in case no such sale takes place on such
     day, the average of the closing bid and asked prices, regular way, in
     either case, as reported in the principal consolidated transaction
     reporting system with respect to securities listed or admitted to trading
     on the New York Stock Exchange or, if the Security is not listed or
     admitted to trading on the New York Stock Exchange, as reported in the
     principal consolidated transaction reporting system with respect to
     securities listed on the principal national securities exchange on which
     the Security is listed or admitted to trading or, if the Security is not
     listed or admitted to trading on any national securities exchange, the
     last quoted price or, if not so quoted, the average of the high bid and
     low asked prices in the over-the-counter market, as reported on the Nasdaq
     National Market or such other system then in use, or, if on any such date
     the Security is not quoted by, any such organization, the average of the
     closing bid and asked prices as furnished by a professional market maker
     making a market in the Security selected by the Board of Directors. The
     term "Trading Day" shall mean a day on which the principal national
     securities exchange on which the Security is listed or admitted to trading
     is open for the transaction of business or, if the Security is not listed
     or admitted to trading on any national Securities exchange, a Business
     Day.

          (ii) For the purpose of any computation hereunder, the "Current Per
          Share Market Price" of the Preferred Shares shall be determined in
          accordance with the method set forth in Section 11(d)(i). If the
          Preferred Shares are not publicly traded, the "Current Per Share
          Market Price" of the Preferred Shares shall be conclusively deemed to
          be the Current Per Share Market Price of the Common Shares as
          determined pursuant to Section 11(d)(i) (appropriately adjusted to
          reflect any stock split, stock dividend or similar transaction
          occurring after the date hereof), multiplied by one hundred. If
          neither the Common Shares nor the Preferred Shares are publicly held
          or so listed or traded, "Current Per Share Market Price" shall mean
          the fair value per share as determined in good faith by the Board of
          Directors, whose determination shall be described in a statement
          filed with the Rights Agent and shall be binding on the Rights Agent
          and the holders of the Rights.

     (e) No adjustment in the Purchase Price shall be required unless such
     adjustment would require an increase or decrease of at least 1% in the
     Purchase Price; provided, however, that any adjustments which by reason of
     this Section 11(e) are not required to be made shall be carried forward
     and taken into account in any subsequent adjustment. All calculations
     under this Section 11 shall be made to the nearest cent or to the nearest
     one one-millionth of a Preferred Share or one ten-thousandth of any other
     share or security as the case may be. Notwithstanding the first sentence
     of this Section 11(e), any adjustment required by this Section 11 shall be
     made no later than the earlier of (i) three years from the date of the
     transaction which requires such adjustment or (ii) the date of the
     expiration of the right to exercise any Rights.


                                      13
<PAGE>   16


     (f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
     the holder of any Right thereafter exercised shall become entitled to
     receive any shares of capital stock of the Company other than Preferred
     Shares, thereafter the number of such other shares so receivable upon
     exercise of any Right shall be subject to adjustment from time to time in
     a manner and on terms as nearly equivalent as practicable to the
     provisions with respect to the Preferred Shares contained in Section 11(a)
     through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13
     with respect to the Preferred Shares shall apply on like terms to any such
     other shares.

     (g) All Rights originally issued by the Company subsequent to any
     adjustment made to the Purchase Price hereunder shall evidence the right
     to purchase, at the adjusted Purchase Price, the number of one
     one-hundredths of a Preferred Share purchasable from time to time 
     hereunder upon exercise of the Rights, all subject to further adjustment
     as provided herein.

     (h) Unless the Company shall have exercised its election as provided in
     Section 11(i), upon each adjustment of the Purchase Price as a result of
     the calculations made in Sections 11 (b) and (c), each Right outstanding
     immediately prior to the making of such adjustment shall thereafter 
     evidence the right to purchase, at the adjusted Purchase Price, that
     number of one one-hundredths of a Preferred Share (calculated to the
     nearest one one-millionth of a Preferred Share) obtained by (A)
     multiplying (x) the number of one one-hundredths of a share covered by a
     Right immediately prior to this adjustment by (y) the Purchase Price in
     effect immediately prior to such adjustment of the Purchase Price and (B)
     dividing the product so obtained by the Purchase Price in effect
     immediately after such adjustment of the Purchase Price.

     (i) The Company may elect on or after the date of any adjustment of the
     Purchase Price to adjust the number of Rights in substitution for any
     adjustment in the number of one one-hundredths of a Preferred Share
     purchasable upon the exercise of a Right. Each of the Rights outstanding
     after such adjustment of the number of Rights shall be exercisable for the
     number of one one-hundredths of a Preferred Share for which a Right was
     exercisable immediately prior to such adjustment. Each Right held of
     record prior to such adjustment of the number of Rights shall become that
     number of Rights (calculated to the nearest one ten-thousandth) obtained
     by, dividing the Purchase Price in effect immediately prior to adjustment
     of the Purchase Price by the Purchase Price in effect immediately after
     adjustment of the Purchase Price. The Company shall make a public
     announcement of its election to adjust the number of Rights, indicating
     the record date for the adjustment, and, if known at the time, the amount
     of the adjustment to be made. This record date may be the date on which
     the Purchase Price is adjusted or any day thereafter, but, if the Right
     Certificates have been issued, shall be at least 10 days later than the
     date of the public announcement. If Right Certificates have been issued,
     upon each adjustment of the number of Rights pursuant to this Section
     11(i), the Company shall, as promptly as practicable, cause to be
     distributed to holders of record of Right Certificates on such record date
     Right Certificates evidencing, subject to Section 14 hereof, the


                                      14
<PAGE>   17


   
     additional Rights to which such holders shall be entitled as a result of
     such adjustment, or, at the option of the Company, shall cause to be
     distributed to such holders of record in substitution and replacement for
     the Right Certificates held by such holders prior to the date of
     adjustment, and upon surrender thereof, if required by the Company, new
     Right Certificates evidencing all the Rights to which such holders shall
     be entitled after such adjustment. Right Certificates so to be distributed
     shall be issued, executed and countersigned in the manner provided for
     herein and shall be registered in the names of the holders of record of
     Right Certificates on the record date specified in the public
     announcement.
    

     (j) Irrespective of any adjustment or change in the Purchase Price or the
     number of one one-hundredths of a Preferred Share issuable upon the
     exercise of the Rights, the Right Certificates theretofore and thereafter
     issued may continue to express the Purchase Price and the number of one
     one-hundreths of a Preferred Share which were expressed in the initial
     Right Certificates issued hereunder.

   
     (k) Before taking any action that would cause an adjustment reducing the
     Purchase Price below one one-hundredth of the then par value, if any, of
     the Preferred Shares issuable upon exercise of the Rights, the Company
     shall take any corporate action which may, in the opinion of its counsel,
     be necessary in order that the Company may validly and legally issue fully
     paid and nonassessable Preferred Shares at such adjusted Purchase Price.
    

   
     (l) In any case in which this Section 11 shall require that an adjustment
     in the Purchase Price be made effective as of a record date for a specified
     event, the Company may elect to defer until the occurrence of such event
     the issuing to the holder of any Right exercised after such record date of
     the Preferred Shares and other capital stock or securities of the
     Company, if any, issuable upon such exercise over and above the Preferred
     Shares and other capital stock or securities of the Company, if any,
     issuable upon such exercise on the basis of the Purchase Price in effect
     prior to such adjustment; provided, however, that the Company shall
     deliver to such holder a due bill or other appropriate instrument
     evidencing such holder's right to receive such additional shares upon the
     occurrence of the event requiring such adjustment.
    

     (m) Anything in this Section 11 to the contrary notwithstanding, the
     Company shall be entitled to make such reductions in the Purchase Price, in
     addition to those adjustments expressly required by this Section 11, as
     and to the extent that it, in its sole discretion, shall determine to be
     advisable in order that any consolidation or subdivision of the Preferred
     Shares, issuance wholly for cash of any Preferred Shares at less than the
     current market price, issuance wholly for cash of Preferred Shares or
     securities which by their terms are convertible into or exchangeable for
     Preferred Shares, dividends on Preferred Shares payable in Preferred
     Shares or issuance of rights, options or warrants referred to hereinabove
     in Section 11(b), hereafter made by the Company to holders of its
     Preferred Shares shall not be taxable to such stockholders.


                                      15
<PAGE>   18


   
     (n) In the event that at any time after the date of this Agreement and
     prior to the Rights Distribution Date, the Company shall (i) declare or 
     pay any dividend on the Common Shares payable in Common Shares, or (ii)
     effect a subdivision, combination or consolidation of the Common Shares
     (by reclassification or otherwise than by payment of dividends in Common
     Shares) into a greater or lesser number of Common Shares, then in any such
     case (A) the number of one one-hundredths of a Preferred Share purchasable
     after such event upon proper exercise of each Right shall be determined by
     multiplying the number of one one-hundredths of a Preferred Share so
     purchasable immediately prior to such event by a fraction, the numerator
     of which is the number of Common Shares outstanding immediately before
     such event and the denominator of which is the number of Common Shares
     outstanding immediately after such event, and (B) each Common Share
     outstanding immediately after such event shall have issued with respect to
     it that number of Rights which each Common Share outstanding immediately
     prior to such event had issued with respect to it. The adjustments 
     provided for in this Section 11(n) shall be made successively whenever
     such a dividend is declared or paid or such a subdivision, combination or
     consolidation is effected.
    
        
   
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file
with the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof.
    

   
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries (except, in the case of each of (a), (b) and (c) above, where such
other Person is a Crescent Affiliate), then, and in each such case, proper
provision shall be made so that (i) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price multiplied by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of such other Person (including
the Company as successor thereto or as the surviving corporation) as shall
equal the result obtained by (A) multiplying the then current Purchase Price by
the number of one one-hundredths of a Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then 
    


                                      16
<PAGE>   19


Current Per Share Market Price of the Common Shares of such other Person
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter
be deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and 
delivered to the Rights Agent a supplemental agreement so providing. The
Company shall not enter into any transaction of the kind referred to in this
Section 13 if at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights. The
provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.

   
Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not
be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there
shall be paid to the registered holders of the Right Certificates with regard
to which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the Current market value of a whole Right. For
the purposes of this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately prior
to the date on which such fractional Rights would have been otherwise issuable.
The closing price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported on the Nasdaq National Market or such
other system then in use or, if on any such date the Rights are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights selected
by the Board of Directors. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined
in good faith by the Board of Directors shall be used.
    

     (b) The Company shall not be required to issue fractions of Preferred
     Shares (other than fractions which are integral multiples of one
     one-hundredth of a Preferred Share) 


                                      17
<PAGE>   20


     upon exercise of the Rights or to distribute certificates which evidence
     fractional Preferred Shares (other than fractions which are integral
     multiples of one one-hundredth of a Preferred Share). Fractions of
     Preferred Shares in integral multiples of one one-hundredth of a Preferred
     Share may, at the election of the Company, be evidenced by depositary
     receipts, pursuant to an appropriate agreement between the Company and a
     depositary selected by it; provided that such agreement shall provide that
     the holders of such depositary receipts shall have all the rights,
     privileges and preferences to which they are entitled as beneficial owners
     of the Preferred Shares represented by such depositary receipts. In lieu
     of fractional Preferred Shares that are not integral multiples of one
     one-hundredth of a Preferred Share, the Company shall pay to the
     registered holders of Right Certificates at the time such Rights are
     exercised as herein provided an amount in cash equal to the same fraction
     of the Current market value of one Preferred Share. For the purposes of
     this Section 14(b), the Current market value of a Preferred Share shall be
     the closing price of a Preferred Share (as determined pursuant to the
     second sentence of Section 11(d)(i) hereof) for the Trading Day
     immediately prior to the date of such exercise.

     (c) The holder of a Right by the acceptance of the Right expressly waives
     his right to receive any fractional Rights or any fractional shares upon
     exercise of a Right (except as provided above).

   
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Rights Distribution Date, the registered
holders of the Common Shares), and any registered holder of any Right
Certificate (or, prior to the Rights Distribution Date, of the Common Shares),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Rights Distribution Date, of the Common Shares),
may, in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of his right to exercise the Rights evidenced by such
Right Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
    

Section 16. Agreement of Right Holders. Every holder of a Right, by accepting
the same, consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:

     (a) prior to the Rights Distribution Date, the Rights will be transferable
     only in connection with the transfer of the Common Shares;


                                      18
<PAGE>   21


     (b) after the Rights Distribution Date, the Right Certificates are
     transferable only on the registry books of the Rights Agent if surrendered
     at the principal office of the Rights Agent, duly endorsed or accompanied
     by a proper instrument of transfer; and

     (c) the Company and the Rights Agent may deem and treat the person in
     whose name the Right Certificate (or, prior to the Rights Distribution
     Date, the associated Common Shares Certificate) is registered as the
     absolute owner thereof and of the Rights evidenced thereby
     (notwithstanding any notations of ownership or writing on the Right
     Certificate or the associated Common Shares Certificate made by anyone 
     other than the Company or the Rights Agent) for all purposes whatsoever,
     and neither the Company nor the Rights Agent shall be affected by any
     notice to the contrary.

Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.

   
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services tendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
arid counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises. The
Rights Agent shall be protected and shall incur no liability for, or in respect
of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
    

Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may 


                                      19
<PAGE>   22


be consolidated, or any corporation resulting from any merger or consolidation
to which the Rights Agent or any successor Rights Agent shall be a party, or
any corporation succeeding to the stock transfer or corporate trust powers of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, and such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and, in case at
that time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent, and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement. In case at any time
the name of the Rights Agent shall be changed and at such time any of the Right
Certificates shall have been countersigned but not delivered, the Rights Agent
may adopt the countersignature under its prior name and deliver Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name, and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, shall be bound:

     (a) The Rights Agent may consult with legal counsel (who may be legal
     counsel for the Company), and the opinion of such counsel shall be full
     and complete authorization and protection to the Rights Agent as to any
     action taken or omitted by it in good faith and in accordance with such
     opinion.

     (b) Whenever in the performance of its duties under this Agreement the
     Rights Agent shall deem it necessary or desirable that any fact or matter
     be proved or established by the Company prior to taking or suffering any
     Section hereunder, such fact or matter (unless other evidence in respect
     thereof be herein specifically prescribed) may be deemed to be
     conclusively proved and established by a certificate signed by any one of
     the Chairman of the Board, the Chief Executive Officer, the President, any
     Vice President, the Treasurer or the Secretary of the Company and
     delivered to the Rights Agent and such certificate shall be full
     authorization to the Rights Agent for any action taken or suffered in good
     faith by it under the provisions of this Agreement in reliance upon such
     certificate.

   
     (c) The Rights Agent shall be liable hereunder to the Company and any
     other Person only for its own gross negligence, bad faith or willful 
     misconduct.
    

     (d) The Rights Agent shall not be liable for or by reason of any of the
     statements of fact or recitals contained in this Agreement or in the Right
     Certificates (except its 


                                      20
<PAGE>   23


     countersignature thereof) or be required to verify the same, but all such
     statements and recitals are and shall be deemed to have been made by the
     Company only.

   
     (e) The Rights Agent shall not be under any responsibility in respect of
     the validity of this Agreement or the execution and delivery hereof
     (except the due execution hereof by the Rights Agent) or in respect of the
     validity or execution of any Right Certificate (except its
     countersignature thereof; nor shall it be responsible for any breach by
     the Company of any covenant or condition contained in this Agreement or in
     any Right Certificate, nor shall it be responsible for any change in the
     exercisability of the Rights (including the Rights becoming void pursuant
     to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
     (including the manner, method or amount thereof) provided for in Section
     3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that
     would require any such change or adjustment (except with respect to the
     exercise of Rights evidenced by Right Certificates after actual notice
     that such change or adjustment is required); nor shall it by any act
     hereunder be deemed to make any representation or warranty as to the
     authorization or reservation of any Preferred Shares to be issued pursuant
     to this Agreement or any Right Certificate or as to whether any Preferred
     Shares will, when issued, be validly authorized and issued, fully paid and
     nonassessable.
    

     (f) The Company agrees that it will perform, execute, acknowledge and
     deliver or cause to be performed, executed, acknowledged and delivered all
     such further and other acts, instruments and assurances as may reasonably
     be required by the Rights Agent for the carrying out or performing by the
     Rights Agent of the provisions of this Agreement.

   
     (g) The Rights Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     any one of the Chairman of the Board, the Chief Executive Officer, the
     President, any Vice President, the Secretary or the Treasurer of the
     Company, and to apply to such officers for advice or instructions in
     connection with its duties, and it shall not be liable for any action
     taken or suffered by it in good faith in accordance with instructions of
     any such officer or for any delay in acting while waiting for those
     instructions.
    

     (h) The Rights Agent and any stockholder, director, officer or employee of
     the Rights Agent may buy, sell or deal in any of the Rights or other
     securities of the Company or become pecuniarily interested in any
     transaction in which the Company may be interested, or contract with or
     lend money to the Company or otherwise act as fully and freely as though
     it were not Rights Agent under this Agreement. Nothing herein shall
     preclude the Rights Agent from acting in any other capacity for the
     Company or for any other legal entity.

     (i) The Rights Agent may execute and exercise any of the rights or powers
     hereby vested in it or perform any duty hereunder either itself or by or
     through its attorneys or agents, and the Rights Agent shall not be
     answerable or accountable for any act, default, neglect or misconduct of
     any such attorneys or agents or for any loss to the Company


                                      21
<PAGE>   24


     resulting from any such act, default, neglect or misconduct, provided
     reasonable care was exercised in the selection and continued employment
     thereof.

   
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company and to each transfer agent of the
Common Shares or Preferred Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. The Company may remove
the Rights Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may be, and
to each transfer agent of the Common Shares or Preferred Shares by registered
or certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Right Certificate (who shall, with such notice, submit
his Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any appointment of a
successor Rights Agent by such a court shall be subject to the prior approval
of the Company, which approval shall not be unreasonably withheld. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named, as
Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
or Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
    

Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by the Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.

Section 23. Redemption. (a) The Board of Directors may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or 
similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights by 


                                      22
<PAGE>   25


the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors, in its sole discretion, may
establish.

     (b) Immediately upon the action of the Board of Directors ordering the
     redemption of the Rights pursuant to paragraph (a) of this Section 23, and
     without any further action and without any notice, the right to exercise
     the Rights will terminate and the only right thereafter of the holders of
     Rights shall be to receive the Redemption Price. The Company shall
     promptly give public notice of any such redemption; provided, however,
     that the failure to give, or any defect in, any such notice shall not
     affect the validity of such redemption. Within 10 days after such action
     of the Board of Directors ordering the redemption of the Rights, the
     Company shall mail a notice of redemption to all the holders of the then
     outstanding Rights at their last addresses as they appear upon the
     registry books of the Rights Agent or, prior to the Rights Distribution
     Date, on the registry books of the transfer agent for the Common Shares.
     Any notice which is mailed in the manner herein provided shall be deemed
     given, whether or not the holder receives the notice. Each such notice of
     redemption will state the method by which the payment of the Redemption
     Price will be made. Neither the Company nor any of its Affiliates or
     Associates may redeem, acquire or purchase for value any Rights at any
     time in any manner other than that specifically set forth in this Section
     23 or in Section 24 hereof, and other than in connection with the purchase
     of Common Shares prior to the Rights Distribution Date.

   
Section 24. Exchange. (a) The Board of Directors may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan or, any
Crescent Affiliate), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
    

     (b) Immediately upon the action of the Board of Directors ordering the
     exchange of any Rights pursuant to paragraph (a) of this Section 24 and
     without any further action and without any notice, the right to exercise
     such Rights shall terminate and the only right thereafter of a holder of
     such Rights shall be to receive that number of Common Shares equal to the
     number of such Rights held by such holder multiplied by the Exchange
     Ratio. The Company shall promptly give public notice of any such exchange;
     provided, however, that the failure to give, or any defect in, such notice
     shall not affect the validity of such exchange. The Company promptly shall
     mail a notice of any such exchange to all of the holders of such Rights at
     their last addresses as they appear upon the registry books 


                                      23
<PAGE>   26


     of the Rights Agent. Any notice which is mailed in the manner herein
     provided shall be deemed given, whether or not the holder receives the
     notice. Each such notice of exchange will state the method by which the
     exchange of the Common Shares for Rights will be effected and, in the
     event of any partial exchange, the number of Rights which will be
     exchanged. Any partial exchange shall be effected pro rata based on the
     number of Rights (other than Rights which have become void pursuant to the
     provisions of Section 11(a)(ii) hereof) held by each holder of Rights.

     (c) In the event that there shall not be sufficient Common Shares issued
     but not outstanding or authorized but unissued to permit any exchange of
     Rights as contemplated in accordance with this Section 24, the Company
     shall take all such action a may be necessary to authorize additional
     Common Shares for issuance upon exchange of the Rights. In the event the
     Company shall, after good faith effort, be unable to take all such action
     as may be necessary to authorize such additional Common Shares, the
     Company shall substitute, for each Common Share that would otherwise be
     issuable upon exchange of a Right, a number of Preferred Shares or
     fraction thereof such that the Current Per Share Market Price of one
     Preferred Share multiplied by such number or fraction is equal to the
     Current Per Share Market Price of one Common Share as of the date of
     issuance of such Preferred Shares or fraction thereof.

     (d) The Company shall not be required to issue fractions of Common Shares
     or to distribute certificates which evidence fractional Common Shares. In
     lieu of such fractional Common Shares, the Company shall pay to the
     registered holders of the Right Certificates with regard to which such
     fractional Common Shares would otherwise be issuable an amount in cash
     equal to the same fraction of the current market value of a whole Common
     Share. For the purposes of this paragraph (d), the current market value of
     a whole Common Share shall be the closing price of a Common Share (as
     determined pursuant to the second sentence of Section 11(d)(i) hereof) for
     the Trading Day immediately prior to the date of exchange pursuant to this
     Section 24.

Section 25. Notice of Events. (a) In case the Company shall propose (i) to pay
any dividend payable in stock of any class to the holders of its Preferred
Shares or to make any other distribution to the holders of its Preferred Shares
(other than a regular quarterly cash dividend), (ii) to offer to the holders of
its Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a 


                                      24
<PAGE>   27


notice of such proposed action, which shall specify the record date for the
purposes of such Stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.

     (b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
     then the Company shall as soon as practicable thereafter give to each
     holder of a Right Certificate, in accordance with Section 26 hereof, a
     notice of the occurrence of such event, which notice shall describe such
     event and the consequences of such event to holders of Rights under
     Section 11(a)(ii) hereof.

Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:

   
Crescent Operating, Inc.
777 Main Street
Fort Worth, Texas 76102
Attention: Corporate Secretary
    

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
it sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:

   
BankBoston, N.A.
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
    

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent.

   
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions with 
    


                                      25
<PAGE>   28


respect to the Rights which the Company may deem necessary or desirable, any
such supplement or amendment to be evidenced by a writing signed by the Company
and the Rights Agent; provided, however, that from and after such time as any
Person becomes an Acquiring Person, this Agreement shall not be amended in any
manner which would adversely affect the interests of the holders of Rights.

Section 28. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.

Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Rights
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement, but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Rights Distribution Date, the
Common Shares).

Section 30. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.

Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.

Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

Section 33. Descriptive Headings. Descriptive headings of the several Sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.


                                      26
<PAGE>   29


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and attested, all as of the day and year first above written.




Attest:                                CRESCENT OPERATING, INC.


By                                     By

     Name:                                Name:
     Title:                               Title:

   
Attest:                                BANKBOSTON, N.A.
    


By                                     By

     Name:                                Name:
     Title:                               Title:



                                      27
<PAGE>   30



                                   Exhibit A

                                      FORM

                                       of

                          CERTIFICATE OF DESIGNATIONS

                                       of

   
                        SERIES A JUNIOR PREFERRED STOCK
    

                                       of

                            CRESCENT OPERATING, INC.

       (Pursuant to Section 151 of the Delaware General Corporation Law)


   
Crescent Operating, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
unanimous written consent of the Board of Directors of the Corporation as of 
June 3, 1997:
    

RESOLVED, that pursuant to the authority granted to and vested in the Board of
Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share, of the Corporation (the "Preferred Stock") and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:

   
                        Series A Junior Preferred Stock:
    

   
Section 1.  Designation and Amount. The shares of such series shall be 
designated as "Series A Junior Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock
shall be 225,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
    


                                      28
<PAGE>   31


Section 2. Dividends and Distributions.

     (a) Subject to the rights of the holders of any shares of any series of
     Preferred Stock (or any similar stock) ranking prior and superior to the
     Series A Preferred Stock with respect to dividends, the holders of shares
     of Series A Preferred Stock, in preference to the holders of Common Stock,
     par value $.01 per share (the "Common Stock"), of the Corporation, and of
     any other junior stock, shall be entitled to receive, when, as and if
     declared by the Board of Directors out of funds legally available for the
     purpose, quarterly dividends payable in cash on the first day of March,
     June, September and December in each year (each such date being referred
     to herein as a "Quarterly Dividend Payment Date"), commencing on the first
     Quarterly Dividend Payment Date after the first issuance of a share or
     fraction of a share of Series A Preferred Stock, in an amount per share
     (rounded to the nearest cent) equal to the greater of (i) $1 or (ii)
     subject to the provision for adjustment hereinafter set forth, 100 times
     the aggregate per share amount of all cash dividends, and 100 times the
     aggregate per share amount (payable in kind) of all non-cash dividends or
     other distributions, other than a dividend payable in shares of Common
     Stock or a subdivision of the outstanding shares of Common Stock (by
     reclassification or otherwise), declared on the Common Stock since the
     immediately preceding Quarterly Dividend Payment Date or, with respect to
     the first Quarterly Dividend Payment Date, since the first issuance of any
     share or fraction of a share of Series A Preferred Stock. In the event the
     Corporation shall at any time declare or pay any dividend on the Common
     Stock payable in shares of Common Stock, or effect a subdivision or
     combination or consolidation of the outstanding shares of Common Stock (by
     reclassification or otherwise than by payment of a dividend in shares of
     Common Stock) into a greater or lesser number of shares of Common Stock,
     then in each such case the amount to which holders of shares of Series A
     Preferred Stock were entitled immediately prior to such event under clause
     (ii) of the preceding sentence shall be adjusted by multiplying such
     amount by a fraction, the numerator of which is the number of shares of
     Common Stock outstanding immediately after such event and the denominator
     of which is the number of shares of Common Stock that were outstanding
     immediately prior to such event.

   
     (b) The Corporation shall declare a dividend or distribution on the Series
     A Preferred Stock as provided in paragraph (a) of this Section immediately
     after it declares a dividend or distribution on the Common Stock (other
     than a dividend payable in shares of Common Stock); provided that, in the
     event no dividend or distribution shall have been declared on the Common
     Stock during the period between any Quarterly Dividend Payment Date and
     the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per
     share on the Series A Preferred Stock shall nevertheless be payable on
     such subsequent Quarterly Dividend Payment Date.
    

     (c) Dividends shall begin to accrue and be cumulative on outstanding
     shares of Series A Preferred Stock from the Quarterly Dividend Payment
     Date next preceding the date of issue of such shares, unless the date of
     issue of such shares is prior to the record date for 


                                      29
<PAGE>   32


     the first Quarterly Dividend Payment Date, in which case dividends on such
     shares shall begin to accrue from the date of issue of such shares, or
     unless the date of issue is a Quarterly Dividend Payment Date or is a date
     after the record date for the determination of holders of shares of Series
     A Preferred Stock entitled to receive a quarterly dividend and before such
     Quarterly Dividend Payment Date, in either of which events such dividends
     shall begin to accrue and be cumulative from such Quarterly Dividend
     Payment Date. Accrued but unpaid dividends shall not bear interest.
     Dividends paid on the shares of Series A Preferred Stock in an amount less
     than the total amount of such dividends at the time accrued and payable on
     such shares shall be allocated pro rata on a share-by-share basis among
     all such shares at the time outstanding. The Board of Directors may fix a
     record date for the determination of holders of shares of Series A
     Preferred Stock entitled to receive payment of a dividend or distribution
     declared thereon, which record date shall be not more than 60 days prior
     to the date fixed for the payment thereof.

Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

     (a) Subject to the provision for adjustment hereinafter set forth, each
     share of Series A Preferred Stock shall entitle the holder thereof to 100
     votes on all matters submitted to a vote of the stockholders of the
     Corporation. In the event the Corporation shall at any time declare or pay
     any dividend on the Common Stock payable in shares of Common Stock, or
     effect a subdivision or combination or consolidation of the outstanding
     shares of Common Stock (by reclassification or otherwise than by payment
     of a dividend in shares of Common Stock) into a greater or lesser number
     of shares of Common Stock, then in each such case the number of votes per
     share to which holders of shares of Series A Preferred Stock were entitled
     immediately prior to such event shall be adjusted by multiplying such
     number by a fraction, the numerator of which is the number of shares of
     Common Stock outstanding immediately after such event and the denominator
     of which is the number of shares of Common Stock that were outstanding
     immediately prior to such event.

     (b) Except as otherwise provided herein, in any other Certificate of
     Designations creating a series of Preferred Stock or any similar stock, or
     by law, the holders of shares of Series A Preferred Stock and the holders
     of shares of Common Stock and any other capital stock of the Corporation
     having general voting rights shall vote together as one class on all
     matters submitted to a vote of stockholders of the Corporation.

     (c) Except as set forth herein, or as otherwise provided by law, holders
     of Series A Preferred Stock shall have no special voting rights and their
     consent shall not be required (except to the extent they are entitled to
     vote with holders of Common Stock as set forth herein) for taking any
     corporate action.


                                      30
<PAGE>   33


Section 4. Certain Restrictions.

     (a) Whenever quarterly dividends or other dividends or distributions
     payable on the Series A Preferred Stock as provided in Section 2 are in
     arrears, thereafter and until all accrued and unpaid dividends and
     distributions, whether or not declared, on shares of Series A Preferred
     Stock outstanding shall have been paid in full, the Corporation shall not:

          (i)  declare or pay dividends, or make any other distributions, on
          any shares of stock ranking junior (either as to dividends or upon
          liquidation, dissolution or winding up) to the Series A Preferred
          Stock;

          (ii) declare or pay dividends, or make any other distributions, on
          any shares of stock ranking on a parity (either as to dividends or
          upon liquidation, dissolution or winding up) with the Series A
          Preferred Stock, except dividends paid ratably on the Series A
          Preferred Stock and all such parity stock on which dividends are
          payable or in arrears in proportion to the total amounts to which the
          holders of all such shares are then entitled;

          (iii) redeem or purchase or otherwise acquire for consideration
          shares of any stock ranking junior (either as to dividends or upon
          liquidation, dissolution or winding up) to the Series A Preferred
          Stock, provided that the Corporation may at any time redeem, purchase
          or otherwise acquire shares of any such junior stock in exchange for
          shares of any stock of the Corporation ranking junior (either as to
          dividends or upon dissolution, liquidation or winding up) to the
          Series A Preferred Stock; or

   
          (iv) redeem or purchase or otherwise acquire for consideration any
          shares of Series A Preferred Stock, or any shares of stock ranking on
          a parity with the Series A Preferred Stock, except in accordance with
          a purchase offer made in writing or by publication (as determined by
          the Board of Directors) to all holders of such shares upon such terms
          as the Board of Directors, after consideration of the respective
          annual dividend rates and other relative rights and preferences of
          the respective series and classes, shall determine in good faith will
          result in fair and equitable treatment among the respective series or
          classes.
    

     (b) The Corporation shall not permit any subsidiary of the Corporation to
     purchase or otherwise acquire for consideration any shares of stock of the
     Corporation unless the Corporation could, under paragraph (a) of this
     Section 4, purchase or otherwise acquire such shares at such time and in
     such manner.

   
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
    


                                      31
<PAGE>   34


subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.

   
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock shall
have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series A Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (2) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the aggregate amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
    

Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the


                                      32
<PAGE>   35


denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

Section 8. No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.

Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.

Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the Holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.


                                      33
<PAGE>   36


IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of
the Corporation by its _______________________ and attested by its
_________________ this ____ day of _________________, 1997.








Attest:









                                      34
<PAGE>   37

                                   Exhibit B

                           Form of Right Certificate

Certificate No. R-
                            _________________ Rights

               NOT EXERCISABLE AFTER _____ __, 2007 OR EARLIER IF
                 REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE
                 SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
            EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

                               Right Certificate

                            CRESCENT OPERATING, INC.

This certifies that ______________ or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entities the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _____ __, 1997 (the "Rights Agreement"), between
Crescent Operating, Inc., a Delaware corporation (the "Company"), and The First
National Bank Of Boston (the "Rights Agent"), to purchase from the Company at
any time after the Rights Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M., New York time, on _____ __, 2007 at
the principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Shares"), at a purchase price of $__ per one
one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and
the number of one one-hundredths of a Preferred Share which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of _____ __, 1997, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.

This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.


                                      35
<PAGE>   38


This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.

   
Subject to the provisions of the Rights Agreement, the Rights evidenced by this
Right Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares or shares of the Company's Common Stock.
    

No fractional Preferred Shares will be issued upon the exercise of any Right or
Rights evidenced hereby (other than fractions which are integral multiples of
one one-hundredth of a Preferred Share, which may, at the election of the
Company, be evidenced by depositary receipts), but, in lieu thereof, a cash
payment will be made, as provided in the Rights Agreement.

No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

This Right Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.


                                      36
<PAGE>   39


WITNESS the facsimile signature of the proper officers of the Company and its
corporate seal. Dated as of ________________________.


ATTEST:                             CRESCENT OPERATING, INC.


By:                                 By:

Name:                               Name:

Title:                              Title:


   
Countersigned:                      BANKBOSTON, N.A.
    



                                    By:

                                    Name:

                                    Title:


                                      37
<PAGE>   40


                   Form of Reverse Side of Right Certificate

                               FORM OF ASSIGNMENT

                  (To be executed by the registered holder if
            such holder desires to transfer the Right Certificate.)


FOR VALUE RECEIVED __________________  hereby sells, assigns and transfers unto


________________________________________________________________________________

(Please print name and address of transferee)


this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Right certificate on the books of the within-named Company, with full
power of substitution.


Dated:  ____________________________


                                   Signature

Signature Guaranteed:

Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor
institution, as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934.

The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).


                                   Signature







                                      38
<PAGE>   41



             Form of Reverse Side of Right Certificate -- continued

                          FORM OF ELECTION TO PURCHASE

                 (To be executed if holder desires to exercise
                 Rights represented by the Right Certificate.)


To:      CRESCENT OPERATING, INC.


The undersigned hereby irrevocably elects to exercise ______________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:

Please insert social security or other identifying number


                        (Please print name and address)


If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security or other identifying number


                        (Please print name and address)


Dated:  ________________________

                                   Signature

Signature Guaranteed:

Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor
institution, as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934.

The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).


                                      39
<PAGE>   42


                                   Signature


                                     NOTICE


The signature in the Form of Assignment or Form of Election to Purchase, as the
case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any
change whatsoever.

In the event the certification set forth above in the Form of Assignment or the
Form of Election to Purchase, as the case may be, is not completed, the Company
and the Rights Agent will deem the beneficial owner of the Rights evidenced by
this Right Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and such Assignment or Election to
Purchase will not be honored.


                                      40
<PAGE>   43


                                   Exhibit C
   
                                   FORM OF
                          SUMMARY OF RIGHT TO PURCHASE
                                PREFERRED SHARES
    

   
On _____ __, 1997, the Board of Directors of Crescent Operating, Inc. (the
"Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share,
of the Company (the "Common Shares"). The dividend is payable on _____ __, 1997
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth
of a share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Shares") at a price of $5 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and The First National
Bank Of Boston, as Rights Agent (the "Rights Agent").
    

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 Common
Shares or (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors of the Company prior to such time as any
person or group of affiliated persons 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 the outstanding Common Shares
(the earlier of such dates being the "Rights Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
Outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto. The Rights Agreement contains
exceptions from its operating provision for Crescent and its affiliates and
associates.

The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), new Common Share certificates
issued after the Record Date upon transfer or new issuance of Common Shares
will contain a notation incorporating the Rights Agreement by reference. Until
the Rights Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificates.
As soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Rights Distribution Date and such separate Right Certificates alone will
evidence the Rights.


                                      41
<PAGE>   44


   
The Rights are not exercisable until the Rights Distribution Date. The Rights
will expire on the date which is the tenth anniversary of the Record Date
(the "Final Expiration Date"), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed or exchanged by the Company, in each
case, as described below.
    

The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are 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
Preferred Shares; (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares; or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Preferred Shares) or of
subscription rights or warrants (other than those referred to above).

The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such
case, prior to the Rights Distribution Date.

Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each
Preferred Share will have 100 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in
which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.

Because of the nature of the Preferred Shares' dividend, liquidation and voting
rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.

In the event that the Company 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 has become 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. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, 


                                      42
<PAGE>   45


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
Common Shares having a market value of two times the exercise price of the
Right.

At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one
one-hundredth of a Preferred Share, per Right (subject to adjustment).

With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.

No fractional Preferred Shares will be issued (other than fractions which are
integral multiples of one one-hundredth of a 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
Preferred Shares on the last trading day prior to the date of exercise.

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 then
Outstanding Common Shares, the Board of Directors of the Company 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 with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders
of Rights will be to receive the Redemption Price.

The terms of the Rights may be amended by the Board of Directors of the Company
without the consent of the holders of the Rights, except 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 the Company, including, without limitations the right to vote
or to receive dividends.

   
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form S-1 (Registration
No. 333-25223). A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
    


                                      43


<PAGE>   1
   
                                  EXHIBIT 10.2
    

   
                            INTERCOMPANY AGREEMENT
    


     THIS INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the 3rd day of June, 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:

                    David Dean
                    777 Main Street
                    Fort Worth, Texas

                    Facsimile: (817) 878-0429

   
               Crescent Operating, Inc.
               777 Main Street
               Fort Worth, Texas  76102
               Facsimile:  817-878-0429
               Attention: Gerald W. Haddock and Jeffrey L. Stevens
    

     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: Gerald W. Haddock

                                         Title: President and 
                                                Chief Executive Officer
                                               


                                      CRESCENT OPERATING, INC., a Delaware 
                                      corporation



                                      By: 


                                         Name: Gerald W. Haddock
                                               

                                         Title: President and 
                                                Chief Executive Officer
 


     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: Gerald W. Haddock

                                          Title: President and
                                                 Chief Executive Officer


                                     -10-

<PAGE>   1
                                                                    EXHIBIT 10.3

                              AMENDED AND RESTATED

                              OPERATING AGREEMENT

                                       OF

                     CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC


       This AMENDED AND RESTATED OPERATING AGREEMENT (this "AGREEMENT"), dated
as of June 16, 1997 is entered into by and between Charter Behavioral Health
Systems, Inc., a Delaware corporation ("CHARTER INC.") and a wholly owned
subsidiary of Magellan Health Services, Inc. ("MAGELLAN"), a Delaware
corporation, and Crescent Operating, Inc. ("CRESCENT OPERATING"), a Delaware
corporation and a designee of Crescent Real Estate Equities Limited Partnership
("CRESCENT"), a Delaware limited partnership (Charter Inc. and Crescent
Operating being referred to individually as a "MEMBER" and collectively as the
"MEMBERS"), and Magellan (who is party solely with respect to the agreements in
Section 3.2(e) of this Agreement), and shall be effective as of the 17 day of
June, 1997 (the "EFFECTIVE DATE").

                              W I T N E S S E T H:

       WHEREAS, Charter Inc. 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 29, 1997, as amended (the "REAL
ESTATE PURCHASE AND SALE AGREEMENT"), pursuant to which Magellan has agreed to
cause Charter Inc. and certain subsidiaries of Charter Inc. to sell to Crescent
or its designated affiliate ("CRESCENT AFFILIATE") 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 Inc.
and used in the operation of Charter Inc.'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 Affiliate and Charter
Behavioral Health Systems, LLC (the "COMPANY") shall enter into a master lease
(the "FACILITIES LEASE"), pursuant to which Crescent Affiliate shall lease the
Purchased Facilities and certain other applicable property (collectively, the
"FACILITIES") to the Company;

       WHEREAS, Magellan, Crescent Operating and the Company are parties to that
certain Contribution Agreement, dated of even date herewith (the "CONTRIBUTION
AGREEMENT"), pursuant to which, among other things, Magellan agreed that certain
of its subsidiaries ("CONTRIBUTING SUBSIDIARIES") would contribute assets (the
"CONTRIBUTION ASSETS") to the Company in exchange for the grant of a membership
interest in the Company, and Crescent Operating agreed to contribute cash to the
Company in exchange for a membership interest in the Company;

        WHEREAS, in order to facilitate the transactions contemplated by the
Real Estate Purchase and Sale Agreement, Magellan and Charter Inc. formed the
Company pursuant to a Certificate of Formation filed with the Secretary of
State of the State of Delaware on March 14, 1997 and entered into an Operating
Agreement with respect to the Company pursuant to which Magellan owned a 99%
membership interest in the Company and Charter Inc. owned a 1% membership
interest in the Company.

        WHEREAS, prior to the date hereof, Magellan made a capital contribution
of a 1% interest in the Company to Magellan Executive Corporation ("MEC");

        WHEREAS, prior to the date hereof, Magellan made a capital contribution
of a 98% interest in the Company to Charter, Inc.;

        WHEREAS, immediately prior to the execution of this Agreement, the
Contributing Subsidiaries contributed the Contributed Assets in exchange for a
membership interest in the Company, which in the aggregate and together with
the membership interest of Charter Inc. and MEC, constituted a 50% membership
interest in the Company;

        WHEREAS, immediately prior to the execution of this Agreement, each of
the Contributing Subsidiaries and MEC assigned their membership interest in the
Company to Charter Inc. by execution of the Assignment of Limited Liability
Company Interest and Amendment to Limited Liability Company Agreement of
Charter Behavioral Health Systems, LLC, dated the date hereof;

        WHEREAS, contemporaneously with the execution of this Agreement,
Crescent Operating is contributing $5 million cash to the Company in exchange
for a 50% membership interest in the Company;

        WHEREAS, as a result of the foregoing Crescent Operating has a 50%
membership interest in the Company and Charter Inc. has a 50% membership
interest in the Company; and

       WHEREAS, the Members desire to operate and maintain the limited
liability company known as Charter Behavioral Health Systems, LLC, as formed
under the laws of the
<PAGE>   2
                                                                               2

State of Delaware as March 14, 1997, which shall operate the Facilities (as
hereafter defined), 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 good and valuable consideration, the receipt and 
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
and restate the Company's Operating Agreement, 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, limited liability company, 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 Amended and Restated 
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

       "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 DIRECTOR" means a Director designated by Charter Inc. in
accordance with Section 8.1 hereof.

       "CHARTER INC." has the meaning specified in the introductory statement. 

       "CHIEF EXECUTIVE OFFICERS"  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.

       "COI WARRANT AGREEMENT" means the Warrant Agreement dated the date
hereof between Crescent Operating and Magellan pursuant to which Crescent
Operating is issuing warrants to Magellan.

       "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.

       "CONTRIBUTING SUBSIDIARIES" has the meaning specified in the
introductory statement.

       ""CONTRIBUTING AGREEMENT" has the meaning specified in the recitals.

       "CRESCENT"  has the meaning specified in the introductory statement.

       "CRESCENT DIRECTOR"  means a Director designated by Crescent Operating in
accordance with Section 8.1 hereof.

       "CRESCENT OPERATING" has the meaning specified in the introductory 
statement.

       "DEADLOCK"  has the meaning specified in Section 15.1 hereof.

       "DEBT"  of a Person means (i) 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 (0),
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 June ___, 1997, between Crescent Affiliate, 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 Affiliate, 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
June ___, 1997 among Magellan, through its wholly-owned subsidiary, Charter
Franchise Services, LLC ("CFS") (Magellan and CFS, collectively "Franchisor")
and the Company and any amendment or renewal thereof and (ii) any Franchise
Agreement entered into between Franchisor and the Company or its Affiliates.

       "FRANCHISOR" means, collectively, Magellan and CFS.

       "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

       "MAJOR DECISION"  has the meaning specified in Section 8.2 hereof.

       "MEC" has the meaning specified in introductory statement.

       "MEMBER"  means Crescent Operating, Charter Inc. 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.

       "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.

       "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 Contribution Agreement, the Facilities Lease, the Franchise
Agreement, the Warrant Agreement, the COI Warrant Agreement, that certain
Subordination Agreement, dated of even date herewith, among Magellan, CFS, the
Company, and Crescent Real Estate Funding VII, L.P. 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, collectively, that certain Warrant 
Agreement, dated January 29, 1997 between Magellan and Crescent, as amended,
and that certain Warrant Agreement, dated of even date herewith, between
Magellan and Crescent Operating.
<PAGE>   13
                                                                              13



                                   SECTION 2.

                                  THE COMPANY

       2.1    FORMATION.

       The Company was formed pursuant to 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, 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 is 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 Corporation Service Company or any successor as
appointed by the Governing Board in accordance with the Act.  The address for
the registered agent shall be:

              Corporation Service Company
              1013 Centre Road
              Wilmington, Delaware 19805-1297

       (c)    The initial registered office of the Company in the State of
Delaware is:

              Charter Behavioral Health Systems, LLC
              c/o Corporation Service Company
              1013 Centre Road 
              Wilmington, Delaware 19805-1297

       The Company may maintain other offices, as determined by the Governing
Board.

       (d)    The principal place of business of Charter Inc. is:

              Charter Behavioral Health Systems, Inc.
              3414 Peachtree Road, N.E., Suite 1400
              Atlanta, Georgia 30326
              Attention: General Counsel

       (e)    The principal place of business of Crescent Operating is:

              Crescent Operating, Inc.
              777 Main Street
              Suite 2100
              Fort Worth, Texas  76102
              Attention: Gerald W. Haddock

       2.5    TERM.

       The term of the Company commenced on the date the Certificate was
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.
<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, Charter Inc. (and its affiliates) and Crescent
Operating have each made 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>
 Charter Inc.           Property and assumed                                
                       obligations described                             
                        in Sections 2.1 and
                            2.3 of the
                       Contribution Agreement   $5.0 million            50.0%
                                                                     
 Crescent Operating          Cash               $5.0 million            50.0%
</TABLE>
<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 Charter Inc. and Crescent Operating 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 Charter Inc. and Crescent Operating shall agree to loan
(either directly or through an Affiliate) 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 notes (the "MEMBER NOTES"), one to Charter Inc. and one to
Crescent Operating, as security for each such Member Commitment at the time of
any loan pursuant to a Member Commitment (the form of the note is attached as
Exhibit D). Magellan, in its sole discretion, shall have the right to require
the Company, 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 Charter Inc. from its Member Commitment and 50% by Crescent Operating from
its Member Commitment. Magellan agrees to provide funding to Charter Inc. if
required for Charter Inc. to fund 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 the Company shall have the right to require a Member Advance from Crescent
Operating unless Charter Inc. is required to make a Member Advance in the same
amount as that required for Crescent Operating.  Until the Company secures a
Senior Facility in an amount of at least $55 million supported by the Company
without a guarantee from Crescent Operating, payments under any Member Advances
which are required to be made to Charter Inc. shall be subordinated to payments
under any Member Advances which are required to be made to Crescent Operating.
If either Charter Inc. or Crescent Operating 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 Charter Inc. 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 Charter Inc., 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 CHARTER INC.

       Charter Inc. represents and warrants to Crescent Operating as of the
date hereof as follows:

       4.1    ORGANIZATION AND AUTHORITY OF CHARTER INC.

       Charter Inc. 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 Charter Inc., and (assuming due execution and
delivery by Crescent Operating) constitutes the legal, valid and binding
obligation of Charter Inc. enforceable against Charter Inc. 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 Charter Inc. of this Agreement
does not and will not (i) violate or conflict with the certificate of
incorporation or bylaws of Charter Inc., (ii) conflict with or violate any law,
rule, regulations, order, writ, judgment, injunction, decree, determination or
award applicable to Charter Inc. 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 Charter Inc. pursuant to, any note, bond, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
relating to such assets or properties to which Charter Inc. 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 Charter Inc. or the Company.

4.3    CONSENTS AND APPROVALS.

       Except as set forth on Schedule 4.3, the execution and delivery by
Charter Inc. of this Agreement does not and will not, and the performance by
Charter Inc. 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. Charter Inc. is in compliance in all
material respects with all laws and regulations of all governmental or
guasi-governmental authorities having jurisdiction over the business of Charter
Inc.


                                   SECTION 5.

                 REPRESENTATIONS AND WARRANTIES OF CRESCENT OPERATING

       Crescent Operating represents and warrants to Charter Inc. as of the
date hereof as follows:

       5.1    ORGANIZATION AND AUTHORITY OF CRESCENT OPERATING.

       Crescent Operating 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 Crescent Operating and
(assuming due execution and delivery by Charter Inc.) constitutes its legal,
valid and binding obligation enforceable against Crescent Operating 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 Crescent Operating of this
Agreement does not and will not (i) violate or conflict with the organizational
documents of Crescent Operating, (ii) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to Crescent Operating 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 Crescent Operating pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument relating to such assets or properties to
which Crescent Operating 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 Crescent Operating 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 Crescent Operating does not and will not, and the performance of
this Agreement by Crescent Operating 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.  Crescent Operating 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
Crescent Operating. Crescent Operating has no knowledge of material violations
of laws or regulations relating to the business of Crescent Operating and no
written notice of any material violation of any such law, regulation or
ordinance has been received by Crescent Operating 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 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, Charter Inc. hereby
designates the individuals set forth in Items (1) through (2) as Charter
Directors and Crescent Operating 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.  Steve Davis                         3414 Peachtree Road, N.E., Suite 1400
                                         Atlanta, GA 30326
                                         Tel.: (404) 869-9200

 2.  Craig L. McKnight                   3414 Peachtree Road, N.E., Suite 1400
                                         Atlanta, GA 30326
                                         Tel.: (404) 869-9200

 3.  John C. Goff                        777 Main Street, Suite 2100
                                         Fort Worth, TX 76102
                                         Tel.: (817) 877-0477

 4.  Gerald W. Haddock                   777 Main Street, Suite 2100
                                         Fort Worth, TX 76102
                                         Tel.: (817) 877-0477
</TABLE>

       (d)    No vote of the Members shall be required to designate Directors.
Rather, Charter Inc. shall have the right to designate two (2) Charter
Directors, and Crescent Operating 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, Charter Inc. or Crescent
Operating, 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;
<PAGE>   28
                                                                              28

              (24)   the decision to renew any Facilities Lease;

              (25)   the decision to renew any Franchise Agreement;

              (26)   the decision to make an initial public offering of any
       interest (debt or equity) in the Company;

              (27)   the Company's decision to exercise its right of purchase
       of an interest during the Second Offer Period in accordance with Section
       12;

              (28)   any amendment of this Agreement or the Certificate; 

              (29)   any capital contribution by any Member other than the
       Additional Capital Contribution;

              (30)   certain tax matters as provided in Sections 6.7 and 9.5; 
       and

              (31)   amending the limited liability operating agreement or
       other organizational documents of any subsidiary of the Company.

Notwithstanding the foregoing or any other provision hereof (i) Charter Inc. 
shall have the approval and other rights relating to the Company's business and
operations specified in Section 15 of the Franchise Agreement in the event that
Charter Inc. 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)    The President and the Treasurer of the Company have proposed an 
annual operating and capital budget for the Company for the Fiscal Year ending
September 30, 1997 (for such Fiscal Year and each subsequent Fiscal Year, the
"ANNUAL BUDGET").  The proposed annual operating and capital budget shall be
deemed approved by the Governing Board upon the execution of this Agreement as
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 prepare or cause to be
prepared a proposed Annual Budget for the Company for the succeeding Fiscal Year
containing the information set forth on Schedule S-3 which shall be submitted to
the Governing Board for consideration and approval within 30 days after the
September 30 immediately preceding such 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)    [Intentionally left blank].

       (b)    Franchise Fees.  Notwithstanding any other provision herein, each
of Crescent Operating and Charter Inc. agrees that if franchise fees due
Franchisor pursuant to the Franchise Agreement are past due for any reason in
the amounts set forth below, the Charter Inc. 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 CHARTER INC./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
                                        Charter Inc. (capital and operating)
                                    3.  Rights to require transfer of 
                                        management and control of the Company
                                        and its subsidiaries to Charter Inc.
</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, Charter Inc. and
Crescent Operating 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.  Charter Inc. 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 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 Crescent Operating, 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 Crescent Operating
pursuant to this clause (iv), Crescent Operating shall provide Charter Inc. with
a written opinion of counsel that such transfer is necessary to avoid
jeopardizing the qualification of CEI as a REIT, subject to Charter Inc.'s right
of first refusal under Section 12.8; provided that Charter Inc. will notify 
Crescent Operating within 15 days after receiving notice from Crescent 
Operating 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 Crescent Operating
(subject to the right of Charter Inc. 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), (i) 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, (ii) in the form of a pledge to Crescent Real
Estate Equities Limited Partnership pursuant to that certain Line of Credit and
Security Agreement, dated as of May 21, 1997, and that certain Amended and
Restated Credit and Security Agreement, as amended, dated as of May 30, 1997, 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
Charter Inc.'s or Crescent Operating'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 
Charter Inc.'s or Crescent Operating'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 Charter Inc. and 
the Chief Executive Officer of Crescent Operating (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 Crescent Operating or Charter Inc. (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,
Crescent Operating and Charter Inc. 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 Charter Inc. and, after the close of the
purchase of Charter Inc.'s Interest by Crescent Operating, the Company fails to
pay to Franchisor all amounts due Franchisor under the Franchise Agreement, 
Crescent Operating acknowledges that Charter Inc. shall have the rights 
granted to Franchisor 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.


                                        CHARTER BEHAVIORAL HEALTH SERVICES, INC.



                                                                                
                                        ---------------------------------------
                                        Name:
                                        Title:



                                        CRESCENT OPERATING, INC.



                                                                                
                                        ---------------------------------------
                                        Name:
                                        Title:


<PAGE>   1
                                                                    EXHIBIT 10.4

   
                           WARRANT PURCHASE AGREEMENT
    



       WARRANT PURCHASE AGREEMENT (this "Agreement"), dated as of June 16, 1997,
between Crescent Operating, Inc., 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 $.01 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 29,
1997, by and between Buyer and Crescent (together with all subsequent
amendments, 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
approximately 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)
22,500,000 shares of Common Stock, of which, as of the date hereof no more than
11,025,547 shares are outstanding and no shares are held in the Company's
treasury, and (ii) 10,000,000 shares of Preferred Stock, par value $.01 per
share, 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, 1,000,000 shares of Common Stock are reserved
for issuance upon exercise of options granted pursuant to the 1997 Crescent
Operating, Inc. Amended Stock Incentive Plan adopted by the Board of Directors
of the Company on May 8, 1997. As of the date hereof, 225,000 shares of Series A
Junior Preferred Stock are reserved for issuance upon exercise of Preferred
Share Purchase Rights pursuant to the Preferred Share Purchase Rights Agreement
adopted by the Board of Directors of the Company on June 3, 1997.

              (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 First Amended and
Restated Certificate of Incorporation or the Company's Amended and Restated
Bylaws, 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,
quoted in the over-the-counter market or 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 dated as of June 16, 1997 between the Company and
the Buyer and that certain Warrant Purchase Agreement dated as of January 29,
1997, as subsequently amended between Crescent and the Buyer (collectively, 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; provided, however, that Buyer may pledge the
Warrants under its Amended and Restated Credit Agreement dated the date hereof
among Buyer, The Chase Manhattan Bank and certain other banking and financial
institutions; 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) (any transfer
pursuant to this Section 5.5(b), an "Excluded Transfer").

              (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.

              "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                  Name:  Linton C. Newlin      
                                            Title: Vice President and Secretary



                                        CRESCENT OPERATING, INC.



Address:
777 Main Street                         By: 
Fort Worth, Texas 76102                     -----------------------------------
Fax: (817) 878-0429                         Name:  Jeffrey L. Stevens
                                            Title: Chief Financial Officer, 
                                                   Treasurer and Secretary
 





                                      -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]              June 17, 1998               3,305               June 17, 2001
                   
      [2]              June 17, 1999               6,865               June 17, 2002
                   
      [3]              June 17, 2000              10,679               June 17, 2003
                   
      [4]              June 17, 2001              14,803               June 17, 2004
                   
      [5]              June 17, 2003              19,239               June 17, 2005
                   
      [6]              June 17, 2003              23,985               June 17, 2006
                   
      [7]              June 17, 2004              29,042               June 17, 2007
                   
      [8]              June 17, 2005              34,494               June 17, 2008
                   
      [9]              June 17, 2006              40,314               June 17, 2009
                   
      [10]             June 17, 2007              46,557               June 17, 2009
                   
      [11]             June 17, 2008              53,225               June 17, 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 requested that the Lender extend a credit
facility (the "Loan") in the original maximum aggregate principal amount of 
$30,400,000 for the purpose of permitting the Borrower to make certain
investments identified 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 increase the maximum aggregate principal amount of
the Loan to $35,900,000 and to modify certain of the terms and provisions
thereof;
    

   
         WHEREAS, the Lender is willing to extend and modify 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:





                                      -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 amended and restated promissory note of the Borrower 
payable to the order of the Lender under the terms of this Agreement dated as
of May 21, 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 Five 
Million Nine Hundred Thousand Dollars ($35,900,000.00), 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 Five Million Nine Hundred Thousand
                 Dollars ($35,900,000.00) (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.
    

SECTION 4.11   Release of Collateral

        In the event that the Borrower desires to have any Collateral released
in connection with the sale, assignment, transfer or other conveyance of such
Collateral (including the release of any promissory note in connection with the
repayment thereof), the Borrower shall obtain the prior written consent of the
Lender to the release of such Collateral and the repayment of the portion of
the Loan which is allocable to such Collateral, which consent (of both the
release and the amount to be repaid) may be withheld in the Lender's sole and
absolute discretion. Any request by the Borrower for release of Collateral
shall be in writing and shall state that portion of the Loan which is allocable
to such Collateral. Provided that the Lender consents to any such release, the
Lender agrees to release such Collateral promptly following receipt by the
Lender of the allocable portion of the Loan attributable to such Collateral. 







                                      -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>   1
                                                                

                        
          
                                                             EXHIBIT 10.6
                                 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 $20,400,000
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;

         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 21, 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 June 22, 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 Four Hundred Thousand Dollars 
          ($20,400,000.00) (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.






                                      -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
          June 15, 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 Limited, 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.
    

SECTION 4.11     Release of Collateral.

         In the event that the Borrower desires to have any Collateral released
in connection with the sale, assignment, transfer or other conveyance of such
Collateral (including the release of any promissory note in connection with the
repayment thereof), the Borrower shall obtain the prior written consent of the
Lender to the release of such Collateral and the repayment of the portion of
the Loan which is allocable to such Collateral, which consent (of both the
release and the amount to be repaid) may be withheld in the Lender's sole and
absolute discretion. Any request by the Borrower for release of Collateral
shall be in writing and shall state that portion of the Loan which is allocable
to such Collateral. Provided that the Lender consents to any such release, the
Lender agrees to release such Collateral promptly following receipt by the
Lender of the allocable portion of the Loan attributable to such Collateral.

                                  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


$20,400,000.00


         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 Twenty Million Four
Hundred Thousand and No/100 Dollars ($20,400,000.00), 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 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

COUNTY OF FULTON

STATE OF GEORGIA                                                  August 1, 1997

                                PROMISSORY NOTE

        FOR VALUE RECEIVED, CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC, formed
under the laws of the State of Delaware (the "Maker"), promises to pay to the
order of CRESCENT OPERATING, INC., a Delaware corporation (the "Payee"); at the
office of Payee in Forth Worth, Texas, or at such other place as payee may from
time to time designate in writing, in legal tender of the United States of
America, the principal sum of ten million dollars ($10,000,000.00), together
with interest on the principal balance hereof at the rate hereinafter provided,
in accordance with the terms and conditions hereof. Maker acknowledges that it
is receiving consideration for this Note by the loan from Payee or Payee's
affiliates to Maker of ten million dollars ($10,000,000.00) pursuant to a
Member Commitment under the Amended and Restated Operating Agreement of Maker
dated as of June 16, 1997, between Payee and Charter Behavioral Health 
Systems, Inc.

        1.      Principal and Interest. Commencing on the date hereof and
continuing until repayment of the sums due hereunder in full, the principal
amount due hereunder shall bear interest at a rate equal to ten percent (10%)
per annum. Interest on the principal balance of this Note shall be due and
payable monthly, commencing on the first day of the calendar month succeeding
the date hereof and continuing on the first day of each succeeding calendar
month thereafter, and shall be computed on the basis of a 360-day year for the
actual number of days elapsed. Unless sooner accelerated in accordance with
the terms of this Note, the entire principal amount due hereunder, together
with all accrued but unpaid interest thereon, shall be due and payable in full
on the date that is five (5) years from the date hereof.

        2.      Maximum Lawful Rate. This Note is hereby expressly limited so
that in no contingency or event whatsoever, whether by acceleration of maturity
of the indebtedness evidenced hereby or otherwise, shall the amount paid or
agreed to be paid to Payee for the use, forbearance or detention of money
exceed the highest lawful rate permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision occurs, shall involve payment of interest in
excess of that authorized by law, the obligation to be fulfilled shall be
reduced to the limits so authorized by law, and if, from any circumstances,
Payee shall ever receive as interest an amount which would exceed the highest
lawful rate applicable to Maker, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance hereof and
not to the 

<PAGE>   2
payment of interest.

        3.      Method of Making Payments; Renewal of Obligations. All payments
with respect to principal and interest hereunder shall be made by wire transfer
of immediately available funds to such account as Payee has designated in
writing to Maker. Maker hereby expressly agrees that to the extent that Maker
makes a payment or payments on this Note and such payment or payments, or any
part thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside or are required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or national law, common law or
equitable cause, then to the extent of such payment or repayment, the
indebtedness evidenced hereby which is intended to be satisfied by such payment
or payments shall be revived and continued in full force and effect as if said
payment or payments had not been made.

        4.      Events of Default. The occurrence of any one or more of the
following conditions or events shall constitute an "Event of Default":

                (a)  Failure to Pay. Maker fails to pay any payment of
        principal or interest when due and payable or declared due and payable
        in accordance with the terms of this Note and such failure shall 
        continue for five (5) business days; or

                (b)  Bankruptcy. (i) Maker shall commence proceedings seeking
        either its own bankruptcy or to be granted a suspension of payments or
        any other proceeding under any bankruptcy, reorganization, arrangement,
        adjustment of debt, relief of debtors, dissolution, insolvency or
        liquidation or similar law of any jurisdiction, whether now or hereafter
        in effect; (ii) any proceeding described in clause (i) of this
        subsection 4(b) is commenced or applied to be commenced against Maker,
        which proceeding remains undismissed for a period of sixty (60) days or
        is dismissed on the ground of lack of funds sufficient to cover the
        costs of such proceedings; (iii) a custodian, trustee, administrator or
        similar official is appointed under any applicable law described in
        clause (i) of this subsection 4(b) with respect to Maker, or such
        custodian, trustee, administrator or similar official takes charge of
        all or any substantial part of the property of Maker; (iv) an
        adjudication is made that Maker is insolvent or bankrupt; (v) any order
        of relief or other order is entered approving any case or proceeding
        described in clause (ii) of this subsection 4(b); (vi) Maker makes a
        general assignment for the benefit of its creditors; or (vii) Maker
        takes any corporate or similar action for the purpose of effecting any
        of the actions, orders or events described in the foregoing clauses of
        this subsection 4(b).


                                     - 2 -
<PAGE>   3
        5.  Remedies.  Upon the occurrence of an Event of Default, at the
option of Payee, all amounts payable by Maker to Payee under the terms of the
Note shall immediately become due and payable by Maker to Payee, and Payee
shall have all the rights, powers and remedies available under the terms of
this Note, under applicable law or otherwise. Notwithstanding the foregoing,
upon the occurrence of any Event of Default described in Section 4(b) above,
the amounts hereunder shall become automatically due and payable without
presentment, protest or demand of any kind.

        6.  Costs of Collection.  Maker agrees to pay all costs and expenses of
collection, including reasonable attorneys' fees and expenses arising in
connection with any enforcement action by Payee in which it shall prevail on
any of its rights under this Note whether by or through an attorney-at-law or
in an action in bankruptcy, insolvency or other judicial proceedings.

        7.  Waivers; Amendment.  No delay or failure on the part of Payee to
exercise any right or remedy accruing to Payee hereunder, upon any default or
breach by Maker of any term or provision hereof, shall be held to be an
abandonment thereof. No delay on the part of Payee in exercising any of its
rights or remedies shall preclude Payee from the exercise thereof at any time
during the continuance of any default or breach. No waiver of a single default
or breach shall be deemed a waiver of any subsequent default or breach. Payee
may enforce any one or more remedies hereunder successively or concurrently, at
its option. All waivers under this Note must be in writing signed by the Party
entitled to enforce the right waived. All amendments to this Note must be in
writing and signed by both the Maker and the Payee.

                Maker, its successors and assigns, and all other persons liable
for the payament of this Note, waive presentment for payment, demand, protest
and notice of demand, dishonor, protest and nonpayment, and consent to any and
all renewals, extensions or modifications that might be made by Payee and Maker
as to the time of payment of this Note from time to time.

        8.  Severability.  The invalidity or unenforceability of any provision
hereof in any jurisdiction will not affect the validity or enforceability of
the remainder hereof in that jurisdiction or the validity or enforceability of
this Note, including that provision, in any other jurisdiction. To the extent
permitted by applicable law, each party hereto waives any provision of
applicable law that renders any provision hereof prohibited or unenforceable in
any respect. If any provision of this Note is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties hereto to the extent possible.


                                      -3-
<PAGE>   4
        9.      Notices. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
personally delivered, upon the date originally received if delivered by
telecopy transmission followed by registered or certified mail confirmation,
one (1) business day following deposit with an overnight delivery service or
three (3) business days following deposit in the mail, registered or certified
mail, postage prepaid as follows:

        To Maker:

                Charter Behavioral Health Systems, LLC
                3414 Peachtree Road, NE, Suite 900
                Atlanta, Georgia 30326
                Attention: Steve Love, Senior Vice President & CFO
                Telecopy: 404/814-2706

        with a copy to:

                Charter Behavioral Health Systems, LLC
                3414 Peachtree Road, NE, Suite 900
                Atlanta, Georgia 30326
                Attention: Mark Ford, Vice President, General Counsel & 
                           Secretary
                Telecopy: 404/814-5795

        To Payee:

                Crescent Operating, Inc.
                777 Main Street, Suite 2100
                Fort Worth, Texas 76102
                Attention: Jeffrey L. Stevens, CFO & Secretary
                Telecopy: 817/878-0429

        with a copy to:

                Crescent Operating, Inc.
                777 Main Street, Suite 2100
                Fort Worth, Texas 76102
                Attention: General Counsel
                Telecopy: 817/878-0429

        10.     Captions. The captions herein set forth are for convenience
only and should not be deemed to define, limit or describe the scope or intent
of this Note.




                                      -4-


<PAGE>   5
        11.     Successors; Assignment. The terms and provisions of this Note
shall be binding upon and inure to the benefit of the successors and assigns of
the Maker and the successors and registered assigns of the Payee. This Note may
not be transferred or assigned by the Payee except for (a) a pledge to a bona
fide financial institution, which, immediately prior to the creation of such
pledge, is not an affiliate of Payee, to secure bona fide arms' length recourse
indebtedness of Payee and/or its subsidiaries or (b) a pledge to Crescent Real
Estate Equities Limited Partnership pursuant to that certain Line of Credit and
Security Agreement, dated as of May 21, 1997, and that certain Amended and
Restated Credit and Security Agreement, as amended, dated as of May 30, 1997.
Any purported transfer in violation of the foregoing provision shall be null
and void and of no force and effect whatsoever.

        12.     Governing Law; Submission to Jurisdiction.

                (a)     This Note shall be deemed to be made in and in any and
        all respects be governed by, and construed in accordance with, the laws
        of the State of Delaware (without regard to principles of conflict of
        laws).

                (b)     If any action is brought to enforce or interpret this
        Note, exclusive venue for such action shall be in the State of Delaware
        or the United States of America for the District of Delaware, and the
        parties hereto irrevocable and unconditionally submit to the
        jurisdiction of the state and federal courts located in the State of
        Delaware for such purpose.

        13.     Computation of Time. Whenever the last day for the exercise of
any privilege or the discharge of any duty under this Note shall fall on a day
other than a business day, the party having such privilege or duty shall have
until 5:00 p.m. (Eastern Standard Time) on the next succeeding business day to
exercise such privilege or to discharge such duty. For purposes of this Note,
the term "business day" shall mean any day other than a day which is a Saturday
or Sunday or other day on which commercial banks in the State of Georgia are
authorized or required to remain closed.

        IN WITNESS WHEREOF, Maker has caused this Note to be executed by its
duly authorized officer under its corporate seal as of the date first above
written. 
                                         CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC



                                        By:     /s/ W. STEPHEN LOVE
                                           -------------------------------------
                                        Name: W. Stephen Love
                                        Title: Senior Vice President & CFO




                                     - 5 -

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               JUN-30-1997
<CASH>                                       1,207,307
<SECURITIES>                                30,438,444
<RECEIVABLES>                                1,326,679
<ALLOWANCES>                                         0
<INVENTORY>                                  1,862,406
<CURRENT-ASSETS>                            34,834,836
<PP&E>                                       2,358,513
<DEPRECIATION>                                 (3,518)
<TOTAL-ASSETS>                              37,189,831
<CURRENT-LIABILITIES>                        2,068,308
<BONDS>                                     25,905,000
                                0
                                          0
<COMMON>                                       110,255
<OTHER-SE>                                   9,106,268
<TOTAL-LIABILITY-AND-EQUITY>                37,189,831
<SALES>                                      1,707,580
<TOTAL-REVENUES>                             1,707,580
<CGS>                                          989,555
<TOTAL-COSTS>                                1,424,882
<OTHER-EXPENSES>                               235,851
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             308,825
<INCOME-PRETAX>                              (261,978)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                          (261,978)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 (261,978)
<EPS-PRIMARY>                                    (.02)
<EPS-DILUTED>                                    (.02)
        

</TABLE>


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